Why a HELOC
beats borrowing from your 401(k)
You can leverage your home equity for financial flexibility without risking your retirement savings!
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Meet Brenda
A thoughtful homeowner who faced a big financial decision.
Like many, Brenda needed funds for a major home renovation but was torn between tapping into her 401(k) and looking into other financing options. Her goal was to make a smart solution that wouldn't threaten her financial future. Brenda initially liked the idea of borrowing from her 401(k) since it seemed easy. However, she soon found out about the drawbacks: penalties, negative impacts on her retirement savings, and paying taxes twice on the interest. She realized this could end up costing her more down the line and disrupt her retirement plans.
After researching alternatives, Brenda discovered the benefits of a Home Equity Line of Credit (HELOC).
She learned that a HELOC could offer lower interest rates and possible tax deductions not available with 401(k) loans. Most importantly, she would not compromise her retirement fund.
Brenda decided to go with a HELOC.
Not only did she pay for her renovations, but she also boosted her home's value. By choosing a HELOC, Brenda managed her finances without dipping into her retirement savings. She felt relieved and empowered by her decision, confident that she had made the best choice for her current and future financial stability.
Figure HELOC vs. borrowing from a 401(k)
Compare side-by-side to help you make an informed decision about tapping into your home's equity
| Figure HELOC | 401(k) Loan* | |
|---|---|---|
| Loan amount | Based on home equity, can be up to $400k | Limited to 50% of vested balance, up to $50,000 |
| Tax benefits | Interest may be tax-deductible if used for home improvements | No tax benefits; repayments made with after-tax dollars |
| Redraw options | Allows redrawing on the credit line as the balance is repaid | Typically does not allow redraws |
| Loan accessibility | Quick approval process, based on home equity, not employer’s plan** | Depends on employer's plan; requires being in the employment where the 401(k) is held |
| Application | 100% Online, see your rate instantly | Varies by lender. May require talking to your employer |
| Impact on retirement savings | Does not affect retirement savings | Reduces retirement savings; missed opportunity for compound growth |
- * https://www.figure.com/blog/is-it-better-to-borrow-from-my-401-k-or-use-my-home-equity/
- ** Please consult a tax advisor regarding the deductibility of interest and charges to your Figure Home Equity Line.