AboutJohn D Smith, CFP Expertise I can answer detailed questions regarding mutual fund investing, retirement planning, education planning and related financial planning/investment issues. I have a B.S. degree in Financial Planning & Counseling. I am also a Certified Financial Planner (CFP) and have performed fee only investment management and financial planning services for the past 11 years.
Question We have a 5yr arm (460K), 1 year left. Qaulifying loans are 418k in our area. Jumbo loans are at least 1 piont higher. Should we take a 401K (40K) loan to get our principal down to a qualifying loan rate or pay the higher inrest rate. Our 401k loans are 4.5% paid back to us. We have 200+k in our 401k. Salary 110k/year. 10k savings account. No other loans outstanding. Thanks.
Answer Hi. The answer to your question is not straighforward since there are tradeoffs. From purely a financial perspective, if you keep your 401k invested and you earn more on the amount you would have withdrawn than the higher loan cost, then it makes sense to keep your 401k $$ invested. If not, then it would make more financial sense to take $$ out and settle for the lower loan %. I hope this helps.
