The Million Dollar Question: 401K Loans vs. HELOCs vs. Cash-Out Refinance
3 Considerations for Getting a Loan in Retirement
There are a few options available to help fund retirement, each with its own set of pros and cons. Borrowing from a 401(k) plan, getting a home equity line of credit (HELOC), or taking out a cash-out refinance are all viable choices, but it’s important to understand the implications of each before making a decision.
Borrowing from a 401(k) plan may be the easiest option, but it’s also the least favorable. Not only will you have to pay back the loan with interest, but you’ll also be subject to income taxes on the amount borrowed. And, if you leave your job for any reason, the loan must be paid back immediately or it will be considered a withdrawal and subject to even more taxes.
A HELOC is a better option than a 401(k) loan, but it still has its drawbacks. With a HELOC, you’ll be able to borrow against the equity in your home and use the money for whatever you want. The interest rates are usually lower than those of credit cards or personal loans, and you may even be able to deduct the interest on your taxes. However, if you fail to make payments, you could lose your home.
A cash-out refinance is another option to consider. With a cash-out refinance, you take out a new loan for more money than you currently owe on your home. The difference is paid to you in cash, which you can use for any purpose. The interest rates on cash-out refinances are usually lower than those of HELOCs or credit cards, but you will have to go through the hassle and expense of getting a new mortgage.
Before deciding which option is best for you, be sure to consider all the implications and talk to a financial advisor to get help making the best decision for your unique situation.
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