I'm 36, and have $265k in a 401k with a previous employer. I have a home with $99k remaining on the mortgage. All I find is recommendations to not do this, based solely on the taxes/penalties, loss of future earnings, etc. If I'm willing to accept the loss (assuming around $40k), what else do I need to consider? Is there an alternative option for me?
I am considering this for two main reasons: 1) I'm worried of what the future may hold, and would like the security blanket of saying my home is "owned". 2) I've watched the 401k grow like crazy lately, and just imagine a correction where the money will simply disappear. So in my mind I'm taking out money that may not be there long-term anyway.
Assumptions: I'll stay in the house for at least 10+ more years. I'll continue funding any current 401k, at a minimum to get full employer match. I'll save or invest the majority of what my current monthly mortgage payment is ($609 with 20 years remaining).
I agree with Curt about your allocation but even better would be an education in how the markets works. As well, you should look at what you need the money for, is it soley for retirement? If so, then I think you can probably stand to take the risk, you just need to understand why.
Also, do you have cash reserves or an emergency fund? If you had 6-8 months of you living expenses in cash sitting at a bank you might not be too worried.
Also, what is your opportunity cost? The markets beats the unlevered real estate in the long-term. Stay long and you'll be thankful when it comes time to retire.
Also, don't try to time the market, even the professionals can't do it. (Even if they say they can.)
You should consider liquidity. Once you put money into the house it is very difficult to get it out. That is why you see all the Reverse Mortgage advertisements on TV.
If you are concerned about the risk inside your 401(k) consider an asset allocation that will reduce the overall risk of the portfolio. Talk to your employer about what educational materials they can provide you to help you re-allocate your portfolio...or talk to an objective financial advisor.