The monthly payment on a $250,000 15-year fixed-rate mortgage at 3.16 percent is $1,745.76, or about $445.76 more than your current mortgage payment. Borrowing from your 401k to pay off your mortgage or buy a house. We're not making much money in … After 20 years of paying $1,389 a month you still owe $138,850. Pay With the Right Money, and Pay the Right Amount. 2. My husband and I currently have $1,000,000 in retirement savings. John does not actually have to start dipping into his 401(k) to pay the mortgage, but this calculation shows lenders that he could rely on his 401(k) to pay the mortgage if needed to. Paying off the mortgage with a 401k: The disadvantages. An annual $20,000 reduction over a 25 to 30-year retirement adds up to significant savings. If you retire after 59½, you can start taking withdrawals without paying an early withdrawal penalty. Buying a new home in retirement isn't always wise. For example, assume recent bank statements show withdrawals of $4,500 per month from an IRA (the lender needs to see withdrawals for at least 2 months). The 401(k) Withdrawal Rules for People Older Than 59 ½. Instead, it could create more stress. If your mortgage interest rate is 4 percent but your 401(k) earns you 6 percent, putting money in your retirement account pays off much better. Before going from a 15-year mortgage to a 30-year mortgage, make sure your savings, Social Security payments, and other forms of income will be able to keep up with those payments well into your retirement years. The retiree needs unrestricted access to these accounts without incurring any penalties — those under 59 ½ years of age usually can’t withdraw funds from their 401(k) without paying withdrawal penalties. The years during retirement offer consumers fewer options for funding. As part of our pre-retirement planning, my husband and I have decided to pay off our mortgage before we retire. For the average American, owning a home outright is a major objective in life from both a … Distributions from these investments must last for at least three years after the date of the mortgage … A mortgage is a big expense, and even if you do get approved for one, it isn't always the smartest financial move. Source: AJC.com Paying your mortgage early isn't such a great idea when the interest rates are low. Discover Ways to Save in Retirement and How to Pay Off Your Mortgage Early Here is a viable plan for retiring mortgage free or to simply increase your savings dramatically. You’re making good money. Using their retirement savings to pay off their mortgage can give people a feeling of freedom. Why? Mortgage interest is tax deductible, so if you itemize, your actual interest expense may be even less. Homeowners who don't have a lot of cash on hand may be tempted to use the funds held within retirement accounts, like IRAs, to pay down a mortgage. For example, if you’re in the 33% bracket (combined Federal and state income taxes), you must withdraw $127,500 from your 401k to have $85,000 left after taxes! Question ; Pay off mortgage with 401k money? If you intend to use retirement funds from traditional 401(k)s or IRAs to make another 10 years of mortgage payments in retirement, you’re going to need to pull out a lot more than $16,668 a year. After seeing how much money we could put in our bank account instead of paying mortgage interest, we started to think seriously about paying our entire mortgage off early. Unless you want to delay your retirement, one way to eliminate debt is to take some of your super savings as a lump sum and use it to pay off your mortgage. Should you pay off that mortgage before heading into retirement? Paying off a mortgage early can reduce monthly expenses, but raiding an IRA can result in higher taxes and leave you with fewer resources for retirement. 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