What's the Difference Between a Reverse Mortgage, Home Equity Loan, and 401k Loan?
If you're a senior citizen and looking to free up some cash, you may be considering a reverse mortgage, home equity loan, or 401k loan. All three options have their pros and cons, so it's important to understand the key differences before making a decision.
A reverse mortgage is a loan that allows you to convert your home equity into cash. The biggest benefit of a reverse mortgage is that you don't have to make any monthly payments. However, this also means that the loan balance will continue to grow over time. Additionally, if you move out of your home or sell it, you will be required to repay the loan in full.
A home equity loan is similar to a reverse mortgage in that it also allows you to tap into your home equity. However, with a home equity loan, you will be required to make monthly payments. The benefit of a home equity loan is that you can choose to repay it over a shorter period of time than a reverse mortgage, which can save you money on interest.
A 401k loan is a loan that allows you to borrow money from your 401k retirement account. The biggest benefit of a 401k loan is that you don't have to pay taxes on the borrowed funds. Additionally, the interest you pay on the loan goes back into your 401k account. However, there are some risks associated with taking out a 401k loan. If you leave your job or are laid off, you will be required to repay the loan in full within 60 days. Additionally, if you can't repay the loan, the unpaid balance will be considered a withdrawal from your retirement account and will be subject to taxes and penalties.