12 Ways Retirees Can Earn Passive Income

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These days, “retired” doesn’t always mean “not working.”

According to a study of U.S. retirees from the nonprofit Transamerica Center for Retirement Studies (TCRS), “nine percent … are currently working for pay, including five percent who are employed part-time, two percent who are employed full-time, and two percent who are self-employed.”

More than half — 56% — of those surveyed said their top reason to keep working was “wanting the income.” The good news: You might be able to make some extra dollars via passive income — money that comes in without you doing much work, or any work at all.

Passive income is often synonymous with a large upfront investment, such as buying rental properties or dividend-producing stocks. But the following passive-income strategies can bring in extra bucks without investing a bunch of money or time.

1. Rent out a room in your home

Got an empty nest? Someone may be willing to pay to roost there.

You can advertise your spare space on your own or list it on a vacation rental website such as:

Yes, it takes some work: You might have to keep the room tidy and wash a load of sheets and towels once the guests depart. But in some parts of the country, you can earn enough money in just a few days to cover a mortgage payment, as we detail in “Do This a Few Days Each Month and Watch Your Mortgage Disappear.”

If you’re the gregarious type, you can have fun talking up your town or even showing visitors around. If not, advertise it as a “Here’s your key, we won’t bother you” arrangement. Some people simply want an inexpensive place to sleep and don’t care about sitting around chatting with the host.

2. Rent out your vehicle or gear

Your spare bedroom is just one of many things you could rent to others to bring in extra money.

Use your imagination. Maybe you have a ladder, stroller, surfboard, bicycle, boat, camera equipment or a great selection of power tools.

Peer-to-peer rental sites like the following will help you find folks who occasionally need such things but don’t want to own them:

Whatever you’re renting, keep in mind that ordinary insurance might not cover the commercial use of your property. An insurance rider may cover some items, but you may need a separate policy, so consult your insurance agent.

3. Become a peer-to-peer lender

What is peer-to-peer lending? In short, P2P lending sites such as Prosper accept loan applications from borrowers. Investors like you can put some of your money toward loans to those borrowers. When loans get paid back, so do you — with interest.

Overall, P2P investments “can provide solid returns that are really hard to beat,” according to Clark.com, the website of financial guru Clark Howard.

As with any loan, however, there’s the possibility of default. You may not earn anything or may even lose money.

Sound too complicated? Maybe this simpler form of P2P is for you: Worthy sells 36-month bonds for $10 each. The money that comes in is loaned to U.S. businesses, with lenders who have purchased these bonds getting a 5% annual rate of interest on their investment.

To learn more about Worthy bonds, check out “How to Earn 80 Times More on Your Savings.”

4. Get rewards for credit card spending

If you’re going to shop with plastic, make sure you’re rewarded.

The form that the reward takes is up to you. Some people covet airline miles. Others take their rewards as cash or a credit against their monthly statement.

The number of rewards credit cards — and their pros and cons — can be a little dizzying. For an easy way to compare your options, stop by our Solutions Center and check out travel rewards cards or cash-back cards in the Money Talks News credit card search tool.

5. Use cash-back apps

An app called Ibotta lets you earn cash rebates on purchases from retailers, restaurants or movie theaters.

Or you can do your online shopping through cash-back portals like:

These websites enable you to earn cash back on purchases from thousands of online retailers. To learn more about them, check out “3 Websites That Pay You for Shopping.”

6. Sell your photos

Smartphones have made decent photography possible for just about anyone. The next time you capture a killer sunset or an adorable kid-and-dog situation, don’t keep the image to yourself. Apps like Foap — which is available for Android and Apple devices — will help you sell it.

You can do even better if you have a good digital SLR camera, a tripod and other equipment. Stock photo companies like Shutterstock and iStockphoto, which favor high-definition, high-quality images, are venues for selling photos on just about any subject you can find.

7. Write an e-book

It’s possible to bring in cash without a high-powered book contract, thanks to self-publishing platforms.

Amazon’s Kindle Direct Publishing, for example, allows you to write, upload and sell your words fairly easily. My two personal finance books are for sale on Kindle, and they provide a steady stream of passive income.

I also sell PDFs of the books through my personal website. I use a payment platform called E-junkie to handle payments and deliver the book downloads — and this brings me more money per book than Amazon does, even when I offer readers a discount.

If you’re fond of a particular fiction genre, write the kind of stuff you’d like to read. Nonfiction sells, too: cookbooks, travel guides, history, memoirs and how-tos are a few examples. Or maybe you have a specific skill to teach — job-hunting or food preservation or raising chinchillas.

Pro tip: Fiverr.com is a good marketplace through which to find freelancers to hire for help with formatting, design and cover art.

8. Create an online course

If you’ve got useful knowledge, why not monetize it? Sites like Teachable and Thinkific will help you build a course that could change someone’s life, either professionally or personally.

Note that online courses are not limited to computer-based topics. A quick search turns up classes on:

  • Cake-making
  • Watercolors
  • Digital scrapbooking
  • Drone cinematography
  • Free-diving
  • Blacksmithing
  • Yoga
  • Parenting
  • Novel writing
  • Job hunting
  • Building a pet-care business

And that’s just for starters. Like writing an e-book, creating a course will take some work. But again: Once it’s up, the work is done.

9. Join rewards programs

Rewards sites like Swagbucks reward you with points for activities such as searching the internet, watching short videos and taking surveys. You can cash in your points for gift cards or PayPal cash.

Maybe you didn’t retire to spend hours taking surveys. But if you’re going to search the internet anyway, why not use Swagbucks’ search engine and earn some points?

To learn more about Swagbucks, check out “6 Ways to Score Free Gift Cards and Cash in 1 Place.”

10. Wrap your car with advertising

Turn your vehicle into a rolling billboard with companies like Carvertise. They’ll pay you for the privilege of putting removable advertising decals for a business on your automobile.

Writer Kat Tretina describes the process at Student Loan Hero. You can expect to earn $100 to $400 a month, depending on how much and where you drive, she says. Requirements include having a good driving record and a vehicle that has its factory paint job.

Pro tip: Car-advertising scams make the rounds regularly. Tretina offers these tips to avoid being victimized:

  • Legitimate companies don’t charge an application fee, and they’ll have a customer service phone line that lets you talk with a real person.
  • The car-wrapping cost should be covered by the company.
  • Take a hard pass on any company that doesn’t ask questions about your driving record, auto insurance, driving routes and type of vehicle.

11. Create an app

Maybe yours is one of those minds that says, “There should be an easier way to do (whatever) — and I think I know what it is!” If so, creating an app could bring in extra income.

It could also bring in zero dollars. But nothing ventured, nothing gained, right?

For example, personal finance writer Jackie Beck — who cleared $147,000 of debt — used her expertise to create an app called “Pay Off Debt.”

Not a coder? App-builder services exist. The WikiHow.com article “How to Create a Mobile App” tells how to get started. It’s a time-consuming process. But that’s one of the beauties of retirement: You set your own hours.

12. Become a package ‘receiver’

OK, this idea is unproven — so far. But it’s a solution whose time has come. The boom in online shopping has been a boon for thieves who find it easy to swipe packages left outside front doors before the intended recipients get home from work.

You might be able to do your part to thwart those lowdown thieves by marketing yourself as a “professional package receiver.”

Try this: Put the word out — through friends, social media, places of worship — that you are available to accept deliveries. If a package is for someone in your neighborhood, you could watch the shipping company’s tracking info and be at the home to take the package in. Or you could specify that packages be shipped to Original Recipient, c/o Professional Package Receiver — that’s you.

Before asking a fee of, for example, $1 per package, ask the person who wants to hire you what it’s worth to them. You might be surprised by a response like, “I’ll give you $5.” Decide, too, whether you’ll be charging per package or per order, and whether you’ll set a weight limit, such as no packages over 30 pounds.

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

Source: moneytalksnews.com

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. 

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Source: thepennyhoarder.com

Can Missing Just One Payment Affect Your Credit Score?

By now you’ve probably begun, or perhaps even finished, your Christmas shopping.

And while December is a month filled with countless distractions one thing remains crystal clear, which is that you cannot forsake your obligations to lenders just because you’re distracted.

I just returned from a trial in Pennsylvania where one of the parties made countless excuses for why he couldn’t pay one of his loans on time and was constantly 30 to 60 days late.

The excuses ranged from falling down and hurting his knees to his dog being exposed to chemicals in his home.

And while everyone is sympathetic to the external pressures of life, due dates are never to be forsaken and lenders don’t care about your excuses.

Great Myths of Credit Scoring

One of the great myths of credit scoring is that minor late payments can’t hurt your scores if you quickly catch the account back up.

This is true BUT only if your late payment is isolated AND historical, meaning the account isn’t CURRENTLY delinquent.

In the world of credit scoring there are two categories of derogatory information; minor and major. The dividing line between the two categories is very clean.

Historical delinquencies that have not gone 90 days past due or worse are considered minor derogatory items. Everything else is considered a major derogatory item.

So, to be clear, minor would include only historical 30 and 60-day delinquencies.

Major would include defaults, any record of being 90 days late or worse, repossessions, tax liens, judgments, collections, foreclosures, bankruptcy, settlements, and accounts that are currently delinquent.

The influence on your credit scores is drastically different between a minor and major derogatory item.

Delinquency Vs. Major Derogatory Item

Using the only FICO credit score estimation tool in existence, I simulated the difference in scores between people who have never been delinquent on anything versus those who are currently delinquent, but not in default.

For those who are currently 30 days delinquent their scores were considerably lower, normally around 35-50 points in my simulations.

For those who were currently 60 days delinquent (but not in default) their scores were always over 100 points lower that those who have never missed a payment.

This is where the confusion begins because neither a 30 day or 60 day delinquency is considered a “major” derogatory item yet their influence on a consumer’s score is significant, which seems counterintuitive until you get a better explanation.

Scoring systems, like FICO and VantageScore, are designed to predict the likelihood that you’ll go 90 days delinquent soon after you apply for credit.

By being currently delinquent, even just 30 or 60 days, you’re making the credit score’s job easy because you’re currently proving that you’re willing to be past due on credit obligations, thus the drastic score drop.

There’s something else to keep in mind, and this isn’t a secret in my world although it’s not well known by consumers.

When you’ve got a “30 day late” on your credit report that means you’re actually at least 30 days late on the obligation.

Lenders are not permitted to report late payments to the credit bureaus until the borrower has gone a full 30 days past the due date.

So, if you’re a week or two behind on your loan payments those won’t ever be reflected on your credit reports, although you’ll likely have to pay late fees.

In fact, a 30 day late on a credit report actually means you’re 30-59 days late on the obligation. A 60 day late on a credit report actually means you’re 60-89 days late on the obligation, and so forth and so on.

Point being, even if an account is showing on the credit report as just being 30 days late it’s possible that it’s actually 40, 50 or almost 60 days late.

This is another reason credit scoring systems are so harsh on consumer’s who have currently delinquent accounts on their credit reports.

What’s the possible harm?

You may be thinking, “well, if I just catch up on the payment and I avoided going 90 days past due (major derogatory) then my score will recover.”

You’re exactly right, although you’re not going to fully recover your score but it will bounce back quite nicely.

However, this still doesn’t prevent significant downside to being currently past due.

Lenders only update your credit reports once a month. That means if you have an account that is showing up as being currently past due it will be that way for a full month.

And, that means your credit scores will likely be lower, and maybe considerably lower, for 30 days straight.

Many credit card and line of credit creditors pull your credit scores every month to determine if they still want to do business with you.

That practice is called “Account Management” or “Account Maintenance.”

Just look at your own credit reports and you’ll likely see a long list of inquiries that fall into those two categories.

If one of your creditors pulls your credit score during their account management process and sees that it has dropped due to the currently late account, they’ll likely react by closing your account, lowering your limits, or raising your interest rates.

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.

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Source: mint.intuit.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.

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Source: mint.intuit.com

19 Black-Owned Banks and How to Support Them | The Simple Dollar

Banking Black isn’t a new concept, but it’s gaining momentum amid the rise of the Black Lives Matter movement. But what does it mean to bank Black? According to the Urban Institute, a Black financial institution provides services to minority communities and is 51% or more Black-owned.

Black financial institutions have been around for centuries, with initial meetings among African Americans interested in establishing their own banks held as far back as 1851 — before the Civil War. However, the first Black-owned bank in the U.S. didn’t materialize until after the war, in 1888. 

The first Black-owned banks enabled African Americans to accumulate enough capital to start other service-oriented businesses like nursing homes, catering businesses and insurance companies. And they provided an opportunity for African Americans to learn accounting skills and other techniques required for handling large volumes of cash. 

Today, there are roughly 19 Black-owned banks in the U.S. offering the same services as other financial institutions, such as certificates of deposits, loans, online and mobile banking assistance and more. This number used to be much higher — in 2001, there were 48 Black-owned banks — but, as with other community banks, the numbers have dwindled over the years partially due to regulatory restrictions that often favor larger financial institutions. 

As we celebrate Black History Month, we celebrate the Black-owned financial institutions that have served as pillars in the community for years now.

In this article

Why you should consider banking Black

It’s no secret there’s a wealth gap between minority and non-minority households. As of 2016, the median wealth for a White family was $171,000 compared to $17,600 for a Black family. 

This is partly attributed to a lack of financial services in minority communities. Without financial inclusion, minorities can’t affordably save, invest and insure themselves, which is required to grow and sustain wealth. This lack of experience also places them at a disadvantage. 

“I believe it is vital that African Americans make financial literacy a priority in 2020 and beyond, especially because of the effects of the coronavirus. Over 67% of Americans cannot pass a basic financial literacy test. African Americans, on average, can only answer less than 40% of financial literacy questions correctly. According to research, African Americans have the lowest levels of financial literacy,” states Dr. JeFreda R. Brown, personal finance consultant, educator and CEO of Provision Financial Education.

Because of financial exclusion, minorities often resort to expensive financial services, such as check cashing stores and pay-day lenders, because there are fewer banks in their neighborhoods. There are roughly 41 financial institutions per 100,000 people in a White community compared to only 27 in non-White majority communities. And the financial institutions present in minority neighborhoods often make it difficult to open and maintain an account. For example, a bank may require higher account balances to eliminate service charges or a larger minimum account balance. According to one study, the average minimum account balance at banks in Black neighborhoods is $871, compared to $626 in White communities. 

Because of this, nearly half of Black households are either underbanked or lacking access to such institutions. 

“Earning money is not a problem for African Americans,” says Dr. JeFreda R. Brown. “However, there is a large gap for African Americans when it comes to personal finance education, understanding how money works, understanding economics and economic indicators, understanding time value of money and understanding wealth building.”

Many Black-owned banks aim to combat the wealth disparity gap through:

  • community development lending
  • supporting minority businesses and nonprofits
  • offering financial literacy workshops for community members
  • providing financial aid to underserved Black communities

“I think banking with Black-owned banks is good because many of them give people a second chance who can’t get bank accounts with other banks,” says Dr. JeFreda R. Brown. “Also, Black-owned banks offer the same services as other banks and credit unions.”

In 2016, there was a rise in support for Black-owned businesses following the Black Lives Matter movement. One initiative was the Black Money Matters movement, headed by rapper Michael “Killer Mike” Render. He made a call for action in July 2016 during a town hall meeting televised by BET, asking Blacks to “bank Black.” It was an effective yet short-lived effort that led to 8,000 new accounts at Atlanta’s Black-owned Citizens Trust Bank. In addition, One United Bank reported receiving $3 million in deposits at branches across the country, and Carver Bank witnessed $2.4 million in deposits thanks to the movement.

There is also the Bank Black Challenge, which was launched by One United Bank, that is challenging one million people to open a $100 savings account at a Black-owned bank to generate $100 million of economic power. This challenge started in 2016 and is still ongoing today. 

Initiatives like these are significant, but it requires ongoing support to make their effects long-lasting. In 2020, the current Black Lives Matter (BLM) movement is motivating people to support the Black community in new ways. And by banking with Black financial institutions, you can now play your part in reinvesting in the Black community in the U.S. 

“Black-owned banks should be given a chance to grow and be a strong financial staple in the communities they serve. Also, Black-owned banks are a great option for anyone because they promote economic revitalization. Banking with Black-owned banks helps increase community development and economic development. This is why they need support from everyone,” states Dr. JeFreda R Brown. 

Black-owned banks and credit unions

If you’re considering banking with a Black financial institution, check out this list of Black-owned banks and credit unions in the U.S. If you don’t see a bank listed in your area, keep in mind you may still be able to use the bank’s digital banking services.

  1. Alamerica Bank – located in Birmingham, Ala.
  2. Citizens Trust Bank – located in 15 cities across the U.S.
  3. Columbia Savings and Loan – located in Milwaukee, Wyo.
  4. Commonwealth National Bank – has two locations in Mobile, Ala.
  5. Broadway Federal Bank FSB – two locations in Los Angeles, Calif. and one in Inglewood, Calif. 
  6. Carver State Bank – two locations in Savannah, Ga.
  7. Carver Federal Savings Bank – located in three cities in N.Y.
  8. Columbia Savings & Loan ASSN – located in Milwaukee, Wyo.
  9. GN Bank – located in Chicago, Ill.
  10. First Independence Bank – located in two cities in Mich.
  11. Harbor Bank of Maryland – located in three cities in Md.
  12. Liberty Bank & Trust CO – located in 10 cities across the U.S. 
  13. Industrial Bank NA – has multiple locations in N.Y., Md. and N.J.
  14. OneUnited Bank – located in three cities across the U.S.
  15. Optus Bank – located in Columbia, S.C.
  16. Mechanics & Farmers Bank – located in five cities in the Carolinas
  17. Tri-State Bank of Memphis – located in Memphis, Tenn.
  18. Unity National Bank – located in three cities in Texas and Ga.
  19. United Bank of Philadelphia – located in Philadelphia, Pa. 

Considering making the switch?

Black-owned financial institutions are struggling. In 2013, 60% of Black banks lost money, and they were especially hit hard by the 2008 recession. As we enter yet another economic downturn, now is a great time to invest in Black banks. In doing so, you can help keep these entities afloat so that minority communities can continue working to close the disparity gap. 

Together, Black banks control $5 billion in assets, which is a fraction of what the banking giants have (for example, Wells Fargo has $1.7 trillion in assets alone). It’s up to the people to help grow Black financial institutions in the U.S. If you’d like to make a difference, then follow these simple steps to switch to a Black-owned bank. 

Step 1: Identify your banking needs

Are you currently banking with another bank? What do you like and dislike about it? Keep this in mind as you’re shopping for a new, Black-owned bank.

Maybe you like the mobile banking options your current bank offers but hate the high monthly fees. Or perhaps you want to do your banking with an institution that has more involvement in minority communities. 

Make a list of your must-haves to help you decide on the best Black banking solution for your needs. 

Step 2: Choose a new banking institution

After you’ve identified your list of banking needs, it’s time to search for a Black-owned financial institution that meets those requirements. Use the list of Black-owned banks and credit unions above to start your search. Create a list of options and mark off the ones that don’t make the cut. 

Step 3: Take note of your automatic payments and deposits

Do you use automatic withdrawals for your billing? How about direct deposits from your employers (or clients)? If so, you’ll need to make a list of these automatic transactions so you can set them up with your new bank.

Step 4: Open up your new account

Once you’ve found a bank that meets your needs, it’s time to create your new account. Go through the application process and schedule to make a deposit (if required). Also, check with your new bank to determine what process they have to make  transferring funds from your old bank easier. Once your account is up and running, don’t forget to schedule your automatic payments and deposits.

Looking ahead

Deciding to bank Black isn’t just about choosing where you keep your money. It’s a way to take a stand against inequality in minority communities that lack financial inclusion. And it helps push the Black Lives Matter movement forward. 

In 2012, Wells Fargo was sued for pushing Blacks toward more expensive mortgages with higher fees and rates (compared to white borrowers with similar credit). Then in March 2018, Bank of America was fined for racial discrimination in its hiring and lending practices. 

Unfortunately, this is an ongoing issue for people of color who receive less than 1% of mortgages from white-owned banks.

Banking Black isn’t a choice only available to African Americans, either. It’s a viable option for anyone who wants to make a difference in their financial prosperity, as well as the prosperity of those in underserved communities.

We welcome your feedback on this article. Contact us at inquiries@thesimpledollar.com with comments or questions.

Source: thesimpledollar.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


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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.

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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.

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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.
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Source: sofi.com