Note: The TSP loan interest rate is typically set quarterly. Check the official TSP website for the current rate.
TSP loans generally have a maximum term of 5 years.
Understanding TSP Loans and Your Payments
The Thrift Savings Plan (TSP) is a retirement savings and investment plan for members of the United States Federal Government. While saving for retirement is its primary goal, the TSP also offers participants the option to take out loans against their vested account balance. This calculator helps you estimate the monthly payments and total interest paid for a TSP loan.
How TSP Loans Work
Loan Purpose: TSP loans can be taken for any reason.
Loan Amount: You can generally borrow up to 50% of your vested account balance, or $10,000, whichever is less. There is also a minimum loan amount requirement, usually $1,000.
Interest Rate: The interest rate for a TSP loan is set quarterly by the TSP and is typically based on the average rates of U.S. Treasury securities. It's important to use the current, accurate rate for your calculations.
Repayment Term: Most TSP loans have a maximum repayment term of 5 years. Loans used to purchase a primary residence may have a longer term, but this calculator focuses on the standard 5-year term.
Repayment Method: Loan payments are typically deducted directly from your paycheck on a bi-weekly or monthly basis. If you are not an active federal employee (e.g., retired or separated), repayment terms will differ.
Impact on Investments: While you are repaying a TSP loan, the outstanding loan balance is not invested and does not earn investment returns.
The Math Behind the Calculator
The calculator uses the standard formula for calculating the monthly payment (M) of an annuity loan:
$M = P \frac{r(1+r)^n}{(1+r)^n – 1}$
Where:
$P$ = Principal loan amount (the amount you borrow).
$r$ = Monthly interest rate. This is calculated by dividing the annual interest rate by 12. For example, if the annual rate is 4.25%, the monthly rate $r = 0.0425 / 12$.
$n$ = Total number of payments. This is calculated by multiplying the loan term in years by 12. For a 5-year loan, $n = 5 \times 12 = 60$.
The total interest paid is calculated by multiplying the monthly payment by the total number of payments and then subtracting the original principal loan amount.
Total Interest = (M * n) – P
When to Consider a TSP Loan
Taking a TSP loan should be considered carefully. While it can provide funds in emergencies or for significant purchases without incurring the early withdrawal penalties associated with cashing out retirement funds, it has drawbacks:
Missed Investment Growth: The money borrowed is out of the market, meaning it cannot grow with potential investment returns.
Repayment Obligation: Loan payments are mandatory. If you separate from federal service, the loan typically must be repaid in full within 60 days, or it will be considered a taxable distribution (and potentially subject to a 10% early withdrawal penalty if you are under age 59½).
Interest Paid to Yourself: While you pay interest on the loan, that interest is paid back into your own TSP account. This is often cited as a benefit, but it's crucial to weigh this against the lost potential investment gains.
Always consult the official TSP website or a financial advisor before taking out a TSP loan to fully understand the terms, conditions, and potential consequences.
function calculateTSPLoan() {
var loanAmountInput = document.getElementById("loanAmount");
var interestRateInput = document.getElementById("interestRate");
var loanTermInput = document.getElementById("loanTerm");
var resultDiv = document.getElementById("result");
// Clear previous results
resultDiv.innerHTML = ";
// Get values and convert to numbers
var loanAmount = parseFloat(loanAmountInput.value);
var annualInterestRate = parseFloat(interestRateInput.value);
var loanTermYears = parseInt(loanTermInput.value);
// Validate inputs
if (isNaN(loanAmount) || isNaN(annualInterestRate) || isNaN(loanTermYears)) {
resultDiv.innerHTML = 'Please enter valid numbers for all fields.';
return;
}
if (loanAmount <= 0 || annualInterestRate < 0 || loanTermYears <= 0) {
resultDiv.innerHTML = 'Please enter positive values for loan amount, interest rate, and loan term.';
return;
}
if (loanAmount 50000) { // TSP loan limit rule ($50k, or 50% of balance)
resultDiv.innerHTML = 'TSP loan amount cannot exceed $50,000. Check your vested balance for specific limits.';
return;
}
if (loanTermYears > 5) {
resultDiv.innerHTML = 'TSP loans generally have a maximum term of 5 years.';
return;
}
// Calculate monthly interest rate and number of payments
var monthlyInterestRate = annualInterestRate / 100 / 12;
var numberOfPayments = loanTermYears * 12;
var monthlyPayment = 0;
var totalInterestPaid = 0;
// Calculate monthly payment using the loan payment formula
if (monthlyInterestRate > 0) {
monthlyPayment = loanAmount * (monthlyInterestRate * Math.pow(1 + monthlyInterestRate, numberOfPayments)) / (Math.pow(1 + monthlyInterestRate, numberOfPayments) – 1);
} else {
// If interest rate is 0, payment is simply principal divided by number of payments
monthlyPayment = loanAmount / numberOfPayments;
}
totalInterestPaid = (monthlyPayment * numberOfPayments) – loanAmount;
// Format results for display
var formattedMonthlyPayment = monthlyPayment.toFixed(2);
var formattedTotalInterest = totalInterestPaid.toFixed(2);
var formattedLoanAmount = loanAmount.toLocaleString('en-US', { minimumFractionDigits: 2, maximumFractionDigits: 2 });
resultDiv.innerHTML = `
Monthly Payment: $${formattedMonthlyPayment}Total Interest Paid Over Loan Term: $${formattedTotalInterest}
`;
}