How to Pay a Mortgage With 403(b) Funds

If you're behind on your mortgage, you may be able to use 403(b) savings to pay it.

If you're behind on your mortgage, you may be able to use 403(b) savings to pay it.

If you’re a homeowner, you already know that your property can be a big financial burden. If you need help paying your mortgage and you happen to have a 403(b) retirement account, you may be able to tap into it to pay your mortgage. However, there are several restrictions and consequences associated with this.

Take a Hardship Withdrawal

One way to use your 403(b) funds to pay your mortgage is to make a hardship withdrawal from the account. You can only withdraw these funds if you are in severe financial distress and you have no other financial resources — and you’ll be required to pay a 10 percent early withdrawal penalty. To make payments on your current mortgage using your 403(b) funds, you also need to be in danger of foreclosure. If you qualify, you will only be able to withdraw the amount needed to cover your “hardship,” plus any taxes that also apply.

Terminate Your Employment

While it may be difficult to withdraw 403(b) funds while employed by the company that provides the account, you will be able to take any funds you need if you leave your employer. That said, cashing out a 403(b) account prior to turning 59 ½ means you’ll have to pay an early withdrawal penalty. Additionally, your former employer will reserve 20 percent of the accrued funds for taxes, leaving you with only 80 percent (minus the 10 percent early withdrawal penalty). However, these penalties may be worth it to you if you are unable to otherwise pay your mortgage.

Get a Loan

If you don’t want to leave your employer or take a hardship withdrawal, you may be eligible for a loan against your 403(b) funds that you can use to pay your mortgage. A 403(b) loan uses the retirement account funds as collateral against borrowed money. These loans generally have lower interest rates than other types of loans, and you will likely pay the money back as a regular paycheck deduction. Speak to your employer’s human resources department or your plan administrator to see whether your specific plan allows these loans and how you can apply.

Other Options

Retirement accounts are there to help ease financial demands after you retire or can no longer work. So if you happen to be over the age of 59 ½ or permanently disabled, you can use your 403(b) funds anytime without penalty to pay your mortgage. Additionally, if you’re over 55 and you leave the employer sponsoring your account, you will also be able to withdraw funds to pay your mortgage (or use for any other reason) without penalty.


About the Author

Kristen Radford Price began writing in 2005 for her campus newspaper. She has served as a feature writer for the life-and-style section of the "Daily Herald," a contributor to "Utah Valley Weekly," an editor for a small publishing house and now as director of communications for an Internet company. Radford has a Bachelor of Arts in journalism from Brigham Young University.

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