3 Important Considerations for Getting a Reverse Mortgage, 401k Loan or HELOC
When it comes to exploring your financial options in retirement, there are a few key things to keep in mind. Taking out a reverse mortgage, 401k loan or home equity line of credit (HELOC) all have their pros and cons, so it's important to do your research and understand the details before making a decision. Here are three important things to consider:
1. How much money do you need?
One of the biggest determining factors in which type of loan makes the most sense for you is how much money you need. A reverse mortgage can provide a lump sum of cash, while a HELOC typically functions as a line of credit that you can draw from as needed. A 401k loan usually has stricter limits on how much you can borrow, so if you need a large amount of money upfront, a reverse mortgage or HELOC may be a better option.
2. What are the interest rates and fees?
Another key consideration is the interest rate and fees associated with each type of loan. With a reverse mortgage, you'll generally have to pay origination fees as well as ongoing servicing fees. Interest rates on HELOCs can be variable, so they may go up or down over time. And with a 401k loan, you'll typically have to pay back the loan plus interest to yourself (with after-tax dollars), so it's important to factor that in when considering how much you can afford to borrow.
3. What are the repayment terms?
Finally, it's important to understand the repayment terms for each type of loan. With a reverse mortgage, the loan doesn't have to be repaid until the borrower dies or sells the home. With a HELOC, the borrower typically has to start making monthly payments after a certain draw period (usually 5-10 years). And with a 401k loan, the borrower typically has to start making repayments immediately (usually through payroll deductions).
Making the decision about which type of loan is right for you depends on your unique financial situation. Be sure to talk to a financial advisor to get personalized advice before making any decisions.