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Subject:  Re: The downside of 401k loans... Date:  2/10/2015  3:52 PM
Author:  jeffbrig Number:  309015 of 312956

Thanks for the detailed analysis, AJ. You're one of the reasons why I come to this board. Even your assumptions are remarkably close to the actuals.

My current mortgage rate is 4.09%, and I think the loan fees would make refinancing unattractive. We originally financed 80% LTV on the purchase, so we'd be talking about a jumbo approaching 90% LTV to roll everything together.

Of the other loan options, the HEL definitely seems the most attractive in terms of monthly carrying cost, and I can get 4.5% for 10 years through my credit union. I discount he HELOC because I'm not a fan of variable rate loans.

Plus, there are lots of things that start to kick in from a tax standpoint when your taxable income is high enough to put you in the 33% bracket, like AMT, decrease in personal exemptions and decrease in deductibility. So, I would caution you to look very closely at your tax situation before deciding to take the tax/penalty hit.

Great point. I looked up the personal exemption phaseout, and we'd still be under that threshold. Not sure about other deduction phaseouts, and AMT is completely unknown to me - we don't pay state income tax, so we don't have massive deductions and have never triggered AMT before. Still, there's a lot of cause for concern on that front.

I think that DW should probably look at the numbers before making a decision. To me, having to pay $13.8k in deductible interest over the next 10 years would be much more preferable than having to pay $19.3k in penalties and taxes in the next 14 months.

I'm going to make this argument, but she's not much of a numbers gal when it comes to finances, lol. In her mind, it's $13.8k paid plus $48k, vs a one time $19.3k and walking away. As both you and PSU mentioned, the long term value of that $48k is potentially much greater. I get that. Convincing her to see it that way is my challenge. She's good (great) at many things, but financial matters is not one of them.
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