If you accept another job offer, refinancing your mortgage may be difficult when you are facing a time crunch, said David Reiss, a law professor at Brooklyn Law School.
“If you leave your job, the loan will come due, and you will have to figure out how to repay it – potentially just at the time it would be hardest to do so,” he said. “Given that it might be hard to refinance the property on such short notice, you might find yourself stuck between a rock and a hard place.”
Also, the opportunity costs can be much higher than you believe. You are missing out on your contributions growing tax-deferred, said Hearn.
“Considering that the money may not be repaid for 10 or 15 years, the potential compound growth you missed out on could be significant, especially if you borrowed from the equity portion of your retirement account,” he said.
The money you borrowed is being taxed twice since you pay taxes on your salary and are using your pay check to repay the loan. Once you retire, you are faced with paying taxes again on the money being withdrawn.
“If you're in the 25% federal tax bracket both now and in retirement, paying a 50% tax is extremely expensive,” D’Amico said.
Saving for retirement is crucial, since the average consumer does not have enough money accrued by the time he reaches 65. Since a portion of your new contributions are allocated for the loan, you “ultimately contribute less to your retirement plan,” he said.