Pay off mortgage through TSP

[James Meyer]

I bought this property for $119,900 and now have a principal amount of $65K. I have it rented for $1480 with a mortgage payment of $812. I use the entire $1480 plus $500 for a total payment around $1800 with allot going towards principal. My calculations show that it would be paid off within 3 years. My plan is to have this paid off before leaving federal service. I'd like some input on whether I should use the TSP loan option of borrowing $50K at 2.87% to pay off earlier?

[Anthony Wick]

My initial reaction is no. What is the interest rate on your current mortgage? Which funds is the money in your TSP in? If you take out a TSP loan, you're then paying 2.875% (current rate as of today), but you're also foregoing probably 10-12% in gains that you could be getting. The C and S funds are gaining 18-22% over the past 12 months. Opportunity cost. You might save 2-3% on your current mortgage by paying back TSP, but you're going to be giving up at least 8-15% on TSP gains.

Now, if you asked me should you take out a TSP loan and buy another rental property, then that math probably says yes, because you could get a low percentage mortgage loan and borrow even more money. And you'd have another cash flowing property with equity gains (hopefully) that would most likely outpace your future gains in the TSP.