Hi,
I'm 27 and a homeowner.
I owe about $111,000@4.625% on a $151,000 home, no other debt, and I have $56,000 in my 401(k) and $91,000 in a taxable investment account.
My 401(k) plan allows us to take loans against the value in the account, and pay it back via payroll deductions over anywhere from 1 to 60 months.
The interest on the loan (4.25%) is paid directly back to the account, so when I make the loan payments I'm really just paying myself back. I was thinking the other day that it might make sense to take some of the 401(k) capital (say, $10,000) and use it to reduce the amount I owe on the mortgage.
The way I see it, the interest I'm paying on that $10,000 (via the automatic payroll deductions) goes back into my pocket instead of the mortgage lender's. The risk I see is that the money would earn more in the market than the 4.625% it would save me on the loan.
Any thoughts?