The Thrift Savings Plan (TSP) offers participants the ability to borrow funds from their own accounts. These loans must be repaid with interest over a specified period. This calculator helps you estimate your monthly loan payment based on the loan amount, annual interest rate, and the loan term.
How the Calculation Works
The monthly payment for a TSP loan is calculated using the standard amortization formula, which is also used for mortgages and other installment loans. The formula ensures that each payment covers a portion of the principal amount borrowed and the accrued interest.
The formula for calculating the monthly payment (M) is:
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
Where:
P = Principal loan amount (the total amount you borrow)
i = Monthly interest rate (Annual interest rate divided by 12, then divided by 100 to convert percentage to decimal)
n = Total number of payments (Loan term in years multiplied by 12)
For example, if you borrow $10,000 at an annual interest rate of 5% for 30 years:
Total number of payments (n) = 30 years * 12 months/year = 360
Plugging these values into the formula will give you the estimated monthly payment.
Important Considerations for TSP Loans
Repayment Source: TSP loan payments are typically deducted directly from your paycheck. If you leave federal service, you usually have 60 days to repay the outstanding balance or the remaining balance will be considered a taxable distribution.
Interest Rate: The TSP loan interest rate is set monthly and is based on the average of the rates of return for certain investment indices.
Loan Limits and Fees: There are limits on how much you can borrow and potential administrative fees associated with taking out a TSP loan.
Impact on Investments: Borrowing from your TSP means that the amount borrowed is removed from your investment portfolio and will not grow with your investments during the loan period.
Tax Implications: If a loan is not repaid according to its terms, the outstanding balance may be considered a taxable distribution and subject to early withdrawal penalties if you are under age 59 ½.
This calculator is for estimation purposes only. Consult your TSP loan documents and the official TSP website for precise details and terms.