401k to pay a large chunk on a house?

[creditcardfree]

I think you are too focused on how much interest you are going to pay on your new mortgage. Those numbers are daunting and yet you currently have a much bigger mortgage and still contribute to your 401K. If you weren't moving, would you really withdraw from your 401K to pay down your current mortgage? It is effectively the same thing.

The best way to avoid the interest is to pay the house off quicker. You can do this by taking out a shorter term loan, which likely will have a lower interst rate and or making extra principal payments on the loan. Leave your 401K balance out of the whole equation.

Think about how long it would take you to bring your 401K balance back to it current level, if you made a withdraw. Compare that to where you would be if you left it there and continued your contributions.

If you make a withdrawal, there is no guarantee that you would end up with the same number of shares. Most likely you will pay more for each of those shares as the market is likely to be higher than when you first invested, therefore you are buying fewer shares. Fewer shares that have the ability to grow and earn dividends and, if you withdrawal, less time to grow. Please don't withdraw from your 401K.

You really need much more than $1000 in an emergency fund. It is great that you are moving to less expensive housing, but you need a much larger emergency fund.

[Paladin26]

I think you are too focused on how much interest you are going to pay on your new mortgage. Those numbers are daunting and yet you currently have a much bigger mortgage and still contribute to your 401K. If you weren't moving, would you really withdraw from your 401K to pay down your current mortgage? It is effectively the same thing.

Simple but makes sense I see what your saying. The only difference I could come up with is that 15k on a 120k loan is not as much as 15k on a 45k-50k loan. But it is the same princepal I guess though.

[jIM_Ohio]

Simple but makes sense I see what your saying. The only difference I could come up with is that 15k on a 120k loan is not as much as 15k on a 45k-50k loan. But it is the same princepal I guess though.

You are correct in that 15k is smaller percentage of 120k relative to 15k as a percentage of 50k.

But how can you tell me you are paying 15k on both loans?

Based on information you are providing, something is not right, you you pay really really high property taxes.

You said your payment was $950 on mortgage
you said your terms were 105k financed at 5.5% which is P&I of $613/month. Does this mean your property taxes AND house insurance are $4044/year?

Seems high for a house valued at 135k. You might want to move to a location with lower property taxes if this is the case.

The interest paid on above is 115k.

If you financed a house for 50k at 6% you would be paying 57k in interest. I guessed high on the rate for comparison purposes.

You should be comparing 57k to 50k and 115k to 135k. If the house is valued lower, your property taxes should go down, but this is something you need to do the homework on.

Just because the interest is less than 100% of cost in 1 example and more than 100% of cost in other example does not make one deal better than other. This is not an investment. You are looking for a cheaper place to live- focus on money from that angle.

This is a situation where you focus more on cash flow than investment return. If investment return were the #1 factor to make decision, why move? (current higher priced house is a better investment for more than just interest paid (or not paid).

By moving into smaller house, you free up cash flow. This freed up cash flow should allow you to save 20% of gross income, build an emergency fund, and live comfortably.

If you do not save 20% when you move, I predict you will have same financial challenges you have now.

[Stuartthomas]

no way ..dont go for the 401k..you dont have enough bal and also expecting a baby..i would not suggest you the same ..just build some good amount first...keeping in mind you are currently debt free..