401K withdrawl to pay down/off mortgage?

[tvguy]

Nco is enlisted. They probably were a e-8 or e-9 when they retired since they had a lot of years in. In there later years they were making some decent money.

I did not have to serve because of their service, and that of my dad, so I thank them. But I know what a mess the VA is. Found all the angry letters between my dad and the VA when he DID try and get a mortgage. They said he did not qualify, even though he had the cash on hand to pay cash for a house, which he ended up doing.

 

[Mkhrun]

I would say no. Take a look at the penalties that would be included (typically 10%) and you already are losing a lot of money. Some can be used for qualified higher education, but I'm not super familiar with that.
To me that money was meant for retirement and should be kept that way. I'd find other ways to increase earnings and cut expenses to throw money at the mortgage and school as needed.

With the school I will say there isn't much that shows that a private school is going to be much more beneficial that a less expensive state school and looking back, anything I could have done to avoid loans and saved more money for school I would have. Imagine zero debt and a big chunk of money when you graduate. Use that to invest in a business or buy a duplex and house hack. It's a great way to start life focused on finances.

 

[dclpluto]

I would say no. Take a look at the penalties that would be included (typically 10%) and you already are losing a lot of money. Some can be used for qualified higher education, but I'm not super familiar with that.
To me that money was meant for retirement and should be kept that way. I'd find other ways to increase earnings and cut expenses to throw money at the mortgage and school as needed.

With the school I will say there isn't much that shows that a private school is going to be much more beneficial that a less expensive state school and looking back, anything I could have done to avoid loans and saved more money for school I would have. Imagine zero debt and a big chunk of money when you graduate. Use that to invest in a business or buy a duplex and house hack. It's a great way to start life focused on finances.

Op said they won’t take it until 59 and a half if they do. So no penalty. Do agree they shouldn’t touch their 401k.

 

[_19disnA]

After age 59 1/2, you can withdraw the money from a 401K without that 10% penalty, but you still pay taxes on it. How you choose to use it should be based on your personal financial situation and what other funds/pension/etc. you have available.

 

[mrodgers]

401ks and IRAs are money to be used for retirement. Period. So no. But I would certainly look at other ways to pay off the mortgage. I can't imagine being 58 and still having a mortgage.

I will probably be older than 58 when I start my mortgage...

 

[tvguy]

I will probably be older than 58 when I start my mortgage...

 

[StitchesGr8Fan]

Let’s say the APR on your house is 5% and your average rate of return is 8%. Are you willing to give up 3% growth every year to have peace of mind that you are almost debt free?

 

[barkley]

Let’s say the APR on your house is 5% and your average rate of return is 8%. Are you willing to give up 3% growth every year to have peace of mind that you are almost debt free?

i have to say that the peace of mind we got from paying ours off is priceless. that said, consideration to how much the pay off is vs. loss of potential interest earning is a consideration.

 

[StitchesGr8Fan]

i have to say that the peace of mind we got from paying ours off is priceless. that said, consideration to how much the pay off is vs. loss of potential interest earning is a consideration.

But here’s the thing, if the money is invested wisely and diversely it will be there if you NEED to pay off the house in the future. If you go debt free now and NEED that money for something else later you can’t get it back.

 

[TwoMisfits]

One thing we are assuming is the mortgage rate and the impossibility of the rate increasing for the OP.

It's one thing to take out money to pay off a 3.5% loan on a 15 year fixed rate mortgage.

It's another thing to take out money to pay off a 7% loan on a 30 year floating rate mortgage.

And this ignores if PMI is being paid b/c Op is still early in the mortgage.

Not knowing the Op's mortgage rate, PMI (if paying), term, and type of mortgage, we can't give the best advice, although the normal advice of "don't take retirement out for non-retirement needs" still stands for the "normal" situation...

 

[RamblingMad]

Go talk to a professional adviser who can assess your whole economic situation.

 

[tvguy]

But here’s the thing, if the money is invested wisely and diversely it will be there if you NEED to pay off the house in the future. If you go debt free now and NEED that money for something else later you can’t get it back.

Of course you can get the money back. You just get a mortgage again. My house was paid off 5 years before our oldest hit college. The plan was to have the equity in the home as backup for our kids college education. Fortunately, our savings for their college, and the money each month we weren't paying for the mortgage, covered the total college bill.

 

[tvguy]

i have to say that the peace of mind we got from paying ours off is priceless. that said, consideration to how much the pay off is vs. loss of potential interest earning is a consideration.

I lost my job 4 months after my oldest started college, and yes the peace of mind of not having a mortgage was priceless. Fortunately, my unemployment only lasted 4 days.

 

[4kids4karen]

One thing we are assuming is the mortgage rate and the impossibility of the rate increasing for the OP.

It's one thing to take out money to pay off a 3.5% loan on a 15 year fixed rate mortgage.

It's another thing to take out money to pay off a 7% loan on a 30 year floating rate mortgage.

And this ignores if PMI is being paid b/c Op is still early in the mortgage.

Not knowing the Op's mortgage rate, PMI (if paying), term, and type of mortgage, we can't give the best advice, although the normal advice of "don't take retirement out for non-retirement needs" still stands for the "normal" situation...

I've decided not to use it for the mortgage since it won't pay it off fully anyways but it is a 30-year VA loan. As far as I know all VA loans are fixed rates. But just a note that VA loans do not have PMI. I never heard of PMI until maybe last year on this forum? Edit to say google search says some VA loans are adjustable loans, but we didn't go that route.

 

[barkley]

But here’s the thing, if the money is invested wisely and diversely it will be there if you NEED to pay off the house in the future. If you go debt free now and NEED that money for something else later you can’t get it back.

that's why we didn't do it until we had enough in accessible/no penalty for withdraw savings in addition to the payoff amount. that way we still had monies in case we needed them. in the time since we've paid ourselves our previous mortgage payment (into savings) and i find it fascinating to see how much faster those savings increase in value with each months 'payment' vs. how little it seemed to decrease the mortgage payoff balance each month.

 

[floridafam]

Where does your son want to go to school? I have two children at private colleges in Florida and both of them say they never would have gone that route if it weren’t for multiple scholarships and grants. USF and UF are both good schools.

 

[barkley]

Of course you can get the money back. You just get a mortgage again. My house was paid off 5 years before our oldest hit college. The plan was to have the equity in the home as backup for our kids college education. Fortunately, our savings for their college, and the money each month we weren't paying for the mortgage, covered the total college bill.

that's assuming your home's value is greater than what you paid off. in the case of the last home we sold-within months of our sale the home value plummeted such that even now (13 years later) the value is less than the selling price we received. granted, we sold right before the housing bubble burst BUT no matter what the housing market is-a home is only worth what someone will pay for it.

you can buy a home for x amount of dollars and through whatever means pay it off BUT THE BUYER MARKET DETERMINES THE VALUE-SO IF 'THEY' DECIDE YOUR HOME IS ONLY WORTH 1/10TH OF WHAT YOU BOUGHT IT FOR-YOU WILL NEVER GET A MORTGAGE TO 'GET YOUR MONEY BACK'.

real estate values go up and down-it's based on what the market will pay. it's great to think that your home will increase in value but market trends ebb and flow so no one should consider their home as a savings mechanism.

 

[RamblingMad]

that's assuming your home's value is greater than what you paid off. in the case of the last home we sold-within months of our sale the home value plummeted such that even now (13 years later) the value is less than the selling price we received. granted, we sold right before the housing bubble burst BUT no matter what the housing market is-a home is only worth what someone will pay for it.

you can buy a home for x amount of dollars and through whatever means pay it off BUT THE BUYER MARKET DETERMINES THE VALUE-SO IF 'THEY' DECIDE YOUR HOME IS ONLY WORTH 1/10TH OF WHAT YOU BOUGHT IT FOR-YOU WILL NEVER GET A MORTGAGE TO 'GET YOUR MONEY BACK'.

real estate values go up and down-it's based on what the market will pay. it's great to think that your home will increase in value but market trends ebb and flow so no one should consider their home as a savings mechanism.

The same is true for equities. The difference is liquidity. You can sell equities and settle cash far faster than real estate. Check out the chart on slide 4 on the crazy equity market movements over time.

https://am.jpmorgan.com/us/en/asset-management/gim/adv/insights/guide-to-the-markets/viewer

Shiller has a lot of data on housing over time.

http://www.econ.yale.edu/~shiller/data.htm

And you can find easy to review graphs over at FRED.

https://fred.stlouisfed.org/series/SPCS20RSA/

 

[barkley]

The same is true for equities. The difference is liquidity. You can sell equities and settle cash far faster than real estate. Check out the chart on slide 4 on the crazy equity market movements over time.

https://am.jpmorgan.com/us/en/asset-management/gim/adv/insights/guide-to-the-markets/viewer

Shiller has a lot of data on housing over time.

http://www.econ.yale.edu/~shiller/data.htm

And you can find easy to review graphs over at FRED.

https://fred.stlouisfed.org/series/SPCS20RSA/

i think it's going to be very interesting to watch trends with home ownership in light of reason tax changes.

things were VERY different prior to 1986 when home equity loans exploded in popularity b/c the then new tax reform laws had just eliminated the ability to write off consumer debt interest so helo's became the way to do it. i don't know what refi numbers were like prior to that but i don't think it was nearly as common for people to consider their home as a 'cash machine' that they could pull from to meet their wants/needs. i mean-you would know of someone who had been hit with some kind of MAJOR financial problem who would exhaust every other option and finally succumb to taking out a second mortgage on their home but it was something people REALLY hesitated to do and there was a stigma attached to it. coming up with the name 'home equity line of credit' seemed to make it easier for consumers to buy into, like 'oh, it's just another line of credit like my store cards' (they KNEW their house was the security behind the loan but the money lenders really pushed that they truly had tens if not hundreds of thousands of dollars literally sitting untapped in their homes-not educating people that what they seemingly had one day in equity was just seemingly-not what they absolutely did have or could get and could evaporate with an adverse turn in the market).

with the changes in the tax law on deductability of helo interest will consumers turn back to amassing massive credit card debt? in that case the more recent bankruptcy law changes may come into play resulting in increased home losses which in turn will create havoc with home values.

 

[QueenIsabella]

that's assuming your home's value is greater than what you paid off. in the case of the last home we sold-within months of our sale the home value plummeted such that even now (13 years later) the value is less than the selling price we received. granted, we sold right before the housing bubble burst BUT no matter what the housing market is-a home is only worth what someone will pay for it.

you can buy a home for x amount of dollars and through whatever means pay it off BUT THE BUYER MARKET DETERMINES THE VALUE-SO IF 'THEY' DECIDE YOUR HOME IS ONLY WORTH 1/10TH OF WHAT YOU BOUGHT IT FOR-YOU WILL NEVER GET A MORTGAGE TO 'GET YOUR MONEY BACK'.

real estate values go up and down-it's based on what the market will pay. it's great to think that your home will increase in value but market trends ebb and flow so no one should consider their home as a savings mechanism.

The other thing is, you may not be able to get another mortgage on the house so easily. If you need money due to a job loss, good luck with that. If you're retired, you'd have to show some kind of income in order to get a new mortgage. It would probably be okay if you got a HELOC while things were good, to potentially use in the future.

I don't think having a mortgage at 58 is anything problematic. Even dying at a ripe old age and having a mortgage doesn't mean the person was fiscally irresponsible. They might have had other plans for the money, such as investing it for a higher rate of return than the mortgage was for. Personally, I like the idea of retiring mortgage-free, one less thing to worry about. But, not doing so doesn't automatically make someone foolish.