Monday, May 2, 2011

401k Loan Repaid

Back in late 2008 we purchased a house with 10% down. We decided to renovate the house so that required taking out a loan. We took it out of our TSP, the government version of 401k.

THis was a little hasty and poor decision mainly because the stock market was at its bottom at that time. Late 2008 and early 2009, had we left the money in the stocks would have doubled by 2011. In any case, what's done is done.

At that time we had about $28k and they allowed for the residential loan to take up to 50% of value of the account. So we took out $14k.

Currently our account value is nearly $63k, thanks in part to a rising stock market and early repayment of the loan. But it would probably be well over $100k had we left the account alone. Lesson learned: delay gratification is usually wiser.

So the loan began in Feb 2009 and we finished paying it off in May 2011. 27 months. Two years and three months. Even though the loan interest was only 2.75% and we had 15 years to pay back at $47 a bi-week, it was a waste not to accelerate the repayments especially with the rise in the S&P and small cap stocks.

So over that 27 months, we averaged $518.52 a month or about $240 per bi-week. It could have been much faster, but emotionally, at times I wanted to have more paycheck/emergency fund. At times the low payments of $47 didn't seem that bad (had we waited for 15 years to pay back). The past half year we had been paying about $800 a bi-week or over $1600 a month. This was a large chunk of change each month, but a necessary sacrifice... however we did not even feel it. The only thing that felt it was the relatively small balance in our checking account each month. But again, well worth it. And thank God we did not have any major emergencies.

LESSONS LEARNED
Looking back:
- We should not have borrowed from the retirement.
- We should not have waited so long to pay off.

FUTURE
So what about that other big debt we have? the HOUSE? We will accelerate payments as well. And make sure we are saving 15% for retirement.

That's that. Let's celebrate!

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