To pay off or not to pay off

[fireman1953]

I will be retiring 11/29 from USPS. I have my primary mortgage (payments $892/mo. due to be paid off 4/2018, balance of around $36,000) and a 2nd (payments $337/mo. due to be paid off in about 10 years, balance of around $23,000). I have been debating doing a partial withdrawal from my TSP to pay one or both of these off. The APR on both loans are higher than my historical return rates. I am also aware of the tax implications on partial W/D. Comments, ideas, suggestions all welcome.

 

[burrocrat]

you have to calculate the spreads.

if you make 7% at tsp but pay 10% on mortgages then you are losing 3% off the top saving for retirement, better to pay off the loan. also if you borrow money at 2% to pay off a 10% mortgage the you just saved/earned yourself 8% on the money, gauranteed. plus you pay the 2% tsp interest back to yourself so that's like, uh, 8 + 2 or something.

but the real question is whether the new loan cuts into your beer and poker money. depending on how much you drink and how good you are at cards, that could introduce a whole new set of probabilities to consider.

 

[Valkyrie]

I will be retiring 11/29 from USPS. I have my primary mortgage (payments $892/mo. due to be paid off 4/2018, balance of around $36,000) and a 2nd (payments $337/mo. due to be paid off in about 10 years, balance of around $23,000). I have been debating doing a partial withdrawal from my TSP to pay one or both of these off. The APR on both loans are higher than my historical return rates. I am also aware of the tax implications on partial W/D. Comments, ideas, suggestions all welcome.

no don't do it. let the bank carry the risk. with the higher interest rates coming, your money in the bank will be making money. if your money is in the house u will make nothing and if values drop u will be in negative cash flow.

 

[nnuut]

I paid off my house and cars before I retired and it has been great, I had to work another 2 years to do it but getting that debt off of my back was a great feeling.

 

[SkyPilot]

It is a matter of peace of mind vs liquidity vs risk tolerance vs need. I am with Valkyie as it is often better to let the bank carry the risk. Have you explored refinancing and getting a lower rate combining the first and second? The great thing is you are carefully considering your options and not being a victim of cirdcumstances and random accident! Blessings...

 

[nnuut]

On top of that My remaining balance on the house wasn't helping my taxes very much with the low interest rate and the balance it didn't help hardly at all, paying it off without taking the money out of TSP was the best thing I could have done.

 

[Boghie]

I will be retiring 11/29 from USPS. I have my primary mortgage (payments $892/mo. due to be paid off 4/2018, balance of around $36,000) and a 2nd (payments $337/mo. due to be paid off in about 10 years, balance of around $23,000). I have been debating doing a partial withdrawal from my TSP to pay one or both of these off. The APR on both loans are higher than my historical return rates. I am also aware of the tax implications on partial W/D. Comments, ideas, suggestions all welcome.

Are you less than 59 1/2 - or whatever that cutoff date is?

If so, you are taking a TSP loan. That would NOT be a good idea. You will have to pay it all back when you retire in a couple of months - or it becomes a highly taxed and fined early withdraw.

If you are of retirement age you have great advice noted above. A bit more might be that you need not pay off both mortgages. My guess is that the first is a fixed rate and the second is a floating rate. Look seriously as the second floating rate mortgage. You don't want to see the interest rate float up - and it will.

 

[fireman1953]

No, both loans are fixed rates. And I will be 60 before I retire, so this would be a partial withdrawal, not a loan. I will not have the option to work longer due to health issues (really wondering if I'll last the next 84 days). And I'm not fond of doing a refinance since I'll only have a little over 4 years left on the first. But you all have given me some insight and some things to think about. Thanks and everyone have a great weekend.

 

[nnuut]

No, both loans are fixed rates. And I will be 60 before I retire, so this would be a partial withdrawal, not a loan. I will not have the option to work longer due to health issues (really wondering if I'll last the next 84 days). And I'm not fond of doing a refinance since I'll only have a little over 4 years left on the first. But you all have given me some insight and some things to think about. Thanks and everyone have a great weekend.

Pay of all you can , for your family my friend. Best to you and your family.