My husband and I (both 36) own a home with a bit of equity, but scared of the idea of doing a heloc or home equity loan. We were thinking of taking a loan out from our 401k instead. Is this a smart option? Are there any better ones? We have about $8000 in repairs (floors and removing deck and replacing with concrete pad). Eventually we’ll replace fence and do other repairs before moving in about 4 years. TIA for advice!
Best way to pay for home improvements
byu/alwaystiredmama1990 inpersonalfinance
Posted by alwaystiredmama1990
8 Comments
How long will it take to pay off an interest-bearing loan vs how long will it take to save that much?
You haven’t provided any income/expense numbers, so this might be the most basic way to look at it.
Do you need the repairs now or can you wait to save up first?
Prob would just do the 401k loan cause of the ease
need more info
hh income? actual need of repair timeline?
i wouldn’t want a heloc or a 401k loan if you can either finance the work through a contractor or save the cash in a few months
No, taking a loan out of your 401K takes your money out of the market, and then you pay interest with post-tax dollars, which you then pay tax on again when you withdraw it once you retire.
We’re talking about $8k for non-urgent repairs, save the cash. Since you know you have a fence and other repairs coming up in the next four years, estimate those costs and build in a monthly saving amount to get ready for those as well.
401k loan will reduce your pay for a while because you have to pay it back. If you can handle the smaller paychecks it’s fine. HELOC is not that bad. You’re only paying interest on what you use. You could have a $30k HELOC, only use $8k and you’d only pay back the $8k with interest but you have access to the other $22k if something else comes up.
I’ve paid many large ticket items using credit cards. Many have ___ number of months to pay with 0% interest. $8k is not a lot. With decent credit you should qualify then make sure to pay it off completely before the promotion expires.
Get a second job and cash flow this repair.
Visit YouTube university and focus on what you can do yourself, some is a lot easier than you think and will save cost. I never recommend a loan, just check off boxes as you save up. Keep the potential loan option as an emergency fund to prioritize an unforeseen home ownership issue which they will happen