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  Does a TSP residential loan apply if it goes toward paying off a current mortgage, or must it be only for a new home purchase?

  Tim Syzek Posted September 26, 2009 2:46 PM
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  No it's not. If you borrow from it to buy your house, you avoid PMI (a gain) and pay less interest on your home (again, a gain). there's no tax on the money you've taken out, so you pay it back with interest in installments.

  When you've paid it back, you now own more equity in your home than you would have taking a second mortgage. The money you've lost is the earnings you would have earned on the funds while in the TSP, had they been there. But figuring that is difficult since the value of your home went up as well. So the net opportunity cost was difference between (foregone TSP earnings), (minus what you accrued in equity and avoided in PMI and future interest payments)= net opportunity cost. I wish we could pay back with pre-tax earnings, but that is not the case.

  borrower Posted October 1, 2007 4:06 PM
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  Since loan payments are made from personal funds which have been taxed once already, are those same funds taxed again upon distribution? How is this different from 401K loans ("loans of last resort") from non-governmental entities whose implicit costs are both non-performance from the funds on loan plus your current real tax burden (usually 20% - 30%). Is there some tax free basis created for taxed funds used to repay these loans or is the real costs just buried out of the line of sight for those not familiar with the mechanics of personal finances?

  Rob Posted August 24, 2006 8:48 AM
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  While I'm like "Anonymous" in that I'm curious as to the destination of that $3 million dollar windfall, I'm just enough of a cockeyed optimist that am hoping the $50 is paying for the loan processing fees and not me. I also tend to agree with Rick in that such a loan is a last resort.

  But, if the $50 is a user-based fee, it's covering the costs and any excess is being distributed righteously (and thus taking the wind from taxpayers' sails). Well, I've said it before and I'll say it again. I like options.

  I've had to cover a loan or two in my day. I don't know about you, but what the heck are all those fees anyway? If I needed one, and I couldn't find a better deal than this, this does seem like something we'd like to keep.

  Just one man's opinion.

  Tip off.

  Tip Posted August 17, 2006 2:05 PM
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  Borrowing money from your retirement funds should be the last resort of the ignorant.

  Rick Posted August 16, 2006 5:54 AM
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  The TSP loan program is a total misappropriation of tax exempt funds for retirement purposes. The TSP should have no loan program of any kind. At a minimum the cost for a loan should be 2 percent of the loan amount plus standard closing costs for the residential loans and $400 flat fee for the non-residential loans. The rate on the non-residential loans should be equal to the investment yield on the five year government security and be adjusted every auction of the five year security.

  The benefits of the borrowers from TSP are coming from the rest of us and it should be stopped immediately! Also, why is the administrative cost of investment in the G Fund the same as for the other funds? There should be almost no cost to investment in the G Fund! However, costs to invest in the C, I and S funds is far in excess of the G and F funds. But TSP charges the same administrative expense for all the funds. Bad management of the fund?

  Taxpayer Posted August 15, 2006 7:41 AM
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  I guess at $50.00 per loan taken out and 750,000 loans taken out means a windfall of about $3 million. What did that money buy?

  GovExec.com reader Posted August 10, 2006 7:26 PM
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  The interest goes back to you. As your loan is repaid, all the money goes back into your account following the pattern of your new contributions. If you have all your new contributions going into the C Fund, then all of your loan repayment goes into the C Fund. If you have your contribution split among different funds, your loan payment gets split the same way.

  GovExec.com reader Posted August 10, 2006 2:23 PM
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  I guess the one detail I don't understand is, does the interest go back to the fund or the individual?

  GovExec.com reader Posted August 10, 2006 10:27 AM