Money Matters
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Our tech team has launched updates to The Nest today. As a result of these updates, members of the Nest Community will need to change their password in order to continue participating in the community. In addition, The Nest community member's avatars will be replaced with generic default avatars. If you wish to revert to your original avatar, you will need to re-upload it via The Nest.
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Thank you.
Note: This only affects The Nest's community members and will not affect members on The Bump or The Knot.
Refinance question
My huband and I bought our 3 family home in 2005- last year we tried to refinance but the appraisal came out way too low to be able to do it. Presently, we have 2 mortgages- 1 is at 6.5 % and 1 is at 9/3 % !! Crazy!! Someone suggested looking into taking money from our 401K in order to pay down the mortgage enough to be able to refinance. We would have to take out approx $100,000.Has anyone done this before?
Re: Refinance question
Typically, appraisals last for 6 months. Then they expire since they become outdated as homes are sold and the value of homes changes based on the sales prices.
I have a few questions...
1. Are you in an expensive home for your area?
2. Are there similar homes that have sold in the past 6 months?
3. How old are you?
4. How much of your paychecks go into your 401(k) percentage-wise?
5. How much money would you have remaining in your 401(k) and other retirement vehicles if you took $100k out?
6. Are you in an ARM?
7. How much do you owe on the home loans?
Overall, removing money from retirement is a poor idea. You will face penalty and tax implications for doing this which would be on top of the $100k you draw out.
Also, due to the time value of money and the factors of compounding interest, removing from retirement means you will set yourself back quite a bit. By the time retirement rolls around in a few decades we could be talking the difference between hundreds of thousands to millions of dollars (if you have at least $100k in there right now). It's quite a hit.
Honestly, I think your best bet is to budget, cut spending, and start paying down these mortgages faster - doing 13 or more payments per year to principal only.
I have refinanced my current home twice, but when I did, the appraisal was over the purchase price.
I can only tell you that it is NEVER a good idea to remove money from your 401K. I did this twice before so I could pay cash for cars, and could kick myself now. The second time I did it, before the "loan" from my 401K was paid off, I was laid off. In spite of the fact that the money I withdrew as a loan was MY OWN (I was fully vested), they deducted the remaining balance of my loan from my 401K. So, let's say you have $200K in your 401K, and take out a loan of $100K.........then you get laid off. They will take the remaining balance of the loan from the remaining balance of your 401K. You pay for that loan AGAIN. That's how the 401K rules work.
Never a good idea in my opinion.
My recommendation would be to make some additional payments every month to pay down the principal, which you can do. If you pay, for example, $1000 a month to your mortgage company, then pay an extra $200 toward the principal. Existing home sale prices are rebounding slowly, but they are rebounding.
Also, I do know the federal government is trying to assist existing home owners with getting reduced interest rates, even if you are "under water" on your mortgage. If I were in your predicament, I'd probably send an email to my Congressperson in DC, asking for information. They are there to help you, and their staffs are generally more up to date on these things than we mere citizens are, LOL.
Good luck.
Home *purchase* is a legally acceptable reason for a hardship withdraw from a 401k, however you will have to check with your plan whether they allow withdraws for refinancing. If you do withdraw the money, keep in mind that you will owe the IRS 10% of that money as early withdrawel taxes, in addition to the income tax you may owe on any gains.
Your other option is to take a loan from your 401k, where you will owe no taxes (unless you default) and pay the money back to yourself with interest.
It's generally inadviseable to take money from your 401k. The interest rate on a loan will almost certainly be less than what the market will return, so you will be losing out on retirement money. And if you have over 100k socked away, you've done really well so far. It would be a shame to lose that. Plus if you default, you will owe all those taxes.
How much do you owe on that second mortgage at 9.3%? That's a pretty high rate and if it's a relatively small amount I do think I might consider a loan to pay it off. The markets aren't doing poorly right now but the overall 2012 return was still less than that 9%. I haven't done the math but think if you combine the savings from paying the interest on that loan with the interest gained paying yourself back the 401k loan, it will work out in your favor. You'd need a really good market return to beat that which isn't impossible, but currently unlikely.
I think this would be reasonable approach to look at. However, you may run into some issues depending on what you actually have in your 401K. Every plan is different, but some general rules are you cannot take a loan out for more than 50% of the value of your 401K, and also, I believe there might be a limit to how much you can take as a loan all together (maybe $50K). So other than helping save some money in interest as the PP mentioned. I don't think it will help completely with your refinance. Have you looked into the HARP program? I don't know much about it, but I thought it was designed to help people in your situation. GL
Try ENG Lending, we are underwater in our condo mortgage, we owe about 147,000 at 6.3 percent and have lived here for 5 years. We were able to do an FHA streamline with no appraisal and only closing costs of 250 dollars. I believe they are a brokerage company and our new loan is threw Freedom Mortgage with nothing funky about it except we start over at 30 years but who cares cuz we haven't been here long anyway. Our new monthly payment is 242 dollars less. We will be banking that money but may even pay extra on our principal.