cash out 401k or refinance house with cash out???

[MommyDOK]

which would you do??   We had some expenses that we just can't cover and need some extra cash.  Either way, we are borrowing from our future.  I know everyone says don't take out 401k, bc of the 10% penalty and taxes.  We don't pay any income federal taxes (other than ss tax) so we'll just have the 10% penalty, afaict.  Home equity loan will increase our monthly payment, which will be hard to manage and we're borrowing for 30 years so interest adds up, ya know??

[nd_deadhead]

Neither one is a good solution. How much money are we talking about here? I think I'd do my darndest to come up with money some other way - sell stuff, take on a part-time job, beg and borrow from family members.

As you said, borrowing short-term funds for 30 years is a really expensive loan; taking from your 401K robs you of the earning power of that savings.

Good luck - and however you manage to get out of this jam, I hope you can avoid getting into it again in the future.

[MommyDOK]

We need about $10.  We made a poor financial decision with our emergency/longterm savings, which I will regret until the day I die.  It's on the level of using the whole fund to buy lotto tickets.  Live and learn.  Sigh.

[MommyDOK]

10 grand that is.  not 10 dollars. 

[Imakcerka]

not actual lotto tickets I imagine.  Don't go the house route.  Just cash out your 401k and rebuild it.  Honestly the way things are going nothings a sure thing no matter what and don't kick yourself for a poor decision, move on! 

[sunflower.mama]

Instead of a whole refi, could you do a HELOC?  That way you could pay back as quickly as possible, instead of over 30 years.  And no penalties.  I know they are harder to do than a refi though, ironically.

[sunflower.mama]

Also, even if you don't ordinarily owe income taxes, wouldn't a 401K cashout change your income picture so that you might owe?

[goldfishkate]

With the current state of the housing market, I think I would be more inclined to do the 401(k) withdraw. You will be panelized but at least you won't be upside down and stuck in your home (assuming a refinance with $10K extra would make you upside down). Plus, if you refinance I believe you will have to pay closing costs too. There's really not a good answer. Either way you're going to end up paying interest or taxes.    

[taubel]

Can you take out a loan from your 401(k)?

[sunflower.mama]

Actually you can do a no closing cost loan.  That's what we've done.  Your interest rate is maybe 1/4 point higher, but you can refi without financial consequences (aside from extending the term of the loan).  You do have to pay prepaid interest and taxes, but your escrow account is refunded so you are "whole" after a couple of months.

 

Originally Posted by goldfishkate 

With the current state of the housing market, I think I would be more inclined to do the 401(k) withdraw. You will be panelized but at least you won't be upside down and stuck in your home (assuming a refinance with $10K extra would make you upside down). Plus, if you refinance I believe you will have to pay closing costs too. There's really not a good answer. Either way you're going to end up paying interest or taxes.    

[MommyDOK]

thanks for responses.  We could do a heloc, but then our payment would go up, which is not good.  We are budgeted down to the penny....we refinanced a year ago to save $100/month, but then our taxes went up (what's up w/ squeezing middle class out of our area?), so that was a wash.  If we refinance and take out $10 grand, we won't be upside down on our house, which is good. But, I just cannot see doing anything that would raise our monthly expenses w/ inflation going up and food costs going up...and our utility company just put through an increase so our electric is going up.  I feel like I can be as frugal as anyone, but these uncontrolled costs keep going up and that's what drives me crazy.  Plus, our cars are old etc.   We need to sell our house, take our equity out and move to a cheaper area, or lower taxes or something, but getting our house ready to sell to optimize our return is more than I can handle right now.  

THanks everyone! 

[Imakcerka]

GOOD LUCK!

[MommyDOK]

We probably would have done better had we bought lotto tickets than the choice we made!!!  I wish I could stop kicking myself, but I get so mad.  oy.  It's hard to get over poor financial decisions. 

 

Originally Posted by Imakcerka 

not actual lotto tickets I imagine.  Don't go the house route.  Just cash out your 401k and rebuild it.  Honestly the way things are going nothings a sure thing no matter what and don't kick yourself for a poor decision, move on!