HELOC vs 401k Loan 2026 Comparison Calculator
Compare borrowing against home equity with a HELOC vs borrowing from your 401(k). Includes the often-forgotten opportunity cost of pulling cash out of the market while you repay your retirement account.
| HELOC | |
| Monthly payment | — |
| Total interest | — |
| 401(k) Loan | |
| Monthly payment | — |
| Total interest paid back to self | — |
| Lost market growth (opportunity cost) | — |
| Double-taxation drag | — |
| True 401(k) cost | — |
Borrowing $40,000 to consolidate debt, renovate, or fund a major expense? The two cheapest options in 2026 are usually a HELOC or a 401(k) loan. HELOC interest is paid to a bank; 401(k) loan interest is paid to yourself — but the hidden opportunity cost of pulling money out of the market often makes the 401(k) loan more expensive. Last updated May 2026.
How a HELOC Costs You in 2026
A HELOC is a variable-rate revolving line tied to Prime (currently ~8.0%) plus a margin. As of mid-2026, market HELOC rates run 7.5%-9.5%. You pay interest only during the 10-year draw period, then principal + interest in the 10-20 year repay phase. The interest is generally deductible as home equity interest only if proceeds are used to buy, build, or substantially improve the home securing the loan (IRS Pub 936).
How a 401(k) Loan Costs You
Most plans let you borrow up to 50% of your vested balance or $50,000 (whichever is less). Rate is typically Prime +1 to +2 (~8.5%-9.5% in 2026), repaid over 5 years via payroll deduction (10 years for primary residence). Interest is paid back to your own account, which feels like "free borrowing" — but you pay this interest with after-tax dollars, then pay tax again on that same money at withdrawal in retirement. Double taxation is real but usually small. The bigger killer is opportunity cost — the loaned amount sits in cash inside the plan and misses 5+ years of compounding.
The Job-Loss Trigger
If you leave or lose your job with a 401(k) loan outstanding, most plans require full repayment by your tax-filing deadline. If you can't repay, the unpaid balance is treated as an early distribution — full income tax PLUS a 10% penalty if you are under 59½. This rule shift came from the Tax Cuts and Jobs Act and remains in effect for 2026. HELOCs have no such trigger — you keep your home and your loan even if your job changes.
Common Mistakes
(1) Ignoring opportunity cost — borrowing $50,000 from your 401(k) over 5 years at a 7.5% expected market return costs you roughly $20,000 in lost growth. (2) Underestimating job-change risk — 60% of borrowers default if separated. (3) Treating HELOC like free money — variable rates can rise sharply; budget a 1-2 percentage point cushion. (4) Tax mistake on HELOC interest — only home-improvement use qualifies for the deduction post-TCJA.
Sources: IRS Publication 936, IRS Retirement Topics — Loans, Federal Reserve H.15.