No. of Recommendations: 1
A few things to consider about 401(k) loans:

1) If you decide to leave your current job, most plans will require you to either pay back the loan or have the outstanding balance treated as a deemed distribution to you (with attendant tax consequences of immediate income, 10% pre 59 1/2 penalty, etc.). Unless you plan on staying at your current employer for the next 13 years, this will be an issue down the road.

2) I did the same thing at the time I bought my first house, ($20,000 over 10 years), but repaid the loan within 1 1/2 years. You don't want to feel hamstrung by point 1) above in your career.

3) Opportunity cost of funds. You are paying interest to yourself, but you are also putting after-tax money back in to be retaxed yet again when you finally start withdrawing in the future.

4) You don't say whether the 401k loan is deductible or not, but I assume that it is probably secured by your 401k balance rather than treated as a mortgage and therefore interest is not deductible (just because you took out the loan to buy your house and got 5-year exception, DON'T assume that you get to deduct the loan. Unless your note was taken down to the courthouse and registered as a mortgage, it isn't deductible). Therefore, comparing a 9% 401k loan with interest not deductible to an 11% equity line with interest deductible probably is a wash.

5) Opportunity costs of 401k loan not being in the market. I know with the market down your loan probably looks pretty good, but consider costs lost if your money had been out of market "earning" 9% when your other investments were increasing at a much higher rate.

In summary, there are several pros and cons to 401k loans. Probably the biggest "pro" is that it allowed you (and me) to get into real estate. I'd really think about point 1) however, as you don't want the 401k loan to serve as handcuffs to your career. (And I shudder to think about the impact of the negative impact of upcoming layoffs to participant's 401k accounts - sometimes career changes happen without your consent, if you know what I mean).

Hope this is of help.
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