The Million Dollar Question: Second Mortgages vs. Selling Property Outright vs. 401K Loans

What to Do With Your Home When You retire: Sell, Get a Mortgage, or Borrow From Your 401k?

You’ve finally done it. You’ve reached that wonderful time in life when you can retire. But what do you do with your home? It’s paid off and you don’t need the income from it, but you also don’t want to move. Should you sell and downsize, get a second mortgage, or borrow from your 401k?

There are pros and cons to each option and the best choice for you will depend on your individual circumstances. So, let’s take a closer look at each option to help you decide what to do with your home when you retire.

Selling Your Home

If you sell your home, you’ll have the cash from the sale to do whatever you want. You could use it to travel, buy a smaller home, or invest it for income in retirement.

If you do decide to sell, be aware that you may have to pay capital gains tax on the sale if you make a profit. However, you may be able to avoid this if you’ve owned the home for at least two years and you live in it as your primary residence.

Another thing to consider is that if you downsize, you may end up with more house than you need and an empty nest can be lonely. If you have fond memories of your family home, selling it can be emotional.

Getting a Second Mortgage

If you have equity in your home, you could take out a second mortgage. This would give you the cash you need without having to sell your home.

The downside of a second mortgage is that you’ll have to make monthly payments and if you can’t keep up with them, you could lose your home. Plus, the interest on a second mortgage is not tax-deductible.

Borrowing From Your 401k

If you have a 401k, you may be able to borrow against it. The advantage of this is that you won’t have to make monthly payments and the interest is typically low.

However, if you leave your job or retire, you’ll have to pay the loan back all at once or it will be considered a withdrawal and you’ll have to pay taxes on it plus a 10% penalty if you’re under age 59 ½.

So, there you have it – three different options for what to do with your home when you retire. Take some time to think about what’s best for you and your situation and then make your decision.

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