Your 401k – Should You Use It To Pay Off Your Mortgage?

Mortgage and Lending with HomeTown Lenders

Picture of 401k piggie bankShould you use your 401k to pay off your mortgage? You may already know that there is a 10% penalty for early withdrawal, but a new bill proposed by Sen. Johnny Isakson and Rep. Tom Graves seeks to allow you to pull money out of your 401k to pay off or pay down your mortgage.


Here are some of the highlights:

·         You can withdraw $50k or half the account value, whichever is less

·         No 10% penalty

·         You must use the funds to make mortgage payments within 120 days of receiving the funds

I’m thinking that some of my clients who have a second mortgage they would like to eliminate but don’t have the equity to refinance could benefit from this. It could also be a way to lower your monthly payment as well as lower interest rate.

If you would like to read the entire proposed bill, called the HOME Act of 2011 click on the previous link or call me at (615) 895-4265 and I’ll send you a copy.

Most financial experts are not in favor of raiding your 401k for the following reasons:

·         Pulling money out of your 401k that is protected from creditors makes it vulnerable to loss if you eventually lose your home

·         Anyone with a mortgage can withdraw money from their retirement account whether they really need or not

So, what do you think? Is this a good idea or is it just too risky to be playing with your 401k?

Comments (2)

Andrew Capelli
Hoover Elementary - Hazel Park, MI

Hal: A lot of considerations... 401k's are protected by ERISA and various state laws.  Plus, the more $ in a 401k, the more that will be available for retirement.  The home value/equity would have to appreciate at a higher rate than the return on investments in the 401k to make sense.  On the other hand, if cash flow was such an issue that the home was at risk for foreclosure, I can see where an early withdrawal would be warranted- especially if funds were not available from other sources.  Interesting post; thanks for sharing!

Nov 08, 2011 04:27 AM
Hal Tennant
HomeTown Lenders - Murfreesboro, TN
Get a Zero Down Mortgage - How to buy a home with no money down

It's a little scary to say the least. Many Finacial Advisors don't recommend it but each individual has to evaluate their own situation and decide what's best.

Nov 08, 2011 05:21 AM