Evaluating 401K Loans vs. HELOCs vs. Reverse Mortgages
3 Major Considerations When Deciding Between a 401k Loan, HELOC, or Reverse Mortgage
When it comes to securing extra funds in retirement, there are a few options to choose from. Taking out a loan from your 401k, getting a home equity line of credit (HELOC), or getting a reverse mortgage are all viable options. But which one is right for you?
It depends on a few factors. Here are three major considerations to take into account when making your decision:
1. How much money do you need?
If you only need a small amount of money, then a 401k loan might be the best option. You can typically borrow up to $50,000 or half of your vested balance, whichever is less. The interest rate on a 401k loan is usually lower than a HELOC or reverse mortgage, and you’re paying the interest to yourself.
However, if you need a larger amount of money, then a HELOC or reverse mortgage might be a better option. With a HELOC, you can typically borrow up to 85% of your home’s value. And with a reverse mortgage, you can borrow up to 60% of your home’s value.
2. How long do you need the money for?
If you need the money for a short-term expense, then a 401k loan might be the best option. You typically have five years to repay a 401k loan.
If you need the money for a longer period of time, then a HELOC or reverse mortgage might be a better option. With a HELOC, you have up to 10 years to repay the loan. And with a reverse mortgage, you don’t have to make any monthly payments as long as you live in your home.
3. How much equity do you have in your home?
If you have a lot of equity in your home, then a HELOC or reverse mortgage might be a better option. With a HELOC, you can typically borrow up to 85% of your home’s value. And with a reverse mortgage, you can borrow up to 60% of your home’s value.
If you don’t have a lot of equity in your home, then a 401k loan might be the best option. With a 401k loan, you can typically borrow up to $50,000 or half of your vested balance, whichever is less.
No matter which option you choose, be sure to weigh the pros and cons carefully before making a decision.
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