No. of Recommendations: 0
Rayvt: "You have to look past the form to the substance.

A 401k "loan" is not a loan, nor is the "interest" really interest. Nor, actually is the "payment" really a payment.

What is truly going on is that you are taking a withdrawal from your 401K, and then putting that money back in over a period not to excess 5 or 10 years. Plus putting in a small additional amount of after-tax money. It's like an IRA rollover except that instead of having 60 days to put it back in, you are allowed to do it monthly over 5-10 years."

First, IIRC, when used to purchase a home, you can have 30 years to put it back in.

Second, you must have a very peculiar definition of interest.

"Interest" is defined under the Finance Code as "compensation for the use, forbearance, or detention of money." See Tex. Fin. Code ' 301.002(a)(4).

Seems to me that the "small additional amount of after-tax money" you put is is what you pay for the privilege os using the 401-k funds, IOW, it is interest.

"That's if you jump through all the hoops, and don't leave your job before you've put it all back."

Are you certain of the truth of that statement? I am not. And it certainly was not true when I took a 401-k loan for home purchase.

"The "interest" is not really interest. It's just you moving your own money from your checking account to your 401K account. There is no "growth" involved -- you don't make a profit when you move money from your left pocket to your right pocket."

See the definition of interest that I referenced above and then please explain again how it does not apply in the context of a 401-k loan.

Moving money from your left pocket to your right pocket involves more "growth" than moving money from your left pocket to my pocket (either right or left).

Regards, JAFO
Print the post  


Useful Resources
Our Home Center has all you need to make buying and owning a home a great experience. Get or refinance a mortgage and much more!
Buying/Selling a Home FAQ

Mortgage Professor
Offsite resource for mortgage questions.
Live Video Event Monday!
The GP team is hosting a live video event on Monday at 4 p.m. ET. Don't worry if you can't make it — we'll have a replay and a transcript. Click for more!
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.