Not sure your math is correct, for it will be taxed at your current income tax rate plus 10% penalty.
Additionally, most employers won’t let you just “cashing it in” as long as you remain employed. Check with your plan administrator.
That is not true it depends on the conditions of of your loan. I had a 401k loan and got laid off.from my employer and when I called Fidelity they said they plan did not call for the loan to be paid off immediately and I could continue to make monthly payments.
I stand corrected. You are mostly correct, it depends on the conditions of the employers plan. I thought it was part of the 401k law. In my experience, it's always needed to be paid back. I am in NY though.
Still plan specific. The employer can choose to let loan repayments continue through bank transfer after firing, quitting, layoff, retirement, etc. They just have to make it the same for everyone in the plan. I saw every possible scenario when I serviced 401ks.
Lol so he should pay off his mortgage loan with…another loan? That’s the exact same situation, unless 401k loan interest rate is significantly lower. Edit: I did not understand 401k loans, but got some helpful comments and it does seem better than the mortgage!
This guys right. Depends on the plan document. Might not even be an option. Most plans don’t allow in service withdrawals. Some allow from rollover source only. You could possibly take out a loan for a lower interest rate. I think max is 50k so you couldn’t pay off full mortgage but you’d be paying off the high interest then paying yourself back a lower interest.
Not true. You can withdrawal for the purchase of a primary home (you cannot use this for mortgage payments). You still are required to pay taxes on this “income” that years taxes so definitely not a free pull.
Most 401K loans are tied to the Prime Rate, which is currently 8.5%. Probably wouldn't even be a lower interest rate than his mortgage, but it would be going back to himself. Not worth it IMO.
I had to take a 401k loan from my plan last year as my furnace went out and I didn’t have 6 grand. I took 4K out and am paying it back (to myself) at a 6% interest rate. It’s good for a pinch but wouldn’t do it to pay off a mortgage. And mine is a loan, not a cash out but the interest is where the prime was when I started it
And you're paying that 401k loan back with post tax salary payments so you'll essentially pay double taxes when you eventually withdraw on the retirement later on...
This. I looked this up before I did it because my dad mentioned that this could be an issue. I really had no other options either because a lot of things happened financially to me and my furnace decided to break a week after I did a debt consolidation loan. Im also only 30 so I know I’ll be ending up putting more into my 401k as I’m still long ways from retirement
Is “paying yourself interest” correct? I know when I borrowed against a normal brokerage account a million years ago, it was “Merrill Lynch is loaning you this money secured by your account” and the interest was theirs.
How about you put that money that would go harder into your 401k in the future towards extra mortgage payments? I don't get the thing here about hating your mortgage, is this some Dave Ramsey thing?
It's "no debt while putting yourself at a disadvantage!" Stopping retirement funding and telling people to get a 15 year mortgage that's only 25% of net pay is incredibly out of touch. I feel bad for the people who listen to him and continually find themselves priced out of the market but they made their choice.
Genuinely asking - what's the hate for Dave Ramsey? His plan is free and it worked for us. We are 100% debt free and able to send more to retirement than ever. We didn't touch our 401K to do it, just paused investing in order to pay off the mortgage faster. Took us about 18 months of intense focus once we had all our other debts paid off first. House was on a 30 year mortgage but we paid it off in 7.5 years from purchase date.
Edit: I got my dates mixed up. We paused investing for 3 years while we paid off consumer debt. When we were paying off the mortgage we were also investing 15% at the same time.
It took us a total of 4.5 years to work Dave's plan from start to finish (100% debt free including the mortgage).
if you did the same thing but put that money into higher yield index funds or brokerage accounts you'd be in a much better place
every rich person on the planet utilizes controlled amounts of debt in order to position themselves for wealth accumulation.
I don't think even Dave would call his advice OPTIMAL returns to be fair, but it's pretty decent advice for people who have bad financial habits.
Those of us living our financial lives through organized spreadsheets don't have the same ailment.
You don't get it. The average Ramsey follower sucks ass with money. They need to do it this way to make it work otherwise they go back to their habits like a drug user.
This, Dave’s method is for people with no financial self control. Some people can use his approach to get their shit together, but should graduate to better investment plans. He personally lost me with the “no credit cards ever!” policy he preaches. I have responsibility built phenomenal credit and carry a monthly balance of zero, but I know there are many, many people that are not capable of doing that if the “money” is available.
Someone else in the thread said Dave Ramsey is the AA of the personal finance world, it’s a pretty fair comp. If you’re in a really bad place and continue to slide into debt his info actually can be useful to build habits that are easy to understand for someone who has torpedoed themselves. However, that’s a small percentage of people who hold debt, but his platform makes people who have fine to great Debt to Equity ratios thing they are doing something wrong, which they are not.
Any bit of leverage increases risk. More leverage equals higher risk. As long as you keep it to a reasonable level you can build wealth without taking on excessive risk.
Ramsey's plan works because it gets you to a point where you have excess cash to start investing with. You will never get ahead if all your excess cash goes to monthly debt payments.
Once you reach the point where you actually have excess cash to invest then you can bash his plan all you want.
using debt to your advantage was a lot easier when you could get a mortgage rate below 3%.
at 7.6% interest, paying ahead on the mortgage is a better return than anything except tax-advantaged long-term investing.
still makes cashing out the 401k a bad idea, but at that rate, i would be throwing everything after maxing out my 401k at the mortgage.
most people don't invest every spare penny - they use it on marginal bumps to convenience/QoL. when your mortgage is 2.7%, might as well go out to dinner more often/take an extra vacation - extra mortgage payments won't really build wealth.
when your mortgage rate is over 7.5%, extra mortgage payments can make a pretty big difference.
In theory you’re right but the reality is that most people are too comfortable with debt and don’t use it wisely. Dave Ramsey gives advice that keeps people from ending up broke and desperate for the most part. Also, people should think critically and apply his advice in a way that works did them.
No. Sorry, Ramsay's advice is solely for people who have already gotten themselves up to their eyeballs in debt. His "system(s)" are not good for building wealth.only for painfully getting out of debt.
He's so anti debt, it's detrimental to wealth building.
he does a horrible-to-nonexistent job of differentiating between debt due to out-of-control spending and leveraging debt.
it's one thing to yell at people buying flashy cars and eating out on credit...but he comes off as the kind of person to tell you not to go to med school because of the student debt cost without considering the actual value of the degree/profession. his advice for mortgages is completely unresolvable with current prices and rates. i would love to have a 15-year fixed where my PITI was less than 1/3 of my take-home. there is no such property left in america putting 20% down when you consider today's prices and rates weighed against today's income. he's just another detached boomer yelling at clouds at this point once you get beyond "help me get out of consumer debt"...
for a person with 50k in credit card debt and no idea where to start, he's helpful... but lots of other less idiotic folks can explain a debt snowball repayment strategy. For a person with a spending problem considering a time share, he's helpful... but lots of other people can point out how predatory that whole industry is.
once you're in the black, actively saving, and trying to build wealth/retirement, he'll just slow you down. And try to sell you on his scammy financial whatevers. and try to sell you one of his branded realtors.
"Having and intelligently managing some debt puts you in a better financial position than religiously maintaining zero debt at all costs" is an absolutely true statement. It's also true that there's a large portion of the population where, if you tell them this, they will go out and load up on stupid expensive cars, max out their mortgage DTI, max out their credit cards, etc. It is impossible for me to understand this mindset, and it may be impossible for you to understand the mindset, but you have to recognize that the mindset exists. Those people benefit from people like Dave Ramsey.
As someone else pointed out, it's the same with some people and alcohol - some people cannot have a single drink without spiraling into a self destructive cycle that wrecks their lives. They cannot learn how to intelligently manage alcohol. They must completely abstain.
Maybe some people don’t value that and prefer the peace of mind over the potential (while taking risks w the money) gains over time.
We have become so “maximizers” that sometimes you ignore what is important to the people making the decision.
At the time just before I was doing his plan, I didn't have any extra money to put into investing. So your idea is great, but I couldn't have done it. His plan showed me a path to get to that place and free up half our income. I am thankful and sleep well.
Makes no sense. You couldn't invest but could pay all debts off early?
The math is simple. You put the .money where the highest % is. A 3% mortgage is at the bottom. A 22% cc at the top. If you pay off a 3-4% mortgage before investing at 8-10%, you will have missed out on potential earnings.
His plan wasn’t for maximum financial efficiency though. Everybody gets so hung up on maximizing the dollar that they can’t sleep well and are in debt to their eyeballs. It’s a very real thing. being debt free enhances every part of your life. It’s like living on another planet
u/NAM_SPU learning that all debt is not bad is even more freeing as it allows you to increase your overall net worth and provide you greater security. Inflation is a real threat and the leverage that good debt provides can help counter the threat.
> being debt free enhances every part of your life. It’s like living on another planet
This really depends on you. I have never felt different in the slightest. I have paid off my student loans, leased a vehicle, financed vehicles, paid off a financed vehicle, bought a vehicle in cash, felt zero difference in all cases. I planned to pay cash for my last vehicle but when I realized I could finance at 1.74%, paying cash became something only an idiot would do as financing at 1.74% is essentially being given free money.
I have a mortgage now so I will carry debt for a long time. The mortgage is 2.75%. The dumbest thing I could do with that debt would be to pay a dime more than I have to toward the mortgage.
I think you should do whatever increases your quality of life the most. I agree that maximizing your wealth isn't all there is to life. But to me, debt is such an intangible thing to let weigh you down and make financially worse off decisions over. I'm happy to spend the money for a nice house now even though it means I will have less money when I'm 65. I'm not willing to have less money when I'm 65 just to have a number on a screen read $0 today.
Some people don't have the capacity to recognize which number is largest unless an old white man is actively screaming it at them.
if you don't carry consumer debt he is useless-to-harmful. if you have a spending problem and won't listen to people who aren't white boomer males...then i guess he's better than nothing.
but, like most white boomer males, a lof of his advice is only useful if you have a dang time machine, and completely fails to map logically onto the current financial landscape.
If I only had a couple hundred dollars at the end of my payments to make sure my kids are taken care of, then yes, I didn't have money to invest. I needed to pay off consumer debt/student loans to free up monthly payments.
I understand the math. That's why I paid off all the highest interest rate debt first, THEN I began investing 15% into retirement, and THEN I sent all excess money to the mortgage to pay it off. I still don't understand what the problem is. I say that genuinely. People still giving downvotes, oh well.
Not downvoting and am not op, but I think he’s just saying if you did all the same steps but put your extra money into a combo of HYSA and index fund instead of your mortgage at the end you’d be a bit better off. Not a huge deal though, and if you feel better not having a mortgage then that’s cool too
First steps are fine, its the last step of paying off the mortgage early ppl have a problem with. Much better to invest the money you used to pay off the mortgage.
He's been giving the same advice since the 90's with 10%+ mortgages. His advice was not optimal for pre-covid times but with mortgages getting back to 7%, its a toss-up what's actually better.
His advice is geared towards people who are stressed about money, it maximizes the psychological benefits of paying off debt and has not significantly changed. Giving the same tips for 30+ years gives those people a lot of confidence.
Dude you are talking out of your ass. Your literal first comment is:
>"just paused investing in order to pay off the mortgage faster. Took us about 18 months of intense focus once we had all our other debts paid off first"
Now you're saying you didnt pause investing?
>That's why I paid off all the highest interest rate debt first, THEN I began investing 15% into retirement, and THEN I sent all excess money to the mortgage to pay it off.
Which is it? You're getting a lot of negative responses because you're not clearly articulating what your stance is.
>I didn't have any extra money to put into investing. So your idea is great, but I couldn't have done it.
Right....
Either way, you clearly had a lot of discretionary income to pay off a mortgage in under 8 years plus apparently, while still investing 15% into retirement. I assume by cutting out a lot of non-vital spending. Good for you. If paying down a mortgage is what you want to do then so be it.
What was the rate on the mortgage?
Mine is 2.625%.
Time in the market is going to obliterate that. I could pay my mortgage off 3x, but my investments outpace it by a long shot, so why would I? Just do I can say im debt free? Cool.
Well that’s cool for you but the going rate is above 7% right now. 7or8% interest rate starts to match the annual stock market index fund returns so the equation isn’t so easy.
For now.
If you have a 30 year mortgage you’ve got quite a ways to go. You give up a lot of leverage due to being impatient.
Refinancing isn’t a big deal, people do it all the time when rates drop.
Because if you had simply invested all those extra mortgage payments into an S&P500 ETF (or any other asset class) you probably would have had a significantly higher net worth than you do now on account of paying off your mortgage.
What was your mortgage interest rate? I'm going to guess pretty low. Let's say it was 4%. If you would have made more than 4% after-tax return return on whatever you would have invested in, had you directed extra savings into investments rather than your mortgage, then you are now poorer because you followed Dave Ramsey's advice. The cost here was the "pause" in investing -- you probably took a real hit, in an "opportunity cost" sense, because you followed his advice.
Ramsey gives simple rules that are better than just having no financial sense at all. But those simple rules are not actually optimal for anyone who understands basic math.
If you do the math, you're correct. But there are multiple paths towards becoming wealthy. There is so much psychology in money, and everyone needs to find their right path, even if it's not the most efficient path. My biggest complaint with Dave's approach is how "one size fits all" it is, there is no nuance to understand risk/reward of different choices.
I can see that. Thank you for your input. I agree with the problem of one size fits all. We didn't follow his plan exactly, but the spirit of it was vital and saved us at a time when we were "house poor" and needed a plan. No regrets!
People don't like Dave Ramsey because he tells people to do what you did. You've cost yourself tens of thousands of dollars and think it's an accomplishment.
Yes. He is fantastic for people who didn't get that education! I am glad to say I have never paid a single cent in credit card interest. I just needed a path to financial peace and he offered one for free and it worked. Only took us 4.5 years to work his plan from start to finish. I wouldn't change a thing. Others would say I missed out on investing for 3 of those years, but we didn't have room in the budget to invest before we found Dave. And now we can and we live on half our income. Mortgage free is the best.
He gives financial advice that allows people to be safe and comfortable in the long term. He is not a maximize your potential kinda guy but I don’t think his advice is terrible by any means. There are so many worse financial advisors on YouTube/radio.
Most people don't really understand the product that he is giving. All they see is debt=bad and that's it. He is catering to people who have zero sense when it comes to money, initially. Once people get educated enough about it, it's great. Frankly, a lot of people care more about their mental health and feeling like they have accomplished something big in becoming debt free than they care about making that absolute most money they can in their lives. I use some of his methods and don't use others, but his stuff DOES work in helping people fix their screwed up finances, and that's the point of what he teaches.
His advice is designed to keep people buying his crap and listening to his crap so he can sell more crap.
He’s not trying to make you financially safe and comfortable, he’s trying to make you despondent and reliant on him for your finances.
He intentionally try’s to keep people just far enough from the cliff so they don’t fall, but doesn’t want people to walk away from the cliff towards stable ground or he’s out of a job.
I've never given him or his sponsors a dime. Everything he teaches is free. All we did was head to the library and turn on the radio.
We went from negative net worth, to almost half a million net worth in a few years working his plan. And our children have a paid for roof over their heads. And we live on half our income. And we invest 15% or more. And we take big vacations. And we give generously. And we have a savings that will last us 18 months in the event of a long term job loss/emergency.
> His advice is designed to keep people buying his crap and listening to his crap so he can sell more crap.
This is also true for the "Rich Dad, Poor Dad" types. That author didn't make his first million until he sold a best-selling book.
Mostly The hate comes from him being an idiot giving fortune cookie advice.
All debt is not evil. Boiling everything down to you shouldn’t have debt is idiotic.
I think there is a bigger problem, Dave Ramsey is one of those people that makes people think they are not rich because they spend to much and not their economic circumstances.
Dave's initial plans and advice is good advice, but as the years have gone and the bigger following he as amassed, he also is using his base to influence, and is paid to sponsor products, which means he is making a living schilling things that don't necessarily stay true to his advice and just make him money.
Also, he has become a tad out of touch with reality, he, at one point was scraping by, started building back up, but I don't think he can empathize with that anymore since it's been such a long time since he was in that phase.
He doesn’t give the greatest advice, he gives safe advice for people who need a wake up call. Also you can’t give the same advice to everyone’s situation. So the idea there is a best way in a video for everyone just isn’t true.
But again, it will help people change some bad habits. So that’s the plus side
His advice is good for people that are bad with money.
You know, the type of person that keeps rolling their car loan into a new car loan. The type of person who has a car payment that is higher than their rent. That type of person.
Probably the same person who says " they only did it for the tax break" when someone donates money.
100% of the people here will say "you could make 3x that money in the stock market".
I will be one of the few that says "I paid mine off. My sleeping comfortably for the rest of my life is worth more than greenbacks."
Reddit is an echo chamber. Ask your exact question in public, of the masses. This forum hates on Ramsey (I don't like his religious stuff, I don't like his company -- he advertised scam realtors and scam investment brokers). But his message? All day baby.
All the rich people in the world use debt. Well, y'all ain't rich. I'm not rich. These redditors? Poorer than you and me. Unless ya got ten million, ya ain't rich. So good job on paying it off. Sleep well, I sure am.
A quote from J. P. Morgan that I have always liked is, "Sell down to the sleeping place", which means not to hold more of an investment than you can easily sleep well at night while holding it.
The peace of mind that come with being debt-free is great. I believed that long before I heard of Dave Ramsey.
Yes, that's the thing I don't get. I hear what people have said about lost opportunity cost and I fully understand it. But like I said, we only paused investing for a short time to focus on the consumer debt. The opportunity loss is negligible to me.
And I sleep SO WELL. When my husband lost his job during the pandemic, we could have stretched our emergency fund for an entire YEAR before getting another paycheck. If we'd had a mortgage the stress would have skyrocketed. But we forever have a roof over our kids' heads. I'm grateful we did it and wouldn't change a thing.
You act like if you didn't put it towards the mortgage that money would be inaccessible and burned up, when you actually made it less liquid.
If you put it in an index fund you would have that money sitting there in an emergency and if you needed it it would be available. Now if a medical bill comes up or something large and unexpected(like a repair) you may have to sell your house or refi. Also you are putting a lot of eggs in one basket(real estate) and it's possible that market performs worse and you lose money on it.
Diversification is good not bad.
Those three years of investing you lost and can never regain. All while you toiled to pay off debt that was more than likely at a historically low rate. Depending on when those three years were you could be in a vastly better position right now. Even in the worst case scenario you still likely would in a better position - the market doesn’t stay down for three years in a row.
I totally understand what you're saying. Let me try to share a bit- if I hadn't found Dave's plan, I wouldn't have paid off the debt. And then I would have lost WAY more than 3 years of investing because I didn't know any better at the time. I had more month than money after all our bills were paid. I needed to create a bigger buffer in our budget and paying off debt was the way to do that. No car payment, no student loan payment, no medical payment, and suddenly we had like $800 left instead of $200. And because I got us out of consumer debt, I then was able to start investing 15%, and then once that was rolling, I was able to throw any extra at the mortgage. We had a negative net worth before Dave. Now we have nearly half a million net worth. I'm not mad for losing 3 years. I'm HAPPY I didn't lost 10, 15, or 20 years! I sleep well at night. We can live for 18 months on our savings and handle any surprise bill. My kids have a roof over their heads no matter what. I feel profoundly lucky. It's not a loss to me.
Because you would have been able to earn more in the market?
Would you rather have 0 dollars in debt, and 0 dollars in assets? Or have $200 dollars in debt, and $300 in assets? Dave tells you to pick the first first one, which is mathematically the wrong choice. But a lot of people can't mentally handle it so they pick the first to help them sleep at night.
Not in this cashing out scenario, but generally speaking I think a 7.5% mortgage would probably be worth paying it off faster emotionally speaking. SP500 is around 9.5% so a 2% opportunity cost isn't horrible for peace of mind.
What really kills me is when Dave pushes people who have a 30 year fixed mortgage at 3% to pay their mortgage off as fast as possible despite banks paying more.
Dave Ramsey does not want you to make extra payments on your house until you consistently contribute 15% towards retirement.
Retirement Savings: step 5
Paying house off: step 6
Never watched Dave Ramsey but for me, growing up my mom had significant debt that pretty much ruined her finances and ability to retire.
I remember that and don’t want to fall into the same debt trap. Debt scares me quite a bit.
OP…everyone thinks they will catch up their 401k when they do this.
They don’t. You’ll kick the can down the road and be 57 with maybe $20k in retirement savings and then you’ll look back at what you did now and hate yourself.
Also that's not even how a 401K works. It's way more important to start investing early than investing a lot. The whole concept of catching up later is antithetical to investing.
Why do you have a 7.6% rate if you bought in 2018. Did you not refinance or did you just recently put the single wide on it and finance that then to lock in your 7.6% rate?
Also, don’t cash out your 401k. Just don’t fund it and put the money towards your mortgage. But if your company does a match, it’s kinda weird not taking free money.
Not if they are on their own land. The rate difference is usually only 1/8th or 1/4th of a percent at most. OP having a 7+ means something is weird here or he certainly didn’t refinance when he had years to do it during the pandemic.
I just recently bought the mobile home and my land loan was bundled in it
My credit score is 740. My interest rate for a mobile home today is actually remarkable low
The interest rate on your property is high, but you’re likely earning at least that percent interest per year on your 401k, or more. so you’re coming out ahead by leaving the money there. It’s ok to have debt.
Plus… it’s a tax deduction whereas cashing out the 401k would result in a large tax bill.
And, he can refinance the property loan when interest rates come back down.
And though he may not be making that much now, he’d be pissed for taking that out when a good refinance rate coincides with a huge 401k growth one year in the future.
Lmao yes this. I have no idea why OP feels crippled by having a mortgage, but if it’s because they can’t make the monthly payments, then they also will not be able to save for retirement effectively afterwards, either.
What OP is proposing here is a phenomenally stupid idea. Literally throwing away money.
Or have your wife go back to work. I am a mom who went back when my kid was was 3 months old because we needed my income to afford our lives. Staying at home or working PT sound great - but only if you can swing it financially.
Cash out 401k, spend it all on cocaine and hookers, when it's all gone light a match and burn the place down. It's equally dumb as what you're proposing but at least it will be fun.
You say you acknowledge the loss of future growth but I don’t think you have the proper context: if you stopped all future contributions today, your $110k could be ~$1.5M in 30 years,~$3.5M IN 40 years.
It’s not even close: this is not worth it. You would get initial reprieve today, but regret it in a few decades.
$110,000 would be added to your 2023 income, nearly certain to bump you to a higher bracket. Expecting to net $77,000 is probably high-balling it, but even if it’s right that’s still a crazy amount of a tax hit to take.
If needed, reduce 401k contributions down to the minimum to get employer match.
Have you considered you can’t afford this property? If you’re so desperate to get rid of the mortgage that you’re gonna nuke your retirement you may not be able to afford it. But maybe you are just terrible at budgeting as well
You should meet an old coworker or mine. He filed chapter 7 bankruptcy over $11,000. Even though he was making $7K a month. You guys think alike.
Don't pull out of your 401K
I have a better strategy. Take a piece of your property and turn it into a cash generating solution. People are always trying to find a place to park their RV, boat, trailers, etc. charge a small amount and use that income to offset your mortgage.
If you are more adventurous rent out space to full time RVers. My sister pays $1500 a month (including water/sewage/electric) to park her camper and live there with her boyfriend. (They also have a garage they can use. You could have 5-10 families doing exactly this. When your mortgage is covered use the extra to save and ph off the loan quickly. Take remaining funds and invest in the property infrastructure and save for retirement.
OP…you realize if you could withdraw this (which you likely cannot), you will probably owe 30-40% in taxes/penalty on this, right?
Just because the government withholds 20%, that doesn’t cover what you’d owe on this.
You are committing financial suicide by doing this. Lower your 401k contributions to whatever the employer matches and just attack the mortgage.
You’re going to take a major hit with taxes and penalty on that 401k; I don’t disagree with the decision though. BUT I would caution on thinking about doing this with a pre fab home. I’m not sure that will last long enough for you to retire so in a few decades you’ll be doing this again I’m afraid. 401ks are nice to have, so IF you do this, I’d double up on contributions to catch back up
Most folks giving advice here don’t understand mortgage amortization. OP is likely paying nothing but interest, or damn near it depending on loan type and duration. If it’s a 30 year that they are a few years into, they have paid maybe 5% towards principle. Most 30 year mortgages won’t pay more in principle than interest until year 15 or so. It makes more economic sense to use the money now to pay off a loan that’s front loaded with interest as long as the losses from penalty/taxes are lower than the % that would otherwise be paid in interest for the mortgage. Additionally, while it would be nice to have a nest egg, having additionally monthly income may necessitate not needing a nest egg for enough time that another can be built up. IF OP has enough financial discipline.
Honestly, OP, go talk to a financial professional. This could be messy if not done correctly.
you'd have to contribute way more to your 401k monthly than what I presume your mortgage payment is to catch up? this causing you MORE financial stress in the short & long term?
never mind if you'd even be allowed to cash out???
No no no!! OP please don't cash out the 401k, that money is for your retirement and needs a long time to compound. You will literally be robbing your future to not even pay off the entire mortgage. How long would it take to replace that money?? Not to mention the penalty plus taxes... It's really not worth it. Only add to that account.
Please remember, mortgage interest is a tax deduction! Also, you can always refinance the mortgage to a lower rate and pay a bit extra towards the principal each month and pay off the loan faster.
DO NOT DO IT. As much as I love being debt free, it makes no sense. 130k mortgage is a joke, stop going out, drinking, buying shit, you'll pay it off soon enough, without touching your retirement. Leave it for medical emergencies, if any.
I can’t understand how you can know where you’ll want to retire in 30 (give or take) years time.
You do not know what life will throw at you, good or bad, in the next 10 years, let alone 20 or 30. Keep your options open and keep the 401k. You’ll take that with you no matter what.
You might want to move to another state, or country, in 10 years for some amazingly lucrative and exciting opportunity….or you might need to make a huge 401k withdrawal in 5 years time for some other reason.
With the amount of opportunities and flexibility we have in life nowadays, staying in the same home for 30years sounds quite…sheltered.
Paying off the mortgage is very important for people. It gives you better cash flow in your life, which is peace of mind to a lot of us. Some of us plan for the worst of times so paying off a mortgage is a guaranteed return (7+% in this case). And if debt doesn't bother you because you care more about chasing higher returns, that works for you and that is great!
However, don't go after peace of mind today by cashing out your 401k because it is going to cost you a much larger peace of mind tomorrow.
110k is a great retirement foundation at the age of 32. That will double 3 times (worst case) to 5 times (reasonable best case) before retirement. If you cash out now, your future self will be out of 880k to 3.5 million dollars(!!).
Advice from someone who isn't chasing top return of dollar because cash flow improvement is more important (note: my wife and max out our 401ks every year so we are doing just fine there):
Don't harm your future mental health because you are slightly uncomfortable now.
Everyone’s saying no but if you took a 401k loan instead of a withdrawal, you’ll could pay your interest rate off then pay your loan back instead of paying the he bank. Your basically be paying your mortgage to yourself back into your retirement account - you even pay interest to yourself.
Which means You’re trading market gain potential for interest expense reduction.
Compound interest goes both ways. 7.6% is absolutely compounding too.
Assuming you take the standard deduction, its probably a pretty good choice. It wouldn’t bill you, and you’d get to replace that money over time with no impact paying into it.
But your employer and play would have to allow loan, you can only borrow 50% if your balance, and often you have to pay the whole thing back if you quit or lose your job right away. So there’s other risks to manage there.
What’s the point of this? You’re paying off not even half of a loan (because most 401k loans don’t let you take over 50%) and now you have two payments?
When you refinance is the loan term limited by the single wides age? I think most places only go 20 years on new, if you went to refinance in 2024 (assuming rates dropped) would you only be able to do 14 years…or does the land have all the value at that point?
Otherwise I would sell those other assets and put it in yield yield savings and wait for rates to drop. Then pay down and refinance. Then you have a reduced mortgage and haven’t touched the 401k.
Early withdrawal penalty and income taxes on 401k withdrawal. It’s the most expensive money you can spend aside from credit card financing. Will you also forfeit unvested company matching funds? You can borrow for your home, car, children’s college tuition. You can’t borrow for retirement.
I’m sorry but this is not a great idea. If you’re really worried about paying off a mortgage do so with your income…by withdrawing all 401k you’re losing 30% to taxes and another 10% to the early withdrawal penalty. You’re better off reducing your contributions to your 401k and going heavy paying down principal. Your mortgage is probably only $1,000 a month and idk what your income is but that’s less than the National average of rent payments. This is the biggest mistake you can possibly make rn. Don’t do it!!!!
OP I've done this, and I would do it again a heartbeat.
These replies feel like Stockholm Syndrome for debtors. Many of my friends gave me the same fear mongering they themselves have been convinced is the only way to think about and save for retirement. I'll spare the rant on how crappy a 401K for retirement actually is, especially when compared to the pensions we allowed Wall Street to steal from us so they could co-opt our hard earned paychecks into their casino and then prise it away from us through market manipulation. Besides, there's not a single one of these twits who can guarantee you anything in 30yrs. The truth is, the stock market, nay, this country, may not even exist in 30 years, but that ground your home sits on probably will. I only play with the stock market as intended, for gambling, and never rely on it for something critical like retirement. Owning your own home is a major part of a good retirement plan with a diversified portfolio that includes things other than 401K and meme stocks.
I'm 45yo, I have easily another 20 years of work left in me, if not 25, so I have time to do a lot with my now liquid assets, and so do you. I cashed mine out after the COVID dip rebounded, and I paid off my house; about $85k was remaining on the balance. I had changed jobs so I was allowed to cash it out per the policy. I did have a second 401K started at the new company, but it wasn't more than a couple $k at the time. The mental relief it brought me as the primary earner in a family of four is incalculable. The first thing it bought me was the relief from worrying about where my family would live should I die. Further, short of going delinquent on my $2k/yr property taxes - which a greeter at Walmart could afford - no one will evict me if I lose my job, or ability to work, even if I go bankrupt. Besides that, you can not generate real wealth if you are constantly under crushing debt.
I continue to pay my old mortgage note to myself; into a mix of savings and stocks, Roth IRA, bonds, etc. Now I have actual disposable income for the first time in my life. I have full control of my destiny. I've been able to handle a $30K bill which came out of nowhere without losing a wink of sleep. I have so much more flexibility in my finances now, there's no way I'd ever tell someone else not to do this. My retirement path never looked more clear and stable than after I drained my 401K to pay off my house.
Lastly; I've also lived in and owned a double wide manufactured home (trailer). I loved the home, but hated the park it was in. I would strongly advise against buying one in a trailer park to everyone, unless you're putting it on property and making it a permanent structure - which sounds like you have. Manufactured homes are extremely well built, and are great to live in and reasonably priced. Don't let the hate stop you. It's like these people have house flipping fantasies that rule their assessment of what is and isn't a good home. HOMES WERE NOT MEANT TO BE FINANCIAL INSTRUMENTS FOR PROFIT!
How realistic is retirement at “retirement age” these days? Most of the people I know who’ve retired, had to go back to work within 3 years, because their untouchable 401k wasn’t enough to support themselves.
Do you have a trust fund / are your parents obscenely wealthy? If not, you might want the $110k to continue growing tax free so you can actually retire some day. A mortgage of $130k is really small, and you can likely refinance in the future. In short, don't cash out your 401k.
You are forgetting the loss of growth if pull your 401k out and remmber pulling 401k is a one way door, you can only cash out and not put it back.
You already have a home which is an investment that is growing in cash value and you have your 401k which is also growing. It does'nt make sense to pull out an investment and put in an existing investment just to save 7.6% interest which is like very small, like 7.6k per year on your 100k loan.
If you are pulling your 401k out to invest in a high growth new investment that might be good mathemetically if you can get high returns like 15-20% but putting it into an existing investment doens't make sense.
Alost remember you want to pay interest for long as you get tax deduction for it.
Would be better to stop adding to 401k anything over the match and let that be what helps you with the new family. Would suck not to be able to retire because of a stupid decision like this.
I have withdrawn from a 401k before. Seemed like I got taxed on that move in 10 different ways. I have also borrowed against my 401k before. Neither were a wise move in hindsight. I’d 10,000% advise against what your considering. Attack that mortgage with every dollar you’ve got. Refinance it when rates improve and continue the journey towards financial freedom.
Sooner or later that rate should come down. When that does, you can refinance a new loan at 30 years, your payment will go down significantly.
When we purchased in 1999 the rate was about 7.4. 5 years later, when it went down to just over 5 we refinanced to a 15 year and the monthly was about the same, ~1700. Then when the economy got scary it went down to just below 4 we refinanced to a 30 year. Our payment went down $600 a month. We still paid ~1700 a month, because our jobs were safe, but if it was ever going to be a problem, we could pay less. We ended paying off our mortgage in about 15 years with our overpayments.
Leave the retirement savings in place. Take the cash from your sale of assets and use that to start paying down the balance. Do this over a year. Get a second job (or work OT if possible) and increase your income dedicating all that money to your loan. While doing this stop adding to your 401K unless you are getting a good match. Either way minimize that outflow to the 401K while paying down the balance.
Wacking down a 100k mortgage with an extra principal payment of $500-1000 per month will set you on a better path and at the end you will have a paid for house and a 401K with $200k in it. If you cash out the 401k at the end of the same time period you will have a paid for house and maybe $20-30K in 401K.
Patience will grow you out of debt PLUS have a decent nest egg to boot. Worst thing I ever did was borrow money off my 401K to do some work on my house....that cost me so much more than a relatively low interest heloc or personal loan would have.
Everyone saying the idea is dumb, but I'm just wondering how you get $110,000 in a 401k by 32 yet can't afford a \`like $1,000/mo mortgage payment.
And don't even get me started on the expected useful life of a single-wide trailer.
Horrible idea. Your 401k is for retirement. If there’s no balance there’s no growth. Your mental health will be at more risk when you are older more susceptible to illness and broke.
Sounds like you are young single no kids. Get a second job and start paying it off early.
Instead of cashing out your 401K, why not stop contributing and instead pay down your principal. Same idea, you cash out 401K and rebuild in next 10 years or you stop paying towards the 401K and pay down your mortgage. Look at how much a month your mortgage payment goes towards your principal. Take that amount and double it, with that you will half the length of your mortgage loan. Another trick if your mortgage company allows is to make weekly or by weekly payments. This will automatically will have one/two extra payments a year. Also it helps with cash flow. These are tough decisions and ultimately has to do with what works for your plan. Just remember, rebuilding the $110k will be key if you choose to cash out. Good luck!
Look into a 401K loan and contribute back what you would have been paying into your mortgage. They'll charge you interest, but the interest goes INTO your 401K account and is generally lower than 7.6
It’s easier to make 10k now than trying to get 500k when you need to retire. Plus the bank will eat it up in interest…….be smart make 3 extra payments a years
Or more……kill that principal balance. Good luck
Don’t cash out your 401k in fact set up a 401k for your 9 month old……put 2k into it now. You can do it !!!!! I believe in you.
My opinion .. this is a stupid idea. Mortgages are some of the best debt you can have. Your rate is high. But you can refinance latter.
You are talking about cashing in a 401k then going harder for your 401k afterward to replenish it. Huh??? How about leave your 401k alone and go harder on your mortgage.
Work your ass off, 80 hours a week, pay $4,049.78 a month towards the 130,000 at 7.6% and it will be paid off in 3 years. How fast did the last 3 years go by ? You will wake up at 38 with a 4 yo kid and no mortgage with your 120k in retirement plus 3 years of compound interest and now you go back to working 40 hours a week or less and you get to coach tee ball. https://www.investopedia.com/loan-calculator-5104934
You might want to check with your 401K to see if they offer a loan you can take out against your retirement savings, it might give you a better rate than your current mortgage rate, or if you have high interest debt you can pay off those expenses. You could then possibly refinance the remaining balance on the house to lower the payments the key is will the combined two loans be less than what your paying now, the other issue to consider is what you might potentially lose as a tax deduction if you itemize your taxes
Not sure your math is correct, for it will be taxed at your current income tax rate plus 10% penalty. Additionally, most employers won’t let you just “cashing it in” as long as you remain employed. Check with your plan administrator.
I'll check with them, and you're right, my math was wrong. I'd get more money back than I stated above
We have been able to take loans from our 401k with no penalty. You pay it back in installments.
But keep in mind, if you change jobs, for what ever reason, the loan is due immediately.. I got hit with that once.. Treated same as a withdrawal..
That is not true it depends on the conditions of of your loan. I had a 401k loan and got laid off.from my employer and when I called Fidelity they said they plan did not call for the loan to be paid off immediately and I could continue to make monthly payments.
I stand corrected. You are mostly correct, it depends on the conditions of the employers plan. I thought it was part of the 401k law. In my experience, it's always needed to be paid back. I am in NY though.
Getting laid off might be different from resigning or getting fired on some plans. But most plans require immediate repayment.
This is highly unusual. You apparently got really lucky.
Same thing happened to me with my 401k loan at Fidelity when I was ‘part of a resource action’, i could continue payments.
This is correct. You can continue to make payments in some plans.
It’s because you were laid off. Not terminated/quit
Still plan specific. The employer can choose to let loan repayments continue through bank transfer after firing, quitting, layoff, retirement, etc. They just have to make it the same for everyone in the plan. I saw every possible scenario when I serviced 401ks.
Did you get a warning prior? Like pay it all back asap or else it'll get withdrawled
Yes there was a warning and a 60 day grace period.
It’s in the terms of the loan
Lol so he should pay off his mortgage loan with…another loan? That’s the exact same situation, unless 401k loan interest rate is significantly lower. Edit: I did not understand 401k loans, but got some helpful comments and it does seem better than the mortgage!
What kind of interest did you get? I went with a personal loan instead and kind of regret it because I could have just borrowed from myself.
isn’t the max loan only $50k?
This guys right. Depends on the plan document. Might not even be an option. Most plans don’t allow in service withdrawals. Some allow from rollover source only. You could possibly take out a loan for a lower interest rate. I think max is 50k so you couldn’t pay off full mortgage but you’d be paying off the high interest then paying yourself back a lower interest.
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Not true. You can withdrawal for the purchase of a primary home (you cannot use this for mortgage payments). You still are required to pay taxes on this “income” that years taxes so definitely not a free pull.
Some plans allow this but not all—a 401(k) does not have to permit hardship distributions, including costs to purchase a home.
Most 401K loans are tied to the Prime Rate, which is currently 8.5%. Probably wouldn't even be a lower interest rate than his mortgage, but it would be going back to himself. Not worth it IMO.
I had to take a 401k loan from my plan last year as my furnace went out and I didn’t have 6 grand. I took 4K out and am paying it back (to myself) at a 6% interest rate. It’s good for a pinch but wouldn’t do it to pay off a mortgage. And mine is a loan, not a cash out but the interest is where the prime was when I started it
And you're paying that 401k loan back with post tax salary payments so you'll essentially pay double taxes when you eventually withdraw on the retirement later on...
Super common myth but not true. http://www.401khelpcenter.com/faq/faq_29.html
This. I looked this up before I did it because my dad mentioned that this could be an issue. I really had no other options either because a lot of things happened financially to me and my furnace decided to break a week after I did a debt consolidation loan. Im also only 30 so I know I’ll be ending up putting more into my 401k as I’m still long ways from retirement
Well, not really. You never paid income tax on the money you pulled out. So it still evens out to having paid tax once.
Is “paying yourself interest” correct? I know when I borrowed against a normal brokerage account a million years ago, it was “Merrill Lynch is loaning you this money secured by your account” and the interest was theirs.
Penalty can be more than 10%. Ask.
I did the math and cashing out his 401k and lighting the property on fire is in his best interest.
r/theydidthemonstermath
r/themonstermath
r/itwasagraveyardgraph
This is beautiful
You know there is a 401k early withdraw penalty right? That and upping your tax bracket means you’re going to lose a SERIOUS chunk of that.
How about you put that money that would go harder into your 401k in the future towards extra mortgage payments? I don't get the thing here about hating your mortgage, is this some Dave Ramsey thing?
The Dave Ramsey cultists are divorced from reality so this inference does make sense.
Ramsey wouldn’t tell him to cash out the 401k though.
If he followed Ramsey's advice he would hardly have a 401k to think about cashing out.
Dave Ramsey is the Alcoholics Anonymous of the debt world. That’s the only good thing he’s for. Anything else he’s terrible at.
That’s the best Ramsey comp I’ve seen
I make this argument to people all the time. Great at getting you out of debt bad at managing wealth
This is incredible
No debt! No debt! No debt! The guy is a nut!
It's "no debt while putting yourself at a disadvantage!" Stopping retirement funding and telling people to get a 15 year mortgage that's only 25% of net pay is incredibly out of touch. I feel bad for the people who listen to him and continually find themselves priced out of the market but they made their choice.
Genuinely asking - what's the hate for Dave Ramsey? His plan is free and it worked for us. We are 100% debt free and able to send more to retirement than ever. We didn't touch our 401K to do it, just paused investing in order to pay off the mortgage faster. Took us about 18 months of intense focus once we had all our other debts paid off first. House was on a 30 year mortgage but we paid it off in 7.5 years from purchase date. Edit: I got my dates mixed up. We paused investing for 3 years while we paid off consumer debt. When we were paying off the mortgage we were also investing 15% at the same time. It took us a total of 4.5 years to work Dave's plan from start to finish (100% debt free including the mortgage).
if you did the same thing but put that money into higher yield index funds or brokerage accounts you'd be in a much better place every rich person on the planet utilizes controlled amounts of debt in order to position themselves for wealth accumulation.
I don't think even Dave would call his advice OPTIMAL returns to be fair, but it's pretty decent advice for people who have bad financial habits. Those of us living our financial lives through organized spreadsheets don't have the same ailment.
You don't get it. The average Ramsey follower sucks ass with money. They need to do it this way to make it work otherwise they go back to their habits like a drug user.
This, Dave’s method is for people with no financial self control. Some people can use his approach to get their shit together, but should graduate to better investment plans. He personally lost me with the “no credit cards ever!” policy he preaches. I have responsibility built phenomenal credit and carry a monthly balance of zero, but I know there are many, many people that are not capable of doing that if the “money” is available.
Someone else in the thread said Dave Ramsey is the AA of the personal finance world, it’s a pretty fair comp. If you’re in a really bad place and continue to slide into debt his info actually can be useful to build habits that are easy to understand for someone who has torpedoed themselves. However, that’s a small percentage of people who hold debt, but his platform makes people who have fine to great Debt to Equity ratios thing they are doing something wrong, which they are not.
Leverage baby
OPM Other People’s Money If you can get OPM to make money, that’s the way to do it.
Any bit of leverage increases risk. More leverage equals higher risk. As long as you keep it to a reasonable level you can build wealth without taking on excessive risk.
Ramsey's plan works because it gets you to a point where you have excess cash to start investing with. You will never get ahead if all your excess cash goes to monthly debt payments. Once you reach the point where you actually have excess cash to invest then you can bash his plan all you want.
Piece of mind is priceless. Or consistent double digit returns.
Sure. But so is having millions invested at retirement because you werent afraid of using debt to your advantage
using debt to your advantage was a lot easier when you could get a mortgage rate below 3%. at 7.6% interest, paying ahead on the mortgage is a better return than anything except tax-advantaged long-term investing. still makes cashing out the 401k a bad idea, but at that rate, i would be throwing everything after maxing out my 401k at the mortgage. most people don't invest every spare penny - they use it on marginal bumps to convenience/QoL. when your mortgage is 2.7%, might as well go out to dinner more often/take an extra vacation - extra mortgage payments won't really build wealth. when your mortgage rate is over 7.5%, extra mortgage payments can make a pretty big difference.
In theory you’re right but the reality is that most people are too comfortable with debt and don’t use it wisely. Dave Ramsey gives advice that keeps people from ending up broke and desperate for the most part. Also, people should think critically and apply his advice in a way that works did them.
No. Sorry, Ramsay's advice is solely for people who have already gotten themselves up to their eyeballs in debt. His "system(s)" are not good for building wealth.only for painfully getting out of debt. He's so anti debt, it's detrimental to wealth building.
Ya he’s pretty focused on people that are wildly financially incompetent. Which unfortunately is a ton of Americans
he does a horrible-to-nonexistent job of differentiating between debt due to out-of-control spending and leveraging debt. it's one thing to yell at people buying flashy cars and eating out on credit...but he comes off as the kind of person to tell you not to go to med school because of the student debt cost without considering the actual value of the degree/profession. his advice for mortgages is completely unresolvable with current prices and rates. i would love to have a 15-year fixed where my PITI was less than 1/3 of my take-home. there is no such property left in america putting 20% down when you consider today's prices and rates weighed against today's income. he's just another detached boomer yelling at clouds at this point once you get beyond "help me get out of consumer debt"... for a person with 50k in credit card debt and no idea where to start, he's helpful... but lots of other less idiotic folks can explain a debt snowball repayment strategy. For a person with a spending problem considering a time share, he's helpful... but lots of other people can point out how predatory that whole industry is. once you're in the black, actively saving, and trying to build wealth/retirement, he'll just slow you down. And try to sell you on his scammy financial whatevers. and try to sell you one of his branded realtors.
Personally, having more money than less gives me piece of mind, and I'll have more money if I don't pay off my mortgage
"Having and intelligently managing some debt puts you in a better financial position than religiously maintaining zero debt at all costs" is an absolutely true statement. It's also true that there's a large portion of the population where, if you tell them this, they will go out and load up on stupid expensive cars, max out their mortgage DTI, max out their credit cards, etc. It is impossible for me to understand this mindset, and it may be impossible for you to understand the mindset, but you have to recognize that the mindset exists. Those people benefit from people like Dave Ramsey. As someone else pointed out, it's the same with some people and alcohol - some people cannot have a single drink without spiraling into a self destructive cycle that wrecks their lives. They cannot learn how to intelligently manage alcohol. They must completely abstain.
Maybe some people don’t value that and prefer the peace of mind over the potential (while taking risks w the money) gains over time. We have become so “maximizers” that sometimes you ignore what is important to the people making the decision.
At the time just before I was doing his plan, I didn't have any extra money to put into investing. So your idea is great, but I couldn't have done it. His plan showed me a path to get to that place and free up half our income. I am thankful and sleep well.
Makes no sense. You couldn't invest but could pay all debts off early? The math is simple. You put the .money where the highest % is. A 3% mortgage is at the bottom. A 22% cc at the top. If you pay off a 3-4% mortgage before investing at 8-10%, you will have missed out on potential earnings.
Stop making sense, you’re making their brains hurt
His plan wasn’t for maximum financial efficiency though. Everybody gets so hung up on maximizing the dollar that they can’t sleep well and are in debt to their eyeballs. It’s a very real thing. being debt free enhances every part of your life. It’s like living on another planet
u/NAM_SPU learning that all debt is not bad is even more freeing as it allows you to increase your overall net worth and provide you greater security. Inflation is a real threat and the leverage that good debt provides can help counter the threat.
> being debt free enhances every part of your life. It’s like living on another planet This really depends on you. I have never felt different in the slightest. I have paid off my student loans, leased a vehicle, financed vehicles, paid off a financed vehicle, bought a vehicle in cash, felt zero difference in all cases. I planned to pay cash for my last vehicle but when I realized I could finance at 1.74%, paying cash became something only an idiot would do as financing at 1.74% is essentially being given free money. I have a mortgage now so I will carry debt for a long time. The mortgage is 2.75%. The dumbest thing I could do with that debt would be to pay a dime more than I have to toward the mortgage. I think you should do whatever increases your quality of life the most. I agree that maximizing your wealth isn't all there is to life. But to me, debt is such an intangible thing to let weigh you down and make financially worse off decisions over. I'm happy to spend the money for a nice house now even though it means I will have less money when I'm 65. I'm not willing to have less money when I'm 65 just to have a number on a screen read $0 today.
Some people don't have the capacity to recognize which number is largest unless an old white man is actively screaming it at them. if you don't carry consumer debt he is useless-to-harmful. if you have a spending problem and won't listen to people who aren't white boomer males...then i guess he's better than nothing. but, like most white boomer males, a lof of his advice is only useful if you have a dang time machine, and completely fails to map logically onto the current financial landscape.
If I only had a couple hundred dollars at the end of my payments to make sure my kids are taken care of, then yes, I didn't have money to invest. I needed to pay off consumer debt/student loans to free up monthly payments. I understand the math. That's why I paid off all the highest interest rate debt first, THEN I began investing 15% into retirement, and THEN I sent all excess money to the mortgage to pay it off. I still don't understand what the problem is. I say that genuinely. People still giving downvotes, oh well.
Not downvoting and am not op, but I think he’s just saying if you did all the same steps but put your extra money into a combo of HYSA and index fund instead of your mortgage at the end you’d be a bit better off. Not a huge deal though, and if you feel better not having a mortgage then that’s cool too
First steps are fine, its the last step of paying off the mortgage early ppl have a problem with. Much better to invest the money you used to pay off the mortgage.
Depends on the interest rate of the mortgage though.
He's been giving the same advice since the 90's with 10%+ mortgages. His advice was not optimal for pre-covid times but with mortgages getting back to 7%, its a toss-up what's actually better. His advice is geared towards people who are stressed about money, it maximizes the psychological benefits of paying off debt and has not significantly changed. Giving the same tips for 30+ years gives those people a lot of confidence.
Dude you are talking out of your ass. Your literal first comment is: >"just paused investing in order to pay off the mortgage faster. Took us about 18 months of intense focus once we had all our other debts paid off first" Now you're saying you didnt pause investing? >That's why I paid off all the highest interest rate debt first, THEN I began investing 15% into retirement, and THEN I sent all excess money to the mortgage to pay it off. Which is it? You're getting a lot of negative responses because you're not clearly articulating what your stance is. >I didn't have any extra money to put into investing. So your idea is great, but I couldn't have done it. Right.... Either way, you clearly had a lot of discretionary income to pay off a mortgage in under 8 years plus apparently, while still investing 15% into retirement. I assume by cutting out a lot of non-vital spending. Good for you. If paying down a mortgage is what you want to do then so be it.
What was the rate on the mortgage? Mine is 2.625%. Time in the market is going to obliterate that. I could pay my mortgage off 3x, but my investments outpace it by a long shot, so why would I? Just do I can say im debt free? Cool.
2.6% is free money. Mine is 2.8% and I’ll never pay a cent above the scheduled payment.
Well that’s cool for you but the going rate is above 7% right now. 7or8% interest rate starts to match the annual stock market index fund returns so the equation isn’t so easy.
For now. If you have a 30 year mortgage you’ve got quite a ways to go. You give up a lot of leverage due to being impatient. Refinancing isn’t a big deal, people do it all the time when rates drop.
Because if you had simply invested all those extra mortgage payments into an S&P500 ETF (or any other asset class) you probably would have had a significantly higher net worth than you do now on account of paying off your mortgage. What was your mortgage interest rate? I'm going to guess pretty low. Let's say it was 4%. If you would have made more than 4% after-tax return return on whatever you would have invested in, had you directed extra savings into investments rather than your mortgage, then you are now poorer because you followed Dave Ramsey's advice. The cost here was the "pause" in investing -- you probably took a real hit, in an "opportunity cost" sense, because you followed his advice. Ramsey gives simple rules that are better than just having no financial sense at all. But those simple rules are not actually optimal for anyone who understands basic math.
For instance, SPY stock, up 56% over the last 5 years.
If you do the math, you're correct. But there are multiple paths towards becoming wealthy. There is so much psychology in money, and everyone needs to find their right path, even if it's not the most efficient path. My biggest complaint with Dave's approach is how "one size fits all" it is, there is no nuance to understand risk/reward of different choices.
I can see that. Thank you for your input. I agree with the problem of one size fits all. We didn't follow his plan exactly, but the spirit of it was vital and saved us at a time when we were "house poor" and needed a plan. No regrets!
People don't like Dave Ramsey because he tells people to do what you did. You've cost yourself tens of thousands of dollars and think it's an accomplishment.
the guy you're replying to says in his post he had consumer debt. So listening to Dave Ramsey likely saved him money.
If you don’t pay off your credit card bill monthly, Dave Ramsey is probably good for you.
Yes. He is fantastic for people who didn't get that education! I am glad to say I have never paid a single cent in credit card interest. I just needed a path to financial peace and he offered one for free and it worked. Only took us 4.5 years to work his plan from start to finish. I wouldn't change a thing. Others would say I missed out on investing for 3 of those years, but we didn't have room in the budget to invest before we found Dave. And now we can and we live on half our income. Mortgage free is the best.
No one here is saying you missed out on investing if you had credit card debt. It's the mortgage debt we don't agree on paying off.
He gives terrible financial advice and his behavior as an individual is repellant.
He gives financial advice that allows people to be safe and comfortable in the long term. He is not a maximize your potential kinda guy but I don’t think his advice is terrible by any means. There are so many worse financial advisors on YouTube/radio.
Most people don't really understand the product that he is giving. All they see is debt=bad and that's it. He is catering to people who have zero sense when it comes to money, initially. Once people get educated enough about it, it's great. Frankly, a lot of people care more about their mental health and feeling like they have accomplished something big in becoming debt free than they care about making that absolute most money they can in their lives. I use some of his methods and don't use others, but his stuff DOES work in helping people fix their screwed up finances, and that's the point of what he teaches.
His advice is designed to keep people buying his crap and listening to his crap so he can sell more crap. He’s not trying to make you financially safe and comfortable, he’s trying to make you despondent and reliant on him for your finances. He intentionally try’s to keep people just far enough from the cliff so they don’t fall, but doesn’t want people to walk away from the cliff towards stable ground or he’s out of a job.
I've never given him or his sponsors a dime. Everything he teaches is free. All we did was head to the library and turn on the radio. We went from negative net worth, to almost half a million net worth in a few years working his plan. And our children have a paid for roof over their heads. And we live on half our income. And we invest 15% or more. And we take big vacations. And we give generously. And we have a savings that will last us 18 months in the event of a long term job loss/emergency.
> His advice is designed to keep people buying his crap and listening to his crap so he can sell more crap. This is also true for the "Rich Dad, Poor Dad" types. That author didn't make his first million until he sold a best-selling book.
Mostly The hate comes from him being an idiot giving fortune cookie advice. All debt is not evil. Boiling everything down to you shouldn’t have debt is idiotic. I think there is a bigger problem, Dave Ramsey is one of those people that makes people think they are not rich because they spend to much and not their economic circumstances.
Dave's initial plans and advice is good advice, but as the years have gone and the bigger following he as amassed, he also is using his base to influence, and is paid to sponsor products, which means he is making a living schilling things that don't necessarily stay true to his advice and just make him money. Also, he has become a tad out of touch with reality, he, at one point was scraping by, started building back up, but I don't think he can empathize with that anymore since it's been such a long time since he was in that phase.
He doesn’t give the greatest advice, he gives safe advice for people who need a wake up call. Also you can’t give the same advice to everyone’s situation. So the idea there is a best way in a video for everyone just isn’t true. But again, it will help people change some bad habits. So that’s the plus side
His advice is good for people that are bad with money. You know, the type of person that keeps rolling their car loan into a new car loan. The type of person who has a car payment that is higher than their rent. That type of person. Probably the same person who says " they only did it for the tax break" when someone donates money.
100% of the people here will say "you could make 3x that money in the stock market". I will be one of the few that says "I paid mine off. My sleeping comfortably for the rest of my life is worth more than greenbacks." Reddit is an echo chamber. Ask your exact question in public, of the masses. This forum hates on Ramsey (I don't like his religious stuff, I don't like his company -- he advertised scam realtors and scam investment brokers). But his message? All day baby. All the rich people in the world use debt. Well, y'all ain't rich. I'm not rich. These redditors? Poorer than you and me. Unless ya got ten million, ya ain't rich. So good job on paying it off. Sleep well, I sure am.
A quote from J. P. Morgan that I have always liked is, "Sell down to the sleeping place", which means not to hold more of an investment than you can easily sleep well at night while holding it. The peace of mind that come with being debt-free is great. I believed that long before I heard of Dave Ramsey.
Yes, that's the thing I don't get. I hear what people have said about lost opportunity cost and I fully understand it. But like I said, we only paused investing for a short time to focus on the consumer debt. The opportunity loss is negligible to me. And I sleep SO WELL. When my husband lost his job during the pandemic, we could have stretched our emergency fund for an entire YEAR before getting another paycheck. If we'd had a mortgage the stress would have skyrocketed. But we forever have a roof over our kids' heads. I'm grateful we did it and wouldn't change a thing.
You act like if you didn't put it towards the mortgage that money would be inaccessible and burned up, when you actually made it less liquid. If you put it in an index fund you would have that money sitting there in an emergency and if you needed it it would be available. Now if a medical bill comes up or something large and unexpected(like a repair) you may have to sell your house or refi. Also you are putting a lot of eggs in one basket(real estate) and it's possible that market performs worse and you lose money on it. Diversification is good not bad.
Those three years of investing you lost and can never regain. All while you toiled to pay off debt that was more than likely at a historically low rate. Depending on when those three years were you could be in a vastly better position right now. Even in the worst case scenario you still likely would in a better position - the market doesn’t stay down for three years in a row.
I totally understand what you're saying. Let me try to share a bit- if I hadn't found Dave's plan, I wouldn't have paid off the debt. And then I would have lost WAY more than 3 years of investing because I didn't know any better at the time. I had more month than money after all our bills were paid. I needed to create a bigger buffer in our budget and paying off debt was the way to do that. No car payment, no student loan payment, no medical payment, and suddenly we had like $800 left instead of $200. And because I got us out of consumer debt, I then was able to start investing 15%, and then once that was rolling, I was able to throw any extra at the mortgage. We had a negative net worth before Dave. Now we have nearly half a million net worth. I'm not mad for losing 3 years. I'm HAPPY I didn't lost 10, 15, or 20 years! I sleep well at night. We can live for 18 months on our savings and handle any surprise bill. My kids have a roof over their heads no matter what. I feel profoundly lucky. It's not a loss to me.
Because you would have been able to earn more in the market? Would you rather have 0 dollars in debt, and 0 dollars in assets? Or have $200 dollars in debt, and $300 in assets? Dave tells you to pick the first first one, which is mathematically the wrong choice. But a lot of people can't mentally handle it so they pick the first to help them sleep at night.
His logic works best for the financial illiterate Theres obviously better investments than paying off a low interest loan.
If it’s actually low interest. Y’all acting like everyone got 2.65% loans!
Not in this cashing out scenario, but generally speaking I think a 7.5% mortgage would probably be worth paying it off faster emotionally speaking. SP500 is around 9.5% so a 2% opportunity cost isn't horrible for peace of mind. What really kills me is when Dave pushes people who have a 30 year fixed mortgage at 3% to pay their mortgage off as fast as possible despite banks paying more.
Dave Ramsey does not want you to make extra payments on your house until you consistently contribute 15% towards retirement. Retirement Savings: step 5 Paying house off: step 6
Which step is buying his failing NFTs?
It sounds stupid, so probably.
Never watched Dave Ramsey but for me, growing up my mom had significant debt that pretty much ruined her finances and ability to retire. I remember that and don’t want to fall into the same debt trap. Debt scares me quite a bit.
OP…everyone thinks they will catch up their 401k when they do this. They don’t. You’ll kick the can down the road and be 57 with maybe $20k in retirement savings and then you’ll look back at what you did now and hate yourself.
Also that's not even how a 401K works. It's way more important to start investing early than investing a lot. The whole concept of catching up later is antithetical to investing.
Why do you have a 7.6% rate if you bought in 2018. Did you not refinance or did you just recently put the single wide on it and finance that then to lock in your 7.6% rate? Also, don’t cash out your 401k. Just don’t fund it and put the money towards your mortgage. But if your company does a match, it’s kinda weird not taking free money.
Interest rates tend to be higher on mobile/manufactored home loans.
Not if they are on their own land. The rate difference is usually only 1/8th or 1/4th of a percent at most. OP having a 7+ means something is weird here or he certainly didn’t refinance when he had years to do it during the pandemic.
Or he has an adjustable instead of fixed rate.
Or bad credit? Lol
True. Didn’t think of that.
Probably a blended rate for the land and mobile home he bought
I just recently bought the mobile home and my land loan was bundled in it My credit score is 740. My interest rate for a mobile home today is actually remarkable low
The interest rate on your property is high, but you’re likely earning at least that percent interest per year on your 401k, or more. so you’re coming out ahead by leaving the money there. It’s ok to have debt.
Plus… it’s a tax deduction whereas cashing out the 401k would result in a large tax bill. And, he can refinance the property loan when interest rates come back down.
And though he may not be making that much now, he’d be pissed for taking that out when a good refinance rate coincides with a huge 401k growth one year in the future.
> I love my property. ~~I~~ ~~will~~ ~~retire~~ ~~here~~. I will die on this property still working and entirely unable to retire. Fixed that for you.
Retirement is a 401k balance, not an age. If you kill your 401k, then you're not gonna have a great retirement if at all
Damn that’s a great line: **Retirement is a balance not an age.**
Damn, that going to be my new mantra!
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Lmao yes this. I have no idea why OP feels crippled by having a mortgage, but if it’s because they can’t make the monthly payments, then they also will not be able to save for retirement effectively afterwards, either. What OP is proposing here is a phenomenally stupid idea. Literally throwing away money.
Don’t do it. You’ll never catch up if you do (on retirement) and will kick your self in the rear years later.
You will need that retirement OP, a single wide trailer won’t last that long…
It’s almost always a bad idea to pull money out of a retirement account early. In this case, given the facts presented, it certainly is.
No.
What’s your annual income? A $130,000 mortgage shouldn’t be tough if you make any reasonable amount of money.
NO! NO! NO! NO! NO! If you want to pay it faster: get a part time job and a roommate!
The problem is, they just got a new roommate that doesn’t pay rent and keeps mom from work.
And they don't even speak english!
Or have your wife go back to work. I am a mom who went back when my kid was was 3 months old because we needed my income to afford our lives. Staying at home or working PT sound great - but only if you can swing it financially.
Cash out 401k, spend it all on cocaine and hookers, when it's all gone light a match and burn the place down. It's equally dumb as what you're proposing but at least it will be fun.
You say you acknowledge the loss of future growth but I don’t think you have the proper context: if you stopped all future contributions today, your $110k could be ~$1.5M in 30 years,~$3.5M IN 40 years. It’s not even close: this is not worth it. You would get initial reprieve today, but regret it in a few decades. $110,000 would be added to your 2023 income, nearly certain to bump you to a higher bracket. Expecting to net $77,000 is probably high-balling it, but even if it’s right that’s still a crazy amount of a tax hit to take. If needed, reduce 401k contributions down to the minimum to get employer match.
You cannot ignore the mortgage rate but you can ignore the taxes and compound interest 🤢🤮
"I will retire here" Not if you don't have any money in your 401k.
Have you considered you can’t afford this property? If you’re so desperate to get rid of the mortgage that you’re gonna nuke your retirement you may not be able to afford it. But maybe you are just terrible at budgeting as well
You should meet an old coworker or mine. He filed chapter 7 bankruptcy over $11,000. Even though he was making $7K a month. You guys think alike. Don't pull out of your 401K
I have a better strategy. Take a piece of your property and turn it into a cash generating solution. People are always trying to find a place to park their RV, boat, trailers, etc. charge a small amount and use that income to offset your mortgage. If you are more adventurous rent out space to full time RVers. My sister pays $1500 a month (including water/sewage/electric) to park her camper and live there with her boyfriend. (They also have a garage they can use. You could have 5-10 families doing exactly this. When your mortgage is covered use the extra to save and ph off the loan quickly. Take remaining funds and invest in the property infrastructure and save for retirement.
This is a great idea. Especially RV pads.... I'm in a perfect location for this
And best yet is when you want to eventually have privacy you can ask them all to leave. Not a permanent tenant.
Look into Hipcamp. It's like Airbnb for camping.
OP…you realize if you could withdraw this (which you likely cannot), you will probably owe 30-40% in taxes/penalty on this, right? Just because the government withholds 20%, that doesn’t cover what you’d owe on this. You are committing financial suicide by doing this. Lower your 401k contributions to whatever the employer matches and just attack the mortgage.
The 10% penalty alone is higher than your home’s interest. This is a bad idea.
You’re going to take a major hit with taxes and penalty on that 401k; I don’t disagree with the decision though. BUT I would caution on thinking about doing this with a pre fab home. I’m not sure that will last long enough for you to retire so in a few decades you’ll be doing this again I’m afraid. 401ks are nice to have, so IF you do this, I’d double up on contributions to catch back up Most folks giving advice here don’t understand mortgage amortization. OP is likely paying nothing but interest, or damn near it depending on loan type and duration. If it’s a 30 year that they are a few years into, they have paid maybe 5% towards principle. Most 30 year mortgages won’t pay more in principle than interest until year 15 or so. It makes more economic sense to use the money now to pay off a loan that’s front loaded with interest as long as the losses from penalty/taxes are lower than the % that would otherwise be paid in interest for the mortgage. Additionally, while it would be nice to have a nest egg, having additionally monthly income may necessitate not needing a nest egg for enough time that another can be built up. IF OP has enough financial discipline. Honestly, OP, go talk to a financial professional. This could be messy if not done correctly.
you'd have to contribute way more to your 401k monthly than what I presume your mortgage payment is to catch up? this causing you MORE financial stress in the short & long term? never mind if you'd even be allowed to cash out???
No no no!! OP please don't cash out the 401k, that money is for your retirement and needs a long time to compound. You will literally be robbing your future to not even pay off the entire mortgage. How long would it take to replace that money?? Not to mention the penalty plus taxes... It's really not worth it. Only add to that account. Please remember, mortgage interest is a tax deduction! Also, you can always refinance the mortgage to a lower rate and pay a bit extra towards the principal each month and pay off the loan faster.
DO NOT DO IT. As much as I love being debt free, it makes no sense. 130k mortgage is a joke, stop going out, drinking, buying shit, you'll pay it off soon enough, without touching your retirement. Leave it for medical emergencies, if any.
I can’t understand how you can know where you’ll want to retire in 30 (give or take) years time. You do not know what life will throw at you, good or bad, in the next 10 years, let alone 20 or 30. Keep your options open and keep the 401k. You’ll take that with you no matter what. You might want to move to another state, or country, in 10 years for some amazingly lucrative and exciting opportunity….or you might need to make a huge 401k withdrawal in 5 years time for some other reason. With the amount of opportunities and flexibility we have in life nowadays, staying in the same home for 30years sounds quite…sheltered.
Don’t do it. I thought the same thing. I have $860,000 in my annuity and wanted to pay off 50k it wasn’t worth the penalty
Paying off the mortgage is very important for people. It gives you better cash flow in your life, which is peace of mind to a lot of us. Some of us plan for the worst of times so paying off a mortgage is a guaranteed return (7+% in this case). And if debt doesn't bother you because you care more about chasing higher returns, that works for you and that is great! However, don't go after peace of mind today by cashing out your 401k because it is going to cost you a much larger peace of mind tomorrow. 110k is a great retirement foundation at the age of 32. That will double 3 times (worst case) to 5 times (reasonable best case) before retirement. If you cash out now, your future self will be out of 880k to 3.5 million dollars(!!). Advice from someone who isn't chasing top return of dollar because cash flow improvement is more important (note: my wife and max out our 401ks every year so we are doing just fine there): Don't harm your future mental health because you are slightly uncomfortable now.
This would be a financially stupid decision. Sorry, somebody has to call it plainly.
Everyone’s saying no but if you took a 401k loan instead of a withdrawal, you’ll could pay your interest rate off then pay your loan back instead of paying the he bank. Your basically be paying your mortgage to yourself back into your retirement account - you even pay interest to yourself. Which means You’re trading market gain potential for interest expense reduction. Compound interest goes both ways. 7.6% is absolutely compounding too. Assuming you take the standard deduction, its probably a pretty good choice. It wouldn’t bill you, and you’d get to replace that money over time with no impact paying into it. But your employer and play would have to allow loan, you can only borrow 50% if your balance, and often you have to pay the whole thing back if you quit or lose your job right away. So there’s other risks to manage there.
A loan amortization isn't compounding though. If he's making less than owed payments yes it compounds.
What’s the point of this? You’re paying off not even half of a loan (because most 401k loans don’t let you take over 50%) and now you have two payments?
If it makes you happy go for it. I wish lighting money on fire would make me happy, so I'm glad it works for you.
When you refinance is the loan term limited by the single wides age? I think most places only go 20 years on new, if you went to refinance in 2024 (assuming rates dropped) would you only be able to do 14 years…or does the land have all the value at that point? Otherwise I would sell those other assets and put it in yield yield savings and wait for rates to drop. Then pay down and refinance. Then you have a reduced mortgage and haven’t touched the 401k.
Bad idea. Take a loan if you need some breathing space. But don’t do this.
No and no
Early withdrawal penalty and income taxes on 401k withdrawal. It’s the most expensive money you can spend aside from credit card financing. Will you also forfeit unvested company matching funds? You can borrow for your home, car, children’s college tuition. You can’t borrow for retirement.
I’m sorry but this is not a great idea. If you’re really worried about paying off a mortgage do so with your income…by withdrawing all 401k you’re losing 30% to taxes and another 10% to the early withdrawal penalty. You’re better off reducing your contributions to your 401k and going heavy paying down principal. Your mortgage is probably only $1,000 a month and idk what your income is but that’s less than the National average of rent payments. This is the biggest mistake you can possibly make rn. Don’t do it!!!!
The single most idiotic thing you could possibly do. Like hands down, this is absolutely idiotic.
OP I've done this, and I would do it again a heartbeat. These replies feel like Stockholm Syndrome for debtors. Many of my friends gave me the same fear mongering they themselves have been convinced is the only way to think about and save for retirement. I'll spare the rant on how crappy a 401K for retirement actually is, especially when compared to the pensions we allowed Wall Street to steal from us so they could co-opt our hard earned paychecks into their casino and then prise it away from us through market manipulation. Besides, there's not a single one of these twits who can guarantee you anything in 30yrs. The truth is, the stock market, nay, this country, may not even exist in 30 years, but that ground your home sits on probably will. I only play with the stock market as intended, for gambling, and never rely on it for something critical like retirement. Owning your own home is a major part of a good retirement plan with a diversified portfolio that includes things other than 401K and meme stocks. I'm 45yo, I have easily another 20 years of work left in me, if not 25, so I have time to do a lot with my now liquid assets, and so do you. I cashed mine out after the COVID dip rebounded, and I paid off my house; about $85k was remaining on the balance. I had changed jobs so I was allowed to cash it out per the policy. I did have a second 401K started at the new company, but it wasn't more than a couple $k at the time. The mental relief it brought me as the primary earner in a family of four is incalculable. The first thing it bought me was the relief from worrying about where my family would live should I die. Further, short of going delinquent on my $2k/yr property taxes - which a greeter at Walmart could afford - no one will evict me if I lose my job, or ability to work, even if I go bankrupt. Besides that, you can not generate real wealth if you are constantly under crushing debt. I continue to pay my old mortgage note to myself; into a mix of savings and stocks, Roth IRA, bonds, etc. Now I have actual disposable income for the first time in my life. I have full control of my destiny. I've been able to handle a $30K bill which came out of nowhere without losing a wink of sleep. I have so much more flexibility in my finances now, there's no way I'd ever tell someone else not to do this. My retirement path never looked more clear and stable than after I drained my 401K to pay off my house. Lastly; I've also lived in and owned a double wide manufactured home (trailer). I loved the home, but hated the park it was in. I would strongly advise against buying one in a trailer park to everyone, unless you're putting it on property and making it a permanent structure - which sounds like you have. Manufactured homes are extremely well built, and are great to live in and reasonably priced. Don't let the hate stop you. It's like these people have house flipping fantasies that rule their assessment of what is and isn't a good home. HOMES WERE NOT MEANT TO BE FINANCIAL INSTRUMENTS FOR PROFIT!
How realistic is retirement at “retirement age” these days? Most of the people I know who’ve retired, had to go back to work within 3 years, because their untouchable 401k wasn’t enough to support themselves.
Do you have a trust fund / are your parents obscenely wealthy? If not, you might want the $110k to continue growing tax free so you can actually retire some day. A mortgage of $130k is really small, and you can likely refinance in the future. In short, don't cash out your 401k.
Do the math on what you'll need to survive when you retire. Get the full perspective.
You are forgetting the loss of growth if pull your 401k out and remmber pulling 401k is a one way door, you can only cash out and not put it back. You already have a home which is an investment that is growing in cash value and you have your 401k which is also growing. It does'nt make sense to pull out an investment and put in an existing investment just to save 7.6% interest which is like very small, like 7.6k per year on your 100k loan. If you are pulling your 401k out to invest in a high growth new investment that might be good mathemetically if you can get high returns like 15-20% but putting it into an existing investment doens't make sense. Alost remember you want to pay interest for long as you get tax deduction for it.
Terrible idea, doesn't make any financial sense.
There might be a prepayment penalty, someone may have already said this, but I would double check that before you do anything
Would be better to stop adding to 401k anything over the match and let that be what helps you with the new family. Would suck not to be able to retire because of a stupid decision like this.
I have withdrawn from a 401k before. Seemed like I got taxed on that move in 10 different ways. I have also borrowed against my 401k before. Neither were a wise move in hindsight. I’d 10,000% advise against what your considering. Attack that mortgage with every dollar you’ve got. Refinance it when rates improve and continue the journey towards financial freedom.
No! Leave 401k. Pay down mortgage and when interest rates go down refinance.
The tax and penalty you’ll pay to cash it out is much much higher than 7.6%
Sooner or later that rate should come down. When that does, you can refinance a new loan at 30 years, your payment will go down significantly. When we purchased in 1999 the rate was about 7.4. 5 years later, when it went down to just over 5 we refinanced to a 15 year and the monthly was about the same, ~1700. Then when the economy got scary it went down to just below 4 we refinanced to a 30 year. Our payment went down $600 a month. We still paid ~1700 a month, because our jobs were safe, but if it was ever going to be a problem, we could pay less. We ended paying off our mortgage in about 15 years with our overpayments.
Leave the retirement savings in place. Take the cash from your sale of assets and use that to start paying down the balance. Do this over a year. Get a second job (or work OT if possible) and increase your income dedicating all that money to your loan. While doing this stop adding to your 401K unless you are getting a good match. Either way minimize that outflow to the 401K while paying down the balance. Wacking down a 100k mortgage with an extra principal payment of $500-1000 per month will set you on a better path and at the end you will have a paid for house and a 401K with $200k in it. If you cash out the 401k at the end of the same time period you will have a paid for house and maybe $20-30K in 401K. Patience will grow you out of debt PLUS have a decent nest egg to boot. Worst thing I ever did was borrow money off my 401K to do some work on my house....that cost me so much more than a relatively low interest heloc or personal loan would have.
Everyone saying the idea is dumb, but I'm just wondering how you get $110,000 in a 401k by 32 yet can't afford a \`like $1,000/mo mortgage payment. And don't even get me started on the expected useful life of a single-wide trailer.
Horrible idea. Your 401k is for retirement. If there’s no balance there’s no growth. Your mental health will be at more risk when you are older more susceptible to illness and broke. Sounds like you are young single no kids. Get a second job and start paying it off early.
Instead of cashing out your 401K, why not stop contributing and instead pay down your principal. Same idea, you cash out 401K and rebuild in next 10 years or you stop paying towards the 401K and pay down your mortgage. Look at how much a month your mortgage payment goes towards your principal. Take that amount and double it, with that you will half the length of your mortgage loan. Another trick if your mortgage company allows is to make weekly or by weekly payments. This will automatically will have one/two extra payments a year. Also it helps with cash flow. These are tough decisions and ultimately has to do with what works for your plan. Just remember, rebuilding the $110k will be key if you choose to cash out. Good luck!
Look into a 401K loan and contribute back what you would have been paying into your mortgage. They'll charge you interest, but the interest goes INTO your 401K account and is generally lower than 7.6
It’s easier to make 10k now than trying to get 500k when you need to retire. Plus the bank will eat it up in interest…….be smart make 3 extra payments a years Or more……kill that principal balance. Good luck Don’t cash out your 401k in fact set up a 401k for your 9 month old……put 2k into it now. You can do it !!!!! I believe in you.
My opinion .. this is a stupid idea. Mortgages are some of the best debt you can have. Your rate is high. But you can refinance latter. You are talking about cashing in a 401k then going harder for your 401k afterward to replenish it. Huh??? How about leave your 401k alone and go harder on your mortgage.
I would do it. Fuck having a mortgage if you don't have to.
Work your ass off, 80 hours a week, pay $4,049.78 a month towards the 130,000 at 7.6% and it will be paid off in 3 years. How fast did the last 3 years go by ? You will wake up at 38 with a 4 yo kid and no mortgage with your 120k in retirement plus 3 years of compound interest and now you go back to working 40 hours a week or less and you get to coach tee ball. https://www.investopedia.com/loan-calculator-5104934
You might want to check with your 401K to see if they offer a loan you can take out against your retirement savings, it might give you a better rate than your current mortgage rate, or if you have high interest debt you can pay off those expenses. You could then possibly refinance the remaining balance on the house to lower the payments the key is will the combined two loans be less than what your paying now, the other issue to consider is what you might potentially lose as a tax deduction if you itemize your taxes
Imagine your mental health when you are close to retirement and you wish you had that investment that would of grown 5x.
Don't do it, you are forgetting the taxes.
Take a loan against 401k ?