Gettin down payment from 401K - update on how it all turned out!

[Antonia]

Well, we had lived in the same house for 26 years. Decided to buy a new house, ended up getting the down payment from DH's 401k since we had not saved up a down payment because we had not intended on moving. Some people had advised against doing this, but we took the plunge intending to pay it back as soon as out old house sold.

We bought the new house for $15,000 less than it's appraised value. Before we could even list our old house for sale, someone who had heard we were moving wanted to look at it and now he is buying it! Because we did not list with a realtor, we were able to lower the price and he is also making any needed cosmetic repairs to our old house instead of us having to do it. So without ever putting it on the market, we are selling our old house less than 9 weeks after moving out!!! We close March 26.

Just wanted to share our happy ending to our house buying/selling adventure!!!

 

[Antonia]

So after we pay back the 401K loan, we are unsure if we should pay down our mortgage or put the money in savings. We have no dependants, so mortgage iinterest is the only thing we really have to claim on taxes. Something to think about because I really want to do the right thing with the money from the sale of our old house.

 

[marlynnp]

I don't know how much you are talking about. You'd probably be better off paying down the mortgage, especially if it is a significant amount, and start taking the standard deduction instead of itemizing. [keep a few months worth of expenses in savings]

 

[minkydog]

So after we pay back the 401K loan, we are unsure if we should pay down our mortgage or put the money in savings. We have no dependants, so mortgage iinterest is the only thing we really have to claim on taxes. Something to think about because I really want to do the right thing with the money from the sale of our old house.

Sounds like you need a financial planner. Nobody here knows your tax situation and what works for some, might not be best for you.

 

[manning]

Pay down the mortgage.

Say you are in the 25% tax bracket. Why do you want to pay $1.00 in interest and get back only 25 cents???

 

[golfgal]

What is the interest rate on the mortgage, what is the gain on your other investments?

 

[Laugh O. Grams]

Sounds like you need a financial planner. Nobody here knows your tax situation and what works for some, might not be best for you.

Excellent advice. Because there are a couple schools of thought on this question, all perfectly relevant, these matters are better handled by someone who understands your personal financial situation completely.

 

[Carly_Roach]

Wonderful to hear that it all worked out! I'm so happy for you!

As for the tax advice, do you really want to take advice from a bulletin board that told you not to take from your 401k to chase your dream in the first place? Consult a tax accountant.

Thanks for letting us know how it all worked out! Enjoy your new home!

 

[MarkBarbieri]

Glad to hear that it worked out well for you.

Before paying down your mortgage, make sure that your financial fundamentals are in good shape. You should have a comfortably large and liquid emergency fund (usually 6 months of expenses). You should be saving an adequate amount for retirement. You should have sufficient life and disability insurance on you are your spouse. You should also be saving sufficiently for future big ticket item purchases (cars, college, vacations) that you intend to make.

Once you've gotten those fundamentals out of the way, paying or not paying down the house becomes a question of preference and financial rate of return. Theoretically, the choice of paying down the house should be based on whether the risk weighted after tax return on your alternate investment is more or less than the after tax interest costs on the mortgage. I have found that most people prefer to pay down or pay off their house even when it isn't strictly the better financial option because there are emotional benefits to paying off a house. In other words, do what makes you feel better.

Just don't pay down the house if that leaves you vulnerable due to a lack of liquidity or insurance.