Took paycut, should I take out personal loan to pay off mortgage?

Question

Ok I'll make this short as possible... I owe 30k on my house. I have 20k cash for a pay off in addition to 10k in savings. I'm thinking of doing a 10k personal loan and using the 20k pay off fund to pay the mortgage off now. Keeping 10k for an emergency fund. I ran the numbers:

Interest wise the higher rate personal loan will cost me $600 in interest more. But my payment will be 400 a month vs 1000 a month. The 20k has been built up to pay the mortgage off early. It was never meant to invest in 401 etc. Upon payoff I will be able to annually max my 401 19,500 a year because I wont be paying as much on the mortgage.

I made extra payments from the day I bought the house. So it will be paid off 22 years early if I do this.

Thoughts?

Joe Jude · Answer

So I completely forgot about this post, I took the personal loan and paid it off about a year early. Personal loan was paid off in about 6 months, was totally worth it for the mental aspect. The personal loan payment was very minimal compared to the mortgage and the lump sum payment killed it quickly. I will add  that in case of an emergency I had plenty of money in my 401k which my employer makes it easy to borrow from.

Tom S. · Answer

@Joe Jude  I would actually consider the personal loan, more because it's transferring the debt from secured to unsecured.  If things get tight with your finances now, you could lose your house.  If things go south with a personal loan, it would hurt your credit but they can't take your house.

JD Martin · Answer

Why not do neither and just supplement from the savings if you need it? Unless the mortgage is some crazy figure, what is the value of converting liquid equity into illiquid equity when you might need the money?

Joe Jude · Answer

Thanks for the reply...

because the personal loan is half the payment of the mortgage. It would make my monthly bills a lot easier in lieu of my pay cut. I should also mention I have zero other debt. So the personal loan would be my only debt if I use it to pay off the mortgage. I cant increase my 401 contributions until I do that.

Wayne Brooks · Answer

Why not just pay the mtg down with your $20k and instead of borrowing $10k to pay the remaining $10k, just pay the $10k mtg balance the same as you would the personal loan, save the extra $600.