That is a great question! There are a few big issues with doing either, and you would need to be careful and thoughtfully consider each before choosing your path. This is truly as Solomon said, an opportunity to "consider a matter wisely."
The first thing I'd need to know before giving you any advice would be the reason that you are looking to borrow, and then why these methods, instead of a more traditional means. I am assuming that if you are asking about the risks of borrowing from your retirement that you are not of age where you are receiving mandatory withdrawals; and I assume that you must have some amount of equity in your home that would seem to be worth borrowing against. Since I have no real solid information to work from, I will give you the dangers of your choices given.
The reverse mortgage is not a returning of your money to you. It is a loan, will come with fees (often very steep) and the loan must be repaid once you sell your home, permanently move out, or the borrower passes away. So this can become a major problem if you are needing this money for a reason like paying for a nursing home expense, for example. If the equity money runs out before the nursing home stay does, then you have lost all borrowing leverage, the opportunity to sell your home, and you are still saddled with the debt. If the spouse who borrowed the money passes, and the other spouse is nursing home bound, or lives elsewhere, the loan becomes due, and that could become a major issue. This may not be a good option if you have issues maintaining the upkeep of your home, or may at some point consider moving. You must also own your home outright, or have a balance small enough that the balance can be paid off in the closing with the proceeds from the loan - which may significantly lower the amount you expect to get out of it.
Borrowing from your retirement can be just as risky. 401k loans must be repaid very shortly after leaving your job, so if you are not planning on working at the job until the loan is paid off, you must be prepared to repay that balance. Removing a chunk of your retirement fund hurts the growth long term of your investment. There may also be fees and penalties, depending upon what your retirement vehicle is.
I would love to be of more assistance, but without specifics, I am hesitant to recommend anything. I would also like to know what other borrowing options you have considered, as there may be others available that you might not have considered. I do appreciate you asking, it is a good question, and one that really requires a good idea of what you see your future looking like to you and your family. I pray that God bless you and guide you in your thinking. Thank you for your question, and please do not hesitate to ask if you need more information!
Agent Owner, Gilmore Insurance Services, Marysville, Washington State
I think the biggest part of this decision would be the cost to do so. A reverse mortgage carries a very large load that you pay for as part of the loan arrangement. Taking out of your retirement plan, assuming your age is where you can qualify to do a reverse, would in most cases just be taxes on the money taken out. Maybe some sales charges, but nothing as significant as the load on the reverse mortgage.
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The first thing I'd need to know before giving you any advice would be the reason that you are looking to borrow, and then why these methods, instead of a more traditional means. I am assuming that if you are asking about the risks of borrowing from your retirement that you are not of age where you are receiving mandatory withdrawals; and I assume that you must have some amount of equity in your home that would seem to be worth borrowing against. Since I have no real solid information to work from, I will give you the dangers of your choices given.
The reverse mortgage is not a returning of your money to you. It is a loan, will come with fees (often very steep) and the loan must be repaid once you sell your home, permanently move out, or the borrower passes away. So this can become a major problem if you are needing this money for a reason like paying for a nursing home expense, for example. If the equity money runs out before the nursing home stay does, then you have lost all borrowing leverage, the opportunity to sell your home, and you are still saddled with the debt. If the spouse who borrowed the money passes, and the other spouse is nursing home bound, or lives elsewhere, the loan becomes due, and that could become a major issue. This may not be a good option if you have issues maintaining the upkeep of your home, or may at some point consider moving. You must also own your home outright, or have a balance small enough that the balance can be paid off in the closing with the proceeds from the loan - which may significantly lower the amount you expect to get out of it.
Borrowing from your retirement can be just as risky. 401k loans must be repaid very shortly after leaving your job, so if you are not planning on working at the job until the loan is paid off, you must be prepared to repay that balance. Removing a chunk of your retirement fund hurts the growth long term of your investment. There may also be fees and penalties, depending upon what your retirement vehicle is.
I would love to be of more assistance, but without specifics, I am hesitant to recommend anything. I would also like to know what other borrowing options you have considered, as there may be others available that you might not have considered. I do appreciate you asking, it is a good question, and one that really requires a good idea of what you see your future looking like to you and your family. I pray that God bless you and guide you in your thinking. Thank you for your question, and please do not hesitate to ask if you need more information!