Differences Between 401K Loans vs. Second Mortgages vs. Home Equity Loans
When it comes to retirement planning, one of the big questions is how to access the money you've saved up. Should you get a 401k loan, a second mortgage, or a home equity loan? Here are some things to consider:
401k Loan
With a 401k loan, you can borrow up to $50,000 or half of your vested balance, whichever is less. The interest rate is typically lower than that of a home equity loan or second mortgage. And, the loan is repaid with after-tax dollars, so there's no tax penalty. However, if you leave your job, you generally have to repay the loan within 60 days or it will be considered a withdrawal and subject to taxes and penalties.
Second Mortgage
A second mortgage is a loan secured by your home equity. The interest rate is usually higher than that of a first mortgage, but lower than that of a home equity loan. The biggest downside is that if you can't make the payments, you could lose your home.
Home Equity Loan
A home equity loan is a loan secured by your home equity. The interest rate is usually lower than that of a credit card or personal loan, but higher than that of a first mortgage. The biggest downside is that if you can't make the payments, you could lose your home.
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