Home Equity vs. 401(k) Loan: Which to Use When Facing a Financial Squeeze?

When money gets tight and homeowners need access to cash quickly, they have options. We’ve covered a variety of scenarios in the past (HELOCs vs. Personal Loans, HELOCs vs. Credit Cards, and HELOCs vs. Refinancing) to name a few. Now, we’re focusing on tapping into home equity or borrowing from a 401(k). Both can provide funds when you need them, but both work very differently and carry different long-term implications. Let’s dive into the pros and cons so you can make an informed decision based on your situation.

National Surge, Regional Differences

According to Bankrate, U.S. home equity has increased by more than 140% since 2020. That amounts to homeowners collectively having trillions of dollars of additional wealth tied to their homes. However, this growth isn’t distributed equally among states. Some are seeing much stronger growth than others. Let’s dive into the numbers.

Southern and Midwestern States Lead the Way

When it comes to percentage growth, the South and Midwest have posted some of the biggest gains.

• West Virginia has seen home equity grow by approximately 450% since 2020.

• Oklahoma isn’t far behind with more than 430% growth in the same timeframe.

• Kansas and Illinois have also posted major increases, more than doubling in many cases.

It’s also important to note these markets started with lower home values, so recent price appreciation has had a major impact.

How Do Higher-Cost States Compare?

The percentage gains aren’t as dramatic in higher-cost housing markets, but the dollar amounts are still significant.

Homeowners in states like California, Massachusetts, New Jersey, Hawaii, and New Hampshire have gained tens of thousands of dollars in additional equity. Even smaller percentage growth in these states can translate to a big jump in available equity because home prices are already high.

Why This Matters for Homeowners

If you live in a state where equity has been rising quickly, you may now have more borrowing power than you realized. That equity can be used to:

• Consolidate high-interest debt into one lower monthly payment

• Fund home improvement projects

• Cover large expenses, like tuition or medical bills

• Invest for the future

Even if your area has not seen the fastest growth, your equity may still be an important financial resource.

Key Takeaway

Home equity is growing nationwide, but your location plays a big role in how much you may have gained. Keeping track of these regional trends can help you decide when it’s the right time to put your equity to work for you.

Thinking about tapping into your equity? At Spring EQ, we offer a variety of solutions with competitive rates. If you’re interested in seeing what we have to offer, you can prequalify instantly without taking a hit to your credit.

Please Note: Spring EQ does not provide tax, legal, investment or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, investment or accounting advice. You should consult your own tax, legal, investment and accounting advisors before engaging in any transaction.