The interest you pay is treated as a deposit into your account.
There is probably a loan origination fee which will be kept by your 401k provider.
The money you borrow is taken OUT of the 401k. If you had 10k, and borrowed 3k, you will see a 401k balance of 7k and a loan balance of 3k. As you pay the loan back the 7k increases and 3k decreases. The interest paid will increase the 7k as well.
This is a bad time to take a loan- market is down. You would be selling low and buying high, which is a good way to go broke. I would find another way to come up with money, if possible. Or make sure loan is paid off in one year or less (so you are fully invested when the market rebounds).
I have taken 2 401k loans out when I bought my condo in 2000 and new house in 2005. In 2005 I was much smarter about it, I took loan out for 13 months and had it all paid back well before then. In 2000 someone told me to keep loan period as long as possible (bad advice) and that is going to be paid off next month.
__________________
Light travels faster than sound. That is why some people appear bright until you hear them speak.
One person's stupidity is another person's job security.
|