Early distribution from a retirement account will result in penalties plus taxes.

They also have strict rules for renters about sharing the kitchen, cleaning, etc. with monetary penalties for not complying. 

Prepayment penalties- usually 1-5 year terms.

Finally, if the IRS tells you this scheme is invalid, you could be facing massive back taxes and penalties.

There are some rules around this transaction and if not done correctly could lead to taxation and penalties as you suggest.

But, also, make sure you are comparing apples to apples including pre-payments penalties. 

Also, is their any prepayment penalties in each option?

Some terms you may find helpful:Repayment Schedule: Clearly outline the payment schedule (monthly, quarterly, etc.).Balloon Payment: If applicable, specify the amount and due date of any balloon payment.Prepayment Penalty: State if there’s a penalty for paying off the loan early.Default Terms: Clearly define what constitutes a default and the consequences, such as foreclosure procedures.Insurance Requirements: Ensure the buyer maintains property insurance.Maintenance Responsibilities: Clarify that the buyer is responsible for property maintenance and repairs.I hope this helps you out, have a great day!

I'm past the prepayment penalty period.

(This requirement may be waived under certain special circumstances constituting good cause for a waiver, such as the loan being issued because of a bona fide emergency, with the lender obtaining written consent from the buyer to proceed with the loan without the disclosure notice.)The closing on a home equity loan must occur at a permanent office of the lender, at a title company, or at the offices of a lawyer.After the closing occurs, the borrower has a three day period during which the borrower may cancel the loan without having to pay any charge or penalty.