What kind of penalty would I pay if I paid my mortgage off with my 401k?

I was wondering what kind of penalty I would pay if I paid off or down a mortgage? I have just over $50,000.00 in my 401K and about $8000.00 is out in a loan at 8%. This $8000.00 is invested into a home improvment. So I have about $42,000.00 invested in the 401K. I currently owe about $37,000.00 on my home. I have heard you will have about 20% taken off the top for tax and I will have to pay another 10% in taxes for added income for the year. So if that is the case I would pay about 30% penalty. I work at a job that is driven by allot of fuel and there is talk of lay-offs and I was thinking it would be allot easier not to have a house payment if I get laid off in till I find a new job. I am still fairily young (34) so I can start another 401K or IRA and invest into it at a hight % rate if I have no house payment. I would appreciate your financial advice.

Mike