Author Topic: HELOC/refi to pay off 403(b) loan?  (Read 952 times)

Zoot Allures

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HELOC/refi to pay off 403(b) loan?
« on: June 22, 2016, 10:13:08 PM »
I took a $50k loan from my Vanguard 403(b) plan in late 2014 for a down payment on my principal residence. My worries about buying in a hot market were soothed by the continued extreme hotness of the market. Anyway, I opened a HELOC for the purpose of converting my basement into an apartment, which now I may not do after all (long story). And that got me thinking about how else I might use that HELOC. Plenty of possibilities there, but the one I'm pondering right now is using it to pay off my 403(b) loan.

I'm not quite sure how to evaluate this in terms of savings, tax implications, opportunity cost, etc. My 403(b) loan is fixed at 4.25%, which of course I am paying back to myself through post-tax paycheck deductions. The term is 15 years and I only plan to be at my job for another 3-5 years, so at some point I'll need to make a big pre-payment (or else pay a penalty plus taxes for the distribution).

My HELOC is currently at 5%. Would it make sense to use this to pay off the 403(b) loan, and then possibly refi to lock in a ~4% rate? There would be refi costs, but also tax benefits on the extra interest.

Kind of going in circles on this. Anyone know enough to break this down a bit for me? I'm also open to other great ideas for using a HELOC for investing (particularly in RE), though the use of heavy leverage does scare me a bit...

P.S. I think of my 403(b) loan as my "bond portion" since it's at 4.25% fixed. It's worked out well over the last year since the market has been pretty flat. But since I've decided that I'm OK for now with 100% stocks, I don't really need a bond-like instrument.
« Last Edit: June 22, 2016, 10:41:01 PM by Zoot Allures »

DrF

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Re: HELOC/refi to pay off 403(b) loan?
« Reply #1 on: June 23, 2016, 08:14:56 AM »
Why can't you just do a refi now to pay off your 403b loan? Why add the extra step of using the HELOC? Plus if you use the HELOC, won't your LTV might get messed up for the refi.

Zoot Allures

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Re: HELOC/refi to pay off 403(b) loan?
« Reply #2 on: June 23, 2016, 08:57:02 AM »
Why can't you just do a refi now to pay off your 403b loan? Why add the extra step of using the HELOC? Plus if you use the HELOC, won't your LTV might get messed up for the refi.

D'oh. Good point. I've been so focused on what to do with the HELOC that I hadn't quite gotten to the idea of going right to refi.