Contrasting 401K Loans vs. Equity Sharing Agreements vs. Home Equity Loans

401k Loan vs. Equity Sharing Agreement vs. Home Equity Loan: What to Consider

When it comes to retirement savings, most people have a 401k through their employer. But what other options are available if you need access to those funds before retirement? In this article, we'll compare and contrast a 401k loan, equity sharing agreement, and home equity loan, and offer some considerations for each.

401k Loan:

-You can borrow up to $50,000 or half of your vested balance, whichever is less

-The interest rate is typically two points above the prime rate

-You have up to five years to repay the loan

-There are no tax consequences if you repay the loan as scheduled

-You may be subject to a 10% early withdrawal penalty if you don't repay the loan as scheduled

Equity Sharing Agreement:

-An equity sharing agreement allows you to sell a portion of your future equity in your home to an investor in exchange for a lump sum of cash now

-The amount of money you receive will be based on the value of your home and the percentage of equity you're selling

-You will still own your home and will continue to make monthly mortgage payments

-When you sell your home or refinance, the investor will receive their portion of the proceeds

-This option may be a good choice if you need cash now but don't want to take on more debt

Home Equity Loan:

-A home equity loan is a second mortgage on your home

-You can borrow up to 80% of your home's value, minus any outstanding mortgage debt

-The interest rate is typically lower than a credit card or personal loan

-You may be able to deduct the interest you pay on the loan from your taxes

-You'll need to make monthly payments on the loan, and the loan will be paid off when you sell your home or refinance your mortgage

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