Question

Does it make financial sense to borrow against a 403(b) account for a first time home purchase?

Answer

“It seldom makes sense to borrow from a 403(b) account because the primary objective of such a plan is to provide funds for retirement, not house purchases or to fund college expenses,” said FPA member Michael Meara, CFP®. “It is a RETIREMENT account.”

If you don’t want to put your retirement at risk or set yourself back in the plans you have already made, FPA member Bob Vance, CFP®, says there are a few things to be aware of:

1. You can borrow up to half of your vested balance or $50,000, whichever is less.
2. The interest you pay goes back to your retirement fund, so you are paying yourself.
3. The loan must be paid in five years.
4. If you quit, are fired, or laid off, the loan may be due immediately which could be a real problem.
5. The interest is not deductible.
6. The money you borrow is no longer invested in your retirement fund.