With interest rates where they are does it make sense to take out a loan on my 401(k) to pay off HELOC?

[eider]

Used the HELOC to do some remodeling when interest rates were around four, he locks are variable so now it’s 9 1/2. I could take out a loan on my 401(k) pay myself to 9 1/2% interest. Just wondering if that makes sense financially or bad idea. We’re paying $1000 a month extra on the HELOC. So, t’ll be gone in three years anyway I could just make the 401(k) loan three years as well.

 

[creator123]

@eider It’s not the worst idea. You’d be trading paying someone else interest to paying interest directly to your own retirement. The processing fees on 401(k) loans are quite low. Just be careful, failing to pay back the 401(k) loan will convert it to income with tax implications.

 

[eider]

@creator123 Ya the fee is $25 lol. The tax implications are the only thing keeping me from it tbh. I have no plans to leave my job in the next few years, I’ve been here 13 already but you never know.

 

[creator123]

@eider I think you have a year to pay it back if you do leave, or are fired (it used to be more immediate). I guess worst case scenario it converts into a distribution and you owe a few thousand of income tax and early withdrawal penalty.

 

[returntotheway]

@eider Not a bright idea.

Just get focused and pay off the HELOC.... you could shave 12+ months off your timeline if you put in effort.