Nah, you cripple your paycheck.
I wanna pay down a HELOC with a 401K loan.
- Thread starter daves66nova
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Seems like a bad idea, based on the info given. Too much risk. Better to cut 401k contribution amount (but keep whatever needed for any match), better yet to find other means, like second job, liquidate some unnecessary assets, cut the budget elsewhere.
No, I did not take out a second mortgage for NO REASON. I took it out for a down payment on a rental that brings in about 700 a month, AFTER all bills are paid. I have NEVER used any of the HELOC money to buy anything, other than to put down a down on my rental. My 401K is doing very well. I have gained around 30% since Jan after I moved things around,in my Vanguard acct.I agree. I suspect you know as I do that a second mortgage was taken out on his home for no reason. But doesn't matter, it is what it is. It should be paid back now by making extra payments, selling off any expensive vehicles (including boats and motorcycles etc) for low cost used ones as whatever that loan was used for.
Terrible idea to have a 30 years mortgage and even worst idea to buy stuff on the equity of your home with a second mortgage. Sell off everything he can, stop contributing to the 401k if he has too and suffer as the HELOC gets paid down, once it is, close it out.
Re-start 401k and pay down 30 year mortgage a little at a time. Buy used cars. He doesnt need "qualified" advisor for this, the reason for the situation is mis-handling of money, immature spending on stuff you cant afford. Meaning a spending problem. If he stands up, takes charge he will never do it again, I think better than a bandaid approach finding an easier solution.
BTW- my post is not intended to demean the OP in ANY WAY. I think we all have made bad decisions in our lives or not to smart ones. I CERTAINLY HAVE DONE SOME STUPID THINGS, but I never took out a second mortgage.
Good news is I also did some smart things, whether by luck or not. One thing as I look back is the stupid things so I try to teach that to my kids ... and I see they got the idea. One really good and the other knows but doesnt exactly follow
Yes, but I also have 700 coming in from 1 rental, and 600 from my other rental. I have 2 rentals, plus my primary.
Just get an accountant to thoroughly go through all your options and figure out any implications like tax planning to make the right choice for you. I know paying for something one could try to get for free sucks but this is one thing one shouldn't cheap out on. I would not make this decision myself or listen to peoples opinions.
Yup, your situation is complicated. Good luck
Well done, I would put the $700 every month (and then some to pay off the HELOC
No one answer for everyone and why another commented not enough information in your OP. This makes a difference.
Thanks, I try doing that "Velocity Banking" also.
These things are rarely simple. There are more factors at play than we know of and this is a serious topic. He needs to find an accountant to consult with him on everything that matters to get all the facts and make the right decision for his retirement and tax planning. One wrong decision can lead to a spiraling and it could lead to getting more loans and with higher interest and becoming more leveraged. This thread should get locked to be frank. I don't want wrong ideas and unqualified suggestions to propagate towards a bad and very material outcome occurring. It only affects one person here and there's a high chance it'll be a bad effect as opposed to a good one.Yup, your situation is complicated. Good luck
If the rental property is all that is on the HELOC, dedicate all proceeds from those properties to paying it down.
Tighten up things in all other areas and throw those proceeds down on the loan monthly.
Do both these things and whittle away at it.
I'd leave the 401K alone.
You borrowed money from yourself to buy a rental. You are leveraged, but you are making money on the money you borrowed. What's the need to hurry up and pay off the HELOC? The cost of that money in the HELOC isn't cheap, but your making money. Leave your 401k alone and pay the HELOC off as you can. Nothing good can come from removing money from your 401k.
I was fortunate to have the opportunity to buy a commercial/residential building with a partner at young age. This was the one thing I did right back then. I was extra fortunate that we were offered a private 15 (possibly 10) year mortgage.
We paid it down at an accelerated rate. Our main tenants have a triple net lease on the entire building from us, responsible for everything and they do what they want with the tenants and rent. For decades now, the monthly income comes in like clockwork, though I am at the point now where I want to sell it, maybe in a year or so and the value has gone way up as you can imagine.
Sounds like you are well on your way and hope my posts didnt sound "abrasive" because of my other mistakes in life I am REALLY passionate about money and I think taught my kids well. Without this building at the time Im not sure where I would have been.
But one thing for sure, I worked for everything I had, so I am passionate about that as well. I never whined and worked like a dog to make things happen, I have had a happy life, so far... sure, more never hurts either!
You sound youngish. One thing the partners told us many decades back at the negotiations was "remember one thing, money doesnt buy you health"
Take care of yourself and good luck with your rental!
Put the profit from the rental toward paying off the heloc, that is like 9 years, it is a long-term investment.
First, congratulations on investing in rental real estate and a 401k! That should put you ahead of 90% of your peers.
Financial advisors say to never borrow from your 401k. That's because most people don't have other investments, would spend the money on lifestyle improvements, yada yada yada.
The fact that you have invested in two rentals makes you not most people, so you can ignore generic advice for the masses. Then it just becomes an a risk/reward analysis with a little simple math thrown in.
1. Is your HELOC tax deductible? If you can deduct interest paid because you used the money for the rental down payment that is more incentive to keep that loan. Question for a tax expert if you haven't already asked.
2. Do you think the 401k will earn more than the interest you pay on the HELOC? It did the last year, but that's not guaranteed. With 2 rentals and the 401k 100% in the market you are taking on risk if the market turns (like a lot of experts are predicting). Taking the 401k loan takes those funds off of the table, and might prevent you from getting too far out over your skis.
I took too many words to say ignore generic advice and do it if it makes math and risk sense. Don't if it doesn't.
Financial advisors say to never borrow from your 401k. That's because most people don't have other investments, would spend the money on lifestyle improvements, yada yada yada.
The fact that you have invested in two rentals makes you not most people, so you can ignore generic advice for the masses. Then it just becomes an a risk/reward analysis with a little simple math thrown in.
1. Is your HELOC tax deductible? If you can deduct interest paid because you used the money for the rental down payment that is more incentive to keep that loan. Question for a tax expert if you haven't already asked.
2. Do you think the 401k will earn more than the interest you pay on the HELOC? It did the last year, but that's not guaranteed. With 2 rentals and the 401k 100% in the market you are taking on risk if the market turns (like a lot of experts are predicting). Taking the 401k loan takes those funds off of the table, and might prevent you from getting too far out over your skis.
I took too many words to say ignore generic advice and do it if it makes math and risk sense. Don't if it doesn't.
The biggest problem with 401K loans are you will have to pay the taxes and penalties if you leave or lose your job. That is a huge unpredictable risk.
Also I’d rather keep the money in the market and attack the loan. And I’d rather owe a bank than the IRS. But that’s my opinion.
Also I’d rather keep the money in the market and attack the loan. And I’d rather owe a bank than the IRS. But that’s my opinion.
Not sure if it was mentioned, but I don’t think you’re accounting for the loss of the compounding interest your 401k would be making with the money you take out.
I think it’s better you allocate extra $100-200 extra a month toward your mortgage payment which will go directly to your principle.
I think it’s better you allocate extra $100-200 extra a month toward your mortgage payment which will go directly to your principle.
Best approach is to concentrate on paying on the HELOC principle as fast as possible. A lot of personal spending is not necessary, so cut out the restaurant meals, clothes purchases, etc. and get that thing paid off. The temporary discomfort is worth it. Debt free life is the way to go.
That makes a world of difference!
Skimp, ETC, as I replied earlier, get $1500 month PLUS the $1300 from your rentals, FIND another $200 somewhere = $3000 month!. Pay that baby off before you retire and DO NOT TOUCH THE 401k.
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