Most Americans still view homeownership as a key to building wealth, but for many, that piece of the American dream is on hold or out of reach thanks to the heavy burden of student debt.
In fact, according to a recent study, millennials currently struggle with so much debt that 25% worry they won’t qualify for a mortgage. Nearly 1 in 5 millennials (19%) think their credit card debt will be a stumbling block when applying for a mortgage, while 1 in 7 (14%) think the same about their student loans.
If you’re considering buying a home but worry that student debt will prevent you from securing a mortgage, you’ll need to be strategic about your approach to increase the probability of your application getting approved.
How student loans impact your ability to buy a home
Adding a mortgage on top of monthly student loan payments can create a significant financial strain. The more debt you carry, the fewer resources you have to allocate toward a down payment or for monthly mortgage payments, making some lenders less likely to approve your application. Student loan debt may affect your home-buying goals in a few key ways.
Debt-to-income ratio (DTI)
Lenders calculate your DTI ratio by dividing your total monthly debt payments (including student loans) by your gross monthly income to assess your ability to handle additional debt, like a mortgage. Having a high debt-to-income ratio can limit the loan amount you qualify for, or even disqualify you from certain mortgages. DTI standards vary among lenders, but most look for a DTI below 35%, while others accept up to 45%, and still others, like an FHA-backed loan, will allow 50%.
Credit score
Your credit score reflects your approach to handling credit and gives lenders insight into how likely you are to make timely payments. A higher credit score is generally associated with high reliability, improving your chances of a mortgage approval. A lower credit score due to late payments or defaults may pose more challenges to getting approved.
Ability to save for a down payment
Having a larger down payment will reduce the amount you need to borrow and can strengthen your mortgage application. Student loans, however, can make it harder to reach that down payment goal. Showing lenders you have a stable income large enough to handle both mortgage and student loan payments is a plus.
Strategies for securing a mortgage with student loan debt
Student loan debt is just one factor lenders use to determine if you qualify for a loan. To improve your chances of getting approved, consider the following strategies.
Pay down your debt
Work to reduce your overall debt and improve your debt-to-income ratio by paying down high-interest debts first (like credit cards), and explore options for refinancing or consolidating student loans and other debt to make monthly payments more manageable. In addition, you might also explore strategies like using a “debt avalanche” to pay off high-interest loans quickly.
Improve your credit score
Boost your overall credit score to improve your chances of getting more favorable mortgage terms. It’s important to make consistent, on-time payments on all your debts, including student loans and credit cards, as even one late payment may be reflected in your credit report.
Review your credit report at least annually to check for discrepancies and address any errors promptly. If you’re struggling to bring your credit score up, consider credit counseling as an option for in-depth advice.
Switch to an income-driven repayment plan
You might qualify for one of the federal government’s four income-driven repayment plans (IDRs) based on your current circumstances. IDRs are intended to make student loan debt more manageable by calculating a monthly payment based on your current income and family size, rather than the amount of your debt.
While an IDR can significantly reduce your monthly student loan payment, thereby freeing up more money for a mortgage payment, there are some potential downsides, including the fact that you’ll pay more interest on your student loan over the long haul. Weigh your options carefully, and seek professional advice if necessary before applying for an IDR.
Shop around
Do your homework and compare the competition. Choose a reputable lender who has experience working with clients who carry student loan debt, as they’ll be able to help structure the best financing options to suit your specific needs. Consider getting pre-approved if possible, as this not only gives you a realistic idea of how much you’ll be able to borrow, but it also signals to home sellers that you’re serious rather than casually looking.
Add a co-signer
If you have a responsible family member, or trusted friend, on solid financial footing with little debt and a high credit score willing to co-sign your mortgage application, you could improve your chances of getting approved. For this kind of agreement to work, it’s advisable to work with an attorney so terms and conditions are clear within a written contract that includes repayment schedules and title agreements.
Consider home loan programs
There are a number of home loan programs you may qualify for, even if you carry student loan debt.
Fannie Mae and Freddie Mac both have a number of loans that cater to lower-income borrowers or first-time home buyers and may accommodate low down payments and cancellable mortgage insurance, among other features.
Other government-backed loan programs include FHA loans which typically require only a 3.5% down payment, as well as VA loans for active-duty service members, surviving spouses, and veterans, which do not require a down payment or mortgage insurance. USDA loans may be available if you live in a designated rural area.
Work with a lender who is knowledgeable about your particular situation and can recommend a loan program to meet your needs.
Buying a home with student debt can be challenging, but it’s not impossible. Work closely with both a real estate professional and a reputable lender to create a strategy that will meet you where you are, and open the door to your new home sooner.
This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.
To contact the editor responsible for this piece: [email protected]
If you’re not a farmer, you might not think you need to care about the Farm Bill. But if you purchase or consume any food you haven’t grown yourself, you probably should.
The Farm Bill — the Agriculture Improvement Act — refers to a wide-ranging package of bills that must be addressed by Congress every five years. It covers mandatory and discretionary funding for a variety of agricultural and food programs, which are split into 12 sections, also known as titles. These titles are:
Commodity: Support for commodity crops like corn, dairy, peanuts, rice, soybeans and sugar. It also includes disaster assistance.
Conservation: Programs to support land and natural resources conservation including including land retirement programs, easement programs, working land programs, etc.
Trade: Includes U.S. agricultural export programs and international food assistance.
Nutrition programs: SNAP and other nutrition assistance programs for low-income families such as school lunch programs.
Credit: Direct government loans and guarantees for farmers.
Rural development: Provides grants, loans and guarantees to support multiple areas of rural economic growth such as business, housing and community facilities.
Research, extension and related matters: Supports agricultural-related education and research.
Forestry: Supports conservation programs through the USDA’s Forest Service.
Energy: Provides grants and loan guarantees for developing renewable energy systems.
Horticulture: Supports production of specialty crops, USDA-certified organic foods, hemp, farmers markets and local food programs.
Crop insurance: Authorizes the Federal Crop Insurance Program, which offers subsidized insurance policies to protect farmers against losses.
Miscellaneous: Advocacy and outreach programs; programs for beginning farmers as well as socially disadvantaged farms; and animal health programs.
The title that receives the biggest portion of Farm Bill funding is nutrition — about 76% in the 2018 bill. Nutrition includes the Supplemental Nutrition Assistance Program (SNAP) — food benefits for low-income families once known as food stamps. As of January, 41 million Americans received SNAP benefits, according to the U.S. Department of Agriculture (USDA).
What’s next for the 2024 Farm Bill?
The most recent Farm Bill was passed by Congress in 2018 and expired on Sept. 30, 2023. In November it was extended until Sept. 30 of this year.
Even after buying itself an extra year, Congress has been slow to compile the 2024 Farm Bill, but lately made some progress. On May 1, House Republicans and Senate Democrats released broad outlines of their respective proposals and are now working through finalization.
(Photo by Scott Olson/Getty Images News via Getty Images)
Enjoy complimentary access to top ideas and insights — selected by our editors.
Coming out of the Mortgage Bankers Association Secondary Conference, the big topic of conversation was the price being paid for mortgage servicing rights. As it becomes clear that the Fed is going to take longer to drop the target for fed funds, lenders face decisions about expenses and markets. And a drop in the short end of the yield curve may not mean lower 10-year Treasury yields.
Goldman Sachs’ CEO Officer David Solomon expects the Federal Reserve to not cut interest rates this year because the country’s economy has proved to be more resilient. But JPMorgan CEO Jamie Dimon has repeated his warning from last year that the consumer is running low on cash and will roll over next year. We’ll see. Default rates on prime 1-4s are still near zero, but FHA is at 10%.
In an earlier comment in The IRA blog, we recounted how several industry leaders are buying up mortgage servicing rights at a brisk clip, with bids at least half a multiple above the market. The reason for this intense interest in MSRs is a desire to build income generating assets for a tepid loan market ahead. Winter has come. Think of MSRs as acorns with leverage.
The excellent analysis published by Ginnie Mae in the Global Markets Analysis Report shows that the average coupon for government MBS is about 3.6%. The average loan coupon in a pool is a point above the debenture rate. Natural portfolio runoff will take many more years to rebalance the equation for lenders by getting the average MBS coupon closer to a five handle than a three APR. The on-the-run MBS coupon today for loans sold into the TBA market is a 6% contract.
Because the industry did extraordinary amounts of business in 2020 and 2021, today the market is light a trillion dollars or so in theoretical mortgage production. But we cannot spend theoretical money to meet real expenses. Firms which habitually sell their MSRs to offset operating losses are likely to face a tough road ahead. No acorns for the long cold winter in Michigan.
It will be no surprise to readers that there are a couple of initiatives being pursued in Washington to boost loan production, but not all of them necessarily make sense for consumers. Freddie Mac has proposed the purchase of single-family closed-end second mortgages. It will only purchase a second mortgage “if it currently owns the first mortgage in order to assist with servicing and risk oversight,” says the smallest GSE.
My firm submitted comments on the proposal, which is opposed by the MBA and a surprising number of other industry trade groups and think tanks. The Structured Finance Association (SFA) and American Bankers Association both opposed the proposal, noting that non-agency outlets are already providing enough liquidity for seconds. The ABA also questioned Freddie Mac’s motivations for a proposal to acquire seconds.
Our contacts in the non-QM market like the private product, but complain about the small number of customers. We worry that using a government guarantee to lure consumers who cannot do business with a bank is bad policy. To make sense under the GSE risk pricing methodologies, a closed-end second has to have a coupon near 10% or more. The private market today is low to mid-teens.
A mortgage REIT CEO told NMN: “Re-levering the taxpayer to utilize excess capital instead of doing something mission-focused with the money is bad boy behavior. We’ll look back in five years and wonder again how we got here. That said, the fix seems to be in at FHFA and this is going to happen, so we are positioning accordingly.”
Meanwhile over at the FHA, a proposal from the Housing Policy Council would allow closing costs to be rolled into the principal of refinanced loans. Erica Adelberg of Bloomberg Intelligence says proposals for the FHA to modify its streamlined refinancing program to make it more similar to that for VA loans might increase prepayment risks for Ginnie Mae MBS, impacting investors.
While there may be higher levels of prepayments, the most recent data from Ginnie Mae shows that yield spreads on MBS have widened considerably since the Fed increased interest rates, more than compensating investors for the change.
Several government lenders tell NMN that allowing the borrower to finance the closing costs helps borrowers get into a better financial position, is cheaper and helps them stay in the FHA program.
“Keeping borrowers in the FHA means they will continue to contribute to the MIP program vs. shift to a GSE conforming loan,” argues the industry lender. “Low income borrowers in underserved communities are better off in the FHA program. The catch is Ginnie Mae would need to waive any prepay violation.”
A number of readers of NMN are probably thinking right now about the fact that the FHA and Ginnie Mae have recently been vocal about rising prepayment rates. It was only in April that Ginnie Mae admonished issuers to be aware of rising prepayment rates. But now the FHA seems to be leaning in the direction of adopting changes that will increase prepayments.
“Completing a rate and term refinance can be beneficial to both homeowners and FHA alike,” HPC head Ed Demarco wrote in a May 21, 2024 letter. “The typical rate and term refinance reduces the borrower’s monthly mortgage obligation, and the borrower can use the savings to increase consumption or pay off other debts.”
According to the Urban Institute, the Federal Housing Administration should adopt a streamlined refinancing program because it can reduce defaults and foreclosures, and make loans safer for investors and guarantors.
We like the idea of helping low-income borrowers access the cash that they need within the existing first-lien mortgage product. The FHA market is not risk priced, thus low-income and first-time home buyers almost always find better rates in the government market. Astute lenders can make a decent profit, avoid the putback risk found in the conventional market and retain the MSR.
As we note in our comment letter on the Freddie Mac proposal, a loan officer acting in the best interest of a low-income consumer might recommend a 15-year floating rate refinance loan vs. a second lien so as to eliminate the mortgage debt faster. A second lien mortgage with a double digit coupon and a higher probability of default does not strike us as a very good deal for the consumer or the taxpayer. Doing a cash-out refinance for a consumer into a new, 15-year FHA loan makes a lot of sense to us.
Inside: Learn how much your 55k salary is hourly. Plus find tips to make more money and live the lifestyle you want.
You want to know to look into this… Is 55k salary a solid hourly wage in today’s society?
When you get your first job and you are making just above minimum wage making over $55,000 a year seems like it would provide amazing opportunities for you. Right?
The median household income was $70,084 in 2021 not much different from the previous year (source). Think of it as a bell curve with $70 at the top; the median means half of the population makes less than that and half makes more money.
The average income in the U.S. is $55,350 for a 40-hour workweek; that is an increase of 1.1% from the previous year (source). That means if you take everyone’s income and divide the money out evenly between all of the people.
But, the question remains… Can you truly live off 55,000 per year in today’s society since it is barely above the average income and yet still below household incomes? The question you want to ask all of your friends is $55000 per year a good salary.
In this post, we are going to dive into everything that you need to know about a $55000 salary including hourly pay and a sample budget on how to spend and save your money.
These key facts will help you with money management and learn how much per hour $55k is as well as what you make per month, weekly, and biweekly.
Just like with any paycheck, it seems like money quickly goes out of your account to cover all of your bills and expenses, and you are left with a very small amount remaining. You may be disappointed that you were not able to reach your financial goals and you are left wondering…
Can I make a living on this salary?
$55000 a year is How Much an Hour?
When jumping from an hourly job to a salary for the first time, it is helpful to know how much is 55k a year hourly. That way you can decide whether or not the job is worthwhile for you.
55000 salary / 2080 hours = $26.44 per hour
$55000 a year is $26.44 per hour
Let’s breakdown how that 55000 salary to hourly number is calculated.
For our calculations to figure out how much is 55K salary hourly, we used the average five working days of 40 hours a week.
Typically, the average workweek is 40 hours and you can work 52 weeks a year. Take 40 hours times 52 weeks and that equals 2,080 working hours. Then, divide the yearly salary of $55000 by 2,080 working hours and the result is $26.44 per hour.
Right above $26 an hour.
That number is the gross hourly income before taxes, insurance, 401K, or anything else is taken out. Net income is how much you deposit into your bank account.
You must check with your employer on how they plan to pay you. For those on salary, typically companies pay on a monthly, semi-monthly, biweekly, or weekly basis.
What If I Increased My Salary?
Just an interesting note… if you were to increase your annual salary by $7,500, it would increase your hourly wage to over $30 an hour – a difference of $3.61 per hour.
To break it down – 62500 a year is how much an hour = $30.05
That difference will help you fund your savings account; just remember every dollar adds up.
How Much is $55K salary Per Month?
On average, the monthly amount would be $4,583.
Annual Salary of $55,000 ÷ 12 months = $4,583.33 per month
This is how much you make a month if you get paid 55000 a year.
$55k a year is how much a week?
This is a great number to know! How much do I make each week? When I roll out of bed and do my job of $55k salary a year, how much can I expect to make at the end of the week for my effort?
Once again, the assumption is 40 hours worked.
Annual Salary of$55000/52 weeks = $1,057.69 per week.
$55000 a year is how much biweekly?
For this calculation, take the average weekly pay of $1057.69 and double it.
This depends on how many hours you work in a day. For this example, we are going to use an eight-hour workday.
8 hours x 52 weeks = 260 working days
Annual Salary of$55000 / 260 working days = $211.54 per day
If you work a 10 hour day on 208 days throughout the year, you make $264 per day.
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$55000 Salary is…
$55000 Salary – Full Time
Total Income
Yearly Salary (52 weeks)
$55,000
Monthly Salary
$4,583
Weekly Wage (40 Hours)
$1,058
Bi-Weekly Wage (80 Hours)
$2,115
Daily Wage (8 Hours)
$211
Daily Wage (10 Hours)
$264
Hourly Wage
$26.44
Net Estimated Monthly Income
$3,499
Net Estimated Hourly Income
$20.19
**These are assumptions based on simple scenarios.
Do you know how many work days in a year you work? This answer may surprise you.
55k a year is how much an hour after taxes
Income taxes is one of the biggest culprits of reducing your take-home pay as well as FICA and Social Security. This is a true fact across the board with a salary range of up to $160,200.
When you make below the average household income, the amount of taxes taken out hurts your hourly wage.
Every single tax situation is different.
On the basic level, let’s assume a 12% federal tax rate and 4% state rate. Plus a percentage is taken out for Social Security and Medicare (FICA) of 7.65%.
So, how much an hour is 55000 a year after taxes?
Gross Annual Salary: $55,000
Federal Taxes of 12%: $6,600
State Taxes of 4%: $2,200
Social Security and Medicare of 7.65%: $4,207.50
$55k Per Year After Taxes is $41,992.50.
This would be your net annual salary after taxes.
Hourly Wage After Taxes
To turn that back into an hourly wage, the assumption is working 2,080 hours.
$41,992.50 ÷ 2,080 hours = $20.19 per hour
After estimated taxes and FICA, you are netting $41,992.50 per year, which is $13,007.50 per year less than what you expected.
***This is a very high-level example and can vary greatly depending on your personal situation and potential deductions. Therefore, here is a great tool to help you figure out how much your net paycheck would be.***
Taxes Based on Your State
In addition, if you live in a heavily taxed state like California or New York, then you have to pay way more money than somebody who lives in a no-tax state like Texas or Florida. This is the debate of HCOL vs LCOL.
Thus, your yearly gross $55000 income can range from $37,592 to $44,192 depending on your state income taxes.
That is why it is important to realize the impact income taxes can have on your take home pay. It is one of those things that you should acknowledge and obviously, you need to pay taxes. But, it can also put a huge dent in your ability to live the lifestyle you want on a $55,000 income.
My 55000 Salary To Hourly Calculator
More than likely, your salary is not a flat 55k, here is a tool to convert your salary to hourly calculator.
Many teachers are hovering in this range, which may make you wonder do teachers get paid in the summer.
If you are looking to change industries, you need to check out the freight broker salary.
55k salary lifestyle
Every person reading this post has a different upbringing and a different belief system about money. Therefore, what would be a lavish lifestyle to one person, maybe a frugal lifestyle to another person? And there’s no wrong or right, it is what works best for you.
One of the biggest factors to consider is your cost of living.
In another post, we detailed the differences between living in an HCOL vs LCOL vs MCOL area. When you live in big cities, trying to maintain your lifestyle of $55,000 a year is going to be much more difficult because your basic expenses, housing, transportation, food, and clothing are going to be much more expensive than you would find in a lower cost area.
To stretch your dollar further in the high cost of living area, you would have to probably live a very frugal lifestyle and prioritize where you want to spend money and where you do not. Whereas, if you live in a low cost of living area, you can live a much more lavish lifestyle because the cost of living is less. Thus, you have more fun spending left in your account each month.
As we noted earlier in the post, $55,000 a year is slightly above the average income that you would find in the United States. Thus, you still have to be wise with how you spend your money.
What a $55,000 lifestyle will buy you:
If you are debt free and utilize smart money management skills, then you are able to enjoy the lifestyle you want.
You are able to rent in a decent neighborhood in LCOL and even a MCOL city.
Looking for ways to invest 100 to make 1000 a day.
Focus on becoming financially sound.
You should be able to meet your expenses each and every month.
Ability to make sure that saving money is a priority, and very possibly save $5000 in one year.
When A $55,000 Salary Will Hold you Back:
However, if you are riddled with debt or unable to break the paycheck to paycheck cycle, then living off of 55k a year is going to be pretty darn difficult.
There are two factors that will keep holding you back:
You must pay off debt and cut all fun spending and extra expenses.
Break the paycheck to paycheck cycle.
It is possible to get ahead with money!
It just comes with proper money management skills and a desire to have less stress around money. That is a winning combination regardless of your income level.
$55K a year Budget – Example
As always, here at Money Bliss, we focus on covering our basic expenses plus saving and giving first, and then our goal is to eliminate debt. The rest of the money is left for fun spending.
If you want to know how to manage a 55k salary the best, then this is a prime example for you to compare your spending.
You can compare your budget to the ideal household budget percentages.
recommended budget percentages based on $55000 a year salary:
Category
Ideal Percentages
Sample Monthly Budget
Giving
10%
$275
Savings
15-25%
$825
Housing
20-30%
$1,100
Utilities
4-7%
$183
Groceries
5-12%
$346
Clothing
1-4%
$34
Transportation
4-10%
$229
Medical
5-12%
$252
Life Insurance
1%
$14
Education
1-4%
$34
Personal
2-7%
$69
Recreation / Entertainment
3-8%
$138
Debts
0% – Goal
$0
Government Tax (including Income Taxes, Social Security & Medicare)
15-25%
$1,084
Total Gross Monthly Income
$4,583
**In this budget, prioritization was given to basic expenses and no debt.
Is $55,000 a year a Good Salary?
As we stated earlier if you are able to make $55,000 a year, that is a decent salary. You are making more money than the minimum wage and almost double in many cities.
While 55000 is a good salary starting out in your working years. It is a salary that you want to increase before your expenses go up or the people you provide for increase.
However, too many times people get stuck in the lifestyle trap of trying to keep up with the Joneses, and their lifestyle desires get out of hand compared to their salary. And what they thought used to be a great salary actually is not making ends meet at this time.
This $55k salary would be considered a lower middle class salary. This salary is something that you can live on if you are wise with money.
Check: Are you in the middle class?
In fact, this income level in the United States has enough buying power to put you in the top 95 percentile globally for per person income (source).
The question you need to ask yourself with your 55k salary is:
Am I maxed at the top of my career?
Is there more income potential?
What obstacles do I face if I want to try to increase my income?
In the future years and with possible inflation, in many modest cities, 55,000 a year will not be a good salary because the cost of living is so high, whereas these are some of the cities where you can make a comfortable living at 55,000 per year.
If you are looking for a career change, you want to find jobs paying at least $75000 a year.
Is 55k a good salary for a Single Person?
Simply put, yes.
You can stretch your salary much further because you are only worried about your own expenses. A single person will spend much less than if you need to provide for someone else.
Your living expenses and ideal budget are much less. Thus, you can live extremely comfortably on $55000 per year.
And… most of us probably regret that we didn’t learn how to spend money wisely. Oh well, lesson learned.
Is 55k a good salary for a family?
Many of the same principles apply above on whether $55000 is a good salary. The main difference with a family, you have more people to provide for than when you are single or have just one other person in your household.
The costs of raising children are high and will steeply cut into your income. As you can tell this is a huge dent in your income, specifically $12,980 annually per child. Plus this does not include college.
That means that amount of money is coming out of the income that you earned.
So, the question really remains can you provide a good life for your family making $55,000 a year? This is the hardest part because each family has different choices, priorities, and values.
More or less, it comes down to two things:
The location where you live in.
Your lifestyle choices.
You can live comfortably as a family on this salary, but you will not be able to afford everything.
Many times when raising a family, it is helpful to have a dual-income household. That way you are able to provide the necessary expenses if both parties were making 55,000 per year, then the combined income for the household would be $110,000. Thus making your combined salary a very good income.
Learn how much money a family of 4 needs in each state.
Can you Live on $55000 Per Year?
As we outlined earlier in the post, $55,000 a year:
$26.44 Per Hour
$211-264 Per Day (depending on length of day worked)
$1,057 Per Week
$2,115 Per Biweekly
$4,583 Per Month
Next up is making $60000 a year.
Like anything else in life, you get to decide how to spend, save and give your money.
That is the difference for each person on whether or not you can live a middle-class lifestyle depends on many potential factors. If you live in California or New Jersey you are gonna have a tougher time than Oklahoma or even Texas.
In addition, if you are early in your career, starting out around 45,000 a year, that is a great place to be getting your career. However, if you have been in your career for over 15 years and still making under $55K, then you probably need to look at asking for pay increases, picking up a second job, or finding a different career path.
Regardless of the wage that you make, if you are not able to live the lifestyle that you want, then you have to find ways to make it work for you. Everybody has choices to make.
But one of the things that can help you the most is to stick to our ideal household budget percentages to make sure you stay on track.
Learn exactly how much do I make per year…
One of the best ways to improve your personal finance situation is to increase your income. Here are a variety of side hustles that are very lucrative. With time and effort, you can start enjoying the lifestyle you want.
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This is the perfect side hustle if you don’t have much time, experience, or money.
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After taking a second job as a driver for Amazon to make ends meet, this former teacher pivoted to be a successful stock trader.
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Did the post resonate with you?
More importantly, did I answer the questions you have about this topic? Let me know in the comments if I can help in some other way!
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Mortgage rates fell across all terms from a week ago, according to rate data compiled by Bankrate. Rates for 30-year fixed, 15-year fixed, 5/1 ARMs and jumbo loans all receded.
The multiple rate cut predictions from the start of the year may be no more, as many experts expect rates to stay higher for longer. The movement of fixed mortgage rates parallels the 10-year Treasury yield, which moves as investor appetite fluctuates with the state of the economy, inflation and Federal Reserve decisions. At the close of the latest Fed meeting on May 1, policymakers held firm and opted not to cut rates. The recent April Consumer Price Index (CPI) data shows inflation slowing, but still not to the 2 percent rate the Fed wants.
“The market was enamored with a slightly lower CPI. We are in a ‘buy on any positive news no matter how modest’ state,” says Dick Lepre of RealFinity.
Often, the decision to buy a home isn’t based on market shifts. It comes down to what you need. Depending on your situation, it might make sense to take a higher rate now and refinance later. This way you can start building equity, rather than hoping for a future of more favorable rates and home prices that might not materialize.
Rates last updated May 22, 2024.
These rates are averages based on the assumptions shown here. Actual rates displayed within the site may vary. This story has been reviewed by Suzanne De Vita. All rate data accurate as of Wednesday, May 22nd, 2024 at 7:30 a.m. ET.
30-year fixed-rate mortgage retreats, -0.15%
The average rate you’ll pay for a 30-year fixed mortgage today is 7.02 percent, down 15 basis points since the same time last week. A month ago, the average rate on a 30-year fixed mortgage was higher, at 7.30 percent.
At the current average rate, you’ll pay principal and interest of $666.65 for every $100,000 you borrow. That’s $10.11 lower, compared with last week.
Learn more about 30-year mortgage rates, and compare to a variety of other loan types.
15-year fixed mortgage rate trends down, -0.19%
The average rate for a 15-year fixed mortgage is 6.48 percent, down 19 basis points from a week ago.
Monthly payments on a 15-year fixed mortgage at that rate will cost $870 per $100,000 borrowed. The bigger payment may be a little harder to find room for in your monthly budget than a 30-year mortgage payment, but it comes with some big advantages: You’ll come out several thousand dollars ahead over the life of the loan in total interest paid and build equity much more quickly.
5/1 ARM trends down, -0.05%
The average rate on a 5/1 ARM is 6.80 percent, ticking down 5 basis points over the last week.
Adjustable-rate mortgages, or ARMs, are home loans that come with a floating interest rate. In other words, the interest rate will change at regular intervals, unlike fixed-rate mortgages. These types of loans are best for those who expect to sell or refinance before the first or second adjustment. Rates could be considerably higher when the loan first adjusts, and thereafter.
While borrowers shunned ARMs during the pandemic days of super-low rates, this type of loan has made a comeback as mortgage rates have risen.
Monthly payments on a 5/1 ARM at 6.80 percent would cost about $652 for each $100,000 borrowed over the initial five years, but could increase by hundreds of dollars afterward, depending on the loan’s terms.
Jumbo mortgage rate declines, -0.07%
The average rate for a jumbo mortgage is 7.15 percent, a decrease of 7 basis points over the last seven days. A month ago, the average rate was higher at 7.35 percent.
At today’s average rate, you’ll pay principal and interest of $675.41 for every $100,000 you borrow. That’s lower by $4.73 than it would have been last week.
Mortgage refinance rates
30-year mortgage refinance moves lower, -0.18%
The average 30-year fixed-refinance rate is 7.04 percent, down 18 basis points since the same time last week. A month ago, the average rate on a 30-year fixed refinance was higher at 7.32 percent.
At the current average rate, you’ll pay $667.99 per month in principal and interest for every $100,000 you borrow. That’s lower by $12.15 than it would have been last week.
Where are mortgage rates going?
The rates on 30-year mortgages mostly mirror the 10-year Treasury yield, which changes with the market, while the cost of variable-rate home loans more directly mirrors the Fed’s moves.
If and when the Fed cuts interest rates depends on economic reports of new data, such as the inflation rate and the jobs market. April’s CPI data — which measures inflation — showed inflation at 3.4 percent. While inflation has fallen since its peak in 2022, it’s still above the Fed’s target rate of 2 percent.
“The April CPI report revealed that the rate of inflation has cooled for the first time in 6 months,” says Melissa Cohn of William Raveis Mortgage. “While this one report is not enough evidence of cooling inflation to get the Fed to implement a rate cut, it is the first step.”
Broader economic factors, such as inflation and employment, affect the Fed’s decisions on rate changes, but your rate is also affected by your personal finances. Depending on your credit score, down payment, debts and income, you could be quoted a rate that’s higher or lower than the trend.
What today’s rates mean for you and your mortgage
Mortgage rates change daily, but it appears that, for now, they will remain above the historical lows of recent years. If you’re shopping for a mortgage, it might be wise to lock your rate when you find an affordable loan. If your house-hunt is taking longer than anticipated, revisit your budget so you’ll know exactly how much house you can afford at prevailing market rates.
You could save serious money on interest by getting at least three loan offers, according to Freddie Mac research. You don’t have to stick with your bank or credit union, either. There are many types of mortgage lenders, including online-only and local, smaller shops.
“All too often, some [homebuyers] take the path of least resistance when seeking a mortgage, in part because the process of buying a home can be stressful, complicated and time-consuming,” says Mark Hamrick, senior economic analyst for Bankrate. “But when we’re talking about the potential of saving a lot of money, seeking the best deal on a mortgage has an excellent return on investment. Why leave that money on the table when all it takes is a bit more effort to shop around for the best rate, or lowest cost, on a mortgage?”
More on current mortgage rates
Methodology
Bankrate displays two sets of rate averages that are produced from two surveys we conduct: one daily (“overnight averages”) and the other weekly (“Bankrate Monitor averages”).
The rates on this page represent our overnight averages. For these averages, APRs and rates are based on no existing relationship or automatic payments.
Learn more about Bankrate’s rate averages, editorial guidelines and how we make money.
It’s officially off to the races for the best Memorial Day furniture sales of 2024. The holiday falls on May 27 this year, but many of the best early Memorial Day sales are already well underway and will last through the beginning of June. Lucky you.
So whether you’re looking for a large investment piece like a stylish new sectional, some new bedroom furniture, or some fun decor upgrades like a touch of rattan, a handsome lamp, or some lovely bedding—we’ve rounded up everything you need to liven your space. We’ve searched high and low to bring you the best trending Memorial Day furniture sales to shop this weekend—featuring some of AD’s favorite retailers like Burrow, Wayfair, and more.
We love Article for its minimalist, light, and airy Scandi-inspired nightstands, dining chairs, bed frames, sofas, and more—which is why it’s exciting to see the furniture retailer is hosting a Memorial Day sale where you can score hundreds off on new furniture for the summer.
Nova 90.5″ Sofa
Wayfair is great for those “I need a piece of furniture, quick!” moments. It’s also great for holiday sales. Right now, the major retailer’s offering up to 70% off during their 72 hour clear. That means you’ve got super limited time to take advantage of these major markdowns on investment pieces like a bed frame, loveseat, lounge chair, dresser, dining table, console table, and more.
Walsh Velvet Bar & Counter Stool (Set of 2)
If you’re looking to deck out your dining room, home office, living room, or any other space in your house with new pieces, you’ll definitely want to check out Castlery’s early access Memorial Day sale. Senior commerce editor Rachel Fletcher especially loved reclining on the Jonathan chaise sectional sofa, and you can get a Jonathan leather sofa that comes with an ottoman at a little over $200 off.
Castlery Jonathan Leather Extended Sofa with Ottoman
There are a few pieces of furniture you shouldn’t skimp on and one is definitely an office chair. You likely spend a lot of time in this chair, especially if you work from home, so it’s important to invest in a quality option. We’ve tested a few office chairs and one of our favorites is the Branch Ergonomic chair. Writer Terri Williams found the seat’s synchronous tilt and adjustable lumbar support made her sigh “ahhh” every time she sat down. You score this piece of luxury for 10% off using code MEMORIALDAY.
Branch Ergonomic Chair
This is certainly one of the best Memorial Day furniture deals out there—right now, you can score a whopping 60% off sitewide with retailer Burrow. That means markdowns on sleek sofas, outdoor furniture, accent chairs, armchairs, side tables, bed frames, dressers, and so much more from a brand that’s a favorite among Clever staff. This is definitely one of the biggest sales on this list.
Relay Outdoor 5-Piece Sectional
There is no better way to get summer started than by decorating your home to look like a dreamy Cape Cod cottage. Serena & Lily can help you a bit in that department with their Memorial Day sale, where you can find a variety of sweet deals on furniture and home decor.
Scallop Rattan Pendant
Benchmade Modern is offering some serious furniture deals right now. Customers can take 20% off of custom couches and sectionals (and the rest of the site, which includes accent chairs, sleeper sofas, upholstered bed frames, and more). This brand specializes in a-touch-above-basic couches, meaning they’ll fit right into most spaces and differ slightly in size and depth.
The MCM Sofa
Anyone looking to end their yearslong search for a couch (we see you), should stop and take a peek at what Homebody is offering. Right now until May 27, the brand is offering 10% off purchases with the promo code HONOR. In a world where buying a couch is…wildly overwhelming, the brand makes it easy with a few simple choices: custom couches; recliners; two-set, three-seat, and four-seat couches; armchairs; ottomans; and accessories.
Our contributor Rachel Kalichman called Interior Define’s Gaby sectional “an elegant and neutral piece that can fit any type of decor style.” Head to their site now for 20% off on orders $2,999 and below, and get 25% off orders $3,000 and over.
Interior Define Gaby Leather Chaise Sectional
Bedding and loungewear: They are the finishing touch for any carefully curated room. Now’s your chance to try the bedding brand that both Oprah and commerce editor Audrey Lee gave their stamp of approval to. Save up to 55% during the brand’s “We made too much” extra inventory sale.We recommend stocking up on the cool-to-the-touch bamboo sheet sets.
Cozy Earth Linen Bamboo Sheet Set
If you’re already purchasing some new sheets, then you might as well snag a new mattress to put your sheets on. Luckily Saatva, one of our favorite mattress brands, is hosting a Memorial Day Early Access Sale where the more you spend the more you save on the retailer’s high-quality, eco-friendly mattresses. We’d recommend taking advantage of the Memorial Day deals to get the brand’s Loom & Leaf memory foam mattress, which writer Bailey Berg called the “most breathable, comfortable mattress” she’s ever tried.
Saatva Loom & Leaf Mattress
Everyone’s beloved bed frame from Clever fave brand Floyd is offering 20% off sectionals and up to 30% off sitewide in anticipation for this Memorial Day weekend.
The Bed Frame
There are a lot of things you could stock up on during The Company Store’s summer sale, but we recommend looking into the indoor/outdoor pillow situation. Anyway, you can get up to 35% off comforters, pillows, and other bedding using code SUMMER24 and up to 30% off sitewide on everything else—no code needed.
Jersey Knit Comforter Set
If you want aesthetically pleasing cookware, look no further than the brand Our Place. This brand makes gorgeously hued pots, pans, and even a few kitchen appliances you wouldn’t hate leaving out in your living space. Commerce editor Audrey Lee personally loved the cast iron Always Pan, which you can get on sale now as part of Our Place’s 40% off Spring Sale
Our Place Cast Iron Always Pan
The Avocado Eco Organic mattress maintains a spot as one of our favorite mattresses that come in a box, and you can get the Eco now for $130 off as part of Avocado’s 20% off Memorial Day mattress sale. You can also get 10% off everything else on the site.
Avocado Eco Organic Mattress
Zinus, who makes some of our favorite bed frames, is offering up to 45% off sitewide with the code MEMORIAL20. We’d use this as an opportunity to snag the Original Green Tea mattress, which is currently 20% off.
Zinus Original Green Tea Mattress
Ashley is offering customers a few hot deals during their Memorial Day Preview. You can find bed frames, dressers, dining sets, patio furniture, living room coffee tables, sofas, Tempur-Pedic mattresses, and just about anything else you’d need to outfit an entire apartment.
Parellen Dining Table and 4 Chairs
If you dream of backyard s’mores and cozy nights next to the fire, listen up for Solo Stove’s Memorial Day weekend weekend offerings. With up to 30% off sitewide, you can make your dreams come true.
Solo Stove Bonfire 2.0 Wood Burning Fire Pit
The Clever staff has tried (and loved) a lot of Casper mattresses. In fact, we dedicated a whole story just to some of our favorites. One was the Nova mattress, which contributor Nora Taylor found offered the ideal balance of plushness and support. Though Casper doesn’t sell the Nova anymore, you can get the very similar Dream Max Hybrid mattress for 30% off as part of the brand’s Memorial Day deals.
When looking for funding for your small business, there are plenty of types of loans to consider, including term loans. A term loan provides a borrower with a lump sum of cash that’s repaid on a fixed repayment schedule.
Term loans could be helpful for businesses looking to expand their business, buy more real estate, update equipment, or purchase more inventory in advance.
Read on to learn more on small business term loans, their pros and cons, and the different types of term loans available.
What Is a Term Loan?
With a term loan, a person or business takes out a lump sum of money from a lender and then pays back the loan amount through regular, fixed-interval payments. These are often monthly payments but could be weekly, bi-weekly, or even quarterly.
Part of the payment would go to principal, lowering the remaining loan balance, and part would go to the lender in the form of interest, which can be a fixed or variable rate.
Term loans aren’t just used for small businesses, though. Mortgage loans, auto loans, and student loans are also all types of term loans.
What Can a Term Loan Be Used For?
Common uses of term loans for businesses include:
• Buying real estate or rehabbing property you already own (in that case, the real estate would likely serve as the collateral for the loan)
• Buying new equipment or repairing what you have (the equipment could serve as collateral)
• Restocking inventory, perhaps in anticipation of the holidays or another busy season
• Buying vehicles for work
• Meeting payroll and other expenses
• Covering employee wages
What Are Different Types of Term Loans?
Small business owners may take out a term loan for a variety of purposes, which is one way to consider types of term loans. Another way is through the loan term’s length: short, intermediate, and long.
Payments may be higher with short-term loans compared to when the payback period is longer (depending upon how much the business needs to borrow). When considering what your business can qualify for and pay back with its available cash flow, this needs to be factored in.
Short-Term Loans
Short-term loans typically have a length of less than one year. They may extend to 18 months. Businesses that don’t qualify for a line of credit might find this type of term loan helpful. Though these loans are typically easier to qualify for, they tend to have higher interest rates.
A short-term loan may come with a balloon payment, meaning the last payment is much larger than the rest.
Recommended: Cost of Capital
Intermediate-Term Loans
Intermediate loans typically have terms between one and three years. Because of their slightly longer payoff time, they may be an option if you’re hiring a new salesperson, for instance, and know there might be some lag time before they start bringing in revenue.
Like short-term loans, intermediate business term loans may also come with a balloon repayment structure.
Long-Term Loans
Long-term loans typically have terms of five to 10 years, but they may go up to 25 years. They typically require collateral, such as real estate or equipment, and may come with lower interest rates compared to short- and intermediate-term loans.
Also keep in mind that long-term loans typically tend to be more difficult to qualify for, requiring proof of revenue and a solid credit history.
Recommended: Merchant Cash Advance for Bad Credit
How Do Term Loans Work?
After you’re clear about how much you need to borrow and for what purpose, then you can approach financial institutions to see what programs they offer, their interest rates, and their loan terms.
You’ll also want to find out what documentation you’ll need in order to apply, what collateral might be needed, and whether they can supply the funds on your timeline. Also, check to see what small business loan fees may apply.
Once you’ve evaluated all of the above factors, comparison shop multiple lenders and choose the lender that suits your needs. Applying for the loan is typically done online, but may be able to be done in person if you’re applying with a bank.
Rates and terms offered can vary based on the lender, your personal and business credit history, your time in business, and your financial health and history.
If you’re approved for the loan, you would sign paperwork and then be free to use the funds once disbursed. You’d then make regular payments based on the loan agreement.
Recommended: How to Check Your Credit Score for Free
What Are the Pros and Cons to Term Loans?
Just as with any kind of loan, term loans have advantages and disadvantages.
Pros of Term Loans
Pros of term loans include:
• You may be able to borrow a large amount of money.
• Multiple types of term loan programs may be available when you look at different lenders.
• Interest rates are typically lower than credit cards, payday loans, and other short-term funding options.
• As you pay the term loan back on time, you can boost your business credit score.
Note: Check with your accountant or tax professional to see what tax benefits you may realize. Term loan interest may be tax-deductible.
Recommended: What Are the Tax Benefits of a Limited Liability Company (LLC)?
Cons of Term Loans
As with any financial product, there are downsides to consider, as well. Cons of term loans include:
• You may be entering into a long-term debt.
• The loan application process may take longer than you’d like.
• Some loans come with prepayment penalties, which means that you can’t prepay to reduce the amount of interest paid over the loan’s life.
• If your credit isn’t the best, the interest rates you’re offered may not be, either.
Recommended: Debt to Income Ratio
Applying for a Term Loan
Be sure to assess your business goals and lenders’ eligibility requirements as you choose the best option for your company.
Compare Small Business Term Loans
Comparing the lenders’ terms helps you improve your chances of qualifying for a loan and saves you time by helping you avoid applying for options for which you’re not eligible. On top of that, you want to make sure you’re not overpaying when it comes to rates and fees, or endangering your business cash flow with a repayment schedule that’s too aggressive.
Look at Each Lender’s Eligibility Requirements
It’s helpful to examine these requirements side by side:
• Personal and business credit
• Time in business
• Annual revenue
• Collateral
• Down payment
• Personal guarantee
Scrutinize the Lender’s Fees
Also look at the fees side by side:
• Interest rate and APR
• Origination fees
• Late payment fees
• Early payoff penalty
Be Sure You Understand Repayment Schedule
Questions to ask:
• Are payments made daily, weekly, monthly, or quarterly?
• Are payments automatically deducted from a business bank account?
Many lenders have strict repayment terms, meaning you need to make sure you can meet those standards so you don’t overdraft your accounts, accrue late fees, and damage your credit score.
Recommended: Long-Term Small Business Loans
Documents Needed to Apply for a Term Loan
When applying for a loan, documents often requested by lenders include:
• Bank statements (personal and business)
• Tax returns (personal and business)
• Business legal documents, including licenses and permits
• Personal identification
• Business plan
• Revenue statements
• Accounts receivable reports
• Accounts payable reports
Because exact documentation required varies by lender and loan type (and whether collateral is involved), you’ll need to clarify what the lender you choose will need.
Also, before you go straight to loans, it can be worthwhile to explore business grants since those do not need to be paid back.
Recommended: What Are Small Business Grants?
The Takeaway
When businesses seek funding, term loans are an option to consider. With a business term loan, the company borrows a certain amount of money in a lump sum and then pays it back in regular installments at either a fixed or variable interest rate. Terms can range from short (even under a year) to long (perhaps as long as 25 years), with the funds used for a variety of purposes.
If you’re seeking financing for your business, SoFi can help. On SoFi’s marketplace, you can shop top providers today to access the capital you need. Find a personalized business financing option today in minutes.
With SoFi’s marketplace, it’s fast and easy to search for your small business financing options.
FAQ
What does “term loan” mean for a business loan?
A term loan provides borrowers with a certain amount of cash upfront in exchange for specific borrowing terms. Borrowers agree to pay their lenders a fixed amount over a certain repayment schedule. The interest rate can be either fixed or variable.
What is an example of a term loan?
A small business loan of $50,000 from a bank that has to be paid over three years in monthly payments, with fixed interest.
What are the three main types of term loans?
They are short term, intermediate term, and long term.
SoFi’s marketplace is owned and operated by SoFi Lending Corp. See SoFi Lending Corp. licensing information below. Advertising Disclosures: SoFi receives compensation in the event you obtain a loan through SoFi’s marketplace. This affects whether a product or service is featured on this site and could affect the order of presentation. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
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.
Todman said the bulk of demand comes from millennials forming families, planning to own homes and not wanting to pay rent anymore. But they face competition from large institutional investors in the housing market.
“There’s been a fair amount of supply that’s been removed from inventory when we think about the large institutional investors who are buying and selling single-family homes. And that’s not a criticism but an observation,“ Todman said. “There is a number of the short-term rental market that has also taken a lot of typically available homes off the market as well.“
Adrianne Todman
Todman said that HUD has a role in incentivizing the private marketplace to build more starter homes through its programs and grants. It’s working in partnership with mayors and the U.S. Department of the Treasury. But there’s also a need to make sure people can access these homes, including “a whole generation of Black and brown people who are completely left out.“
Before joining HUD, Todman was the CEO of the National Association of Housing and Redevelopment Officials (NAHRO) from 2017 to June 2021. She also served as executive director of the District of Columbia Housing Authority (DCHA).
Todman is succeeding Marcia Fudge, who announced her resignation from office on March 11. Fudge has since joined law firm Taft as a partner and chair of public policy.
“I mentioned before: I’m a practitioner. I like to look at rules and make a determination on which ones make a whole lot of sense and which ones are just there for the sake of being a rule,“ Todman said. She added that she’s working with the Biden administration on streamlining things and having the rules either “harmonize together or just get out of the way.“
One of the most recent steps by HUD was to double the fee paid to servicers for assumable mortgages to $1,800. These government-backed loans allow qualified buyers to purchase a home by assuming responsibility for the sellers’ mortgage terms, including the current balance and interest rate. It can make sense in the current environment since a buyer can assume a seller’s 2% to 4% mortgage rather get a new one at 7%.
HUD is ensuring that “we’re getting our money out the door,“ Todman said.
But, according to Todman, the current problem is that “we’ve not had a housing strategy for this country,“ which is essential since the housing market has been “a roller coaster.“ The responsibility for this should be on the departments “with housing in their names,“ she added.
“One truth is that housing isn’t Democrat or Republican. Everybody needs it,“ Todman said. “There are questions about how to get there. But at the end of the day, when I talk to my conservative friends, I think that there’s more alignment about what we need for housing … and maybe disagreements about the product.“
Todman mentioned the Neighborhood Homes Tax Credit, which the Biden administration announced during the president’s State of the Union address in March. The credit would be directed to “build or renovate affordable homes for homeownership, which would lead to the construction or preservation of over 400,000 starter homes.“
This tax credit would be a “means to propel into a better supply situation,“ but we “can’t get a bill from Congress,“ Todman said.
Loans can help us achieve big goals, like buying a car or going to college. But did you know that the interest rate on your loan can affect how much money you pay back? A lower interest rate means you pay less money over time. So, how can you get a lower loan rate? Here are some simple tips to help you save money.
1. Check Your Credit Score and Credit Reports
We know this is obvious but it needs to be said. Make sure that you are more familiar with your credit than any potential lender could be. This means checking your credit score and your credit reports (all three) because your lender will be looking at more than just your score. You may feel like you have a decent credit score, and then be surprised by what rate your lender quotes you because there are too many negative items in your credit report.
If you’ve never downloaded copies of your credit reports before, you can do so for free at the only official website, AnnualCreditReport.com
If you want a more broken out view of your credit and explanations for what everything means, you can also get a free Credit Report Card from us.
2. Really Spend Time Shopping Around
Don’t settle for the first loan offer you get. Don’t settle for the second. The difference of half a percent can mean thousands of dollars, so really take your time and do your research. Check the rates offered by your own bank, credit unions, digital lenders, mortgage brokers – anyone – to see who has the lowest rates.
Just remember to compare not only the interest rates but also any fees or charges that might be included.
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3. Consider a Co-Signer
If you’re having trouble getting approved for a loan or getting a low interest rate on your own, consider asking someone with good credit to co-sign the loan with you. Having a co-signer with a strong credit history can help you qualify for a lower interest rate.
4. Save Up For a Big Down Payment
Putting more money down upfront can help you secure a lower interest rate on your loan. It shows lenders that you’re serious about paying back the money you borrow. Plus, a larger down payment means you’ll have a smaller loan amount, which can also lead to lower monthly payments and less interest paid over time.
5. Choose a Shorter Loan Term
The length of your loan term can affect your interest rate. Generally, shorter loan terms come with lower interest rates because the lender takes on less risk. While a shorter loan term means higher monthly payments, it also means you’ll pay less in interest over the life of the loan. So if you can afford it, choosing a shorter loan term can help you save money in the long run.
6. Improve Your Debt-to-Income Ratio
Lenders also consider your debt-to-income ratio when deciding your loan rate. This is the amount of money you owe each month compared to the amount of money you make. If you have a high debt-to-income ratio, lenders might see you as a higher risk borrower and charge you a higher interest rate. Paying down debt or increasing your income can help improve your debt-to-income ratio and qualify you for a lower rate.
7. Ask About Discounts
Some lenders offer discounts on loan rates for things like setting up automatic payments or having a checking account with them. It doesn’t hurt to ask if there are any discounts or special offers available when you apply for a loan. Even a small discount can add up to big savings over time.
8. Use Mortgage Points
Mortgage points are a way to lower your interest rate by paying extra money upfront to your lender when you close on your mortgage. Each point typically costs 1% of the total amount of your loan.
So, let’s say you’re getting a $200,000 mortgage, and the lender offers you the option to buy one mortgage point for $2,000. If you buy one point, you’d pay an extra $2,000 upfront, but your lender might lower your interest rate by, let’s say, 0.25%.
If you plan to stay in your house for a long time, buying mortgage points might be a good idea because you could end up saving more money on your monthly mortgage payments. But remember, it’s not always the right choice for everyone. Think about how long you plan to stay in the house and whether you’ll actually save enough money in the long run to make up for the extra cost upfront.
By following these tips, you can increase your chances of getting a lower loan rate and save money on interest. Remember, every little bit counts when it comes to your finances, so take the time to explore your options and find the best loan rate for you. With a little effort, you can be on your way to achieving your goals while keeping more money in your pocket!
Investing can feel like riding a rollercoaster, especially when you’re trying to keep up with market fluctuations. One popular technique that long-term investors use to smooth out this ride is dollar-cost averaging (DCA).
This investment strategy offers a methodical approach to investing that can eliminate the guesswork and stress of trying to time the market. Let’s dive into the world of DCA and see how it might serve your personal finance goals.
Basics of Dollar-Cost Averaging
Dollar-cost averaging is a simple but effective investment strategy. The basic idea is to invest a fixed dollar amount at regular intervals into a particular investment, such as a stock or mutual fund, regardless of its share price. Over time, this approach can result in a lower average price per share compared to making a lump sum investment at a higher price.
Here’s how to dollar-cost average: Suppose you decide to invest $500 into an index fund every month. The share price of the fund fluctuates from month to month, sometimes high, sometimes low. By investing regularly, you buy more shares when the price is low and fewer shares when the price is high. Over time, this can lead to a lower average purchase price.
A Deeper Dive Into How Dollar-Cost Averaging Works
One way to get a better grasp of how dollar-cost averaging works is to look at a hypothetical scenario. Suppose you decide to invest $200 in a mutual fund every month. In January, the share price is $20, so you buy 10 shares.
In February, the share price drops to $10, so your $200 buys you 20 shares. In March, the price goes up to $25, so you can only afford 8 shares. Despite the market’s fluctuations, your regular investment allowed you to purchase more shares when the price was low and fewer shares when the price was high, resulting in a lower average purchase price.
Benefits of Dollar-Cost Averaging
The key advantage of the dollar-cost averaging approach is that it mitigates market volatility. Instead of trying to time the market and potentially making ill-timed investment decisions, DCA allows you to follow a fixed schedule and make regular investments.
This strategy can be especially beneficial in declining markets. When stock prices fall, your fixed dollar amount can purchase more shares. If the stock market recovers, you would have bought those shares at lower prices, potentially leading to gains. This way, DCA can turn market declines into opportunities.
Another benefit of dollar-cost averaging is that it can promote disciplined investing. By investing a fixed amount at regular intervals, you are more likely to stick with your investing strategy, even when the market is turbulent.
The Psychology Behind Dollar-Cost Averaging
Dollar-cost averaging isn’t just about mathematical probabilities and financial strategy—it’s also deeply intertwined with investor psychology. Investing can be an emotional roller coaster, especially during periods of significant market volatility. When stock prices swing wildly, investors often let their emotions guide their decisions, which can lead to costly mistakes.
For instance, a sudden market downturn might provoke feelings of fear and uncertainty. In response to these emotions, some investors may resort to panic selling, hastily offloading their investments to stave off further losses. This can be detrimental to their long-term financial goals because they might miss out on potential gains when the market eventually rebounds.
On the flip side, during a bullish market when prices are high, feelings of greed and fear of missing out (FOMO) might take over. These emotions can lead to impulsive buying, where investors pour money into the market hoping to ride the wave. But if the market corrects or crashes, these investors stand to lose a significant portion of their investment.
This is where the dollar-cost averaging approach comes into play. The discipline of investing a fixed amount at regular intervals removes the need to time the market and reduces the influence of emotions on investment decisions. It provides a systematic investment plan that is followed regardless of whether the market is up or down. This disciplined approach can prevent impulsive decisions, providing a level of emotional comfort and stability.
Limitations and Risks of Dollar-Cost Averaging
While dollar-cost averaging offers many benefits, it’s not without its potential drawbacks. One potential downside is that if the market consistently rises, a dollar-cost averaging strategy could yield lower returns compared to lump sum investing. In bullish markets, a lump sum invested early would have more time to grow.
Another risk is that despite the potential to achieve a lower average price per share, DCA doesn’t guarantee profits or protect against losses. If the market continually declines, you may lose money, especially if you need to withdraw your investment before the market has a chance to recover.
Finally, for dollar-cost averaging to work effectively, it requires regular and continuous investments. This may pose a challenge if you have a tight budget or unpredictable cash flow.
Dollar-Cost Averaging vs. Lump Sum Investing
Lump sum investing is another common strategy where an investor puts a large sum of money into the market at once. This approach can yield higher returns during a bull market because your entire investment is exposed to the market’s growth from the beginning.
However, timing the lump sum investment correctly can be challenging, even for professional investors. Misjudging the market can lead to buying high, which could result in lower returns or even losses. It’s also worth noting that investing a large sum all at once can be a significant risk if the market takes a downturn shortly after.
Choosing between dollar-cost averaging and lump sum investing largely depends on factors like your risk tolerance, investment horizon, and the amount of money you have to invest.
Implementing Dollar-Cost Averaging in Your Investment Strategy
If you’re interested in implementing a dollar-cost averaging strategy, you’ll need to consider several factors:
Choosing an investment: First, choose a suitable investment option. This could be individual stocks, mutual funds, or exchange-traded funds (ETFs). It’s wise to diversify across different asset classes to reduce risk.
Budget: Decide how much money you can invest regularly. This could be a fixed dollar amount you set aside from your paycheck every month. The key is to ensure it’s an amount you can commit to over time.
Frequency: Determine how often you want to invest. This could be monthly, quarterly, or any interval that fits your financial situation. The main point is to stick to a regular schedule.
Duration: Consider how long you plan to keep investing. This would typically be linked to your financial goals. Are you saving for retirement, a down payment on a home, or your child’s college education? Your end goal can help you determine how long you dollar-cost average.
Dollar-Cost Averaging in Different Market Conditions
Dollar-cost averaging can prove beneficial in various market conditions:
Bullish markets: In a steadily rising market, a DCA strategy may underperform a lump sum investing approach. However, the benefit is that you’re not risking a large sum of money at once and aren’t trying to time the market.
Bearish markets: In declining markets, DCA comes into its own by allowing you to buy more shares at lower prices. This can reduce the average cost of your investment over time.
Volatile markets: Market volatility can make it difficult to time your investments. With DCA, you’re investing at regular intervals, which means you’re less likely to be swayed by short-term market swings.
Dollar-Cost Averaging With Robo-Advisors and Investment Apps
Nowadays, you don’t need to manually make investments at regular intervals. Many financial institutions offer automatic trading plans, and several robo-advisors and investment apps also provide automated DCA services.
These tools can automatically deduct a set amount from your bank or brokerage account and invest it according to your preferences, making DCA even more straightforward.
Conclusion
Dollar-cost averaging helps you manage fluctuations in the market, mitigate the risks of market timing, and potentially lower your average purchase price. It offers a systematic and disciplined approach to investing. However, like any investment strategy, it’s not without risks. Always consider your financial goals, risk tolerance, and investment horizon before deciding to implement DCA.
Remember, past performance is not indicative of future results, and it’s important to evaluate your investment options carefully. While this article provides a thorough understanding of how dollar-cost averaging works, it does not provide investment advice. You should consider seeking advice from professional advisory or brokerage services that can provide personalized advice based on your circumstances.
Frequently Asked Questions
Can I use dollar-cost averaging in my retirement account?
Yes, DCA fits perfectly in retirement accounts like 401(k)s or IRAs. You’re typically contributing a set amount regularly, which is DCA in practice. Over time, this can help smooth out the impact of market volatility on your retirement savings.
Do I need a large sum of money to start dollar-cost averaging?
No, the advantage of DCA is that it allows you to start investing with any amount you’re comfortable with. You simply invest a fixed amount at regular intervals, which could be as little as a few dollars every month.
How does dollar-cost averaging help me build wealth over time?
DCA can contribute to wealth building by potentially lowering the average cost of your investments over time. By buying more shares when prices are low and fewer when they’re high, you might lower your average cost per share, setting the stage for potential gains in the long run.
Can dollar-cost averaging protect me from all investment losses?
While DCA can help mitigate the effects of volatile markets, it does not guarantee protection from all investment losses. The value of your investments can still go down, particularly if the entire market is in a prolonged downturn. It’s important to have a diversified portfolio and a strategy that aligns with your risk tolerance.
Is dollar-cost averaging only suitable for stocks?
Not at all. While often associated with buying stocks, you can apply dollar-cost averaging to other types of investments as well, like mutual funds, index funds, exchange-traded funds (ETFs), or even Bitcoin. The key is that the asset’s price changes over time.
How often should I make investments if I’m using a dollar-cost averaging strategy?
The frequency of investments in a DCA strategy can vary based on your personal finance situation and goals. Common intervals include monthly and bi-weekly, often aligned with pay periods. The key is to be consistent and stick to your predetermined schedule.