Use cash-out refinancing to pay off 401(k) loan? Dear Dr. Don, We are planning on refinancing our home and want to get extra money to pay off a 401(k) loan of $30,000 we obtained for home improvements two years ago. The 401(k) loan is at 9 percent. Granted, we are paying that interest to ourselves. The loan payment is $344 every two weeks, and it will be paid off in three years. We are looking at a 4.75 percent, 15-year fixed refinance loan and wanted to pay off the 401(k) loan to minimize our monthly expenses. Is that the right types of mortgages types of mortgages thing to do? Russ Refinance Russ, Using the proceeds from a cash-out refinancing to pay off your 401(k) loan makes sense for several reasons. Although you are paying yourself 9 percent interest on the loan, the interest expense doesn't generate an interest deduction on your taxes like a mortgage or home equity loan does. Assuming you can use the mortgage interest deduction on your taxes and estimating a 28 percent federal income tax rate, the effective rate on the 4.75 percent mortgage loan is 3.42 percent. Paying off the 401(k) with the proceeds of a cash-out refinancing will dramatically reduce the monthly calculate loan payments types of mortgages payment associated with this loan balance. Just remember that taking 15 years to repay this loan instead of three years means you'll pay more in total interest expense even though you have a much lower effective interest rate. Making additional principal payments on the mortgage will reduce that interest expense. Bankrate's Mortgage Calculator can show you how additional principal payments reduce your total interest expense. Continued below Paying off the 401(k) loan now puts that money back to work for you in your retirement account, and the investment return it earns won't be coming out of your pocket. Some 401(k) plans don't let bankruptcy alternative types of mortgages you make contributions while you have a loan outstanding. If that's the case for your plan, paying off the loan lets you resume contributions to your retirement. That's very important if your company matches all or part of your 401(k) contributions. Finally, I couldn't arrive at your payment number from the information you gave me. To borrow $30,000 for five years at 9 percent with payments made every two weeks, the biweekly payment should be $286.97, not $344. (Bimonthly would be $310.92) That's a big enough difference to ask for an explanation from the plan sponsor about how the abn amro mortgage group types of mortgages payment was calculated.