401k loan to pay off mortgage?


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Jun 5, 2012
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Hello, everyone. I had an idea today. I think in about 5 years, I could save up enough and pay down my mortgage enough that with a 401k loan, I could pay off my mortgage. Otherwise, it will probably take 8 years to pay it off.

Here's what I was thinking. My mortgage interest rate is not very high, but the interest on the amortization schedule for those 3 years amounts to $13,860. The 401 loan only costs $220 to set up and $25 a year to maintain. From everything I have read, the interest you pay goes back into your 401k account to make up for the lack of money invested. So, I know I wouldn't earn as much from investments, but then again, I don't think it has been earning any money anyways.

Is this idea sound or am I missing something? By my calculations, I could take those last 3 years and get a 2 year 401k loan for less per month than my mortgage payment is now. Just seems like a good way of knocking a year off paying off my house. Thoughts?