🏦 How does a 401k loan impact your home down payment?

You're buying a house and have some cash, but you're short of a 20% down payment. You could take a 401(k) loan to boost your down payment, secure a better rate, and reduce PMI. If you plan to repay the 401(k) loan quickly (like when a current home sells), is it worth raiding your retirement? This calculator compares the mortgage interest and PMI you save against the retirement growth you miss.

A larger down payment reduces your loan balance, saving you mortgage interest. It also reduces your Private Mortgage Insurance (PMI) premiums. However, borrowing from your 401(k) means that money isn't invested in the market. We compare the guaranteed savings on your mortgage against the expected missed growth in your retirement account over the short period before you repay the 401(k) loan. (Note: This model uses a simplified compound interest calculation for both the mortgage and market growth over this short timeframe, assuming no principal paydown on the mortgage.)

While your money is loaned out from your 401(k), you miss out on market returns. Even for a few months, a strong market can generate more growth than you save on mortgage interest. Adjust the expected market return to see how different market conditions change the math.

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