Should I pay off my mortgage with 401(k) funds?

Question: I have been paying an extra $560 on my mortgage since July 2007. Recently I began paying an extra $1,000 each month. We owe $l55,000 on our house — our original loan was for $l86,000. Our house payment is $l,427. We have $200,000 in a 401(k) plan (maybe less now).

Should we pay off the house with the money in our 401(k) or keep paying as much extra as we can? We also pay (depending on interest rates) between $700 and $l,500 per month in interest on a home equity line of credit. I thought that once I paid off the house, I could work at paying off the line of credit. What would you do?


Answer: We would never raid a 401(k) plan. You’d not only have to pay a penalty for early withdrawal, but also have to report the money as income and pay taxes on it. Plus, you would have nothing for the future.

Instead, stop using the home equity line of credit (HELOC) and focus on paying it off as soon as possible. Once that’s done, start paying off your mortgage with a vengeance. You’ll save more in interest by eliminating the HELOC first than by paying down your mortgage.

Consider temporarily reducing the amount you contribute to your 401(k) to maximize your debt reduction. You’re on the right track — destroying debt will produce incredible freedom.

* * * * * * * *

4/9/2009 2:22 PM Susan Johnson wrote:
This economy has hit my husband and I hard. We will be filing for bankruptcy. Do you know of anyone who has gone through this and the best way to manage to survive through this?

* * * * * * * *
4/23/2009 10:10 AM America's Cheapest Family wrote:
We do not have experience with bankruptcy and have never recommended filing.  We refer people to Consumer Credit Counseling for help with establishing a plan with creditors and developing a budget.  Check out books from the library on budgeting and create a lean budget that allows for savings.

* * * * * * * *
12/9/2009 1:07 AMdubaispring wrote:
yay..that is a lot of money just for mortgage..

* * * * * * * *
12/11/2009 10:18 AMcyprus wrote:
This is hideous..401 gran for mortgage?

* * * * * * * *
12/14/2009 8:50 AMdubai palm island wrote:
thanks for the great article, but what will happen if your source of loan failed.

* * * * * * * *
12/16/2009 9:30 AMlarnaca wrote:
no..its too expensive for a mortgage for me..

* * * * * * * *
cyprus wrote:
well, provided that the house is big and is comfortable enough to live in..

* * * * * * * *
12/22/2009 8:33 AMdubaiprop wrote:
I wouldnt pay that if i were you..

* * * * * * * *
12/23/2009 8:22 AMcyprus wrote:
yup, me too..that's a pretty big money

* * * * * * * *
1/4/2010 5:42 PMaphrodite wrote:
i agree!

* * * * * * * *
1/13/2010 9:45 AMlimassol wrote:
no..i dont think soo..

* * * * * * * *