Q. I am 38 years old and I have seven years in the system. I plan to purchase a new home this year as my primary residence. I am considering taking out a TSP residential loan to increase my down payment. What are the pros and cons of the TSP residential loan? Is the interest paid back to the loan going into my TSP account? Are there any tax repercussions?
A. The interest you pay on the loan is contributed to your account. There are no tax effects if you repay the loan, as required. If you have the option of borrowing the money from a third party at a low fixed-interest rate over 30 years, I’m not sure why you would choose to borrow it from your TSP account, instead. The price you pay is the foregone return that the TSP will produce over the life of the loan.
