Wanted to hear some peoples opinion on this question.
Due to maximum loan restrictions for a 30 year fixed mortgage on a 2-unit building in Chicago, a portion of my loan is being financed through a HELOC. The interest rate on my HELOC is adjustable and linked to Prime (currently 3.5%), no spread. This is currently less than my actual mortgage rate.
My employer 401k will match 50% of up to 6% of my annual contributions - im invested in basic SP index.
From your point of view - should i stop, or decrease, my 401k contributions and use those funds to pay off my HELOC sooner? Should I continue to contribute while rates remain low and switch thereafter? Other thoughts? Please provide your reasoning when answering.
Also to note, there are no fees to consider.
Depends on how old your are. If you are younger adding to your 401K will tie up much of those funds until you are older. However if you pay off the HELOC sooner you have the availability of that line of credit much sooner to continue to invest.
I know you can do self directed 401 etc but in theory you can access the HELOC much quicker and with much less hassle and paperwork.
But I would still continue to put in enough to the 401k to get the max employer contribution. anything over that might be better paying down the HELOC.
Thanks Ronan. I agree. I'm only 29, so even though I can't access the money until later, it's nice to get an extra 50% bump through matching while i let it compound earlier in life.
Should rates rise, I have also explored the option to borrow against 401k to paydown HELOC. Better to pay myself that interest than the bank.
@Malcolm Douglas , your employer is offering you free money, above and beyond your salary. I would put in at least as much as you need to get the full amount of their match, then pay off the HELOC. Repeat again next year if you don't pay it off this year.
Atta Girl @Mindy Jensen Always max out your employer match on the retirement first. Then as long as the HELOC money invested in the leveraged property is making more than the interest on the HELOC leave it alone. If the interest goes up higher than you gotta look at paying it off. RR
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