401k Loan vs HELOC: Which Is Cheaper for Homeowners?

• 401k Expert

Quick Answer: 401k Loan vs HELOC

HELOCs typically offer lower rates (8-10% variable) with tax-deductible interest for home improvements, but put your home at risk. 401k loans have comparable rates (~9.5%) with no credit check but risk your retirement if you leave your job.

Key Takeaways

  • HELOC rates: 8-10% variable (as of 2026)
  • 401k loan rates: ~9.5% fixed
  • HELOC interest may be tax-deductible for home improvements
  • HELOC puts your home at risk as collateral
  • 401k loans risk retirement savings if you change jobs
  • Best choice depends on your home equity and job stability

401k Loan vs HELOC: Complete Comparison

If you’re a homeowner who needs cash, both 401k loans and HELOCs are options. Here’s how they stack up.

Rate Comparison (2026)

OptionRate TypeTypical Rate
HELOCVariable8.0-10.0%
401k loanFixed~9.5% (prime + 1%)
Home equity loanFixed8.5-11.0%

Head-to-Head

Feature401k LoanHELOC
CollateralYour 401k balanceYour home
Credit checkNoYes
Maximum amount$50,00080-85% of home equity
Term5 years (15 for home)10 years draw + 20 repayment
Interest tax-deductibleNoYes (for home improvements)
Risk to homeNoneForeclosure possible
Risk to retirementHighNone
Variable rate riskNoYes

Total Cost Example: $40,000

401k Loan at 9.5%, 5 years:

  • Monthly payment: $841
  • Total interest: $10,451
  • Interest goes to your 401k
  • No tax deduction

HELOC at 9.0%, 5 years:

  • Monthly payment: $830
  • Total interest: $9,809
  • Interest goes to the bank
  • Tax-deductible if for home improvements
  • Effective after-tax cost: ~$7,357 (24% bracket)

When HELOC Wins

  • You’re using the money for home improvements (tax deduction)
  • You have significant home equity
  • You have stable employment but want to protect retirement
  • You can handle variable rate fluctuations

When 401k Loan Wins

  • You don’t own a home or have limited equity
  • Your credit score makes HELOC rates higher
  • You need money faster than HELOC approval
  • You want a fixed rate without rate increase risk

Use our calculator to compare your specific scenario. For related comparisons, see our 401k loan vs personal loan guide and our 401k loan vs withdrawal comparison. If you’re considering using the loan for a home purchase, our 401k loan for down payment guide covers the specifics.

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