Should I take out a HELOC or a TSP loan to finance my $40,000 bathroom renovation?

[Anonymous]

Two options for financing my bathroom renovation, which will cost $40,000.

Background: I am in my late 50's about five years away from retirement, and a long-time Fed. My current TSP balance is $1.2 million.

Option #1 - A TSP loan, where I take out $40,000, and pay it back over five years. The interest rates on that loan is 4.5%, but I pay that interest to myself over the course of the loan. So essentially, I forego whatever that $50,000 will earn in my TSP account for a 4.5% return.

Option #2 - A HELOC with a 9% interest rate. I could pay that back on a ten-year schedule, to reduce my payments a bit, but still....9% interest.

This seems like a no-brainer to me to take out the TSP loan, right?

[Anonymous]

Is the bathroom currently functional? I would save money over the next few years and then pay cash.

[Anonymous]

Anonymous wrote:Two options for financing my bathroom renovation, which will cost $40,000.

Background: I am in my late 50's about five years away from retirement, and a long-time Fed. My current TSP balance is $1.2 million.

Option #1 - A TSP loan, where I take out $40,000, and pay it back over five years. The interest rates on that loan is 4.5%, but I pay that interest to myself over the course of the loan. So essentially, I forego whatever that $50,000 will earn in my TSP account for a 4.5% return.

Option #2 - A HELOC with a 9% interest rate. I could pay that back on a ten-year schedule, to reduce my payments a bit, but still....9% interest.

This seems like a no-brainer to me to take out the TSP loan, right?

Why does a bathroom reno need to cost $40K? Is it cathedral sized?

[Anonymous]

Anonymous wrote:Is the bathroom currently functional? I would save money over the next few years and then pay cash.

At this point, the useful life of the bathroom is over. It is > 50 years old and has never been updated. I would like to do this project now and not wait to save the cash.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Two options for financing my bathroom renovation, which will cost $40,000.

Background: I am in my late 50's about five years away from retirement, and a long-time Fed. My current TSP balance is $1.2 million.

Option #1 - A TSP loan, where I take out $40,000, and pay it back over five years. The interest rates on that loan is 4.5%, but I pay that interest to myself over the course of the loan. So essentially, I forego whatever that $50,000 will earn in my TSP account for a 4.5% return.

Option #2 - A HELOC with a 9% interest rate. I could pay that back on a ten-year schedule, to reduce my payments a bit, but still....9% interest.

This seems like a no-brainer to me to take out the TSP loan, right?

Why does a bathroom reno need to cost $40K? Is it cathedral sized?

It is two small bathrooms.

[Anonymous]

We’ve done a TSP loan and it worked great. Don’t overthink it. Hope your new bathrooms look and work great!

[Anonymous]

Anonymous wrote:

Anonymous wrote:Is the bathroom currently functional? I would save money over the next few years and then pay cash.

At this point, the useful life of the bathroom is over. It is > 50 years old and has never been updated. I would like to do this project now and not wait to save the cash.

Does the toilet flush? That seems useful.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Is the bathroom currently functional? I would save money over the next few years and then pay cash.

At this point, the useful life of the bathroom is over. It is > 50 years old and has never been updated. I would like to do this project now and not wait to save the cash.

Does the toilet flush? That seems useful.

PP, we are getting a new bathroom. You are not going to talk us out of it. The question is how we finance the expense.

[Anonymous]

TSP loan for sure. Only downside is having to repay quickly if you leave and the possibility that your returns will be lower from the loan interest than the TSP fund (but no way to know if that will happen or by how much)

[Anonymous]

TSP loan and try to throw extra money to pay it back early. HELOC rates are often adjustable and 9% is really high.

Yes you’re going to get lectured on here about doing this, but I think life is about balancing spending vs saving. We’ve financed and paid off a number of house projects and it’s greatly improved our quality of life and enjoyment of our home.

[Anonymous]

Anonymous wrote:We’ve done a TSP loan and it worked great. Don’t overthink it. Hope your new bathrooms look and work great!

+1

one thing to check - back when we did it if you leave federal service you have to repay on a kind of tight timeline. not sure if that is still the case. but if you have really good job security and aren't planning to leave - then yes it's a no brainer.

[Anonymous]

Why do you need a 50k loan for a 40k project? I'm not against TSP loans (especially as compared to your HELOC option), but you really don't have any cash to put towards this at all?

[Anonymous]

TSP loan is quick and easy. We used it to supplement a down payment and are 3.5 years into paying it off. No regrets.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Two options for financing my bathroom renovation, which will cost $40,000.

Background: I am in my late 50's about five years away from retirement, and a long-time Fed. My current TSP balance is $1.2 million.

Option #1 - A TSP loan, where I take out $40,000, and pay it back over five years. The interest rates on that loan is 4.5%, but I pay that interest to myself over the course of the loan. So essentially, I forego whatever that $50,000 will earn in my TSP account for a 4.5% return.

Option #2 - A HELOC with a 9% interest rate. I could pay that back on a ten-year schedule, to reduce my payments a bit, but still....9% interest.

This seems like a no-brainer to me to take out the TSP loan, right?

Why does a bathroom reno need to cost $40K? Is it cathedral sized?

Have you not done renovations lately? I had a 5' x 5' (yes that is correct) bathroom renovated and it cost over $25k seven years ago. And I got multiple bids, that was the correct price. Everything costs more in an older house because the plumbing is probably crumbling and the electrical is not up to code.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Is the bathroom currently functional? I would save money over the next few years and then pay cash.

At this point, the useful life of the bathroom is over. It is > 50 years old and has never been updated. I would like to do this project now and not wait to save the cash.

If the toilet , shower and sink work, and there are no leaks, it hasn't outlived "its useful life." What a ridiculous way to characterize your desire for a renovation.

You described taking the TSP loan out as a "no brainer." I agree, in the sense that anyone who takes out a TSP loan out for an unneeded home renovation 5 years before retirement doesn't have the sense the good Lord gave a turnip.