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Using 401K to pay off mortgage sooner

Here's my plan: instead of putting 250 bucks/month in my 401K I will put that money towards my mortgage principal and I will pay off the house in 20 years instead of 30. I will be 50 years old instead of 60. Then I still have 10-15 years left in which I can work and save some money for my retirement which retirement might not last more than a few years. I was just thinking how crazy is to work 30 years to pay off the house and still not have enough money to retire. All retired people are complaining about how they worked all their life and have so little retirement income/month. What are your thoughts?

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Asked by cristinaberger at 9:27 PM on Jan. 1, 2010 in Money & Work

Level 3 (20 Credits)
Answers (7)
  • Does your company match your contributions in any way? If they do I would certainly contribute at least that much to the 401K. I would at least contribute something.

    Do you pay your mortgage once a month or bi-monthly? If you can pay bi-monthly you will save yourself at least 5 years of payments.

    Answer by yourspecialkid at 9:54 PM on Jan. 1, 2010

  • I wouldn't do it personally. I'd rather pay a little longer on my house and know I had a nice 401k fund. As it is we're paying off our house early but have very little in savings/retirement, I wish we'd done it differently so we had some going in our retirement fund every month instead of every last penny being used.

    Answer by Anonymous at 9:59 PM on Jan. 1, 2010

  • I would compare the average rate of return over the past few years on your 401k to the interest rate you pay on your home. If the average rate of return is higher on your 401k than the interest rate on your home, it makes mathematical and logical sense to keep contributing to your 401k.

    Answer by michiganmom116 at 10:55 PM on Jan. 1, 2010

  • I can see where you're coming from but you'll totally miss out on the money in the 401k capitalizing.
    $250 a month at 8% for 20 years is $147,255.10. And then if you retire 10 years later and don't add another cent in there you'll have $326,853.34. THAT is capitalization or the TIME value of money. The more you save while you're younger, the longer that money has to grow.

    Granted you will have more money to put towards retirement once your home is paid off. But you're also banking on a steady job, steady income, etc. And sometimes that just doesn't happen.

    I honestly think you're best bet is to find an additional $250 a month (not 401K money) to knock out the mortgage with. Wouldn't it be great if you could have both?

    Check out for more info or go to the Dave Ramsey group on Cafemom. We have some women in there that are paying off their homes in 12 to 15 years!! We'll show you how :)

    Answer by Anonymous at 11:24 PM on Jan. 1, 2010

  • We pay max we can into retirement and the company matches it fully. So between our contribution and the companies we are putting away 12k a year. We took out a 30 year mortgage but we pay bi monthly will pay our home off 7 years earlier doing this. We are also taking my husbands bonus and putting it all towards the principal he gets 6k after taxes. We again are cutting years off the mortgage. I would keep contributing to the 401k and find other ways to pay extra on the mortgage. Over time you will make more money with raises or job promotions use that to pay extra each year. I would not stop saving.

    Answer by Anonymous at 11:27 PM on Jan. 1, 2010

  • Very bad idea. You will never again be able to save tax free money at this age.

    Answer by rkoloms at 9:18 AM on Jan. 2, 2010

  • I dont have a house yet but I dont think thats a good idea. I dont have much in savings but I think saving is a wonderful thing and it will help you more along the way to have that to lean on. You dont know what can happen. You might not be able to work until retirement age. God forbid something drastic may happen and you end up unable to work. Atleast then you can rest assure you have that savings to pull from if u need.
    Maybe getting a pt job, try pulling some extra hours or overtime to help put extra into your mortgage. Even its an extra $50 this month or $100 the next. Maybe you can cut down on some other bills.

    Answer by lilmsnay83 at 1:08 PM on Jan. 2, 2010

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