When it comes to taking out a loan to supplement your retirement savings, there are a few things to consider. Taking out a 401k loan, getting a second mortgage, or taking out a cash-out refinance all have their own pros and cons. In this article, we'll break down each option so you can make the best decision for your financial situation.
Taking out a loan from your 401k is one option to consider when you need extra cash. One of the benefits of a 401k loan is that the interest you pay goes back into your account. Additionally, you usually won't have to pay any fees to take out the loan.
However, there are a few downsides to taking out a 401k loan. For one, if you leave your job, you may have to repay the loan in full within 60 days. Additionally, if you can't repay the loan, it will be considered a withdrawal and you'll be subject to taxes and penalties.
Another option to consider is taking out a second mortgage. A second mortgage can give you a lump sum of cash that you can use for whatever you need. One of the benefits of a second mortgage is that the interest rate is usually lower than other types of loans.
However, there are a few downsides to taking out a second mortgage. For one, you'll have two mortgages to pay instead of just one. Additionally, if your house isn't worth as much as you owe on it, you may not be able to get a second mortgage.
A third option to consider is taking out a cash-out refinance. With a cash-out refinance, you'll take out a new mortgage for more than what you owe on your current one and use the difference for whatever you need. One of the benefits of a cash-out refinance is that you may be able to get a lower interest rate than you currently have.
However, there are a few downsides to taking out a cash-out refinance. For one, you'll have to go through the process of getting a new mortgage, which can be time consuming. Additionally, you'll have to pay closing costs when you take out the new mortgage.