Comments on: 401k Withdrawal or Foreclosure: Which is Better?

By: Frank

Frank — Sun, 26 Jul 2009 02:47:25 +0000

Well. I am in the process of thinking of taking out a loan from my 401 k to reduce my revolving credit (credit cards, car loan, overdraft protection etc.) so I can eliminate the possibilty of foreclosure. I live in Las Vegas, Nevada and the situattion here is horrible. Unemployment hovering around 13%, top 3 stated in foreclosures and of course terrible eduction. I am considering starting foreclosure and force my bank to work with me on refinancing. I have contacted them for a loan modification and all the other programs, even a law firm who requested $3500.00 to get me going on some type of negotiations with my banker, but with no guarantees. I want to do the right thing. So far, I have talked to many people and they say to be late on the payments, save the money and let the bankers come and try to offer me and affordable mortgage program. They mentioned that the bank cannot take the house unless you agree. My house is approximately $70,000.00 upside down with an interest of 6%. I would need to borrow from my 401k about $26,000.00 to eliminate revolving credit and make it easier to pay the mortgage. My mortgage is currently $2300.00 monthly. Oh, I forgot I have two teenagers so we all no that is also a priority (college). Thanks and maybe somebody can chime in and recommend.

By: steve

steve — Sun, 12 Jul 2009 21:03:36 +0000

I’m beginning to feel more and more like Nancy as my 401k goes up in smoke. I’m not going to quit investing in retirement, I’ll do what the company matches…but nothing extra. I religiously added extra, but I’m diverting that to mortgage from now on. I don’t like the dishonesty in the wall street types and the government failing to let a free economy play out. All these things affect stocks beyond what we have control over. Not good to me.

By: Robert D. Ashby

Robert D. Ashby — Thu, 04 Jun 2009 21:51:25 +0000

@Nancy – I can certainly respect your analysis, but all of your investing shouldn’t be in your 401(k) anyway and while having a mortgage paid off right now would be nice, you need to at least balance it with savings and other liquidable assets in order to protect yourself financially. One other thing to remember is you never lose money until you sell, so if you cashed out your 401(k) to pay off the mortgage, not only do you incur a 10% penalty, not to mention all of the money is added to your annual income for taxes which could send your tax liability through the roof, but you will take a loss, of which only $3,000 can be written off.

There is a lot of factors that need to go into analyzing the decision, most of which doesn’t sound like you have done. Making decisions based on your emotions will always lead to the wrong decision. Be careful.

@Jeff – Just because the mortgage company is asking for your 401(k) info does not mean they can take it from you. Simply put, they can’t. Rather, as part of the mortgage approval process, the lender does want to know your ability to repay the loan and having assets in a 401(k) adds to that ability and makes it easier to obtain the mortgage, as well as improves your chances of getting the best rate possible. Let me know if you have any additional questions.

By: jeff

jeff — Sun, 10 May 2009 23:51:34 +0000

We are in the process of buying a new home and the morgatage company wants the terms and conditions of our 401ks. Does this mean that if in the future we for some reason default on our morgatage they can go after our retirement funds? Is this now a common practice of morgatage companies do to the recent housing crisis we found ourselves in?

By: nancy

nancy — Sat, 07 Feb 2009 22:07:37 +0000

Everyone keeps talking about retaining the 401k for future security but mine (don’t know about yours) hasn’t gained any value in the last 8 years, rather it’s lost value (lot’s of it).. What kind of investment value (or security) is that?

My husband was laid off from his high-paying corporate job in 2001. His 401k was worth $125k at that time. At the supposedly “normal” gains of 10% a year (what a bunch of crock) it should have doubled by now (according to all the financial wizards)…

Soon after 9/11 the $125k dipped to $90k. It took until mid-2008 to build to $125k again, but six (short months) later, it has dipped to $100k and the market is still moving downward. Pretty discouraging (and scary).

So exactly how much “security” and investment it is worth, seems at this point, zippo… The financial investors can run off their mouths all they want about what a bad idea it is to pay off the mortgage early but they’re all wet. According to them, the best “plan” is to pay the bank huge amounts of interest (on your mortgage) and invest as much money as you can in your 401K.

Well, you might say, I’m seeing through this little investment banker scheme and have realized the best investment I can make is to pay my mortgage off early…

That way the bankers can go … themselves (I’m sure you know what I mean) and the stockbrokers can also do the same..

I’m holding on to my own money in the form of hardcore assets (property, etc.). That way no one can rip me off again. Plus, I don’t care if the value of the property goes up or down, I’ll have a paid-off roof over my head and no one jacking my money around ever again!

By: Florida's #1 Mortgage Planner

Florida's #1 Mortgage Planner — Mon, 26 Jan 2009 15:36:25 +0000

Kris,

The simple answer to this is…NO. However that depends on your situation, and especially your ability to save your home through not contributing money to your 401(k). If you can save your home, do so. If not, you should keep investing for the future. Another option is to not contribute to your 401(k) and build your more “liquid” reserves.

Again, the real answer depends on your particular situation.

By: Kris

Kris — Sun, 25 Jan 2009 04:13:50 +0000

If we own a home that may go into foreclosure, should we stop contributing to our 401K?

By: Florida's #1 Mortgage Planner

Florida's #1 Mortgage Planner — Wed, 10 Sep 2008 22:56:52 +0000

@ Jolinda – You touched on an area I am not very familiar with, so I am not the best person to ask. My understanding of 401ks and loans on them are that it is on a per company basis, but I may be wrong. I will try to look into more if I can find the time and contact you with a better answer.

By: Jolinda

Jolinda — Fri, 29 Aug 2008 06:27:09 +0000

I have a small loan out with my 401k, my home is in foreclosuer I want to save my home but my company said that I have to pay the first loan off in order to get a new loan isn’t this against the law because this is a hardship for me and my family, and that is the only option that I have to keep me and my family from being on the street please answer?

By: Robert D. Ashby

Robert D. Ashby — Mon, 11 Aug 2008 15:29:23 +0000

Luis,

Good question. The answer to that is no. The bank is only entitled to the property it owns the mortgage on. If the bank is unable to recover the full loan amount through the sale (whether auction or other means), they take a loss for the difference. They cannot go after a 401k or anything else since they do not have a vested interest in them.

Thanks for the question.