The Pros and Cons of Getting a Home Equity Loan, a Reverse Mortgage, or a 401k Loan
When it comes to taking out a loan, there are a variety of options to choose from – each with its own set of pros and cons. In this article, we'll take a look at three popular loan options – home equity loans, reverse mortgages, and 401k loans – and compare their key features.
Home Equity Loans
A home equity loan is a loan that is secured by your home equity – the value of your home minus any outstanding mortgage debt. Home equity loans typically have lower interest rates than unsecured loans, and they can be a good option for borrowers with good credit. One downside of home equity loans is that they typically have shorter repayment terms than other types of loans, which means you'll need to make higher monthly payments.
A reverse mortgage is a loan that allows homeowners to access a portion of their home equity. With a reverse mortgage, you don't have to make monthly payments – instead, the loan is repaid when you sell your home or when you die. Reverse mortgages can be a good option for seniors who want to stay in their homes and don't have the income to make monthly loan payments. However, reverse mortgages typically have high interest rates and fees, which can eat into your equity.
A 401k loan is a loan that is taken out against your 401k account. 401k loans typically have low interest rates and can be a good option for borrowers who need access to cash. However, there are some risks associated with taking out a 401k loan – if you lose your job or have other financial problems, you may have to repay the loan with interest.