I'm sure that it's the last day of July 2012 in my part of this big spinning rock..

cd34 · 2012-07-31, 02:10 PM

Quote:

Originally Posted by Greenie

Answer me this: Everyone tells me it's not advisable to take money out of your retirement plan to pay off your house. Something about writing off the interest on your taxes. But we're in a scenario where paying it off would really help as far as monthly expenses. Anyone have any info/thought on this?

First, is there a penalty for taking the cash out of the retirement fund? Sometimes there is a 10% penalty that needs to be taken into account.

Mortgage interest in the USA is tax deductible - making it generally the cheapest money you'll ever borrow.

With that said, cutting out a substantial chunk of your expenses now can benefit you later in another way. If you haven't taken the one time home sale exemption on your taxes, paying it off now, and selling it years from now when you downsize would allow you to take the profit (capital gains) tax free. If you still owed a substantial amount on your mortgage when you sold, then, you wouldn't get as much benefit from the free capital gains exemption. To consider this, make sure you or your wife haven't claimed that exemption.

If you could pay off the mortgage and not leave your retirement situation in dire straits, then, you might take the hit in order to give yourself some breathing room. Just know the costs up front. It is likely to cost you more in the short run for peace of mind.

If I were in your shoes, and it wasn't likely to affect too much of my retirement, it might be worth it to take the hit now in return for the peace of mind and easier financial situation. Your financial guy will have a lot more insight into your personal situation.

With your income, as bad as it might sound, interest rates right now are fairly low and you might be able to refinance to a 30 year at 4% which would give you a much longer payout, but, could cut your payments significantly without touching your retirement. Since you have the money in the retirement fund, you could use that as collateral with the house which might get you past some of the income verification if your income has fallen considerably and wouldn't qualify you for the best rate on a refinance.

With that, Happy Tuesday everyone.

RedCherry · 2012-07-31, 03:49 PM

I'm with CD34, if you have it in an IRA account, the penalties for withdrawing it are substantial. If you just have it in a basic savings / trust/ something else, then not so bad. Best talking to your accountant about all that.

Greenie, we went to our mortgage company and applied for the Making Home Affordable program. We gave them all our income info, and our mortgage payments are going down almost $900 a month. As opposed to withdrawing out of your retirement, you might want to try that route first. It is free and although being self employed we had to turn in about an inch of paper to them, we were approved rather quickly.

We are in our trial period right now, and as long as we make Sept payment on time, we will be approved.

It is a permanent modification, so even if our income goes up in the future, our payments will only rise slightly. (they cap the interest at whatever the fed is at the time the final paperwork is signed, and we will rise up to that over a period of 8 years then it is fixed from them on). They also do things like extend the term, and as a last resort, forgive some of the principal.

My final docs won't print out until after sept. payment, but my loan officer says they normally start you at 2% interest which is fixed for 5 years.

2012-07-31, 03:49 PM	#2
RedCherry Of all the things I've lost, I miss my mind the most. Join Date: Apr 2004 Location: Middle of the Desert, Pahrump, NV Posts: 3,187	I'm with CD34, if you have it in an IRA account, the penalties for withdrawing it are substantial. If you just have it in a basic savings / trust/ something else, then not so bad. Best talking to your accountant about all that. Greenie, we went to our mortgage company and applied for the Making Home Affordable program. We gave them all our income info, and our mortgage payments are going down almost $900 a month. As opposed to withdrawing out of your retirement, you might want to try that route first. It is free and although being self employed we had to turn in about an inch of paper to them, we were approved rather quickly. We are in our trial period right now, and as long as we make Sept payment on time, we will be approved. It is a permanent modification, so even if our income goes up in the future, our payments will only rise slightly. (they cap the interest at whatever the fed is at the time the final paperwork is signed, and we will rise up to that over a period of 8 years then it is fixed from them on). They also do things like extend the term, and as a last resort, forgive some of the principal. My final docs won't print out until after sept. payment, but my loan officer says they normally start you at 2% interest which is fixed for 5 years. __________________ Our 3D Comics and Props on Renderotica Last edited by RedCherry; 2012-07-31 at 03:51 PM..