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Are 401k Loans a Good Idea?
Are 401k loans a good idea? No, not really, but they may still be your best option in certain situations.
Until you reach retirement age, 59 1/2 years old, there is a large penalty for withdrawing from your retirement account. If you take an early withdrawal you have to pay federal taxes, state taxes, and a ten percent penalty.
One way to avoid this and still take advantage of this money you’ve saved is to take a loan from your 401k, this is not available for everyone but some companies have worked it into their plans. There are a lot of downsides to doing this, however.
First of all, and this is often overlooked, the money you’ve borrowed isn’t being invested anymore. If you leave the money where it is in your account then you can keep earning returns on it, but while you’ve been borrowing it the money isn’t earning you more for your retirement.
You have five years to repay the loan, period. If you haven’t finished repaying it at that time then the remaining balance is treated as though you had cashed out in the first place, and you’ll then be charged taxes and the ten percent penalty on those funds.
Also, if you lose your job the balance becomes due and you’re typically given somewhere between one to two months to finish repaying the loan. If you don’t, then the balance is treated as though you cashed it out originally, and you’ll be charged the penalty and taxes on whatever you can’t repay.
On the upside, however, the internet on a 401k loan is very low compared to any of your other borrowing options, and the interest you pay goes straight into your retirement plan, so you’re paying the interest to your future self instead of a company. This is a big plus, and a large part of why so many people decide to take the risk.
If you feel you have no other option except to cash out your retirement account than borrowing instead and trying to make payments is certainly a better option for you, but if you have another option for getting funds I’d definitely recommend considering that first.
Rent to Own Homes Are a Trendy Option in Today’s Market
With the financial recession setting in, people who want to go in for ownership houses are not able to get loans either due to very high interest rates or due to bad credit rating. Hence, the need for going in for rent to own homes. If you buy the home property by opting for a rent to own method, it helps in easy possession of the homes later. You would not have to rake your brains with the mortgage companies and the Banks.
The concept behind rent to own the property is gaining immense popularity and everyone is opting for this method. The advantage in going for this method is to ensure that you are happy with the neighborhood even before actually buying the property outright. It is advised that you stay in the rented home and see for yourself whether you are comfortable with the house and the surroundings and then give your commitment on purchasing the house. This option is the ideal solution for investors.
Many of us are lucky to have a way out by going in for rent to own homes. If you are a first time investor in the realty market, then it makes sense that you go in for rent to own homes. This method is also adopted for vehicles wherein you first go in for a lease agreement with the company and later during the lease period, you could always buy the vehicle if you are happy and satisfied with the vehicle.
With the increase in the interest rates charged by the Banks, buying ownership property is not a preferred choice. Moreover, the down payments which need to be effected keep on increasing day by day. When we are faced with such a situation, going in for rent to own homes is definitely a practical choice. The down payments which need to be made are also minimal. The other great advantage when it comes to opting for rent to own home is the fact that people do not have bother about the property’s closing costs. A mutual agreement is established between the landlord and the buyer.
In few cases, payments made as rent are accumulated as payment effected towards the cost of the property. Sometimes, the landlord insists on some extra payment which is normally higher than the monthly rent. Instead of making a down payment, you would have to make this additional rent amount. These rates are however negotiable. The tenant has the option of shifting to another home if he is not very satisfied with the property. He has the flexibility of not purchasing the property. He can take this step without any repercussions.
There would be absolutely no increase in the cost of the property and it would remain constant throughout the tenure of the lease. The landlord does not have a right to increase the cost during the lease period. The risks associated with rent to own option has to be borne by the tenant since he needs to keep in mind that he is dealing with an individual landlord and not with a Bank or any financial institution.
Hence make sure you do not cheated by unscrupulous investors who want to make a quick buck out of the deal.
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