Looking on the TSP.gov site answered most of my questions. Amazing what you can find out by actually looking for yourself!
The only thing not perfectly clear is if the payroll deduction for payoff is before or after tax money. I am assumng after tax, but if so then does that portion of my TSP account still get taxed when I take distributions when I get old(er)? Or, is that one of the prices I pay for this loan?
This would have to be a general purpose loan, as residential loans to pay off existing mortgages are not allowed. That was always my intention anyway, get away from the mortgage company and the escrow account.
Yeah, I think I'm smart enough to remember to pay my taxes and insurance all by my self.
Some may say that it isn't legal to do this but as far as I can see I could take a general purpose loan for 50k and put it all on red down at Lone Butt casino. Course, Lone Butt was moved away from the Butte so Vee Quiva is closer. Course if I won I'd have to make it through Laveen and South Phoenix alive.
Since I'm doing so well this year with my TSP account (yeah the tracker reflects the real account) I can't see how I would lose more money.
This sounds like a good idea the more I look at it. Which is why all my alarms are going off. Danger, danger pessoptimist.
PO
Ok, here's my 2 cents, FWIW
When we took out our loan, the interest rate was 3.5%.
As far as I am able to tell by my pay stubs, all this is before tax deductions.
Correct me if I'm wrong, but a TSP loan is not considered a distribution so no tax is due.
I think that is the general idea behind the loan program, as it is your money that you already contributed before taxes,
so it remains that way unless you default on your loan, at which point you will get nailed for about 50%
of the original amount in early withdrawal penalties and tax.
The best thing for us was (wish I could say it was my astute planning, but ney) we borrowed just as the market started to peak and fumble in 2007.
So all the time the market was tanking hard, we were earning 3.5% and DCA'ing with every repayment. Not stellar, but a gain.
After refinancing last year, we restructured our contribution amount just above the level needed to get our match,
then added the 3 or 4% from that difference as an additional amount of repayment to our loan. Our total amount contributed to TSP remains the same,
but we lop about a year + off the term.
I regularly adjust my contribution allocation, as there are no limits to transactions, and only a day ahead of payroll is needed to process a change.
Using that and the <1% IFT's, I can shift enough back and forth to buffer the market if I have maxed my 2 IFT's for the month.
You can borrow about half of your TSP's worth.
There is no credit agency qualification or reporting, and as far as I know, it is not considered a debt, just a tax liability if not repaid as agreed.
Both you and your spouse will have to sign the agreement.
Before we applied, I IFT'd all our funds to G, then reallocated after the loan was disbursed.
At worst you would miss out on the compounding interest of 37k (decreasing as paid off) if the market went up more than (2.5% + 5.25%) during your loan,
at best, you would pay yourself the 7.75% and could DCA with your contribution allocation if the market tanked.
3 years is a fairly short timeframe to repay that chunk of change IMO, and I think you'd be hard pressed to find many economists
that would predict us rising to 2007 market levels in 3 years.
Given that, depending on your tolerance for risk, you
might be able to squeeze 8% gains consistently,
however, turn on any investor news and the "experts" predict single digit returns well into 2012...
Do you need the credit history your house payments provide?
If not, and it were me, I think I could mentally justify that as "paying myself first" and do it.
GL
Your calculations are correct, but if you change the dollar amount to 9993 - 10123 the payment is $83.00
