Pool Financing

[scott713]

Question- if borrowing from your 401k does the repayment come out of your pay pretax ? like going into your 401k...

No, you pay it with after tax dollars and because they do not send you a 1099 for it ( unless you default ) then it goes back in and you pay taxes on it when you take it out in retirement.[/quote]

Thanks Doobs, I never would have considered borrowing from our 401k, but I believe this is a great idea . Our house is paid for and we were going to get a mortgage to build but just cant pull the trigger, we sacrificed a lot to build debt free and I know it seems petty but we just don't want to borrow to build a pool . We will now look into borrowing from our 401k as this seems like the best best . zero interest and no penalty , whats not to like about it.

 

[MassNerd]

Another vote for Lightstream. If you have good credit you can get a personal loan at a low rate. I took at 5 year loan at 5.79%. No collateral, no fees.

 

[4knights]

I agree with No Fear about home equity line, didn't want to pay the loan fee or the interest plus you may end up being below the 20% mark and end up paying private mortgage insurance to boot.
My 401k loan was a friends idea as he takes loans from his all the time. (not pool size though) my terms allow me to take one loan at a time for a max amount then pay back in no more than 5 years or as soon as I want- no penalty, no interest and the only cost was the $50.00 for them to transfer the funds.
It was a win-win for me, no interest at all! No need for another appraisal (so the housing tax assessors don't know to jack your rates right away.)

Question- if borrowing from your 401k does the repayment come out of your pay pretax ? like going into your 401k...

Depends on who your 401k is with, mine is Thrift Savings Plan (federal employee) and YES, the payment is taken out of my pre tax income since it was originally pretax when deposited. Not like my ROTH- that's post tax deposit.

I still pay into both traditional and Roth funds (somewhat lower amount to offset the loan payment) and the loan payment is taken directly from my pay each pay period. Worked out great for me- no interst to speak of and only cost me $50.00 for the loan.
I know, I know, there is a cost to me long term- not paying into the 401k at the same rate preloan will decrease my account amount long term but not as much as traditional interest rates would have cost me.
Ron

 

[bacevedo]

Depends on who your 401k is with, mine is Thrift Savings Plan (federal employee) and YES, the payment is taken out of my pre tax income since it was originally pretax when deposited. Not like my ROTH- that's post tax deposit.

That's interesting. I thought it was federal law that required your 401k loan to be paid back after tax. That's how mine works.

I know, I know, there is a cost to me long term- not paying into the 401k at the same rate preloan will decrease my account amount long term but not as much as traditional interest rates would have cost me.

Actually, most "professional" accountants will tell you that the bigger downside is the lost potential growth on the money that was loaned out. If you take a loan out for $50k, then that $50k is not in the 401k account to grow. There are formulas that can tell you what your potential money lost is for different 401k return rates vs taking a traditional loan and paying interest to someone else. Just google 401k loans and there are websites that will do this for you. (For example, if your 401k grows at 12% and you are paying someone else 6% interest, it still might be better to pay someone else 6% interest and let your money grow at 12%.)

However, this can work in reverse and be in your favor if your 401k decreases in value while you are paying back the loan. You would be buying back your 401k "shares" at a lower cost (and with your own interest) than you "sold" them at to take out the loan. In other words, your interest paid back is growing your 401k account quicker than the market is. (For example, if your 401k only grows at 1% or even loses value you would be better of doing a 401k loan than giving someone else 6% interest.)

I am not saying that a 401k loan is bad (I did one), just that you want to take everything into account so you know the impact to your retirement savings by taking out the loan.

In our case, I was willing to give up potential gain on that money so I could build a pool now. I am basically borrowing against my future retirement. At the rate I contribute and that my company matches, I should be more than comfortable at retirement, even losing $10k-$20k on potential growth on the money that was loaned out.

 

[rodog123]

We reside in Texas and are currently shopping around, we have high 700's credit rating.

-Home equity is out of the question as we have not reached our 80% LTV (loan to value ratio)

Unsecured loan (no collateral req)
BBVA offered 50K @ 6% over 15 years = 180 Payments

Will be checking out Lyon Financial then a credit union.

-As far as borrowing against your 401K, I believe you will have to pay back the amount borrowed plus any returns in the specific fund at least that is what my old employer told me. Are the rules different in different states?

 

[danacc]

The amount of interest on a 401K loan is determined by your employer. It can vary between employers.

 

[cudavic]

The amount of interest on a 401K loan is determined by your employer. It can vary between employers.

True however you pay yourself the interest back.
I borrowed from my 401K for the down payment on my third house.
The interest rate is 4.5% which gets credited back to my 401K.
I have up to 30 years to pay the loan back because it was used to purchase my primary residence.
On personal loans from your 401K you can only stretch the term out to 5 years which is fine, as you really should not borrow from your retirement money if you can help it. Everyone's case will be different. In my case I had ample money in my 401K to borrow from it on a house at a very good price due to the downturn in the housing market. When I built my this past October pool I took a HELOC out from SunTrust Bank at 1.99% for the first 15 months. The rate will reset in Jan 2015 at whatever prime lending rates are plus I believe either 1.5% or 2%. This does not matter to me as I will have the loan paid prior to the Jan 2015 expiration date. Again everyone's financial and personal positions will be different. If I were to do it all over again I wouldn't change a thing as I like borrowing money when it is cheep to do so.
Sincerely Vic

 

[appleguy711]

We set ours up through the credit union at a 10 year rate at 4.5%. Our credit union is also allowing us to make ballon payments and they will readjust the monthly minimum payment based on that. More unique I know, but we know our loan officer pretty well and they said it is simple without having to refinance.

 

[busouthpaw22]

I financed through EECU (educator employees credit union) in Oct. I put up one of my vehicles that is paid for as collateral, and got a fixed loan at 2.45% for 66 months. I almost fainted when they told me the rate. Every other bank I called was in the 6%-8%+ range.

 

[Patrick_B]

The amount of interest on a 401K loan is determined by your employer. It can vary between employers.

While true, 401K payback total costs can reach 40% with other taxes, penalties and fees. Generally, retirement loans are a very bad idea and should only be used in dire circumstances IMO. This is only one guy's opinion, but I firmly believe this.

 

[duraleigh]

Informative, useful thread folks. Nice to see it revisited and I hope it continues. Caution yourselves as the current cordiality could slip a bit.....don't let that happen.

 

[Telnet64]

Hi there - FWIW, we had a loan with Lyon Financial for a short period and they were very professional and accommodated some special circumstances.

 

[reindeerboy]

Hi gang, interesting read, but I just so happen to be a loan officer. There are many financing options and each person has a different situation to each of their own financial net worth strength. I would always be cautious from pulling from a 401k as a loan for something that would be a non income producing item. It also depends on each persons age, intent, years yet to retire etc. Just caution is the word. The reason is that some people do pull out a loan to diversify their portfolio to invest in other ventures that produce other forms of income.

A couple items when looking for a bank. Unsecured usually means a higher interest rate. Credit cards to finance anything long term is not a good idea. My first direction would be a home equity line of credit. Something where you have enough collateral in your home to allow you to do this at a very low interest rate. Usually 5 years in nature and the rate can be fixed depending on the type of bank you all bank at. Again, caution here as each bank has different lending parameters and practices and loan products. I personally would never use cash but rather invest that cash into another form of IRA or product that would give you a larger rate of return for your money. Loans are still very cheap right now and my word of advice would be to invest in things that can generate a larger return with your cash, take out a loan at a lower fixed rate on a monthly level, and then invest your money wisely. Make your money work for you while you enjoy a pleasure item such as a pool.

Another word of advice is to check with your tax professional. I work at an Agriculture lending facility for farmers which provides many types of financial service products. Each person has a different situation and goals with what they wish to achieve. That is how I lend to my customers and provide the customer service to them with these other financial service professionals that I work with in order to put a "total" package together to meet each members financial needs and goals.

I hope this has given you all a bit of extra information to help you each find a loan product that works for each of you.

Good Luck and take care my friends.

 

[houstonhusker]

FYI...if you're in Texas, try looking at Frost Bank. Just closed on my home improvement loan for a pool with them at 5.74% for 15 years.

 

[bhargraves]

+1 for Frost. Same rate and terms as above. The other advantage is they count 50% of the loan (pool cost) towards the value of the home to help you get above 90% (they do 90% rather than 80% LTV). We just closed today!


Sent from my iPhone using Tapatalk

 

[calespool]

I also would recommend Lightstream if you have good credit. Very simple to get qualified over the internet and for unsecure loan rates were reasonable. 4.99% for 5 years and up to $50,000 or 5.99% for more then $50000 and 6 years or longer.

I am a CPA and would not recommend taking money out using a 401k plan. You do pay the interest to yourself when you pay it back at a low rate, but you loose out on the market increases until the money is paid back. A lot of funds had 20% or higher gains in 2013, and if you had a loan you would just be getting the interest on the loan. Also when you payback a 401k loan you payback with after tax money, I read earlier someone made an incorrect statement about this.

 

[kgclark]

The amount of interest on a 401K loan is determined by your employer. It can vary between employers.

While true, 401K payback total costs can reach 40% with other taxes, penalties and fees. Generally, retirement loans are a very bad idea and should only be used in dire circumstances IMO. This is only one guy's opinion, but I firmly believe this.

There are no penalties or taxes for 401k loans. The only fees are generally very small ($50-$100 total) and any interest is payed back to yourself. Now, if you do an early withdrawal from your 401k - that's a different story and seldom a good idea.

 

[mcarrizal]

I recommend Lightstream also. Easy and fast process. Excellent rates and excellent rates for unsecured loans. Give them a look.

 

[bull jr]

another positive vote for Lightstream, we just our approval today. Great rates for an unsecured loan and really easy process. Perfect for someone who may not have enough equity in their house.

 

[cudavic]

Lightstream is owned by Suntrust Bank.
If you have the equity in your home I would do a HELOC with Suntrust and write the interest off during tax time.
If you do not have the equity then do the unsecured loan through Lightstream.