I think you pay it back with after tax money too. Makes it worse

Anonymous wrote:Hmnm. just found this clause - so the loan would be a committement to federal service


"When you leave Federal service, you must repay your loan in full within 90 days after your separation is reported to the TSP. Your repayment must include any accrued interest on the outstanding principal balance."

that's the same thing as with a 401k. you can borrow from a 401k but if you leave your job you have to pay it back in full or it gets treated as a distribution with all the relevant taxes and penalties.

i was planning on using it for bridge loan for down payment on house, if 1st house did not sell quickly. btw, most non government 401K have the same. so between me and spouse, we had 100K ready for down payment, if needed. would just repay very quickly when 1st house sold.

We plan to use a residential loan from my TSP (up to allowed $50k) as a bridge loan to purchase new house.

Op- where did you read $950 in upfront costs? Did you mean $95? I recall reading that only a (small) application/processing fee is required, certainly under $100.

I think there is a limit on it. I looked into it. The most I could take out was $50k, which I had to repay. I am pretty sure this is the max - I have a lot (over $400k) in my TSP. The 50k was not enough for a down payment on our house.

We just did it too. I took out $25K (roughly half) of my TSP. I am only 31, so am not really worried about retirement and if we hadnt done it, we would have had to pay PMI, so it was a no-brainer.

We did it and are happy we did. Interest rate on 1.5% (it recently went up to 1.65%) and we will pay it back early to reduce the lost investment return potential.

Anonymous wrote:

Thanks for putting it in context - I hadn't thought about that, it's not just "free money" at the low interest rate, it's actually expensive money (14% return lost + the low interest rate)

Right, but don't expect 14% per year for the life of the loan. The market will go down, too, and you will be buying back in with each repayment. Also, you would be spending the loan proceeds on an appreciating asset (presumably, over a long period of time). That is not the same thing as borrowing from retirement for a new car or a vacation. The house will be worth something to someone when you're old and grey.

I'm not sure, but I think taking into account the tax deductibility of mortgage interest paid to a lender, the question is roughly whether you think your TSP fund will average more than 2.75% return during the life of the loan. If you do, then you are better off with more money in TSP, and if you don't then you should borrow from your TSP. I am pretty conservative, but that seems like a fairly low number for market investment to me.

Thanks for putting it in context - I hadn't thought about that, it's not just "free money" at the low interest rate, it's actually expensive money (14% return lost + the low interest rate)

Right, but don't expect 14% per year for the life of the loan. The market will go down, too, and you will be buying back in with each repayment. Also, you would be spending the loan proceeds on an appreciating asset (presumably, over a long period of time). That is not the same thing as borrowing from retirement for a new car or a vacation. The house will be worth something to someone when you're old and grey.

Anonymous wrote:There is a risk you'll lose out on growth in your TSP account. The TSP 2040 fund has a 12 month return of about 14% and a 3 year return of about 9%. If you take 100k out of the fund and pay 1.65% interest on it, that is the only return you'll be getting on that chunk of your TSP.

Thanks for putting it in context - I hadn't thought about that, it's not just "free money" at the low interest rate, it's actually expensive money (14% return lost + the low interest rate)

There is a risk you'll lose out on growth in your TSP account. The TSP 2040 fund has a 12 month return of about 14% and a 3 year return of about 9%. If you take 100k out of the fund and pay 1.65% interest on it, that is the only return you'll be getting on that chunk of your TSP.

I have clients who have used this in a situation where they wanted to buy first and then sell, substituting for a bridge loan. That way they can pay it back as soon as their first house sells. I would not recommend it otherwise.

I've done it recently. Pitfall of course is raiding your retirement. The interest isn't tax deductible like mortgage interest is, but it is still lower than my 3.5% mortgage.

Hmnm. just found this clause - so the loan would be a committement to federal service


"When you leave Federal service, you must repay your loan in full within 90 days after your separation is reported to the TSP. Your repayment must include any accrued interest on the outstanding principal balance."

I didn't realize that you could take a TSP loan out for a house downpayment.

There are rules, and maximums, but super low fees ($950 upfront) and you get G fund interest rate for the life of the loan; currently 1.65%!!


Has anyone done this? Any pitfalls I'm missing?


Seems like we take what we've saved, add a good chunk from TSP and basically prepay the mortgage. I'm 20 years from retiring. Even if I left the gov't, seems like the monthly payments would be better made to TSP than to a mortgage broker at a higher rate?