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401k used as collateral

 
 
asdf
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      02-23-2007, 01:09 PM
Do any banks/leanding companies accept 401k as loan collateral ? I do
not want to borrow money from 401k just use it as collateral to keep
my interest rate low and to get a bigger loan. Thanks.

 
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Todd H.
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      02-23-2007, 03:46 PM
"asdf" <(E-Mail Removed)> writes:

> Do any banks/leanding companies accept 401k as loan collateral ? I do
> not want to borrow money from 401k just use it as collateral to keep
> my interest rate low and to get a bigger loan. Thanks.


An independent mortgage broker would know more about how various
wholesale lenders factor assets into their qualification and rate
offers. I think assets are second order to top line and bottom line
income though, and rates dictated mostly by loan to value (if you're
talking about mortgages) and credit score.

Best Regards,
--
Todd H.
http://toddh.net/

 
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Elizabeth Richardson
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      02-23-2007, 04:32 PM

"asdf" <(E-Mail Removed)> wrote in message
news:(E-Mail Removed) oups.com...
> Do any banks/leanding companies accept 401k as loan collateral ? I do
> not want to borrow money from 401k just use it as collateral to keep
> my interest rate low and to get a bigger loan. Thanks.



No. The purpose of collateral is to secure the loan in case of default.
There would be no way for the lender to seize the monies in a 401k in case
of default.

Elizabeth Richardson

 
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jIM
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      02-23-2007, 07:44 PM

> > Do any banks/leanding companies accept 401k as loan collateral ?

>
> An independent mortgage broker would know more about how various
> wholesale lenders factor assets into their qualification and rate
> offers. I think assets are second order to top line and bottom line
> income though, and rates dictated mostly by loan to value (if you're
> talking about mortgages) and credit score.
>


We just finished a refinance and our broker told us 401k assets were
looked at as 70% of face value for purposes of net worth.

 
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asdf
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      02-23-2007, 07:44 PM
On Feb 23, 8:32 am, "Elizabeth Richardson" <(E-Mail Removed)>
wrote:
> "asdf" <(E-Mail Removed)> wrote in message
>
> news:(E-Mail Removed) oups.com...
>
> > Do any banks/leanding companies accept 401k as loan collateral ? I do
> > not want to borrow money from 401k just use it as collateral to keep
> > my interest rate low and to get a bigger loan. Thanks.

>
> No. The purpose of collateral is to secure the loan in case of default.
> There would be no way for the lender to seize the monies in a 401k in case
> of default.
>
> Elizabeth Richardson


Is this because the law prevents a lien against
a 401k or against a 401k going into some time of escrow ..
Thanks.

 
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joetaxpayer
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      02-23-2007, 08:19 PM


asdf wrote:
>>>Do any banks/leanding companies accept 401k as loan collateral ? I do
>>>not want to borrow money from 401k just use it as collateral to keep
>>>my interest rate low and to get a bigger loan. Thanks.

>>
>>No. The purpose of collateral is to secure the loan in case of default.
>>There would be no way for the lender to seize the monies in a 401k in case
>>of default.
>>
>>Elizabeth Richardson

>
>
> Is this because the law prevents a lien against
> a 401k or against a 401k going into some time of escrow ..
> Thanks.


Most 401(k) plan documents will include a line;
"As a general rule, your interest in your account, including your
"vested interest," may not be alienated. This means that your interest
may not be sold, used as collateral for a loan (other than for a Plan
loan), given away or otherwise transferred. In addition, your creditors
may not attach, garnish or otherwise interfere with your account."

So, Elizabeth's post speaks to why a lender wont accept a 401(k) as
collateral, and my quote (from a plan document) indicates that the plan
custodian warns the account holder not to do so. Likely, the IRS
regulations speak to this in further details, as well.

jIM points out that it's still an asset, that a lender does view as 'net
worth', but it would seem that it goes more toward one's character, i.e.
their ability to save, and their discipline, not an asset that can be
attached or sued for.

JOE
JoeTaxpayer.com

 
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PeterL
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      02-23-2007, 10:20 PM
On Feb 23, 5:09 am, "asdf" <(E-Mail Removed)> wrote:
> Do any banks/leanding companies accept 401k as loan collateral ? I do
> not want to borrow money from 401k just use it as collateral to keep
> my interest rate low and to get a bigger loan. Thanks.


Use it as a collateral? No. Consider it as part of your total asset,
possibly.

 
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Don
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      02-23-2007, 11:25 PM
"joetaxpayer" <(E-Mail Removed)> wrote in message
news:(E-Mail Removed). ..

> Most 401(k) plan documents will include a line;
> "As a general rule, your interest in your account, including your "vested
> interest," may not be alienated. This means that your interest may not be
> sold, used as collateral for a loan (other than for a Plan loan), given
> away or otherwise transferred. In addition, your creditors may not attach,
> garnish or otherwise interfere with your account."


If 401(k) plans could be used as collateral, or transferred, my guess is
that a very large percentage of the people with them would never see any
benefits in retirement. So in a way these provisions protect people from
themselves. As an extreme case, think of how bad things would be if Social
Security entitlements could be pledged or transferred.

 
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asdf
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      02-24-2007, 04:47 PM
On Feb 23, 6:25 pm, "Don" <(E-Mail Removed)> wrote:
> "joetaxpayer" <(E-Mail Removed)> wrote in message
>
> news:(E-Mail Removed). ..
>
> > Most 401(k) plan documents will include a line;
> > "As a general rule, your interest in your account, including your "vested
> > interest," may not be alienated. This means that your interest may not be
> > sold, used as collateral for a loan (other than for a Plan loan), given
> > away or otherwise transferred. In addition, your creditors may not attach,
> > garnish or otherwise interfere with your account."

>
> If 401(k) plans could be used as collateral, or transferred, my guess is
> that a very large percentage of the people with them would never see any
> benefits in retirement. So in a way these provisions protect people from
> themselves. As an extreme case, think of how bad things would be if Social
> Security entitlements could be pledged or transferred.


I see what you are saying - essentially the government is trying to
protect people. I have about 400k outside my 401k which is
tied up in various investments. I have 200k in my 401k but I want to
get
a hold of another 100k or so via a loan and invest it. I do not have
much equity vested in my home so I can't get a home equity loan.
I'm pretty confident I can make more than 7% return which is what
I can maybe get a loan for - I just find it hard to believe that a
bank
will lend me money to invest in what I want to invest in. I have the
opportunity to invest in a hedge fund that has never returned below
8 percent in its 20 year history and last year made 26 percent return.
So I don't know what to do here ! It's like I'm missing a big
opportunity... The fund is open to me and closed
to other people - I know the owner so it is open to me on a friendship
basis.

 
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joetaxpayer
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      02-24-2007, 05:54 PM


asdf wrote:
> I'm pretty confident I can make more than 7% return which is what
> I can maybe get a loan for - I just find it hard to believe that a
> bank
> will lend me money to invest in what I want to invest in. I have the
> opportunity to invest in a hedge fund that has never returned below
> 8 percent in its 20 year history and last year made 26 percent return.
> So I don't know what to do here ! It's like I'm missing a big
> opportunity...


Forgive me if this is obvious to you, but there is a relationship
between risk and reward. There is a 'risk-free' rate of 5% or so, and
then there's returns exhibited by various investments such as the S&P
set of stocks (10% +/- 16% STDev). The +/- 16% is the risk associated
with the higher return. It's one thing to accept that risk over the long
term, time is on your side, but another to borrow to do so. If the fund
fails to perform, you'll be left with a loan that still needs payments.

If you do not have enough equity in your home to take a loan, I suggest
that paying down the mortgage a bit more than current payments is in
order. While my prior posts indicate that mortgages don't scare me, even
into retirement, I know that I won't be upside down if for any reason I
had to sell at a bad time.

As long as you understand the risks going in.

JOE

 
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