The average rate on a 30-year mortgage in the U.S. fell for the second straight week, giving some relief to home shoppers already facing sky-high prices and a shortage of supply.
The average 30-year rate fell to 7.02% from 7.09% last week, mortgage buyer Freddie Mac said Thursday. A year ago, the rate averaged 6.39%.
The recent pullbacks followed a five-week string of increases that pushed the average rate to its highest level since November 30. Higher mortgage rates can add hundreds of dollars a month in costs for borrowers, limiting homebuyers’ purchasing options.
“The decrease in rates, albeit small, may provide a bit more wiggle room in the budgets of prospective homebuyers,” said Sam Khater, Freddie Mac’s chief economist.
Borrowing costs on 15-year fixed-rate mortgages, popular with homeowners refinancing their home loans, also declined this week, trimming the average rate to 6.28% from 6.38% last week. A year ago, it averaged 5.75%, Freddie Mac said.
Mortgage rates are influenced by several factors, including how the bond market reacts to the Federal Reserve’s interest rate policy and the moves in the 10-year Treasury yield, which lenders use as a guide to pricing home loans.
Treasury yields have largely been easing since Federal Reserve Chair Jerome Powell said earlier this month that the central bank remains closer to cutting its main interest rate than hiking it.
Still, the Fed has maintained it doesn’t plan to cut interest rates until it has greater confidence that price increases are slowing sustainably to its 2% target.
Until then, mortgage rates are unlikely to ease significantly, economists say.
After climbing to a 23-year high of 7.79% in October, the average rate on a 30-year mortgage stayed below 7% this year until last month.
Last month’s rise in rates were an unwelcome development for prospective homebuyers in the midst of what’s traditionally the busiest time of the year for home sales. On average, more than one-third of all homes sold in a given year are purchased between March and June.
Sales of previously occupied U.S. homes fell in March as homebuyers contended with elevated mortgage rates and rising prices.
After two years of limited demand, private equity and insurance companies are increasing their allocations to single family residential mortgages. This increased flow of funds appears to be driven by strengthening macro factors that favor residential mortgages over other yield assets such as commercial real estate (CRE) and commercial (C&I) loans. These strong fund flows are resulting in tighter credit spreads, higher prices, and an increased focus on sourcing new originations.
Mortgage investors are pointing to several factors leading to increased demand for mortgages in the current environment, including: the end of the current rate-hike cycle, government subsidies for borrowers, favorable capital treatment by financial regulators, higher liquidity and finance-ability for mortgage assets, and superior risk-adjusted returns in a market where mortgage investors can find low LTV loans that carry yields 2.0-4.0% over SOFR.
This increased demand is resulting in tighter credit spreads for private label, non-QM RMBS securitizations; increased prices for a broad range of mortgage loans including seconds, home equity agreements, bridge loans, and alternative documentation loans; and strategic transactions between investors and originators.
Federal Support and Market Stability
As the Federal Reserve concludes its recent rate-hiking cycle and adopts a “higher for longer” stance, residential mortgages are emerging as superior risk-adjusted assets. This market stability is compelling several long-term investors, including banks and insurance companies, to increase their mortgage allocations as they reduce allocations to commercial real estate and business lending.
The federal subsidies for American consumers – including through student debt forgiveness and recent proposals to subsidize monthly mortgage payments – appear to be providing significant credit enhancement for mortgage loans. Homeowners benefiting from these subsidies are more capable of meeting their payment obligations, thus reducing the credit risk for lenders. Moreover, the prolonged high-interest-rate environment is leading to lower refinancing rates, which extends the duration of cash flows that investors can expect from these assets. With the Federal Reserve likely to lower rates in the future, the value of these extended cash flows is anticipated to rise, making long-term investments in residential mortgages even more appealing.
Regulatory and Comparative Advantages
Single-family residential loans are receiving attractive treatment under banking and insurance regulations, including new accounting policies relating to risk-based capital charges.
As residential loans are receiving more attractive risk-based capital charges than other categories of loans – such as CRE – insurance companies and banking are realizing that residential mortgages are a more efficient capital allocation compared to other asset classes. This is resulting in new balance sheet strategies for institutional investors.
The current stress in the CRE and C&I loan markets further highlights the advantages of residential mortgages. CRE loans, which face higher risk ratings and lack government support, present a higher risk for a similar yield compared to SFR mortgages. C&I loans are also under pressure due to potential increases in unemployment and reduced corporate profitability as the Federal Reserve combats inflation. These loans often require higher capital reserves, making residential mortgages more attractive by comparison.
Liquidity and Financing Innovations
In an era where liquidity is paramount, residential single-family rental (SFR) mortgages are demonstrating superior liquidity within a +$4 trillion market. With the recent liquidity runs experienced by several banks, Banks and insurance companies are particularly interested in the attractive liquidity characteristics of newly originated, adjustable-rate mortgages. Institutions can finance their SFR mortgage loans through the Federal Home Loan Banks (FHLB) system and major money center banks, further enhancing their liquidity positions.
While traditionally residential mortgages have historically been available for direct investment only by larger institutions with full servicing capabilities, market innovations are making it easier for community and regional banks and smaller institutional investors to access residential mortgages. For instance, The Change Company, the country’s largest non-qualified mortgage (non-QM) originator, offers its mortgage production for sale directly to banks and smaller institutions through its online portal, xChange (xchangefi.com). This platform enables over 400 financial institutions to browse and purchase loans in single loan transactions or by selecting individual loans to place into a small portfolio for purchase. xChange offers to service these loans and provide the investors a low-cost way to invest in residential mortgage loans. Eliminating barriers to entry for investors who lack the resources to establish a full capital markets desk is drawing new investors and additional capital into the market.
Key Takeaways
The convergence of federal support, favorable regulatory treatment, and current market dynamics is resulting in a strong flow of funds into residential mortgages. This increased interest is being led by private equity investors and insurance companies. There are also early signs suggesting that banks and credit unions are increasingly allocating capital to residential mortgages and away from CRE, credit card, auto, and commercial loans.
Many investors appear to believe the mortgage market currently presents a unique opportunity to capitalize on low risk-based capital charges, attractive yields, extended cash flows, and enhanced liquidity. As other traditional loan products like CRE and C&I loans face increased risks and regulatory burdens, the strategic shift towards residential mortgages is resulting in increased demand and more attractive pricing for non-QM mortgages.
In this evolving market landscape, residential mortgages are increasingly becoming a strategic imperative for several growth-oriented institutions aiming to optimize their portfolios and navigate the complexities of the current economic environment. With innovative marketplace platforms like xChange facilitating easier access to these assets, residential mortgages are becoming more accessible and attractive now to a broader range of investors.
Pet owners spent an average of $491 on veterinary care for their fur kids in 2021, the most recent year for which data was available, according to the U.S. Bureau of Labor Statistics
. But if your pet requires surgery or emergency treatment, vet bills can cost thousands of dollars. Buying pet insurance can help defray these expenses. Your first step is to get pet insurance quotes.
How to get pet insurance quotes
You can get quotes from the best pet insurance companies online, though most companies also give you the option to speak with a human. Note that we’re focusing on how to get pet insurance quotes for dogs and cats in this article. If you want insurance for your iguana, guinea pig, bird or ferret, you’ll need to work with an insurance company that specializes in exotic pets, such as Nationwide.
Key terms in this article
Deductible
The amount of your pet’s veterinary bill that you’ll need to pay before pet insurance kicks in.
Reimbursement level
The percentage of your vet’s bill that insurance will cover after you’ve met the deductible.
Annual limit
The maximum dollar amount your pet insurance company will pay for covered care in a year.
To get a pet insurance quote, you’ll generally need to provide your ZIP code and the following information about your animal:
Species (dog or cat).
Weight (for mixed-breed dogs).
Once you’ve entered your pet’s basic information, you may have the option to customize your quote. For example, if you want to save money on monthly premiums, you could increase your deductible. Or if you’re willing to pay more each month for increased coverage, you could raise the policy’s annual limit or reimbursement level.
Can I insure multiple pets on the same policy?
Some pet insurance companies let you cover multiple animals on the same plan. You may have a single deductible for all covered animals or pay a separate deductible for each pet, depending on the policy.
Even if the insurer doesn’t allow more than one pet to be covered on a policy, you may get a multipet discount if you enroll more than one animal. Many pet insurance companies offer multipet discounts of 5% to 10%.
Types of pet insurance plans
When you get pet insurance quotes, you may be able to choose either an accident-only plan or an accident and illness plan. You may also be able to add a wellness plan to your pet insurance to cover routine vet care. Note that not all carriers offer all types of plans.
Accident and illness plan
An accident and illness plan helps with costs if your animal companion gets sick or injured. It can reimburse you for part of your vet bills if your pet is hurt in an accident or develops an illness such as cancer, thyroid problems or arthritis.
An accident and illness plan usually doesn’t cover pre-existing conditions, which are health issues that showed symptoms before your pet insurance took effect. However, some insurers may help with costs related to a hereditary condition or birth defect if the symptoms didn’t surface until later in life. Other policies offer this coverage as an add-on.
Accident-only pet insurance
An accident-only plan helps you pay for your pet’s care if they’re injured in an accident, but it won’t cover treatment related to an illness. For example, if your furry pal gets hit by a car, is bitten by another animal or swallows a toy, your insurer would typically foot part of the bill. But there’s no coverage if your pet is diagnosed with a condition like hip dysplasia, cancer or a metabolic disorder.
Though the coverage is limited, it’s usually cheaper than more comprehensive plans. Some companies offer accident-only plans to animals that may not otherwise qualify for coverage due to their age.
Wellness plans
Pet insurance covers unexpected veterinary expenses your dog or cat may incur, but a wellness plan helps you pay the expected costs of keeping your pet healthy. Usually purchased as a separate plan or add-on, you can use a wellness plan to help pay for routine care like checkups, vaccinations, dental cleanings, spaying and neutering and microchipping.
🤓Nerdy Tip
Wellness plans may help you budget better for veterinary expenses by spreading them out over a 12-month period, but they may not actually save you money. Before buying wellness coverage, compare the cost of the plan to the cost of the covered services you’ll use in a given year.
What factors affect your pet insurance price?
The type of plan you choose will affect your pet insurance price. Accident-only plans are usually cheaper than more comprehensive accident and illness plans. Other factors that determine how much pet insurance costs include:
Cat vs. dog: Cats live longer than dogs on average, but they tend to have fewer health problems over their lifespans. Many felines are indoor-only cats, so they’re less exposed to accidents and illnesses compared with dogs. Dogs are also more likely to have hereditary problems.
Breed: Purebred animals are often pricier to insure because they’re more prone to breed-specific illnesses than mixed-breed pets. Pet insurance for larger dogs tends to be more expensive than coverage for small dogs, as large-breed dogs have shorter life expectancies and frequently develop more health problems in a shorter timespan.
Age: Older pets are at higher risk of developing health issues, so as your dog or cat ages, you’ll probably pay more for pet insurance.
Location: Where you live affects the cost of pet insurance because veterinary costs vary widely by location. Since most pet policies reimburse a percentage of vet bills, you can expect your pet premiums to be higher if you live in an area where pet health care is pricey.
Deductibles, reimbursement level and annual limit: If you have a high deductible and a low reimbursement level and annual limit, you’ll pay less in premiums. However, your out-of-pocket costs for vet bills will be higher. Conversely, a low deductible combined with a high reimbursement level and annual limit increases your premiums, but your out-of-pocket expenses will be lower if your pet gets sick or injured.
🤓Nerdy Tip
Pet insurance generally doesn’t cover pre-existing conditions. Your pet’s risk of developing a health issue increases as they get older, so buying a policy early can up the odds that future conditions will be covered.
How to compare pet insurance quotes
Your monthly premium isn’t the only factor to consider when comparing pet insurance quotes. You’ll also need to evaluate how much you’ll pay out of pocket when your pet needs care, as well as what services are covered. Here are some things every pet parent should know before choosing a policy.
Deductibles
You’ll need to pay an out-of-pocket pet insurance deductible before your insurer will cover part of your vet bill. If your policy has an annual deductible, your policy will cover care after you’ve hit the deductible for the year. However, some policies have a per-incident or per-condition deductible that applies when your pet develops a new health condition.
Say you hit your per-condition deductible when your pet developed a bladder infection. If you took them back to the vet a few weeks later for allergy treatment, another deductible would apply since it’s a new condition.
Generally, you’ll pay higher premiums if you choose a low deductible.
Reimbursement rates
Your reimbursement rate is the percentage of covered services your insurer will pay for. But this amount is often applied before the deductible. For instance, suppose you have a policy with an 80% reimbursement level and a $250 deductible. If your pet incurred a $1,000 vet bill, here’s how your pet insurance reimbursement rate might factor in:
$1,000 (vet bill) x 0.8 (80% reimbursement rate) = $800.
$800 – $250 (deductible) = $550 (covered by pet insurance).
$1,000 – $550 = $450 (your out-of-pocket cost).
Annual limits
The annual limit is the maximum amount the policy will pay during a 12-month period. Once you reach the annual limit, you’ll need to pay out of pocket for veterinary care. Many insurers offer an unlimited option.
Waiting periods
A waiting period is a specified amount of time that must elapse before pet insurance kicks in. Many policies have a two-day waiting period for accidents and a 14-day waiting period for injuries. Some specific conditions like orthopedic problems and cruciate ligament issues may have longer waiting periods.
What’s included
Before you buy insurance, make sure you understand what your pet insurance policy covers. Find out how your policy defines pre-existing conditions and whether it pays for things like hereditary conditions and behavioral issues.
How to save money on pet insurance
Pet insurance doesn’t have to break your budget. To save money on pet insurance costs, follow these tips:
Compare quotes. To make sure you’re getting a competitive rate, get quotes from several insurance companies.
Look for discounts. You may qualify for discounts if you’re a member of certain groups, like AAA or the AARP, or if you’re a military member or veteran.
Find out if your employer offers pet insurance as a voluntary benefit. Some employers partner with pet insurance providers to offer discounted plans for workers who are pet parents.
Bundle policies. You may be able to save by bundling policies, e.g., a pet policy and an auto policy, with the same insurer.
Increase your deductible. If you’re willing to pay more out of pocket for an unexpected veterinary bill, increasing your plan’s deductible can save you money on premiums.
Think carefully about wellness plans. If your pet is healthy, has already been spayed or neutered and microchipped, and is up to date on their vaccines, a wellness plan may cost more than you’d pay out of pocket at the vet.
Frequently asked questions
How much does pet insurance cost?
The average pet insurance premium for an accident and illness plan in the U.S. was about $676 for dogs and $383 for cats in 2023, according to the North American Pet Health Insurance Association. That breaks down to a monthly premium of $56 for dogs and $32 for cats.
What’s the best pet insurance company?
Metlife, Embrace and Pets Best are at the top of NerdWallet’s list of the best pet insurance companies. However, be sure to compare several pet insurance companies to find the best policy for your animal’s needs.
What information do you need for a pet insurance quote?
You’ll typically need to provide your pet’s name, sex, species, breed (including size if it’s a mixed-breed dog), age and ZIP code to get a pet insurance quote.
First Home Mortgage is a licensed, full-service residential lender. Founded in 1990 with two offices and a handful of employees, the company has since grown to 29 offices serving 21 states in the Northeastern, Mid-Atlantic, and Southern regions. “I am committed to preserving our structure and swift decision-making processes, which have been key to our … [Read more…]
Our goal here at Credible Operations, Inc., NMLS Number 1681276, referred to as “Credible” below, is to give you the tools and confidence you need to improve your finances. Although we do promote products from our partner lenders who compensate us for our services, all opinions are our own.
Home equity loan
Home equity line of credit (HELOC)
Interest rate
Fixed
Variable
Monthly payment amount
Fixed
Variable
Closing costs and fees
Yes
Yes, might be lower than other loan types
Repayment period
Typically 5-30 years
Typically 10-20 years
FAQ
What is a rate lock?
Interest rates on mortgages fluctuate all the time, but a rate lock allows you to lock in your current rate for a set amount of time. This ensures you get the rate you want as you complete the homebuying process.
What are mortgage points?
Mortgage points are a type of prepaid interest that you can pay upfront — often as part of your closing costs — for a lower overall interest rate. This can lower your APR and monthly payments.
What are closing costs?
Closing costs are the fees you, as the buyer, need to pay before getting a loan. Common fees include attorney fees, home appraisal fees, origination fees, and application fees.
If you’re trying to find the right mortgage rate, consider using Credible. You can use Credible’s free online tool to easily compare multiple lenders and see prequalified rates in just a few minutes.
Textiles are at the heart of home furnishings, serving a dual purpose of functionality and fashion as the choice of fabric significantly influences a space, elevating aesthetics and functionality. From robust upholstery fabrics designed for durability to opulent drapery that exudes luxury, textiles can change how a house looks and feels.
Textiles in home decor and interior design: Tips to elevate home furnishings with fashion and functionality (Photo by Behance)
In an interview with HT Lifestyle, Saba Kapoor, Co-Founder of Nivasa, advised, “Go for special braids and weaves, showcasing artisanal craftsmanship to elevate interiors. Apart from their practical functions, textiles act as a medium for personal expression, mirroring the homeowner’s individuality and setting the overall ambiance of the space. They have the unique ability to celebrate cultural heritage by incorporating traditional patterns or showcasing expert craftsmanship.”
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She further recommended, “Opt for upholstery fabrics that boast dust-proof and spill-resistant properties, ensuring furniture stays pristine with minimal upkeep. This practicality enhances the longevity of furnishings while maintaining aesthetic appeal. Be it elegant throws, rugs or curtains, textiles play a multifaceted role in transforming a house into a home thereby enhancing the functionality and style. More often than not, textiles also also resonate with the individuality and cultural identity of its inhabitants, making the living space truly personal and inviting.”
Bringing his expertise to the same, Sachin Chauhan, Director at Dialogues by Nirmals, said, “Textiles are a way of transforming functionality to become a prominent element in home furnishing fashion. The exploration of this evolution bridges functionality and aesthetics seamlessly. The intrinsic role textiles play in elevating home décor is adding a statement look to any space. As textiles evolve, homeowners and stylists are seeking to incorporate innovative textures, patterns, and materials, turning everyday items into expressions of personal style.”
He concluded, “Textile pieces not only contribute to the overall aesthetic of living space but transform it into a curated and fashionable haven. From luxurious drapes to intricately designed cushions, the broad category of textiles is stealing the spotlight by becoming the ultimate functional source of adding interesting decor and fashion.”
With its cobblestone streets, historic architecture, and vibrant arts scene, Providence, RI offers a unique blend of old-world charm and contemporary allure. From strolling along the scenic Waterplace Park to indulging in the city’s renowned culinary delights, there’s something for everyone. Considered one of the most livable cities in the United States, the city provides a welcoming and diverse community for residents to call home. So whether you’re searching for the perfect apartment in Providence or eyeing a charming rental home in one of the city’s historic neighborhoods, you’ve come to the right place.
In this Apartment Guide article, we’ll cut to the chase, breaking down the pros and cons of moving to Providence. Let’s get started and see what awaits in this dynamic city.
Pros of living in Providence, RI
1. Rich cultural heritage
Providence has a rich cultural heritage that is evident in its diverse neighborhoods and thriving arts scene. From the historic architecture of Benefit Street to the eclectic galleries of the West Side, residents can immerse themselves in the city’s artistic and cultural offerings. The renowned Rhode Island School of Design (RISD) and the Providence Performing Arts Center further contribute to the city’s creative atmosphere, making it a haven for artists and art enthusiasts alike.
2. Culinary delights
Providence is a food lover’s paradise, with an outstanding culinary scene that offers a diverse range of dining experiences. From award-winning restaurants like Al Forno and Oberlin to the bustling food markets at Federal Hill, residents can indulge in a variety of cuisines and flavors. Annual food festivals, such as the Charlestown Seafood Festival just outside of Providence in Charlestown, RI further showcase its culinary prowess, making it a haven for foodies.
3. Access to higher education
Providence is home to several prestigious institutions, including Brown University and Johnson & Wales University, providing residents with access to top-tier education and research opportunities. The city’s intellectual atmosphere and proximity to renowned libraries and museums make it an ideal location for lifelong learners and academics.
4. Scenic waterfront
Providence’s picturesque waterfront offers residents a serene escape from the urban hustle and bustle. The Waterplace Park and Riverwalk provide stunning views of the city skyline and host events like the WaterFire art installation, creating a scenic environment for relaxation, entertainment, and recreation.
5. Strong sense of community
Providence prides itself on its strong sense of community, with numerous neighborhood associations and community initiatives that foster a spirit of togetherness and belonging. Residents can participate in local events, volunteer opportunities, and grassroots movements, creating a close-knit and supportive environment.
6. Proximity to nature
Despite being a bustling city, Providence offers easy access to nature, with nearby parks, nature reserves, and hiking trails. Residents can escape to places like Roger Williams Park or the Blackstone River Bikeway to enjoy outdoor activities and connect with the natural beauty of the region.
7. Cost of living
Providence offers a relatively affordable cost of living compared to other major cities in New England, making it an attractive option for those seeking to live on the East Coast. The average rent for a 2 bedroom apartment in Providence is $2,225, much less than rents in nearby Boston ($5,288) or New Haven ($3,200).
Cons of living in Providence, RI
1. Harsh winters
With an average of over 30 inches of snow a year, Providence experiences harsh winters with heavy snowfall and cold temperatures. The winter months can bring about travel disruptions and outdoor inconveniences, which can be challenging for residents who are not accustomed to such weather conditions.
2. Limited job market
Providence’s job market may be limited in certain industries, which can pose challenges for professionals seeking specific career opportunities. While the city offers diverse employment sectors, some residents may find it necessary to explore job prospects in neighboring cities or regions to fulfill their career aspirations.
3. Aging infrastructure
Providence’s aging infrastructure may present maintenance and upkeep challenges, leading to occasional inconveniences and disruptions for residents. The city’s historic buildings and infrastructure require ongoing attention and investment to ensure their longevity and functionality, which can impact the overall quality of life for residents.
4. Humid summers
Providence experiences humid summers, with high temperatures and humidity levels that can be uncomfortable for some residents. The summer months may require individuals to adapt to the heat and humidity, seeking ways to stay cool and comfortable during the warmer seasons.
Debt can be both beneficial and harmful. It can help you buy a home, pursue higher education, or start a business. However, excessive debt can lead to financial stress and mental health issues like depression and anxiety. This article will help you distinguish between good and bad debt to make informed financial decisions.
Key Takeaways
Good debt helps improve your financial future by investing in appreciating assets or enhancing your earning potential, such as through education, real estate, or starting a business.
Bad debt finances depreciating assets or unnecessary luxuries, such as cars, clothes, and other consumer goods, leading to financial strain due to high-interest rates and reduced value over time.
Some debts fall into a gray area and can be beneficial or detrimental depending on how they are managed, such as consolidating high-interest debt into a lower-interest loan or borrowing to invest with calculated risk.
Good Debt vs. Bad Debt
Good debt typically involves borrowing for investments that grow in value or generate income over time, like education or real estate. Bad debt usually involves borrowing for depreciating assets or unnecessary expenses, like luxury items or cars. However, accumulating too much debt, even if it starts as good debt, can become a problem if your monthly debt payments become unmanageable.
Isn’t all debt bad?
Not all debt is bad. Debt becomes problematic when it’s unnecessary or avoidable. The mindset of trying to ‘keep up with the Joneses’ or believing ‘only the best will do’ can lead to unwise borrowing.
However, some types of debt can provide significant benefits, such as financing a home or investing in education. These types of debt can offer a good return on investment and help you improve your financial situation. It’s crucial to understand the difference between beneficial and harmful debt.
What is good debt?
Good debt is debt that helps you make money or have a home to live in. It could be beneficial In a literal sense (a return on investment) or figuratively (enhancing your skills and earning potential). Either way, good debt allows you to invest in yourself and your future.
Here are a few examples of good debt.
Education
Investing in your education is a strategic move that can enhance your future success. By gaining knowledge and skills, you increase your chances of securing better jobs and advancing in your career.
Many people experience a return on their educational investment within a few years, though this varies by industry. Before committing to a college or secondary education, thoroughly research the field you wish to enter. Consider average salaries, potential for career advancement, and typical career ceilings.
The value of student loan debt hinges on the earning potential associated with the degree you pursue. Make informed decisions to ensure your educational investment pays off.
Starting a Business
It takes money to make money, and starting a business is a prime example of this principle. Most businesses require an initial investment, and often it’s substantial. You can use a loan to launch your business and facilitate its growth.
Starting a business involves risks, just like any other investment. Conduct thorough research on your industry to understand what strategies have succeeded or failed for others. Evaluate the risks and decide if taking out a loan is a wise choice for your situation.
Be cautious of high-interest loans, such as payday loans or unsecured personal loans, as they can lead to financial strain due to their high repayment costs. It’s important to know how much you’re borrowing. Loans come with an annual percentage rate (APR), which represents the interest rate as a percentage of the principal amount borrowed. This rate determines how much you will pay for the borrowed money over time.
Real Estate
A great example of good debt vs. bad debt is real estate because you’ll see a return on your investment directly. Borrowing money to invest in real estate earns you equity in the property. Equity is the difference between the property’s value and how much you owe in debt.
Typically, real estate appreciates, but there’s always the risk of losing value, such as what occurred during the 2008 housing crisis. As long as you pay down your mortgage as planned or even ahead of schedule, you’ll build equity faster.
Investing in real estate can be for personal use, such as a primary residence, or for investment purposes, such as commercial or rental properties.
Like any investment, do your research and make sure you’re making a good choice before taking on real estate debt. Investing in an area where the property values don’t appreciate or buying a rental home in an area that isn’t rented often can lead to bad real estate debt.
What is bad debt?
People tend to assume that all debt is bad, but bad debt specifically refers to debt used to finance depreciating assets. Unlike investments in appreciating assets, this type of debt involves spending on items that lose value over time.
Here are a few examples of bad debt:
Cars
You need a car to get from Point A to Point B. That’s a given. However, you don’t need a luxury car or a car you can’t afford to pay for without financing. It’s best to pay cash for a car if you can because it’s a depreciating asset.
When you borrow money to buy a car, you pay interest on the loan and lose money on the value of the car. Most cars lose 20% of their value during the first year after you drive them off the lot.
When you don’t have the money to buy a car outright or your money isn’t enough to buy a reliable car, look for the best financing terms. Many manufacturers offer low interest rates or 0% APR for borrowers with great credit.
If you anticipate buying a car soon, it’s time to work on your credit before taking out a car loan to get the best deal. Auto loans require you to factor in different things before taking them.
Clothes and Other Necessities
Buying clothes is a necessity, but borrowing money for them is not advisable. Clothes often have inflated prices and do not increase in value, meaning you pay more than their actual worth. Consider shopping at overstock sales or second-hand stores, where items are often much cheaper than in retail stores.
Borrowing money for everyday expenses like food, household goods, and other consumer items is also not a wise financial decision. Using a credit card for convenience is fine, but it’s important to pay off the balance in full each month. Failing to do so can lead to accumulating high-interest debt, making it difficult to escape the debt cycle.
Luxury
You should not borrow money to purchase luxury items. Why not? Just look at the name—luxury. You don’t ‘need’ these items, but you buy them anyway.
There’s nothing wrong with spoiling yourself occasionally, but not at the expense of your future. Rather than racking up credit card debt to buy luxurious items, determine what you want and save for it. Set a timeline and divide the amount you’ll need by the number of months until you potentially buy it. Save that amount of money each month, and you should reach your goal within your desired timeline.
Yes, this requires a great deal of patience. But, when you purchase luxury items with debt, you rack up interest charges and end up paying much more for them than they’re worth.
What debts fall in the gray area?
Some debts don’t fit neatly into ‘good’ or ‘bad’ categories and depend on the circumstances. Here are a couple of examples.
Borrowing to Pay Off Debt
Paying off high-interest credit card debt with a low-interest loan can be a good idea, but here’s when it becomes a bad debt. If you consolidate your debt into a 0% or low-interest rate loan but do not allocate the “extra” money saved towards your debt, you’ll end up in the same situation.
The key is to pay the same amount of money to the debt but with a lower set monthly payment and interest rate. More of your payment will go towards the loan’s principal, paying it down faster. This means you’ll pay less interest over the life of the loan and have more money in your pocket in the future.
If you continue to make the minimum payments using your “saved” money, then it’s a bad debt, as it won’t benefit you.
Borrowing to Invest
Investing on margin may be possible for experienced investors with the right credentials. While leveraging in this way can be profitable, it’s not guaranteed. If the investment fails, you’ll lose more than you borrowed, resulting in significant debt.
However, if your investment performs well and generates profit after repaying the margin, then borrowing to invest can be considered a successful financial strategy.
Final Thoughts
Recognize the difference between good and bad debt. Use debt wisely by investing in appreciating assets, making timely payments, and avoiding high-interest loans. Develop a financial plan to manage debt and achieve your goals.
Managing debt wisely is essential for financial success. Prioritize timely payments, avoid high-interest loans, and focus on investments that enhance your financial health. By understanding and differentiating between good and bad debt, you can make informed decisions and achieve your financial goals.
Frequently Asked Questions
How can I determine if my education loan is good debt?
Education loans can be considered good debt if they lead to a degree or certification that significantly enhances your earning potential. Before taking out a loan, research the average salaries in your chosen field and the employment rates for graduates. If the potential income increase outweighs the cost of the loan, it can be considered good debt.
Are there any strategies for managing bad debt?
Yes, there are several strategies to manage bad debt. These include creating a budget to track and limit spending, consolidating high-interest debts into a lower-interest loan, prioritizing paying off high-interest debt first, and avoiding accumulating additional debt by making smarter spending choices.
What are some warning signs that my debt is becoming unmanageable?
Warning signs that debt is becoming unmanageable include missing payments, using one credit card to pay off another, maxing out credit cards, being unable to save money, and experiencing stress or anxiety about finances. If you notice these signs, it might be time to seek financial advice or consider debt counseling.
Can consolidating debt improve my credit score?
Consolidating debt can improve your credit score if it helps you make timely payments and reduces your overall credit utilization ratio. However, it’s essential to avoid accumulating new debt and to use the consolidation loan responsibly by sticking to a repayment plan.
Is it ever a good idea to borrow money for luxury items?
Borrowing money for luxury items is generally not advisable as it leads to bad debt. Luxury items do not appreciate in value and often result in high-interest payments if financed through credit cards or loans. It’s better to save up for luxury purchases and pay in cash to avoid unnecessary debt and interest charges.
How can I ensure that borrowing to start a business is good debt?
To ensure that borrowing to start a business is good debt, conduct thorough market research, create a detailed business plan, and have a clear understanding of your industry. Assess the potential return on investment and ensure that you can make loan payments without compromising your financial stability. Consider seeking advice from financial advisors or mentors in your industry.
What steps can I take to avoid falling into bad debt?
To avoid falling into bad debt, create and stick to a budget, live within your means, save for purchases instead of using credit, and avoid high-interest loans. Additionally, focus on building an emergency fund to cover unexpected expenses and regularly review your financial situation to make adjustments as needed.
The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.
The average credit score of each state ranges from Mississippi’s score of 680 to Minnesota’s 742, and we’ve got details for every state below. Plus, discover helpful tips to improve your credit score no matter what state you live in.
The average credit score by state varies quite a bit — the difference between the highest and lowest average scores is more than 60 points. Minnesota has the highest average score at 742, with Wisconsin (737), Vermont (737), New Hampshire (736) and Washington (735) also in the top five.
The average score of each state ranges from 680 to 742, and we’ve got details for every state below. Knowing the average credit score in your state can help you evaluate your own score and gauge your credit standing relative to the other residents in your area.
Read on to see this data, as well as helpful tips for improving your own credit.
State-by-state average credit scores
The average credit score for each state varies, though most states are within 30 points of the national average score of 717.
Below is a list of the average American credit score by state as well as how the average changed between 2022 and 2023, according to data from Experian®.
Over the past year, credit scores remained the same or increased by just one point in most of the 50 states, although some states saw a decrease of a point. The average increase was one point, though some of the states saw a slightly larger increase. The biggest increases were in Kentucky, Maine, Oklahoma, South Carolina, New Mexico, Tennessee, and West Virginia, where the average scores increased by 3 points in one year.
States with the highest and lowest credit scores
The states with the highest average credit scores include:
Minnesota: 742
Wisconsin: 737
Vermont: 737
New Hampshire: 736
Washington: 735
On the other hand, these states had the lowest average credit scores:
Mississippi: 680
Louisiana: 690
Alabama: 692
Georgia: 695
Texas: 695
Average credit scores by state vary due to economic conditions and the financial habits of each state’s residents. Notably, the variation in credit scores doesn’t necessarily correspond with the amount of credit card debt. For example, the states with the highest and lowest average credit scores—Minnesota and Mississippi, respectively—are within $500 of each other when it comes to average credit card debt data (Minnesota’s average is around $5,900, Mississippi’s average is around $5,400).
Regardless of current placement, the vast majority of states saw a slight increase in average credit score over the past year. Individuals can make an impact on their own credit by learning a bit more about how scores are calculated and taking small steps to manage their credit more favorably.
How to improve your credit regardless of your state’s average
No matter what the average credit score in your state is, your own score comes down to your individual choices with credit. Understanding the factors that affect your score—payment history, credit utilization, length of credit history, different types of credit, and new credit—can help you make savvy decisions that may improve your credit.
Experian, one of the three credit bureaus, reported that Americans increased their credit card debt by 10 percent from 2022 to 2023. In turn, this raised overall credit utilization by 2 percent—this means that Americans are using slightly more of the credit available to them, which can potentially lead to lower credit scores.
According to FICO®, a credit score between 670 and 739 is a good credit score, a score between 740 and 799 is very good and a score above 800 is exceptional. If you’re looking to improve your own credit, consider starting with these tips:
Lower your credit utilization. Consistently using less than 30 percent of your total available credit can significantly improve your credit health.
Make on-time payments. Late payments and delinquent accounts can negatively affect your credit, but paying on time will improve your payment history, which is one of the most important credit factors.
Avoid carrying a balance. As we explained, carrying a balance can hurt your credit utilization, but it can also cause your debt to swell over time due to costly interest payments. While difficult financial circumstances can sometimes make this impossible, try to make all payments on time and in full to avoid late payments or being sent to collections.
In addition to regularly monitoring your credit score, you’ll want to consistently review copies of your credit report, which lists your credit history, including both open and closed accounts. Scanning your report can help prevent inaccurate negative items from unfairly hurting your credit.
Consider working with a credit repair consultant to look for errors on your credit report and identify other ways you can help your credit. Get started with your free credit assessment now.
Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.
The Federal Housing Administration on Monday markedly increased what lenders can charge when a new borrower assumes a loan.
The FHA has doubled the maximum fee amount to $1,800 from $900 to address the cost of processing assumptions. Mortgage companies have identified the previous limit to the fee as a challenge.
The FHA, an arm of the Department of Housing and Urban Development that insures loans hasn’t updated the “reasonable and customary” fee limits for assumptions since 2016, according to an information bulletin flagging single-family housing updates.
While typically the market has tried to avoid increasing costs, assumptions involving the transfer of a seller’s mortgage to a buyer have been a boon to affordability in the current market given they can give a current borrower access to older, lower interest rates.
“This change is crucial to allowing lenders to recoup their costs of a loan assumption, which can facilitate significant mortgage savings for homebuyers,” said Scott Olson, executive director of the Community Home Lenders of America, in a press release.
In addition to increasing the allowable maximum fee for assumptions, the FHA also added a separate requirement related to borrower language preferences for mortgage companies transferring servicing rights.
The FHA began requiring mortgage companies to start using the same language preference form government-sponsored enterprises Fannie Mae and Freddie Mac do last year. Language preference is disclosed on what’s known as the Supplemental Consumer Information Form.
The most common languages spoken at home other than English are Spanish, Chinese and Tagalog, according to the recent American Community Survey five-year estimates, which cover the period between 2018 and 2022.