401k used as collateral

Discussion in 'Financial Planning' started by asdf, Feb 23, 2007.

  1. asdf

    asdf Guest

    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.
     
    asdf, Feb 23, 2007
    #1
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  2. asdf

    Todd H. Guest

    "asdf" <> 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/
     
    Todd H., Feb 23, 2007
    #2
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  3. "asdf" <> wrote in message
    news:...
    > 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
     
    Elizabeth Richardson, Feb 23, 2007
    #3
  4. asdf

    jIM Guest


    > > 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.
     
    jIM, Feb 23, 2007
    #4
  5. asdf

    asdf Guest

    On Feb 23, 8:32 am, "Elizabeth Richardson" <>
    wrote:
    > "asdf" <> wrote in message
    >
    > news:...
    >
    > > 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.
     
    asdf, Feb 23, 2007
    #5
  6. asdf

    joetaxpayer Guest

    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
     
    joetaxpayer, Feb 23, 2007
    #6
  7. asdf

    PeterL Guest

    On Feb 23, 5:09 am, "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.


    Use it as a collateral? No. Consider it as part of your total asset,
    possibly.
     
    PeterL, Feb 23, 2007
    #7
  8. asdf

    Don Guest

    "joetaxpayer" <> wrote in message
    news:...

    > 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.
     
    Don, Feb 23, 2007
    #8
  9. asdf

    asdf Guest

    On Feb 23, 6:25 pm, "Don" <> wrote:
    > "joetaxpayer" <> wrote in message
    >
    > news:...
    >
    > > 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.
     
    asdf, Feb 24, 2007
    #9
  10. asdf

    joetaxpayer Guest

    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
     
    joetaxpayer, Feb 24, 2007
    #10
  11. asdf

    Don Guest

    "asdf" <> wrote in message
    news:...

    > 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.


    But how much more? Do your really want to take on the risk in hopes of
    getting 2% or 3%, or whatever, more than the 7% your loan will cost? The
    fact that a bank won't touch it is in itself a warning that the risk could
    be larger than you think.
     
    Don, Feb 24, 2007
    #11
  12. asdf

    PeterL Guest

    On Feb 24, 8:47 am, "asdf" <> wrote:
    > On Feb 23, 6:25 pm, "Don" <> wrote:
    >
    >
    >
    >
    >
    > > "joetaxpayer" <> wrote in message

    >
    > >news:...

    >
    > > > 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


    Are you sure you can get a personal loan for 7%? This is the home
    equity line of credit rate. Personal loans are much higher.


    > - 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.



    Last year was a bull year. Everyone looked like geniuses last year.

    And of course investing in a hedge fund is highly risky, despite the
    past performance of your friend. Even the super rich don't put a
    large percentage of their portfolio in hedge funds. And here you are
    talking about getting a personal loan to invest in a hedge fund.


    > 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.- Hide quoted text -
    >
    > - Show quoted text -
     
    PeterL, Feb 26, 2007
    #12
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