5 Strategies for Paying Off Car Loan Early

Is your monthly car payment a burden to your budget? Paying off your car loan early can earn you much-needed financial freedom and save you potentially hundreds (or thousands) of dollars in would-be interest. 

You can pay off your car loan early using several effective strategies, but before you do, consider any potential penalties and effects to your credit score.

The True Cost of a Car Loan

It’s no secret that cars are our worst big-ticket investment. Unlike houses, which typically increase in value over time, and education, which theoretically opens the door to higher earning potential, cars lose their value over time. In fact, a new car depreciates in value as soon as you drive it off the lot and will lose 20% to 30% of its value in the first year.

That’s a big deal, especially given the average cost Americans are spending on new cars in 2021. According to KBB, that hard-to-swallow number is over $40,000, up more than 4% over 2020.

That means Americans are shelling out $40,000 for a car that, in a year, will be worth anywhere from $28,000 to $32,000, representing an $8,000 to $12,000 loss.

But there’s more than just the sticker price to consider. In addition to sales tax (average of 10.12% in 2020, though it varies by state), be prepared to pay interest on your car loan. Right now, the average car loan interest rate (also referred to as APR, the annual percentage rate, though there’s a difference) is over 4%.

APR includes the interest rate, in addition to other fees, like loan origination fees or mortgage insurance. You should use the APR, not the flat interest rate, when calculating what you’re paying.

Your APR will depend on the current market and your credit score. The better your credit score, the lower your APR. If you have a weak credit score and can put off buying a car, it is advisable to build up your credit score before applying for a loan.

For 2021, rates are expected to hover between 4% and 5% for 48-month (four-year) and 60-month (five-year) loans. 

Car Loan Calculator: An Example

Interest on a car loan adds up. Let’s take the $40,000 new car as an example, with a $995 dealer fee. Assume you put $2,000 down and have a tax rate of a clean 10% and an APR of 5%. You’ve agreed to pay off the loan over 60 months, or five years. (The typical car loan is anywhere from three to seven years; the shorter the loan period, the higher the monthly payment.)

In this scenario, the total cost of the vehicle after tax and dealer fees is $44,995, minus your $2,000 down payment. That leaves $42,995 to be financed. Given the 5% interest rate over 60 months, your monthly payment would be $811.37.

Over 60 months, you will end up having paid $50,682.20 (including down payment) for a car that, with taxes and dealer fees, cost just $44,995. That means, over five years, you’ve paid $5,687.20 in interest. 

And let’s just ignore the fact that, due to depreciation, that car that you’ve just paid $50,000+ on is now worth just $18,752.41 (average value of 37% of original cost after five years).

Use The Penny Hoarder’s car loan calculator to figure out how much you’ll pay with real-life numbers that match your scenario.

How Car Loan Interest Rates Work

Paying off your car loan early, if you can afford it, seems like a no-brainer then. However, before you start strategizing about how to pay off your car loan ahead of schedule, do some digging to determine what kind of car loan you have.

In an ideal world, your loan will be a simple interest loan. If you have not yet purchased your car, only consider lenders that will offer you a simple interest loan. This means the interest is calculated entirely on the principal balance of the loan.

But if your lender charges precomputed interest, that means they will calculate how much you will pay in interest over the life of the loan and include that in your total balance. That means, even if you pay off your car early, the payoff quote will include all the interest you would have paid had you kept the loan open. In this case, there are absolutely no financial savings in paying your car loan off early.

One other element of your loan to research is payoff penalties. Payoff penalties are legal in 36 states and allow lenders to charge you a penalty (usually a fixed percentage of the remaining balance) for paying off your car loan early. In this case, it may be more expensive than what you would have paid in interest over the life of the car loan.

Will Paying Off Your Car Loan Early Hurt Your Credit Score

It is not likely that paying off a car loan early will hurt your credit score, but it could be keeping you from growing your credit score. Regular, on-time payments account for roughly 35% of your FICO credit score, making it the most important factor. Making monthly payments on a car loan is a great way to show lenders you are responsible with repaying your debts.

In addition, lenders like to see a nice mix of credit (mortgage, car loan and credit cards are the big three). Keeping your car loan open also helps extend the length of your credit history. If you have no other open credit (like a credit card), keeping your car loan open may be advantageous in building up your score if you eventually intend to buy a house.

5 Strategies for Paying Off Your Car Loan Early

If you have a simple interest car loan, your credit is in good standing and your loan doesn’t have any payoff penalties, it may be wise to pay off your car loan ahead of schedule. Not only will you avoid spending heaps of money on interest, but it will also give you the financial freedom of hundreds of dollars back in your monthly budget.

The best advice for paying off a car loan early: treat it like a mortgage. If you are a homeowner, you have likely heard that making an extra (13th) payment toward your mortgage principal every year can shave years off your loan. If you pay even more toward the principal each year, you can easily get your 30-year mortgage down to 15 years—and you’ll be able to drop PMI (private mortgage insurance) costs much earlier.

Of course, home loans tend to be much bigger than vehicle loans, so the potential to save is much larger, but the logic works the same with your car loan.

These strategies for early payoff are all effective, if done right:

1. Make One Large Extra Payment Every Year

If you can count on your grandma slipping a fat check into your Christmas card every year without fail, don’t use that money to splurge on alcoholic eggnog (OK, maybe one bottle). Instead, apply it directly to your car loan as a lump sum.

If you have autopay scheduled online, you can log into your account and simply arrange to make a one-time payment. If you’re old-fashioned and pay by phone or mail, simply call your lender and let them know you’d like to make an extra, one-time payment toward the principal.

Apply this logic to any unbudgeted (aka, not-planned-for) funds, like a bonus at work or a tax refund.

2. Make a Half Payment Every Two Weeks

Talk with your lender to see if you can switch to biweekly payments, instead of monthly. If your lender allows you to pay half of your monthly loan amount every two weeks, you will wind up making 26 half payments. Divide 26 by 2, and you get 13 full months of payments, paid over 12 months. That means, by the end of the year, you will have essentially made an extra car payment.

Just check your budget first to ensure that kind of payment plan is feasible.

3. Round Up

Rounding up to the nearest $50 or even $100, if you can swing it, is a great way to add extra money every month to the principal. For example, if your monthly payment is $337, you could round up to $350 or even $400 to essentially pay an extra $13 or $63 a month. This will wind up knocking a few months off the life of your loan.

If you have autopay scheduled, log onto your loan platform and see if you can add the additional funds toward the principal each month so you don’t even have to think about it.

4. Resist the Urge to Skip a Payment

Some lenders may let you skip one or two payments a year. So kind of them, right? Wrong. They do this knowing it will extend the life of your loan, meaning they will rake in even more of your hard-earned cash in interest fees.

Unless you fall on very hard times, fight the urge to skip a payment. You will wind up paying more in the end if you do.

5. Refinance, but Exercise Caution

If you had a poor credit score when you bought your car and opted for a seven-year loan to keep payments low, it might make sense to refinance. Perhaps you’re two years into the loan, you’ve got a higher-paying job, and your credit score is in great shape. You could potentially refinance at a lower APR and build the loan out over 36 months, saving you two years and lots of money in interest.

But borrower beware: Don’t refinance to get a lower monthly payment by extending a loan, as you will end up just paying more in interest. 

When You Shouldn’t Pay Off Your Car Loan Early

As we’ve seen, it doesn’t always make sense to pay off your car loan early. But there are more reasons to hold your horses than just payoff penalties and precomputed interest.

Here are some other reasons not to pay off your car loan early:

  • Lack of emergency savings. Bankrate reported early in 2021 that most Americans could not afford a $1,000 emergency. Just 39% have enough to cover such an unexpected expense. If you are a part of that 61% without a well-padded emergency fund, prioritize adding funds to a high-yield savings account to protect yourself and your family should the unthinkable happen. And it’s not just your family’s medical emergencies; you may need to cover a deductible on your renter’s insurance in the case of a break-in, the cost of an unexpected car repair or even a terrifying trip to the vet when your dog eats something he shouldn’t.
  • Higher-interest loans. If you have a reasonable interest rate on your car loan but are drowning in credit card debt, focus on the debt that has the highest interest rate. Credit cards historically have interest rates in the high teens, so they make the most sense to pay off first. If you are free of credit card debt but have a mortgage or student loans, compare those interest rates to that of your car loan to figure out which makes the most sense to pay down with extra funds.
  • Lack of credit history. If you refuse to get a credit card and don’t yet have a house, a car loan is your best bet for building your credit score. Keeping your car loan open could positively affect your credit score.
  • Investments. For most drivers, car loan APRs are not terrible. If you have some extra funds and are thinking about paying off your low-interest car loan, consider instead investing in your retirement fund or even buying a few stocks on your own. The average stock market return is about 10%. Obviously, you could wind up losing money, but in general, if you invest and hold, over time, you should expect your money to grow.

Timothy Moore is a managing editor for WDW Magazine, and a freelance writer and editor covering topics on personal finance, travel, careers, education, pet care and automotive. He has worked in the field since 2012 with publications like The Penny Hoarder, Debt.com, Ladders, Glassdoor, Aol and The News Wheel. 

<!–

–>



Source: thepennyhoarder.com

17 Biggest Home Buying Mistakes & How to Avoid Them

Whether you’re a first-time homebuyer looking for a starter home or a seasoned homeowner ready to upgrade or downsize your property, the buying process is similar. From searching for the perfect place to call home to putting in an initial offer, it’s an exhilarating and life-changing adventure for new and experienced buyers alike.

And with such a major decision on the line, it’s important to make sure you don’t come to regret your decision in the future or miss out on your dream home by making a common — but avoidable — mistake.

17 Home Buying Mistakes to Avoid

Simple missteps like overestimating your DIY skills or making a lowball offer can put a damper on the excitement you feel during or following the home buying process. And they can cost you money, stress you out, and give you buyer’s remorse.

But, if you know what the most common mistakes are and you prepare in advance, you can bypass them — and the negative side effects they come with.

These are the most common home buying mistakes you should seek to avoid.

1. Not Reviewing Your Budget

Before you buy a home, you need to know what you can afford. This means taking a deep dive into your budget and reviewing your current costs and expenses, as well as estimating any new costs and expenses you’ll take on from owning a home.

For example, additional or increased costs may include:

  • Your monthly payment for rent or a mortgage
  • Property taxes
  • Homeowners insurance
  • Repairs and maintenance
  • Landscaping
  • Homeowners Association (HOA) or condo fees
  • Furniture
  • Utilities

You should also budget for a home emergency fund to cover potential problems like broken appliances or unexpected repair and maintenance costs.

If the estimated costs are too high, it might mean you have to rethink your budget by lowering your price range or reducing your homeowner expenses.

Knowing what you can afford beforehand ensures that you only look at houses within your budget and aren’t tempted to overspend.

2. Overlooking the Community

A house is one thing, but the community it’s in is another. Many homebuyers become excited about a particular property and fail to pay attention to the neighborhood or area it’s in. However, where a home is located can have a significant impact on your quality of life and overall happiness.

For example, pay attention to location-based factors such as:

  • The property’s proximity to an airport, dump, or train tracks
  • Whether it’s a family-oriented neighborhood
  • How close it is to amenities like public transportation, schools, and parks
  • How far it is from your place of work
  • Where necessities like grocery stores and gas stations are located

It’s also useful to look into future developments in the area, like commercial buildings, apartment complexes, and public spaces. If you’d prefer to live away from busy public areas, purchasing a property close to a future strip mall might not be a great option for you.

Or, if you want to be part of an up-and-coming area, planned developments give you a clear idea of what to expect in your neighborhood in the next few years, like new restaurants or off-leash dog parks.

Take some time to think about what you want to be close to or far from before you start your home search. Consider your interests and lifestyle to determine where your ideal property would be located, then use the information to ensure you wind up in a community that you feel good about.

3. Forgetting About Maintenance Costs

The great part about renting is that you don’t have to worry about the costs of homeownership like appliance repairs, building upkeep, or landscaping. But you do have to cover these expenses when you buy a new home.

As with forgetting to make a budget, forgetting to consider ongoing maintenance costs has the potential to wreak havoc on your finances. And avoiding maintenance and upkeep will only end up costing you more money in the long run because it will lead to larger repairs and more serious problems.

Homeowner maintenance includes a variety of recurring tasks, such as:

  • Mowing, trimming, and weeding
  • Snow removal
  • Applying paint and stain
  • Cleaning gutters
  • Pressure washing decks, patios, and siding
  • Chimney cleaning
  • Exterior window washing
  • Servicing your heating and cooling system

Depending on the home, it may also include tasks like replacing shingles, treating hardwood floors, or hiring an arborist to prune your trees.

When it comes to getting these jobs done, you can either take them on yourself or hire a professional to do them for you. However, both will cost you some combination of time and money.

Most home maintenance tasks require equipment. So if you plan to tackle them yourself, expect to cover the costs of equipment, like buying a lawnmower or a ladder or renting a pressure washer. And, if you hire a contractor to do your home maintenance for you, you’ll of course need to pay them.

Maintenance costs aren’t included in your mortgage loan, so you need to be able to cover them out of pocket. When reviewing properties, consider what kind of maintenance the property will need and whether you can afford it. Not only does it cost money, but it also takes a lot of time.

If a high-maintenance property isn’t a fit for your lifestyle or budget, look for something that requires less work, such as a newer home or lower-maintenance property like a condo.

4. Not Getting a Preapproval

One of the first steps you should take on your journey to homeownership is to get a mortgage preapproval. A preapproval is the amount a bank agrees to lend you based on factors like your savings, credit score, and debt-to-income ratio.

Having a preapproval tells you exactly how much a bank will allow you to borrow, giving you a maximum purchase price for your home.

Without being preapproved, you have no idea how much a mortgage lender is willing to give you or what your interest rate will be. This means you’ll be house shopping with no real budget in mind. You won’t even know if a bank will approve you at all, meaning you could be wasting your time even looking for a home in the first place.

Before you think about booking a showing or talking to a realtor, book an appointment with your bank or a mortgage broker. Find out exactly how much you have to work with so you can view homes within your price range and budget.

5. Only Looking at a Few Properties

Buying a home is a major undertaking, not just financially, but emotionally as well. Only looking at a handful of houses won’t give you a realistic picture of what’s on the market, what home prices are like, or whether something better is out there.

Book multiple showings to get a feel for your options. Even if you think you’ve found your dream home early on, there’s no guarantee you’ll get it. Keep your options open and check out a wide variety of properties to give yourself some perspective.

Who knows, you might find a hidden gem or dodge a bullet simply by taking your time and not limiting your options to a handful of properties.

6. Not Having a Real Estate Agent

When embarking on a home buying journey, you may be tempted to save yourself some money by opting to go without a buyer’s agent. But for most people, that’s a mistake. Unless you’re well-versed in real estate law and property negotiations, you should have a good real estate agent.

After all, their fees are typically covered in your mortgage as part of the closing costs of the home, meaning you don’t have to pay for them out of pocket.

But that’s not the only reason you should have a realtor when buying a property. A buyer’s agent provides many benefits, such as:

  • Networking with other realtors and property owners to find new and upcoming listings
  • Having access to property listing tools such as the MLS
  • Negotiating offers and conditions
  • Helping you to find a broker, lawyer, or other professional you may need
  • Handling important paperwork
  • Ensuring you’re aware of any important disclosures

An experienced buyer’s agent will work for you, helping you to find the perfect property not only for your lifestyle and budget but based on what’s available. They’ll take on the heavy lifting when it comes to paperwork, showings, and communicating with sellers and their agents, giving you a chance to focus on more important things.

7. Not Making a Wants vs. Needs List

Some people jump straight into viewing properties without evaluating their needs versus their wants. But it’s a common mistake that complicates the home buying process and causes decision paralysis. When buying a home, it’s essential to know what you need in your new home compared to what you would like it to have.

For example, if you have a dog, a yard could go on your needs list, while something like a pool or walk-in closet might go on your list of wants. If a lack of closet space would be a deal breaker for you, you might list the walk-in closet as a need for you instead.

You can give this list to your realtor, which will help them to filter through potential properties to show you. This saves both of you from wasting time viewing homes that won’t work for you.

And, it encourages you to get your priorities straight by forcing you to think about what you really need to be happy and fulfilled in your new home. Plus, knowing what you want gives you a better idea of your budget and which bonus features or upgrades you can afford.

If you don’t make a list, you could end up buying a property that isn’t a great match for your lifestyle.

8. Taking on Too Much Work

Fixer-uppers tend to be romanticized in reality TV shows about house flipping and interior design, but they’re a lot of work. Overestimating your DIY skills and taking on a house that’s going to require a significant amount of time and money to renovate or repair can quickly turn your motivation into buyer’s remorse.

On top of a mortgage payment, you’ll have to cover the costs of materials and labor for any upgrades or renovations that need to be done. If you’re handy, you can save money on labor, but you’ll still need tools, supplies, and a serious time commitment.

If you have to hire professional contractors to complete the work for you, expect costs to be relatively high depending on what you need done. If a home project goes over budget — which happens often — you don’t want to be left in a bad financial situation and an unfinished home.

Before moving ahead with a home purchase, consider how much work you’re willing to take on and how much of a renovation budget you can afford.

9. Buying in the Wrong Market

In real estate, there are two basic types of extreme markets: a buyer’s market and a seller’s market. In a buyer’s market, there are a variety of homes available for you to view and consider, meaning sellers are more likely to try to entice you with competitive prices and other incentives.

In a seller’s market, there aren’t many homes up for sale, so buyers have to compete against one another to win bidding wars. This often results in paying over the asking price, which increases monthly mortgage payments and possibly even your down payment.

The best time to buy a home is in a buyer’s market. Sometimes, waiting for a season or two to buy will save you a significant amount of money and keep you from the stress and uncertainty of buying in a seller’s market.

If you’re able to, buy when the market is in your favor and not working against you.

10. Feeling Uncertain

If you feel uncertain about a home, an offer, your real estate agent, or your financial situation, it’s not the right time for you to buy. Purchasing a house is one of the biggest financial commitments you’ll ever make, so you need to feel confident that you’re making the right choice for you, your budget, and your family.

If something feels off, carve out time to figure out what’s causing your uncertainty. It’s normal to feel nervous about taking on a home loan, especially if you’re a first-time homebuyer, but watch out for feelings of apprehension, uneasiness, or even dread.

Your home buying experience should be positive, so if your gut is telling you to reconsider, it might be best to take a step back and reevaluate.

That’s not to say you shouldn’t buy a home at all. It just means you need to change something about your situation, such as getting a new real estate agent, looking at more properties, or lowering your budget. Consider what will make you feel confident about buying a home and don’t move forward until you feel comfortable, positive, and satisfied.

11. Making a Lowball Offer

Making a lowball offer on a property is a rookie mistake that many seasoned and first-time homebuyers make. It offends home sellers, starting negotiations off on the wrong foot and sometimes even ending them altogether.

Sellers often spend a lot of time working with their real estate agents to price their homes based on the market, comparable homes in the neighborhood, and the state of the property. Just like you need to work within a budget for your home purchase, they need to make a certain amount of money from their home sale.

Lowball offers are rarely accepted and don’t provide much benefit to either party.

When making an offer on a home, listen to your real estate agent and offer a fair price. Being respectful and considering the true value of a home in your offers makes them more likely to be accepted.

12. Not Talking to a Broker

While a bank is often the first place you go to find out how much you can get approved for, they’re not your only option. A mortgage broker can provide you with a variety of different mortgage rates and terms from different lenders, allowing you to choose the best offer.

As with your bank, you’ll need to provide financial information like pay stubs, your credit score, and details about your assets and debts. The broker will use this information to shop around and find you the best interest rate and mortgage terms based on your financial situation.

Often, they can find you a better deal than what your bank is offering. However, make sure your broker has your best interests in mind. Don’t take out a mortgage with a disreputable or unestablished lender just to save some money.

A good broker can save you a lot in interest, so they’re worth talking to regardless of whether you choose to go with one of their offers.

13. Having a Small or Nonexistent Down Payment

There are a variety of different loans when it comes to buying a home, each with different down payment requirements:

  • VA home loans, which are for veterans and require as little as 0% down
  • Conventional loans, which are the most common for those with strong credit and no military service
  • FHA loans for borrowers with poor credit and low down payments

If you’re opting for a conventional loan, you’ll likely need to have a hefty down payment, especially if you want to avoid having to pay private mortgage insurance (PMI). Typically, you have to pay for PMI if you don’t have the minimum down payment required by a lender, and it’ll cost you anywhere from $50 to $200 per month.

Most lenders prefer to have at least 20% of the purchase price as a down payment. So, if you were buying a home for $350,000, you’d need to have $70,000 cash to put toward your mortgage.

Not planning for a sufficient down payment can put a huge damper on your home buying experience. It affects how much a lender will give you, your interest rate, and whether you have to pay PMI. Plus, it impacts your cash flow and the funds you have to put toward closing costs, renovations, and repairs.

Make sure you know how much you need in advance and plan ahead to avoid a disappointing and disheartening experience.

14. Going Without a Home Inspection

When you make an offer on a house, you have the option to make it dependent on a home inspection. Some lenders even make it a requirement of your mortgage terms. But if they don’t, or if you’re buying your property without a loan, you may choose to go without a home inspection.

But skipping a home inspection can cost you a lot of money and stress down the road.

Home inspectors are certified professionals who inspect a property’s condition. They review the structure, plumbing, electrical, exterior, and interior elements of the home and provide you with a report detailing any issues they find. For example, a home inspector would catch wiring that is not up to code or water damage in the basement.

These reports help you to avoid major repairs and give you an overview of the property’s condition. This can save you from buying a home that needs a new roof or that has a mold problem. Seeing as home inspections typically cost between $300 and $500, they’re often worth it.

Even if you choose to move ahead with a home purchase after you receive your inspection report, you can use it to renegotiate your offer based on any repairs that need to be made.

For example, if the report noted that the railing on the deck needs to be replaced, you could either request that the seller have it fixed or reduce your offer by how much it would cost a contractor to do.

15. Not Including the Right Conditions in an Offer

Your real estate agent will help you to figure out which conditions to put in your offer, but the most common include:

  • Home inspection
  • Financing
  • The sale of your current home
  • Closing date
  • Fixtures and appliances
  • Who pays which closing costs

You can also request an appraisal or survey, repairs, or specific cleaning tasks.

Conditions protect you so that you don’t commit to purchasing a house before you know you have financing and a home inspection in place. And they keep you from walking in on moving day only to find out the appliances weren’t included in your purchase price.

Base your conditions on the property you’re interested in and make sure they’re fair and within reason. Add too many unreasonable conditions to an offer and you risk getting rejected by a seller.

16. Not Seeing a House Yourself

Although video tours are OK, they don’t give you the full sensory experience of a home. You don’t pick up on any strange smells or noises, and you don’t truly get a feeling for the size or condition of the space or the neighborhood it’s in.

Even having a friend or family member view a home in your stead is a better option than going with video alone — especially if you won’t be able to visit yourself before you make an offer.

Ideally, though, you should visit and view a home yourself before you commit to buying it. If you happen to be buying a home in another state or country, try to plan a trip beforehand to look at houses. If you can’t do that, consider finding temporary housing to stay in after you arrive so you can search for a home in person.

If you don’t, you could end up buying a property you aren’t completely happy with or one that has unexpected issues.

17. Not Checking Your Credit Rating

Buying a house means having a solid grasp of your personal financial situation, including your credit score. Knowing your credit score keeps you from encountering any disappointing surprises when you talk to a bank or broker about getting preapproved for a mortgage.

Monitoring your credit score gives you a chance to improve it before you apply for a mortgage, increasing your chances of being approved and getting offered more competitive rates.

Check your credit score before you get too far into the home buying process to see what your rating is and whether you have any recent dings like late payments that may affect your interest rate or mortgage terms.


Final Word

Buying a house is meant to be an exciting and enjoyable experience. With such a major personal and financial commitment on the horizon, you want to do everything you can to avoid buyer’s remorse after you sign the dotted line.

Prepare yourself by getting your finances in order, having a clear idea of the kind of place you want to call home, and understanding the current market to have a happier, more successful home buying experience.

Source: moneycrashers.com

How Can I Correct Negative Credit Reporting From Fraud?

“John, I’ve been watching with interest the stories about Target’s data breach and how the information compromised has evolved from payment information to now include personal information. If someone uses my personal information, opens a new account in my name, and never makes payments how can I get that off my credit reports?”

This is a great question and very timely considering some fraudster is running around with payment and/or personal information belonging to at least 70,000,000 Target customers.

Thankfully the Fair Credit Reporting Act (hereafter “FCRA”) provides VERY aggressive consumer protections regarding identity theft protection and fraud.  And, every state has additional protections that

Federal Law

The FCRA has an entire section that addresses fraud and identity theft.  You have the right to the following at no cost:

One-call Fraud Alerts: You can place a fraud alert on your credit reports that will remain for 90 days.

You only have to contact one of the credit bureaus to place the alert and they have to “refer” the information to the other credit reporting agencies.

A fraud alert asks new creditors to verify that you are, in fact, the person applying for credit in your name and makes it illegal for them to extend credit in your name without your authorization.

Extended Fraud Alerts: You can extend the 90-day fraud alert to remain for 7 years. You’ll have to submit something called an “identity theft report” to the credit bureaus.

An identity theft report is any fraud affidavit or police report filed with a law enforcement agency.

This helps to separate the real victims of fraud from those who are crying fraud to get legitimate information removed from a credit report, as filing a false police report is a crime.

Placing the extended alert is another “one-call” action, as the credit bureau receiving your request has to share it with the others.

Correcting Credit Reports Containing Fraudulent Data: Despite the protections afforded under the FCRA, we all know that true name fraud happens.

And, it can result in derogatory account and collection information appearing on your credit reports.

That’s bad news because now it’s likely harming your credit scores and you’re receiving calls and letters from collection agencies.

If you have information on your credit reports that has been caused by fraud it’s not the end of the world because you have some fantastic protections under the FCRA.

Once you notify the credit bureaus that you have information on your reports caused by identify theft they have to block it from your credit reports, within 4 business days.

That’s 26 days sooner than they have to complete garden-variety credit disputes.

You’ve got to provide them with some paperwork, including the same type of identity theft report I explained above, but once it’s blocked, it’s gone.  Done and done!

State Law

Every state in the country has a law that allows victims of fraud to place a security freeze on their credit reports for free.

A security freeze (also called a “credit freeze”) prevents any new credit from being issued in your name.

The freeze essentially takes your credit reports out of circulation and no new lender can get access to it, or your credit scores.

And, no access to credit reports/scores means no underwriting of any type of loan.

Be aware, however, that while a security freeze locks any new lenders out of your credit reports and prevents true name credit fraud, it can also delay legitimate credit applications that you’ve submitted.

You’ll have to proactively “thaw” your credit reports and put them back into circulation prior to submitting credit applications or you too will not be able to open an account in your name.

In my mind this is little reason to not freeze your credit reports especially if you have already been a victim of credit fraud.

Experian has a very good explanation of security freezes, the pros and cons, and the process of placing a freeze all on their website here.

A final note, which is actually more of a warning…if you’ve read this and think you can use these procedures to have negative but accurate information removed from your credit reports under the guise of it being fraudulent, I’d suggest you think twice as you’d be committing fraud and might find yourself on the wrong side of a Federal indictment.

I’ve served as an expert witness in more than one of these cases.

John Ulzheimer is the Credit Expert at CreditSesame.com, and a credit blogger at SmartCredit.com, Mint.com, and the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. The opinions expressed in his articles are his and not of Mint.com or Intuit. You can follow John on Twitter here.

Learn more about security

Mint Google Play Mint iOS App Store

Source: mint.intuit.com

How Rising Inflation Affects Mortgage Interest Rates

Rising inflation can shrink purchasing power as prices of goods and services increase. This, in turn, can affect interest rates and the cost of borrowing. While the inflation rate doesn’t have a direct impact on mortgage rates, the two do tend to move in tandem.

What does that mean for homebuyers looking for a home loan and for homeowners who want to refinance a mortgage? Simply that as inflation rises, mortgage rates may follow suit.

Understanding the difference between the inflation rate and interest rates, and what affects mortgage rates for different types of home loans, matters in terms of timing.

Inflation Rate vs. Interest Rates

Inflation is defined as a general increase in the overall price of goods and services over time.

The Federal Reserve, the central bank of the United States, tracks inflation rates and inflation trends using several key metrics, including the Consumer Price Index, to determine how to direct monetary policy.

What to Learn from Historical Mortgage Rate Fluctuations

Inflation Trends for 2021 and Beyond

As of May 2021, the U.S. inflation rate had hit 5% as measured by the Consumer Price Index, representing the largest 12-month increase since 2008 and moving well beyond the 2% target inflation rate the Federal Reserve aims for.

While prices for consumer goods and services were up across the board, the biggest increase overall was in the energy category.

Rising inflation rates in 2021 are thought to be driven by a combination of things, including:

• A reopening economy

• Increased demand for goods and services

• Shortages in supply of goods and services

The coronavirus pandemic saw many people cut back on spending in 2020, leading to a surplus of savings. State reopenings have spurred a wave of “revenge spending” among consumers.

Although the demand for goods and services is up, supply chain disruptions and worker shortages are making it difficult for companies to meet consumer needs. This has resulted in steadily rising inflation.

Fed Chair Jerome Powell said in June 2021 that he anticipates a continued rise in the U.S. inflation rate in 2021. This is projected to be followed by an eventual dropoff and return to lower inflation rates in 2022.

In the meantime, the Fed has discussed the possibility of an interest rate increase, though there are no firm plans to do so yet. Some Fed bank presidents, though, have forecast an initial rate increase in 2022.

Recommended: 7 Factors that Cause Inflation – Historic Examples Included

Is Now a Good Time for a Mortgage or Refi?

It’s clear that there’s a link between inflation rates and mortgage rates. But what does all of this mean for homebuyers or homeowners?

It simply means that if you’re interested in buying a home it could make sense to do so sooner rather than later. Despite the economic upheaval in 2020 and the rise in inflation that’s happening now, mortgage rates have still held near historic lows. If the Fed decides to pursue an interest rate hike, that could have a trickle-down effect and lead to higher mortgage rates.

good mortgage rate, especially as home values increase.

The higher home values go, the more important a low-interest rate becomes, as the rate can directly affect how much home you’re able to afford.

The same is true if you already own a home and you’re considering refinancing an existing mortgage. With refinancing, the math gets a bit trickier.

You might want to determine your break-even point when the money you save on interest charges catches up to what you spend on closing costs for a refi loan.

To find the break-even point on a refi, divide the total loan costs by the monthly savings. If refinancing fees total $3,000 and you’ll save $250 a month, that’s 3,000 divided by 250, or 12. That means it’ll take 12 months to recoup the cost of refinancing.

If you refinance to a shorter-term, your savings can multiply beyond the break-even point.

If your current mortgage rate is above refinancing rates, it could make sense to shop around for refinancing options.

Keep in mind, of course, that the actual rate you pay for a purchase loan or refinance loan can also depend on things like your credit score, income, and debt-to-income ratio.

Recommended: How to Refinance Your Mortgage – Step-By-Step Guide 

The Takeaway

Inflation appears to be here to stay, at least for the near term. Understanding what affects mortgage rates and the relationship between the inflation rate vs. interest rates matters from a savings perspective.

Buying a home or refinancing when mortgage rates are lower could add up to a substantial cost difference over the life of your loan.

SoFi offers fixed-rate home loans and mortgage refinancing. Now might be a good time to find the best loan for your needs and budget.

It’s easy to check your rate with SoFi.

Photo credit: iStock/Max Zolotukhin


SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

SoFi Home Loans
Terms, conditions, and state restrictions apply. SoFi Home Loans are not available in all states. See SoFi.com/eligibility for more information.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
SOHL0521026

Source: sofi.com

LTV 101: Why Your Loan-to-Value Ratio Matters

Are you thinking about taking out a home loan or refinancing your mortgage? If so, knowing your loan-to-value (LTV) ratio, or the loan amount divided by the value of the property, is important.

Let’s break down LTV: what it is, how to calculate it, and why it matters. (Hint: It could help save you a lot of money.)

LTV, a Pertinent Percentage

The relationship between the loan amount and the value of the asset securing that loan constitutes LTV.

To find the loan-to-value ratio, divide the loan amount by the value of the property.

LTV = (Loan Value / Property Value) x 100

Here’s an example: Say you want to buy a $200,000 home. You have $20,000 set aside as a down payment and need to take out a $180,000 mortgage. So here’s what your LTV calculation looks like:

180,000 / 200,000 = 0.9 or 90%

Here’s another example: You want to refinance your mortgage (which means getting a new home loan, hopefully at a lower interest rate). Your home is valued at $350,000, and your mortgage balance is $220,000.

220,000 / 350,000 = 0.628 or 63%

As the LTV percentage increases, the risk to the lender increases.

Why Does LTV Matter?

Two major components of a mortgage loan can be affected by LTV: the interest rate and private mortgage insurance (PMI).

Interest Rate

LTV, in conjunction with your income, financial history, and credit score, is a major factor in determining how much a loan will cost.

When a lender writes a loan that is close to the value of the property, the perceived risk of default is higher because the borrower has little equity built up—and therefore, little to lose.

Should the property go into foreclosure, the lender may be unable to recoup the money it lent. Because of this, lenders prefer borrowers with lower LTVs and will often reward them with better interest rates.

Though a 20% down payment is not essential for loan approval, someone with an 80% LTV is likely to get a more competitive rate than a similar borrower with a 90% LTV.
The same goes for a refinance or home equity line of credit: If you have 20% equity in your home, or at least 80% LTV, you’re more likely to get a better rate.

If you’ve ever run the numbers on mortgage loans, you know that a rate difference of 1% could amount to thousands of dollars paid in interest over the life of the loan.

Let’s look at an example, where two people are applying for loans on identical $300,000 properties.

Person One, Barb:

•  Puts 20%, or $60,000, down, so their LTV is 80%. (240,000 / 300,000 = 80%)

•  Gets approved for a 4.5% interest rate on a 30-year fixed-rate mortgage

•  Will pay $197,778 in interest over the life of the loan

Person Two, Bill:

•  Puts 10%, or $30,000, down, so their LTV is 90%. (270,000 / 300,000 = 90%)

•  Gets approved for a 5.5% interest rate on a 30-year fixed-rate mortgage

•  Will pay $281,891 in interest over the life of the loan

Bill will pay $84,113 more in interest than Barb, though it is true that Bill also has a larger loan and pays more in interest because of that.

So let’s compare apples to apples: Let’s assume that Bill is also putting $60,000 down and taking out a $240,000 loan, but that loan interest rate remains at 5.5%. Now, Bill pays $250,571 in interest;

The 1% difference in interest rates means Bill will pay nearly $53,000 more over the life of the loan than Barb will.

Mortgage CalculatorMortgage Calculator

PMI or Private Mortgage Insurance

Your LTV ratio also determines whether you’ll be required to pay for PMI. PMI protects your lender in the event that your house is foreclosed on and the lender assumes a loss in the process.

Your lender will charge you for PMI until your LTV reaches 78% (by law, if payments are current) or 80% (by request).

PMI can be a substantial added cost, ranging from 0.5% to 2.25% of the value of the loan per year. Using our example from above, a $270,000 loan at 5.5% with a 1% PMI rate translates to $225 per month for PMI, or about $18,800 in PMI paid until 20% equity is reached.

How Does LTV Change?

LTV changes when either the value of the property or the value of the loan changes.

If you’re a homeowner, the value of your property fluctuates with natural market pressures. If you thought the value of your home increased significantly since your last appraisal, you could have another appraisal done. You could also potentially increase your home value through remodels or additions.

The balance of your loan should decrease over time as you make monthly mortgage payments, and this will lower your LTV. If you made a large payment toward your mortgage, that would significantly lower your LTV.

Whether through an increase in your property value or by reducing the loan, decreasing your LTV provides you with at least two possible money-saving options: removal of PMI and refinancing to a lower rate.

The Takeaway

The loan-to-value ratio affects two big components of a mortgage loan: the interest rate and private mortgage insurance. A lower LTV percentage typically translates into more borrower benefits.

Whether you’re on the hunt for a new home loan or a refinanced mortgage, it’s a good idea to shop around for the best deal. Check out what SoFi has to offer.

See if a SoFi mortgage or refi is a good fit in just a few clicks.


SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

SoFi Home Loans
Terms, conditions, and state restrictions apply. SoFi Home Loans are not available in all states. See SoFi.com/eligibility for more information.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

MG18112

Source: sofi.com

Everything You Need to Know About Hypothecation

Hypothecation may be a word you’ve never heard, but it describes a transaction you’ve probably participated in. Hypothecation is what happens when a piece of collateral, like a house, is offered in order to secure a loan.

Auto loans and mortgages involve hypothecation since the lender can repossess the car or house if the borrower is unable to pay.

There are, though, some more subtle details to understand about hypothecation—and rehypothecation—particularly if you’re in the market for a home loan. Read on to learn about hypothecation loans.

What Is Hypothecation?

Hypothecation is essentially the fancy word for pledging collateral. If you’re taking out a secured loan—one in which a physical asset can be taken by the lender if you, as the borrower, default—you’re participating in hypothecation. (Hypothecation is also possible in certain investing scenarios, which we’ll talk briefly about later.)

Some of the most common hypothecation loans are auto loans and mortgages. If you’ve ever purchased a car, it’s likely you have (or had) a hypothecation loan, unless you were able to pay the full purchase price in cash.

Importantly, just because the asset is offered as collateral doesn’t mean that the owner loses legal possession or ownership rights of that asset. For instance, with an auto loan, the car is still yours, even though the lender might hold the title until the loan is paid off.

You also maintain your right to the positive parts of ownership, such as income generation and appreciation. This is perhaps most obvious in the case of homeownership. Even if you’re paying a mortgage on your property, you still have the right to lease the place out—and you can still collect the rental income.

However, the lender has the right to seize the property if you fail to make your mortgage payments. (Which would be a bad day for both you and the renters alike.)

Why Is Hypothecation Important?

Hypothecation makes it easier to qualify for a loan—particularly a loan for a lot of money—because the collateral means the transaction is less of a risk for the lender.

For instance, hypothecation is the only way that most people are able to qualify for mortgages. If those loans weren’t secured with collateral, lenders might have very steep eligibility requirements to lend hundreds of thousands of dollars!

There are loans where hypothecation is not present, however. They are also known as unsecured loans. A personal loan is a good example.

Because unsecured loans are riskier for the lending institution, they tend to be harder to qualify for and carry higher interest rates than secured loans.

It’s a trade-off: With an unsecured loan, you’re not at risk of having anything repossessed from you, and you can use the money for just about anything you want.

On the other hand, if comparing, say, a car loan and personal loan of equal length, you’re likely to pay more interest over the life of the unsecured loan and be subject to a stricter eligibility screening to get the loan in the first place.

Recommended: Smarter Ways to Get a Car Loan

Hypothecation in Investing

Along with hypothecation in the context of a secured loan on a physical asset, like a house or a car, hypothecation can also occur in investing—though usually not unless you’re taking on more advanced investment techniques.

Hypothecation occurs when investors participate in margin lending, which involves borrowing money from a broker in order to purchase a stock market security (like a share of a company).

This technique can help active, short-term investors buy into securities they might not otherwise be able to afford, which can lead to gains if they hedge their bets right.

But here’s the catch: The other securities in the investor’s portfolio are used as collateral and can be sold by the broker if the margin purchase ends up being a loss.

TL;DR: Unless you’re a well-studied day trader, buying on margin probably isn’t for you and you probably don’t have to worry about hypothecation in your investment portfolio. But you should know it can happen in investing, too!

Recommended: What Is Margin Trading?

Hypothecation in a Mortgage

As mentioned above, a mortgage is a classic example of a hypothecation loan: The lending institution foots the six-digit (or seven-digit) cost of the home upfront but retains the right to seize the property if you’re unable to make your mortgage payments.

Given the staggering size of most home loans and the risk of losing the home, you may wonder if taking out a mortgage is worth it at all.

Even though any kind of loan involves going into debt and taking on some level of risk, homeownership is still often seen as a positive financial move. That’s because much of the money you’re paying into your mortgage each month usually ends up back in your own pocket in some capacity … as opposed to your landlord’s pocket.

When you pay a mortgage, you’re slowly building equity in the home. And since most homes have historically tended to increase in value, or appreciate, you can often end up making a profit even after factoring in whatever interest you pay on the mortgage—most or all of which is likely tax-deductible.

A Note on Rehypothecation

There is such a thing as rehypothecation, which is what happens when the collateral you offer is then, in turn, offered by the lender in its own negotiations.

It’s like hypothecation inception. We have to go deeper.

But this, as anyone who lived through the 2008 housing crisis knows, can have dire consequences. Remember The Big Short? Rehypothecation is part of the reason the housing market became so fragile and eventually fell apart entirely, and thus is practiced much less frequently these days.

The Takeaway

Hypothecation is the process in which a piece of collateral, like a house or car, is offered as part of the negotiation of a loan. Mortgages are a classic example of hypothecation—and hypothecation is the reason most of us are able to qualify for such a large loan.

If you’re looking to finance or refinance a home, SoFi offers a range of fixed-rate mortgages with terms ranging from 10 to 30 years.

Prequalifying takes just two minutes, and mortgage loan officers are standing by to help guide you through every step of the process.

It’s quick and easy to find your rate.



SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

SoFi Home Loans
Terms, conditions, and state restrictions apply. SoFi Home Loans are not available in all states. See SoFi.com/eligibility for more information.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOHL0421019

Source: sofi.com

Compound Finance (COMP) in DeFi, Explained

What Is Compound Finance?

Compound Finance is a marketplace used by crypto investors to lend and borrow their digital assets. Compound crypto is a decentralized protocol, or dApp, built on a blockchain.

Users can also vote on the governance structure of the Compound protocol using the COMP token.

Compound is part of a new system of decentralized finance enabled with the invention of blockchain technology. It’s built by the open-source software development company Compound Labs.

Before diving into the details of Compound Finance, let’s explore the topic of decentralized finance. This will help with understanding how Compound fits into the picture.

Compound Crypto and Decentralized Finance (DeFi)

DeFi is an important term in the crypto ecosystem. The philosophy behind DeFi is to decentralize the full suite of financial services available to individuals and businesses. These include insurance, taxes, lending, borrowing, credit, and more. In decentralized finance, there is no need for a centralized body or intermediary such as a bank to hold money, facilitate, or validate transactions. Decentralization can also apply to the way cryptocurrencies are created and governed.

Many DeFi services are built on the Ethereum blockchain. The blockchain allows anyone to build decentralized applications (dApps) with their own unique cryptocurrencies. These applications can utilize smart contracts which allow for complicated transactions, lending, borrowing, and other functionality.

Blockchain technology has enabled the decentralization of money, payments, and financial services. For example individuals and companies all over the world can mine Bitcoin, and it isn’t held or controlled by any central authority. Anyone who holds Bitcoin can send it to someone else without using the services of a bank or even an exchange. In order for changes to be made to the functionality of the Bitcoin blockchain, miners vote. Changes require a majority.

Despite the growth in DeFi and cryptocurrency there are still many financial services left to be decentralized, such as lending and borrowing. Compound is a liquidity pool that allows cryptocurrency owners to lend and borrow their digital assets.

Recommended: A Guide to Decentralized Finance (DeFi)

How Does Compound Finance Work?

Compound is a dApp that gives users the ability to crypto stake their digital assets and lend or borrow certain cryptocurrencies. Supported assets on Compound include:

•  Ether (ETH)

•  Dai (DAI)

•  Ox (ZRX)

•  Tether (USDT)

•  USD Coin (USDC)

•  Wrapped BTC (WBTC)

•  Sai (SAI)

•  Augur (REP)

•  Basic Attention Token (BAT)

Anyone who owns those assets can engage in crypto lending or borrowing using Compound without dealing with traditional financial institutions. Compound has gained significant popularity in recent years, there are more than $12.4 billion in assets on the platform.

cTokens

When a user locks in funds on the lending side of the Compound protocol, they receive cTokens, or digital assets representing the amount that they have deposited. cTokens are an ERC-20 token built using the Ethereum blockchain protocol. There are different cTokens for each crypto on the Compound platform, including cETH, cBAT, and cDAI. Users receive the token associated with the crypto they deposited.

Owners of the tokens can transfer, trade, or use them on other dApps. The tokens will continue to earn interest on the Compound protocol while they are being used throughout the DeFi ecosystem. cToken holders control their public and private keys just as they would with Bitcoin or another cryptocurrency. Ultimately the cToken can only be redeemed for the particular crypto that it represents.

Interest Rates

The Compound protocol automatically calculates and issues interest rates based on the liquidity available for each cryptocurrency offered on the platform. The rates fluctuate based on supply and demand in the market and change constantly. If there is a lot of money held in the Compound wallet, the interest rates are low. This is because there is a lot of money available for borrowers, so lenders don’t earn very much in exchange for adding more to the pool.

However, if the pool of money for a particular cryptocurrency is small, the interest rates are higher. This creates an ongoing incentive for users to lock funds into pools that contain less funds, so that they will earn a higher rate. It also incentivizes borrowers to borrow from large pools and to repay borrowed funds into smaller pools so that they will pay lower interest rates.

The Compound dashboard shows an annual interest rate which is what users get quoted. Every 15 seconds, any cTokens held by a user increase by 1/2102400 of the quoted annual interest rate for that particular moment. That fraction is the number of 15 second blocks there are in a year.

Compound Finance Transactions

Lending and borrowing transactions occur instantly using the protocol. There are no intermediary requirements or costs involved, it’s only required that borrowers have deposited funds on the lending side. The decentralization and automatically executionable smart contracts make the process easier, faster, and less expensive than going through a traditional financial institution.

Lending

Those who own these cryptocurrencies can lend any amount of them, also referred to as locking, sending, or depositing. This is similar to depositing fiat currency into a savings account that starts earning interest immediately. However, unlike depositing into a bank account, the Compound dApp is decentralized, and the money goes into a large pool along with other investor’s deposits of any particular cryptocurrency. Whichever crypto the lender deposits is the currency in which they’ll receive payments.

Borrowing

The other main feature of the Compound protocol is the ability to borrow against deposited and locked funds. Any user who puts part of the cryptocurrency portfolio into the Compound pool can immediately borrow against those funds without any credit check or additional requirements. The amount a user can borrow depends on how much they deposit, and each cryptocurrency has different rates.

Borrowers must deposit more than they intend to borrow to ensure that their funds are collateralized. This means there are funds available to pay off the loan if the user doesn’t pay back the installments and interest. Cryptos also fluctuate in value, so if the collateralized amount decreases in value, the borrower cToken smart contract automatically closes when the value gets close to the borrowed amount. If this occurs, the borrower keeps the cTokens they borrowed but they lose the collateral they deposited.

Just like if they borrowed from a bank or other financial institution, borrowers must pay interest on the amount of funds they borrow. The Compound protocol automatically determines and implements the interest rates, which varies with each cryptocurrency on the platform.

How Does Compound’s Governance Work?

The Compound protocol also has a decentralized governance system in which users can participate, depending on the amount of COMP tokens they hold. COMP tokens are governance tokens, and all lenders and borrowers receive a particular amount of them every 15 seconds when an Ethereum block is mined. The amount users receive is related to the interest rates of each crypto asset and the number of transactions that they partake in using the protocol.

When a user owns 1% or more of the total supply of COMP tokens, they can participate in the governance system by submitting and voting on any proposals to make changes to the Compound blockchain system. Every COMP token counts for one vote.

The Takeaway

The DeFi ecosystem is constantly expanding to include more options for decentralized financial services, including Compound Finance. DeFi is a complicated system of decentralized exchanges that provide an opportunity for some crypto investors to lend or borrow their digital assets.

If you’re interested in starting to invest in cryptocurrencies, one simple way to get started is using the SoFi Invest® crypto trading platform. The investing platform lets you research, track, buy, and sell popular cryptocurrencies right from your phone. You can see your portfolio information in one simple dashboard. In addition to crypto, SoFi allows you to also invest in stocks and other assets all in one place. If you need help getting started, SoFi has a team of professional financial advisors available to answer your questions and help you create a personalized investing plan.

Photo credit: iStock/ijeab


Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments.
SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).

2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.

3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.

For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
SOIN21120

Source: sofi.com

Everything You Need to Know About Remodeling Recessed Lighting

For homeowners looking for relatively small projects to better enjoy and increase the value of their homes, remodeling with recessed lighting is a good move. That’s because upgrading your current lighting to recessed can lighting has the potential to create a more functional—possibly more energy-efficient—lighting scheme that could make your home feel more welcoming to buyers when the time comes to sell.

What Is a Recessed Light?

Recessed lighting is a lighting fixture that is set into a ceiling, virtually flush with the ceiling rather than hanging down from it. They’re often referred to as “can lights” or “downlights.”

Installation requirements for and the recessed lighting fixtures themselves are different for a remodel than new construction, depending on access to the area above the ceiling.

Generally speaking, it’s more common to have access to that space while a house is being constructed than for a house that’s already built. But for remodeling projects that do have that access, recessed lights for either new construction or remodels should work.

There are two main parts to a recessed light—housing and trim—with multiple options for each. The two parts can be purchased together in a kit or they can be purchased separately.

Housing: The housing is the portion set into the ceiling and, depending on the type of fixture, can be visible or fairly hidden, and plain or decorative. It’s the part that is actually mounted to the ceiling and houses the bulb socket.

Trim: The trim is the most visible part of a recessed lighting fixture. Some types of trim are merely a ring covering up the edge of the housing, allowing more of the inner housing to be visible. Other types of the trim cover more of the housing, placing the emphasis on the level of illumination or where the light is directed.

Homeowners who want to change the look of existing recessed lighting can usually change the trim without needing to replace the housing. This is called retrofitting.

Recommended: Renovation vs. Remodel: What’s the Difference?

What To Consider When Deciding To Add Recessed Lighting

There are a host of factors to consider when planning to add recessed lighting to an existing home, from what function the lighting will perform to the style of light that will work with the architecture of the home, as well as project cost and more.

Function

Will the light be to generally light up the room? Or will it be to draw focus to a piece of art?

To add general lighting to a room—a living room, for instance—ambient downlights will provide even lighting throughout the room. The number and placement of lights will depend on the size and shape of the room.

If the goal is to have better lighting when performing certain tasks, such as in a kitchen, spotlights placed in areas above where those tasks are done will serve this purpose well.

A good example of this is bright lighting placed over the kitchen sink area so those dirty dishes can come out sparkling clean, or over a counter section where most of the food preparation is done.

Some people might have artwork or architectural detail to accent. For those purposes, recessed lighting that can be pointed in the desired direction would be optimal.

Lighting

There are four main bulb categories: incandescent, halogen, compact fluorescent (CFL), an LED, all in a variety of wattages. Recessed lighting kits may also come with integrated lighting is soft, bright, or daylight color temperatures. Custom installations are available with lighting that can be adjusted with smart technology. It’s best to check the package information for the correct type of lightbulb and maximum wattage for the fixture.

Incandescent bulbs, the long-time classic, provide general lighting with a warm glow. Halogen bulbs have a similar color temperature to incandescents. The main difference between the two is the gas inside of each: Incandescents are filled with a gas such as argon or nitrogen, while halogens are filled with … a halogen gas. Halogen bulbs are more energy-efficient than incandescents, using 20% to 30% less energy.

Four Ways to Upgrade Your Home

Cost

The cost to install recessed lighting in an existing home is dependent on several factors. How many lights will be installed? What type of recessed lighting will be installed? Will there be labor costs if the job will be done by a professional? How much drywall repair and repainting will be needed after the installation is complete?

On average, recessed lighting costs about $360 per fixture when installation is being done by a professional. A typical kitchen, for instance, might require six fixtures, for a total cost of $2,160. This cost can vary, of course, based on the number and type of fixtures, trim, and bulbs chosen.

Recessed lighting is a common feature in kitchen and bath remodels, both of which have a high return on investment. While the lighting itself might not be the ultimate selling point for someone thinking of purchasing a home, updating the lighting when undertaking a remodeling project just might add to that ROI.

Recommended: The Top Home Improvements to Increase Your Home’s Value

The Takeaway

Adding recessed lighting to your home is one way to increase the cozy factor while maintaining the home’s value for a relatively small investment. Understanding the scope of the job will make it easier to estimate how much it might cost and how best to pay for it based on your particular financial situation.

Looking into rebate programs or federal and state financial assistance programs might help with the costs associated with adding recessed lighting to a home. Another option may be a personal loan to help pay for the project costs.

SoFi unsecured personal loans have no fees and low rates, with funding in as little as three days. Checking your rate takes just two minutes via an easy online process.

Learn more about personal loans from SoFi.

Photo credit: iStock/Yulia Romashko


SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
SOPL21008

Source: sofi.com

How to Get the Best Deal on Car Insurance

Happy man in front of a car
Rostislav_Sedlacek / Shutterstock.com

The single biggest reason you’re paying too much for car insurance: Insurance companies know you hate to think about it, much less to shop around for it. Result? They raise your rates, confident that the hassle of switching means you’ll stay where you are and pay what you’re told.

Not cool. Solution? Regain control by periodically shopping your insurance to make sure you’re getting the best deal.

In the article that follows, you’re going to learn all you need to know about the various components of car insurance. But if all you really want to know is how to find the lowest-cost policy, you can accomplish that right now, no further work necessary.

Comparing insurance companies these days is a snap. Just click on either (or both) of these two comparison tools. Both are unbiased, independent services that compare rates from lots of companies in one place, without requiring a lot of work on your end and minus annoying phone calls.

Neither service costs a dime, and both will shop your existing coverage within minutes.

Want to know more about what’s under the hood of the typical car insurance policy? You’re in the right place. This step-by-step guide is about paying as little as possible for car insurance, while still maintaining enough coverage. Many of the things you’ll learn here will also apply to other insurance policies you’ll encounter, from home and health to life.

I promise not to bore you to death as we go through it. Let’s get started!

Getting organized

If you don’t know how much you’re paying for car insurance, it’s time to find out. Create a spreadsheet so you can see not just the total, but exactly which components you’re paying for within your policy.

Don’t make this a big deal: It’s not. You can do it during commercial breaks while you’re watching TV.

Pull out your car policy and record the pertinent information: what’s covered, deductibles, phone numbers, policy due dates, etc. Then, save this information in the cloud. Having it in one place will give you everything you need to know at a glance and make shopping for better rates a snap.

I use Microsoft Excel for my insurance spreadsheets, but you can use Google Sheets or just about any program that will allow you to write stuff down and keep it straight.

As an example, here’s my spreadsheet for the car I drive. I got this information by logging on to my insurance company’s website, but I could also have gotten it from the paper policy I receive by snail mail every six months when I pay the bill.

Car Insurance Spreadsheet
Stacy Johnson / Money Talks News

Liability

The liability portion of your policy pays for damage you do to other people and their stuff. This is typically required by law and always required by common sense. It’s one area of your car policy where you don’t want to scrimp.

As you can see, I can screw up to the tune of $1 million per person and event, with a $100,000 limit on property. You can also see I made a note to remind myself exactly what this coverage does.

For my personal situation, $1 million in liability is hopefully adequate. But when you think about how much liability to buy, you need to consider your situation and net worth, not mine.

While you don’t want to pay for more coverage than you need, it’s important not to underinsure yourself in this critical area. If you think you may not have enough, do what I did: Call your company, see how much additional liability will cost, plug it into your personal cost/benefit equation and then decide what to do. While liability coverage isn’t cheap, you’ll likely find adding more isn’t all that expensive.

Do you need comprehensive and collision?

Liability pays for other people and their stuff. Comprehensive and collision coverage pay for damage to your car.

If someone else hits you and it’s their fault, their liability insurance should pay to repair or replace your car. If you screw up and your car is damaged, however, that’s where your collision coverage comes in. Comprehensive coverage also pays if your car gets stolen, vandalized or otherwise damaged, such as by hail.

When I wrote about this topic more than 15 years ago for a book called “Money Made Simple,” I didn’t have comprehensive or collision coverage on my car.

Why wasn’t I paying for them? I didn’t feel I needed them. In short, when it came to damage from my own mistakes, my car was self-insured.

At that time, I was driving a car worth only about $3,000. So, worst-case scenario, I would have been out three grand to replace it. That was a risk I was willing to take versus paying hundreds in extra premiums every year.

The rule of thumb when it comes to comp and collision: If the premiums exceed 10% of the value of your car, you might consider dropping the coverage. I considered; I dropped.

Today, the car I drive is worth considerably more than $3,000, so I’m now paying for comp and collision.

If you borrow to buy a car, this isn’t a choice you can make because your lender will force you to have comp and collision. So, here we have an example of less being more. Pay cash for a cheap car, and you’ll have less car to insure, less time spent shopping for coverage, less time spent working to pay for insurance and more time for leisure.

One more note regarding comprehensive and collision coverage: If you self-insure your car and do away with comprehensive and collision, don’t forget this fact when you rent a car. Because if you don’t have comp and collision on your car at home, you won’t have coverage for cars you rent, either.

So, if you’re not given this coverage free as a perk on a credit card, you may have to voluntarily submit to one of the greatest rip-offs of the modern age: paying for insurance, known as a collision damage waiver, at the rental-car counter.

Deductibles

The deductible is the portion of a loss you’re expected to cover. You’ll note mine is fairly high at $1,000. Why so high? Because while losing a grand wouldn’t be a pleasant experience, it wouldn’t send me to McDonald’s for a second job. Remember, I’m covering against catastrophe, not inconvenience.

Many people have a $250 deductible, yet would never think of filing a claim for less than $1,000 because they’d be justifiably afraid of a rate hike. This is nuts. If you’re willing to lose $1,000 if you screw up, then raise your deductible to $1,000 — you’ll save 10% to 20% on your bill because a higher deductible generally means a lower premium.

This is the simplest and fastest way to save on car insurance.

Personal injury protection

The next part of my policy is personal injury protection. This is insurance that covers me and my passengers if we’re hurt in an accident. This coverage is required where I live, but I’m only buying $10,000 worth.

Sound crazy? Well, keep in mind that no matter how I’m injured — by plane, train or automobile — I’ve got medical insurance that will pay for my physical reassembly. I don’t carry passengers often, but those I do carry also tend to have health insurance. If the accident is my fault, my passengers will be covered by my liability and/or their health insurance.

If the accident isn’t my fault, all of us will be covered by the other driver’s liability insurance and/or our health insurance. If the other driver doesn’t have insurance, I could have uninsured motorist coverage to pay the medical bills for all of us. So, personal injury coverage wouldn’t appear to do me a lot of good, which is why I don’t have much of it.

Uninsured motorist

As the name implies, uninsured motorist coverage pays for the damage caused by people illegally careening around without liability insurance.

Uninsured motorist coverage is not required in my state, but I have it anyway.

Shopping for a policy

So, we’ve gone over my insurance bill. While I’m sure you found it riveting, much of it will be meaningless to you unless you drive a car like mine, have the same driving record I have and live where I live. What was the point of explaining it to you? So you’d see how I manage my car insurance and learn something about how to manage your own insurance.

Perhaps you think I knew all this stuff because I’m a personal finance writer. Nope. I know this stuff because I called the toll-free number on my insurance policy and sat on the phone with some hapless customer service representative until I understood what I was paying for.

Once I understood my policy — including how much I’d pay to increase coverages and how much I’d save by reducing them — I was in the position of being able to decide how to customize my policy to meet my personal needs. For example, maybe I should drop rental-car coverage, since I’ve been driving for 40 years and have never used it. Maybe I should raise my liability coverage as my net worth increases.

In addition to being able to make my coverage match my needs, having the facts at hand also allows me to shop this policy easily and virtually instantly. All I have to do is add a few columns to my spreadsheet to accommodate quotes from other companies.

The best way to get competing quotes is to shop online. You can either go to websites that compare quotes from various companies or go directly to individual company sites. You’ll obviously have to input some info, but now that you have your spreadsheet, it won’t be too challenging.

Better still, there are now free services like Gabi and The Zebra that will do the work for you and produce a report showing what rates various insurers would give you.

The last time I did this, inputting the required information to get competing quotes took exactly 10 minutes and 42 seconds. Coincidentally, that’s the approximate amount of time spent in commercial breaks during your typical half-hour sitcom.

As for how often you should shop for your policy, here’s what I do: I shop for home and car one year, health and life the next. I generally do it during the holidays, when I have a bit more leisure time and sometimes need an excuse to get away from family for a while.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Source: moneytalksnews.com

How Do Reverse Mortgages Work?

Traditionally considered a last-ditch source of cash for eligible homeowners, reverse mortgages are becoming more popular.

Older Americans, particularly retiring baby boomers, have increasingly drawn on this financial tool to fund home renovations, consolidate debt, pay off medical expenses, or simply improve their lifestyles.

So what is a reverse mortgage? It’s a loan that allows homeowners to turn part of their home equity into cash. Available to people 62 and older, a reverse mortgage can be set up and paid out as a lump sum, a monthly payment, or a line of credit.

The reverse mortgage loan and interest do not have to be repaid until the last surviving borrower dies, sells the house, or moves out permanently. In some cases, a non-borrowing spouse may be able to remain in the home.

Reverse mortgages aren’t for everyone. They eat up home equity and incur fees and interest. Depending on your age, home equity, and goals, alternatives like personal loans, a cash-out refinance, or a home equity loan may be a better fit.

Most Common Kind of Reverse Mortgage

Usually when people refer to a reverse mortgage, they mean a federally insured home equity conversion mortgage (HECM), which can also be used later in life to help fund long-term care. The current loan limit is $822,375.

HECM reverse mortgages are made by private lenders but are governed by rules set by the Department of Housing and Urban Development (HUD).

If the borrower moves to another home for a majority of the year or to a long-term care facility for more than 12 consecutive months, the reverse mortgage loan needs to be paid back if no other borrower is listed on the loan. That was the status quo at least.

A new HUD policy offers protections to a non-borrowing spouse when a partner moves into long-term care. The non-borrowing spouse may remain in the home as long as he or she continues to occupy the home as a principal residence, is still married, and was married at the time the reverse mortgage was issued to the spouse listed on the reverse mortgage.

In 2021 HUD also removed the major remaining impediment to a non-borrowing spouse who wanted to stay in the home after the borrower’s death. They will no longer have to provide proof of “good and marketable title or a legal right to remain in the home,” which often meant a probate filing and had forced many spouses into foreclosure.

To qualify for this kind of reverse mortgage loan, you must meet with an HECM counselor. To find one, you can search for a counselor on the HUD site.

The counselor may cover eligibility requirements, the financial ramifications if you decide to go forward, and when the loan would need to be paid back, including circumstances under which the outstanding amount would become immediately due and payable.

The counselor may also share alternatives. The goal is that you will be able to make an informed decision about whether a reverse mortgage is right for your situation.

Nearly 42,000 HECMs were awarded in 2020.

How Does a Reverse Mortgage Work?

To qualify for an HECM, all owners of the home must be 62 or older, and have paid off their home loan or have a considerable amount of equity.

Borrowers must use the home as their primary residence or live in one of the units if the property is a two- to four-unit home. Certain condominium units and manufactured homes are also allowed.

The borrower cannot have any delinquent federal debt. Plus, the following will be verified before approval:

•  Income, assets, monthly living expenses, and credit history

•  On-time payment of real estate taxes, plus hazard and flood insurance premiums, as applicable

The reverse mortgage amount you qualify for is determined based on the lesser of the appraised value or the HECM mortgage loan limit (the sales price for HECM to purchase), the age of the youngest borrower or age of an eligible non-borrowing spouse, and current interest rates.

Generally, the older you are and the more your home is worth, the higher your reverse mortgage amount could be, depending on other eligibility criteria. Borrowers or their

Loan Costs

An HECM loan includes several charges and fees. They include:

•  Mortgage insurance premiums

  Upfront fee: 2% of the home’s appraised value or the Federal Housing Administration (FHA) lending limit (whichever is less)

  Annual fee: 0.5% of the outstanding loan balance

•  Origination fee (the greater of $2,500 or 2% of the first $200,000 of the home value, plus 1% of the amount over $200,000. The origination fee cap is $6,000)

•  Third-party charges

•  Service fees

•  Interest

Your lender can let you know which of these are mandatory.

Many of the costs can be paid out of the loan proceeds, meaning you wouldn’t have to pay them out of pocket. However, financing the loan costs reduces how much money will be available for your needs.

A lender or agent services the loan and verifies that real estate taxes and hazard insurance premiums are kept current, sends you account statements, and disburses loan proceeds to you.

In return, they could charge you a monthly service fee of up to $30 if the loan interest rate is fixed or adjusts annually. If the interest rate can adjust monthly, the maximum monthly service fee is $35.

Third-party fees could include an appraisal fee, surveys, inspections, title search, title insurance, recording fees, and credit checks.

Two Other Types of Reverse Mortgages

The information provided so far answers the questions “What is a reverse mortgage?” and “How do reverse mortgages work?” for HECMs, but there are also two other kinds: the single-purpose reverse mortgage and the proprietary reverse mortgage.

Here’s more info about each of them.

Single-Purpose Reverse Mortgage

This loan is offered by state and local governments and nonprofit agencies. It’s the least expensive option, but the lender determines how the funds can be used. For example, the loan might be approved to catch up on property taxes or to make necessary home repairs.

Check with the organization giving the loan for specifics about costs, as they can vary.

Proprietary Reverse Mortgage

If a home is appraised at a value that exceeds the maximum for an HECM ($822,375), a homeowner could pursue a proprietary reverse mortgage.

Counseling may be required before obtaining one of these loans, and a counselor can help a homeowner decide between an HECM and a proprietary loan.

Typically, proprietary reverse mortgages can only be cashed out in a lump sum. The costs can be substantial and interest rates higher. This type of reverse mortgage, unlike an HECM, is not federally insured, so lenders tend to approve a lower percentage of the home’s value than they would with an HECM.

One cost a borrower wouldn’t have to pay with a proprietary mortgage: upfront mortgage insurance or the monthly premiums.

In some cases, the costs associated with this type of mortgage may cause a homeowner to decide to sell the home and buy a new one.

Pros and Cons of Reverse Mortgages

If you’re nearing retirement, it’s easy to see why reverse mortgages are appealing.

Unlike most loans, you don’t have to make any monthly payments. The HECM loan can be used for anything, whether that’s debt, health care, daily expenses, or buying a vacation home (although this is not true for the single-purpose variety).

How you get the money from an HECM is flexible. You can choose whether to get a lump sum, monthly disbursement, line of credit, or some combination of the three.

You can pay back the loan whenever you want, even if that means waiting until you’re ready to sell the house. If the home is sold for less than the amount owed on the mortgage, borrowers may not have to pay back more than 95% of the home’s appraised value because the mortgage insurance paid on the loan covers the remainder.

The money from a reverse mortgage counts as a loan, not as income. As a result, Social Security and Medicare are not affected, and payments are not subject to income tax.

An HECM can be used to buy a new primary residence. You’d make a down payment and then finance the rest of the purchase with the reverse mortgage.

Then again:

Reverse mortgage interest rates can be higher than traditional mortgage rates. The added cost of mortgage insurance also applies, and, like most mortgage loans, there are origination and third-party fees you will be responsible for paying, as described above.

Taking out a reverse mortgage generally means reducing the equity in your home. That can mean leaving less for those who might inherit your house.

You’ll need to keep up property taxes and insurance, repairs, and any association dues. If you don’t pay insurance or taxes, or if you let your home go into disrepair, you risk defaulting on the reverse mortgage, which means the outstanding balance could be called as immediately “due and payable.”

Interest accrued on a reverse mortgage isn’t deductible until it’s actually paid (usually when the loan is paid off). And a deduction of mortgage interest may be limited.

Alternatives to Reverse Mortgages

A reverse mortgage payout depends on the borrower’s age, the value of their home, the mortgage interest rate, and loan fees, and whether they choose a lump sum, line of credit, monthly payment, or combination.

If the payout will not provide financial stability that allows an individual to age in place, there are other ways to tap into cash. Here are suggestions:

Cash-out refi. If you meet credit and income requirements, you may be able to borrow up to 80% of your home’s value with a cash-out refinance of an existing mortgage. Closing costs are involved, but this product lets you turn home equity into cash and possibly lock in a lower interest rate.

Personal loan. A personal loan could provide a lump sum without diminishing the equity in your home. This kind of loan does not use your home as collateral. It’s generally a loan for shorter-term purposes.

Home equity line of credit (HELOC). A HELOC, based in part on your home equity, provides access to cash in case you need it but requires interest payments only on the money you actually borrow. Some lenders will waive or reduce closing costs if you keep the line open for at least three years. HELOCs usually have a variable interest rate.

Home equity loan. A fixed-rate home equity loan allows you to borrow a lump sum based on your home’s market value, minus any existing mortgages. You make a monthly principal and interest payment each month. Again, lenders may reduce or waive closing costs if you keep the loan for, usually, at least three years.

The Takeaway

A reverse mortgage makes sense for some older people who need to supplement their cash flow. But many factors must be considered: the youngest homeowner’s age, home value, equity, loan rate and costs, heirs, and payout type. Retirees have options.

SoFi offers a cash-out refinance, which involves taking out a home loan with new terms for more than you owe and pocketing the difference in cash.

SoFi also provides fixed-rate unsecured personal loans of $5,000- $100,000.

Need a financial boost? Consider a personal loan or a refinance with SoFi.


SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

SoFi Home Loans
Terms, conditions, and state restrictions apply. SoFi Home Loans are not available in all states. See SoFi.com/eligibility for more information.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
PL18133

Source: sofi.com