refinance vs. home equity line of credit (HELOC) vs. 401k loan
When it comes to getting a loan to access the equity in your home, there are several options available. Two of the most popular are cash-out refinances and home equity lines of credit (HELOCs). But which is the better option for you?
Here are some things to consider when deciding between a cash-out refinance and a HELOC:
· How much equity do you have in your home? If you have a lot of equity, you may be able to get a lower interest rate with a cash-out refinance.
· What are the interest rates on each type of loan? HELOC interest rates are often variable, while cash-out refinance rates are typically fixed.
· How long do you need the loan? A HELOC typically has a 10-year draw period, after which you would need to repay the loan. A cash-out refinance usually has a 30- or 15-year term.
· What are the fees associated with each type of loan? Both cash-out refinances and HELOCs have closing costs, but a HELOC may also have an annual fee.
· What is your credit score? You may need a higher credit score to qualify for a cash-out refinance than for a HELOC.
Another option to consider is a 401k loan. With a 401k loan, you can borrow up to $50,000 or half of your account balance, whichever is less. The interest rate on a 401k loan is often lower than the interest rate on a HELOC or cash-out refinance. And, the payments are typically taken directly from your paycheck, so you don’t have to worry about making payments yourself.
However, there are some drawbacks to taking out a 401k loan. For one, if you leave your job, you typically have to repay the loan within 60 days. If you can’t repay it, the loan will be considered a distribution and you will have to pay taxes on it. Additionally, if you take out a 401k loan, you won’t be able to contribute to your 401k until the loan is repaid.
So, which is the best option for you? It depends on your individual situation. Be sure to compare all of the factors before making a decision.