American family finances have weathered the fallout of the dot-com bubble, the Great Recession and a pandemic over the last 30 years. Despite these challenges and more, single-parent households as a whole have actually seen broad financial improvements during this time.
Some households are better insulated to emerge unscathed (and even improved) from economic turmoil. On the other hand, families with one earner and multiple mouths to feed are at a disadvantage compared with those with multiple incomes when there is a job loss, high inflation, unexpected medical expenses or trouble in financial markets, for example. Measuring the financial health of a single-income household against one with two incomes would uncover few surprises. However, examining how the financial well-being of single-parent households has changed, and how it’s changed relative to others over time, tells a story of certain improvements and remaining opportunities for growth.
I am the product of a single-parent household. From the time I was 3 years old in the early 1980s, my mom raised my older brothers and me solo. Later, as an adult, I was the head of a single-parent household, raising my daughter who was born in 2000. Much has changed during that time, both in how I experienced the world through finances personally and within the broader economy. Charting the household finances of single-parent households across decades underscores these changes. Income, net worth and homeownership rates among single-parent households have improved dramatically, but these households still lack insulation from financial shocks, according to data from the Federal Reserve.
Family finances through the decades
The Federal Reserve’s Survey of Consumer Finances is released every three years and is a trove of household financial data. I examined 30 years of the data, from 1992 to the recently released 2022 report, to see how my lived experiences aligned with the national picture and how the financial conditions of households like mine have changed.
Roughly 30 years ago, in 1992, I was 14 years old, living with my mother and one older brother, while my eldest brother was in college. During childhood, my mom received child support, but we still qualified for the free lunch program at school, a common proxy for household poverty. She had the good fortune of always having a steady job and put herself through college while raising us.
My experience as a parent — beginning in 2000 — was different in that I didn’t receive support payments from another parent but did qualify for broader public assistance. When my daughter was an infant, I received EBT benefits or “food stamps,” public housing and Aid to Dependent Children, commonly referred to as “welfare.” I, too, put myself through college and held down a job from the time she was born. Despite beginning my journey as a single mother at a deficit from where my mother began hers — quite a bit younger and with only one source of income — I was able to climb more quickly, perhaps because I only had one additional mouth to feed or because government and social supports of the era made it easier to do so.
Over the past 30 years, the median annual income of single-parent households has grown just over 45%, after adjusting for inflation, to $43,000, slightly faster than any other household type. Across all households, typical incomes grew about 27% during that period.
Note: The Survey of Consumer Finances defines single-parent households as those with children but not married or living with a partner.
A higher real income means a higher standard of living — your money can go further toward paying for the things you need. And my personal experience as a child and a parent aligns with this data — later in my daughter’s childhood, I was better able to afford things my mother would have considered luxuries when I was young.
I want to make it very clear that it’s little more than a neat coincidence that my personal life reflects the Federal Reserve data. Much is hidden in national aggregates, and many people have their own anecdotes that would run contrary to the data. In the case of “median income,” for example, we know that half of single-parent households earned less than $43,000 in 2022, and many likely earned much less. On the other hand, half earned more than that median amount. And though the national median grew during this 30-year period, some households surely experienced periods of declining income. Big aggregates allow us to examine broad trends, but they also sacrifice some details.
Net worth nearly triples; homes and retirement assets climb
Your net worth is the amount of your assets (the things you own of value) minus your liabilities, or debts. And single-parent households saw significant increases in net worth from 1992 to 2022. While households overall saw inflation-adjusted net worth climb 87% during this period, those headed by a single parent rose 189%.
A higher net worth represents greater insulation from financial difficulties. When you have more savings, equity in a home or lower debt, for example, you’re better able to accommodate unexpected expenses and better able to plan for long-term financial goals.
At least some of this growth in net worth is due to the rise of homeownership among single parents. The percentage of single-parent households who own their primary residence grew from 43% in 1992 to 50% in 2022, an increase of 17%, and the most dramatic increase among all family types during the period.
I was raised in rentals; my mother hasn’t owned a house since she had to sell the family home after my parents’ divorce. However, I purchased my first home when my daughter was 7 years old, thanks in part to the more accommodating standards of an FHA mortgage, down payment assistance and when I bought — it was 2007, and home loans were being passed out like candy.
Another important asset, retirement accounts, are now held by 37% of single-parent households, compared with 24% in 1992. While a marked improvement, there is still room for growth here. Among all households, 54% have retirement accounts.
So what can account for these improvements? It’s likely a combination of factors, starting with a “catch-up” period. Moms make up 80% of the heads of single-parent households, according to the U.S. Census, and women were afforded the right to apply for credit and loans such as mortgages only in 1974. The full implications of this change could certainly take decades to work their way into household personal finances and the economy at large. Further, the share of single mothers who work and the share of women going to college has increased over the past several decades, contributing to increased earning power. And finally, while a 2022 Pew Research Center survey found that the stigma of single motherhood is on the rise again, it’s likely still at a better place than 30 or 50 years ago, when legal protections against discrimination were lacking.
Where single-parent households can still gain ground
The share of single-parent households that save money actually fell over the 30-year period examined, from 45% to 41%. In fact, it fell across most household types during this period, though it fell the furthest for single parents. Without savings, you’re more likely to depend on debt when emergency expenses arise and less likely to be able to keep up with monthly bills.
Single-parent households are also the most common household type to revolve credit card debt, or carry it from one month to the next. More than half (52%) of these households carry a balance on their card from month to month, compared with 44% of all households, according to the data. Further, single-parent households saw the greatest change in this metric among all household types during the two-year period capturing the COVID-19 recession — from 2019 to 2022, that share rose 15%.
Carrying credit card debt increases monthly payment obligations, and household payment-to-income ratios reflect this. In any given month, roughly 11% of single-parent households have monthly debt payments exceeding 40% of their monthly income. This 40% threshold is considered a measure of financial vulnerability, and a greater share of single-parent households find themselves on the wrong side of this line than any other household type. Further, while the share of households over this 40% mark has decreased in the last 30 years, it’s fallen the least in single-parent homes.
Keys to continued improvements
Overall, typical household finances have improved over the last 30 years, and by some measures they’ve improved most dramatically for single-parent households. But going it alone as a parent, whether by choice or by chance, still presents some greater financial challenges. Namely, households like mine often lack the additional safety valves afforded households with two potential earners, making them more vulnerable and more likely to have to turn to debt in periods of financial stress.
For me, a single parent raised by a single parent, money decisions were always about caution and resourcefulness, being careful and conscientious about every dime spent and being a scrappy problem-solver when money was too tight to cover all of the expenses. Honestly, I was resentful of this as a child. But I was grateful for the foundation when I became a parent. Early in my daughter’s life, these lessons were crucial for keeping the lights on, quite literally. And now that I’m financially secure, these lessons still underpin how I think about money and how I talk about it in my work.
The average finances of single-parent households have improved over the years, but individual household finances can hit setbacks along the long-term climb. The path to financial security is rarely linear. Incrementally building an emergency fund, using debt strategically and knowing where to turn when things get tough can make it easier to rebound and get back on an upward track.
A college degree can be a major rite of passage and career stepping stone for millions of Americans. Putting one’s education to work can unlock professional rewards and a solid financial future.
However, there’s no denying that the cost of tuition can be daunting. The student loan debt balance has surged 66% over the past decade and, according to the Federal Reserve, currently totals more than $1.77 trillion (that’s trillion, not billion).
Having those payments unfurling before you can be stressful and frustrating, and the effects of student loan debt can be far-reaching. It can seem as if some of your personal, professional, and financial goals will have to wait until you can pay off what you owe. But there are ways to manage those loans and navigate this situation. After all, student debt is what you are going through, not who you are.
Here, you’ll learn more about student loan debt, how it can impact borrowers’ life decisions, and ways to minimize those effects and manage debt more effectively.
Student Loan Debt Statistics
To understand how impactful student loan debt can be, here’s some perspective. Consumer debt in the United States is measured by the Federal Reserve in five distinct categories — home, auto, credit card, student, and other debt.
Using the Federal Reserve Bank of New York data from 2023, here’s how household debt stacks up in the U.S.:
• Mortgage debt (excluding HELOCs, or home equity lines of credit): $12.14 trillion
• Student loan debt: $1.599 trillion
• Auto loan debt: $1.595 trillion
• Credit card debt: $1.079 trillion
Here’s how educational debt stacks up more specifically: In 2023, the average student loan borrower carried $37,338 in federal debt and $54,921 in private debt. 💡 Quick Tip: Enjoy no hidden fees and special member benefits when you refinance student loans with SoFi.
Impact of Student Loan Debt on Life Plans
Given the cost of student loan debt, some borrowers may delay big life decisions, such as buying a home or starting a family until they are further along in their loan repayment or have their debt totally paid off. Here are some specifics about the potential negative effects of student loan debt. Then, more happily, you’ll find tips on managing what you owe.
Homebuying
One landmark study in the Journal of Labor Economics found that a $1,000 increase in student loan debt lowered the rate of homeownership by approximately 1.8% for people in their mid-twenties who went to a public college for four years. This is equivalent to a delay of about four months in achieving homeownership per $1,000 in debt.
Indeed, as student debt has increased, homeownership among younger Americans has decreased. Experts, however, caution that this is a complex situation and not a matter of student debt meaning you can’t buy a house.
It’s true that student loans can raise a person’s debt-to-income ratio (DTI), a critical measure of creditworthiness. And it can slow an individual’s ability to save for a down payment.
That said, there are ways to get a mortgage with a student loan. By managing debt responsibly and building your credit score, you can achieve this goal. It’s also wise to look into the various mortgages available with as little as 3% down or even 0% for qualifying candidates.
Pursuing Graduate School
If you have undergraduate student loan debt, you may decide to delay or forgo enrolling in a graduate or professional degree program. Graduate school can often mean even more debt. According to the Education Data Initiative, the average graduate student loan debt is $76,620 among federal borrowers, with only 14.3% of that coming from the borrower’s undergraduate studies.
That said, an advanced degree can mean increased job opportunities. For example, the starting salary for those who majored in computer and information sciences of a recent graduating class was $86,964 with a bachelor’s degree and $105,894 with a master’s degree. And if you want to go to medical school, law school, or business school (which can lead to fulfilling and lucrative careers), you will need significant additional training. So it’s important to determine if taking out the debt is worthwhile vs. your anticipated earning potential.
Employment and Career Choices
What you’ve just read indicates some of the ways that student loan debt can impact your career plans. There are a couple of other ways that your loan balance might impact your career:
• If you have significant debt and are faced with the choice between your dream job at a lower salary and a basic job at a higher pay grade, you might opt for the one that fattens your bank account even though it doesn’t thrill you.
• Also, some companies (particularly those in the financial industry) may check your credit score as part of your job application. Student loans could build your score if you pay on time, and they could broaden your credit mix. But loans also create the opportunity to make a late payment or miss one entirely. Those are aspects of your payment history, the single largest contributor to your score. If you don’t stick to your schedule and pay what you owe every month, you could wind up with a lower score.
Marriage and Divorce
Student loans can also impact one’s personal relationships. According to a 2023 Student Loan Planner® survey, one in four borrowers said they delayed their marriage plans due to student debt. In addition, more than half of respondents (57%) said their student loans were a source of considerable stress in their marriage or relationship.
Marriage can impact your student loan payments, depending on the types of loans you have and the repayment plan you are on. If you are on an income-based repayment plan, your monthly bill might change based on how much you and your spouse earn and how you file your taxes.
Marriages and money can create complex situations that are hard to fully decode. When looking at the impact of student loan debt on divorce, it can be tricky to unravel the interplay of factors. One survey conducted a few years ago found that 13% of respondents attribute student loan debt as a cause of their divorce. Yet some couples with student loan debt were more likely to delay divorce due to their student loans and how it might impact their ability to repay their debt. So in matters of the heart and the wallet, there isn’t a clear consensus.
Recommended: How Marriage Can Affect Your Student Loan Payments
Starting a Family
According to the USDA and other government statistics, it can cost more than $330,000 to raise a child to age 18. That’s no small amount, and it’s a daunting figure for many. Those carrying a hefty amount of student debt may delay parenthood as they pay off their loans.
One landmark New York Times survey in 2018 found that among people who didn’t plan to have children at all, 13% said it was as a result of student debt. In a more recent study of those with high student debt, 35% said they were waiting to have kids due to the impact of their loans on their finances. Still others may respond to this scenario by adopting strategies to pay off student loans faster.
Saving for Retirement
One of the negative effects of debt on young adults is that their retirement savings can be impacted. A recent study conducted by Fidelity found that 84% of borrowers felt that their loans impacted their ability to save for their retirement.
A study from a few years ago bore this out: Research by the Center for Retirement Research at Boston College found that Millennials who had never borrowed student loans saved twice as much for retirement by age 30 as college graduates who have student debt.
Here’s another bit of intel that supports the fact that student debt can make it harder to save for your future. Fidelity also found that the percentage of student loan borrowers who put at least 5% of their salary into their retirement plan rose from 63% to 72% during the Covid-19 loan payment pause.
Delaying retirement savings can mean playing catch up in your later years. Typically, the earlier you start saving for retirement, the more time your money will have to benefit from compound interest.
It can seem overwhelming to start saving for retirement while you’re still paying off student loan debt, but doing both at the same time can help you meet your financial goals in the future. 💡 Quick Tip: Refinancing could be a great choice for working graduates who have higher-interest graduate PLUS loans, Direct Unsubsidized Loans, and/or private loans.
How to Manage Your Student Loans
As you’ve just read, student loans can impact many areas of your life. But you are not alone in this situation, and your loans will not be with you forever. Focus on smart solutions to help you manage your debt repayment. Consider the following strategies.
Keep Paying
Even when money is tight, it’s wise to pay on time, as much as possible. Timely payments are the single biggest contributing factor to your credit score, an important financial metric. So do your best to keep current on those monthly installments.
Make a Budget
It’s hard to effectively manage your student debt and your finances in general if you don’t know how much money you have coming in and going out. If you don’t yet have a budget or yours isn’t working well for you, commit to reviewing different budgeting methods and finding one that works.
This process of tracking your money and possibly trimming your spending could reveal ways to free up more funds to pay off your debt.
Repayment Plans
There are federal student loan repayment plans that base your monthly payment on your income or ones that give you a fixed monthly payment. Those that are based on your income may help you lower your monthly payment.
It can be worthwhile to consider your options. For fixed payments, you may have a choice between standard, graduated, and extended plans. If you focus on income-driven repayment (IDR) plans, you will likely review the SAVE Plan (which replaces REPAYE), PAYE, IBR (income-based repayment), and ICR (income-contingent repayment) plans. With IDR plans, once you satisfy a certain number of months of qualifying payments, you can be eligible for forgiveness on the remaining balance of your loan(s).
Deferment and Forbearance
If you are finding it challenging to pay your federal student loans, you may be able to take advantage of deferment or forbearance, which are both ways of pausing or lowering your payments for a specific period of time. Perhaps you haven’t yet found a job after graduation or have another situation that is impacting your ability to pay; these programs can help qualifying borrowers out.
The main difference between is that during deferment, borrowers are not required to pay the interest that accrues if they have a qualifying loan. With forbearance, however, borrowers are always responsible for paying the interest that accrues, no matter what kind of federal loans they have.
Forgiveness
Here’s another path to lessening the impact of student loans on your life: forgiveness, which means you may not have to pay back some or all of your federal student loans. For these programs, there are a variety of qualifying factors, such as whether you’re a teacher, government employee, or worker at a nonprofit. Other factors could be that you have a disability, your school closed, or you declared bankruptcy, among others. It’s worthwhile to research your eligibility because the upside could be significant.
Recommended: A Look at the Public Service Loan Forgiveness Program
Refinancing
Another possible way to reduce the impact of student debt on your life is student loan refinancing.
When you refinance your loans you take out a new loan with a private lender. Depending on your credit history and financial profile, you can qualify for a lower interest rate, which could substantially lower the amount of money you pay in interest over the life of the loan (depending on the term you select, of course). Two important notes about this:
• When you refinance federal loans with a private loan, you forfeit federal protections and benefits (such as the forbearance and forgiveness options mentioned above).
• If you refinance for an extended term, even though your monthly payment may be lower, you may pay more in interest over the life of the loan.
To see how refinancing could help you manage your student loans, take a look at an online student loan refinance calculator.
The Takeaway
Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.
With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.
SoFi Student Loan Refinance If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.
SoFi Loan Products SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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Deciphering annual rent hikes so you don’t have to.
Embarking on the journey of a renter involves more than just finding a comfortable living space; it requires a nuanced understanding of the factors influencing the annual ritual of rent increases. As you navigate the rental landscape with a wealth of experience, delving into the intricacies behind why rent consistently rises becomes essential.
Why does rent increase every year?
Before we dive into the intricacies of annual rent increases, it’s crucial to understand the fundamental factors that typically govern the calculation of rent prices. Rent is generally determined by a combination of market forces, property-specific considerations and the financial goals of landlords. Market dynamics play a pivotal role, with supply and demand influencing rental rates in a given area.
According to The Rent Report, for the month of December, rent was actually down .57% month-over-month and also down 2.09% year-over-year. Just because these numbers reflect a downward trend in rent prices, doesn’t mean rent increases are unlikely.
Landlords or property managers take into account various costs associated with property ownership, such as property taxes, insurance, maintenance and utilities, to ensure that rent covers these expenses while allowing for a reasonable return on investment.
Property upgrades and amenities also contribute to the perceived value of a rental unit, influencing its rental price. Understanding this holistic approach to rent calculation provides a foundation for comprehending why rent adjustments occur annually, particularly for renters familiar with the cyclical nature of the rental market.
Market dynamics
The delicate dance between supply and demand, coupled with economic factors, significantly impacts landlords’ and property managers’ decisions to adjust rental prices. For the seasoned renter, gaining insight into local market trends, economic indicators and neighborhood developments is crucial for anticipating and responding to annual rent adjustments.
Property upgrades and maintenance
Renters recognize that maintaining and upgrading rental properties is an ongoing process. Property maintenance continually invests in enhancing the value of their assets through renovations, repairs and the integration of modern amenities.
As a renter, there should be a balance of understanding and appreciating the correlation between these property enhancements and the incremental uptick in rent. Understanding the motivations behind such improvements provides a nuanced perspective on the annual cost of living adjustments.
Operating costs
Behind the scenes, property management incurs a myriad of operational costs, including property taxes, insurance and utilities. Renters who have rentended many a time before, understand that rent adjustments often mirror the rising operational expenses faced by landlords.
Inflation’s influence
The impact of inflation on everyday expenses is a familiar concept, and rent is no exception. As the cost of living rises, landlords are compelled to raise the rent prices to align with economic realities. Dive into the broader economic context by exploring inflation rates and their implications on the housing market across different regions. Take a look at the handy chart below to see just how rents are changing regionally and nationally.
Regional and National Rent Asking Rent Changes Over Time
Understanding the variables in annual rent adjustments
In the dynamic landscape of rental housing, the expectation of an annual rent increase is not universal, but it is a possibility influenced by various factors previously discussed. Market conditions, property improvements and operating costs are among the key contributors to rental adjustments.
While some renters may experience consistent year-over-year increases, others may find their rents stabilize for extended periods. The predictability of rent hikes often hinges on regional market trends and the individual strategies of landlords. Tenants can mitigate surprises by staying informed about local housing markets, understanding the terms of their lease agreements and being aware of the legal parameters governing rent adjustments in their area.
Proactive communication with landlords can also play a role in negotiating reasonable terms that align with both parties’ expectations. Ultimately, while annual rent increases are a reality for some, the frequency and magnitude depend on a combination of external factors and the particulars of the lease agreement.
Legal considerations
If you’re a veteran renter, you most likely understand that the legality of rent increases is a crucial aspect of the renters process. Landlords must adhere to local and state laws when adjusting rent prices, and awareness of these regulations empowers renters to navigate the rental landscape confidently. In many jurisdictions, landlords are generally allowed to increase rent, but the specific rules vary. For month-to-month leases, there are often legal limitations on how much landlords can raise rent.
Familiarize yourself with the tenant protection laws in your area, as they may stipulate the frequency and maximum percentage by which rent can be increased. Understanding your rights as a tenant ensures you can advocate for fair and legal rent adjustments during lease negotiations.
Negotiation strategies as a renter
Armed with a deep understanding of market dynamics, property upgrades, operating costs and inflation, there are ways to approach lease negotiations with confidence. We recommend keeping a track record of being a good tenant so you have the opportunity to present your case against rent increases should a property manager raise rent to a price you’re uncomfortable with.
If you’ve consistently paid your rent punctually and exhibited good conduct with no noise complaints, the landlord may find the advantages of retaining you outweigh the prospect of additional income. Enhance your proposal by suggesting an extended lease duration, perhaps opting for a two-year commitment to show your value to the property.
Remember to keep the communication open and transparent to reach a mutually beneficial agreement that acknowledges the value you bring as a long-term, reliable tenant.
If you’re worried about increased rent with your current lifestyle, utilize a rent calculator to determine what you’re able to truly afford.
Navigating the rental landscape with expertise
In a renter’s journey, the annual rent increase is not merely a routine occurrence but a multifaceted puzzle to solve. By delving into the world of the rental market, you elevate your ability to navigate the rental landscape with astuteness and finesse. Stay informed, negotiate wisely and ensure that your experience as a renter remains both enriching and economically sound.
If you’re still on the hunt for the perfect rental property, search available properties with Rent. to find the best home for you.
Wesley is a Charlotte-based writer with a degree in Mass Communication from the University of South Carolina. Her background includes 6 years in non-profit communication and 4 years in editorial writing. She’s passionate about traveling, volunteering, cooking and drinking her morning iced coffee. When she’s not writing, you can find her relaxing with family or exploring Charlotte with her friends.
Average mortgage rates fell moderately yesterday. That was a bit of a surprise (though a welcome one) because yesterday’s inflation report would normally have pushed them higher. Read on for why markets might have reacted unexpectedly.
Earlier this morning, markets were signaling that mortgage rates today might fall. But these early mini-trends often switch direction or speed as the hours pass — as we saw yesterday.
Current mortgage and refinance rates
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Program
Mortgage Rate
APR*
Change
Conventional 30-year fixed
7.015%
7.03%
-0.07
Conventional 15-year fixed
6.28%
6.31%
-0.1
Conventional 20-year fixed
6.91%
6.93%
-0.065
Conventional 10-year fixed
6.09%
6.125%
-0.14
30-year fixed FHA
5.875%
6.545%
-0.3
30-year fixed VA
5.99%
6.14%
-0.085
5/1 ARM Conventional
6.31%
7.56%
-0.005
Rates are provided by our partner network, and may not reflect the market. Your rate might be different. Click here for a personalized rate quote. See our rate assumptions See our rate assumptions here.
Should you lock your mortgage rate today?
Yesterday’s fall in mortgage rates showed markets continuing to have faith in a “soft landing,” which will occur if we continue to see falling inflation together with a resilient economy. Indeed, it suggests that faith can’t be shaken even by occasional unfriendly data.
I think a soft landing remains the most likely scenario for 2024.
So, my personal rate lock recommendations are:
LOCK if closing in 7 days
FLOAT if closing in 15 days
FLOAT if closing in 30 days
FLOAT if closing in 45 days
FLOATif closing in 60days
However, with so much uncertainty at the moment, your instincts could easily turn out to be as good as mine — or better. So let your gut and your own tolerance for risk help guide you.
>Related: 7 Tips to get the best refinance rate
Market data affecting today’s mortgage rates
Here’s a snapshot of the state of play this morning at about 9:50 a.m. (ET). The data are mostly compared with roughly the same time the business day before, so much of the movement will often have happened in the previous session. The numbers are:
The yield on 10-year Treasury notes tumbled to 3.93% from 4.04%. (Good for mortgage rates.) More than any other market, mortgage rates typically tend to follow these particular Treasury bond yields
Major stock indexes were rising this morning. (Bad for mortgage rates.) When investors buy shares, they’re often selling bonds, which pushes those prices down and increases yields and mortgage rates. The opposite may happen when indexes are lower. But this is an imperfect relationship
Oil prices increased to $74.42 from $72.80 a barrel. (Bad for mortgage rates*.) Energy prices play a prominent role in creating inflation and also point to future economic activity
Goldprices climbed to $2,065 from $2,036 an ounce. (Good for mortgage rates*.) It is generally better for rates when gold prices rise and worse when they fall. Gold tends to rise when investors worry about the economy.
CNN Business Fear & Greed index — inched lower to 73 from 75. (Good for mortgage rates.) “Greedy” investors push bond prices down (and interest rates up) as they leave the bond market and move into stocks, while “fearful” investors do the opposite. So lower readings are often better than higher ones
*A movement of less than $20 on gold prices or 40 cents on oil ones is a change of 1% or less. So we only count meaningful differences as good or bad for mortgage rates.
Caveats about markets and rates
Before the pandemic, post-pandemic upheavals, and war in Ukraine, you could look at the above figures and make a pretty good guess about what would happen to mortgage rates that day. But that’s no longer the case. We still make daily calls. And are usually right. But our record for accuracy won’t achieve its former high levels until things settle down.
So, use markets only as a rough guide. Because they have to be exceptionally strong or weak to rely on them. But, with that caveat, mortgage rates today look likely to decrease. However, be aware that “intraday swings” (when rates change speed or direction during the day) are a common feature right now.
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What’s driving mortgage rates today?
Yesterday
I suspect that Wall Street has bought the narrative of a soft landing (see above) and, for now, is prepared to stick to it through thick and thin. That’s my only real explanation for why mortgage rates fell yesterday despite an unfriendly inflation report.
True, some saw the report as less unfriendly than others. The New York Times (paywall), for example, reported it under the headline, “Price Increases Tick Higher, but Show Moderation.”
But the consumer price index (CPI) was undeniably worse than expected. And that would normally exert some upward pressure on mortgage rates. Still, let’s not give this gift horse too close a dental inspection.
Today
Producer price indexes (PPIs) are typically less important than CPIs. But they still sometimes affect mortgage rates.
Today’s PPI showed factory-gate and wholesale prices rising more slowly than expected. And that would normally be good for mortgage rates. However, as we saw yesterday, markets don’t always follow such “rules.”
Next week
Rather like this week, next week starts slowly but contains an important economic report. Things are especially quiet on Monday because bond markets are closed for Martin Luther King Day. And closed bond markets mean mortgage rates shouldn’t move. (So, we shall not be publishing this daily report on Monday.)
Tuesday’s similarly dull with no economic reports scheduled for release.
However, Wednesday is potentially next week’s big day for mortgage rates, led by the retail sales report for December. But, after that, things tail off again.
Don’t forget you can always learn more about what’s driving mortgage rates in the most recent weekend edition of this daily report. These provide a more detailed analysis of what’s happening. They are published each Saturday morning soon after 10 a.m. (ET) and include a preview of the following week.
Recent trends
According to Freddie Mac’s archives, the weekly all-time lowest rate for 30-year, fixed-rate mortgages was set on Jan. 7, 2021, when it stood at 2.65%. The weekly all-time high was 18.63% on Sep. 10, 1981.
Freddie’s Jan. 11 report put that same weekly average at 6.66%, up from the previous week’s 6.62%. But note that Freddie’s data are almost always out of date by the time it announces its weekly figures.
Expert forecasts for mortgage rates
Looking further ahead, Fannie Mae and the Mortgage Bankers Association (MBA) each has a team of economists dedicated to monitoring and forecasting what will happen to the economy, the housing sector and mortgage rates.
And here are their rate forecasts for the last quarter (Q4/23) and the following three quarters (Q1/24, Q2/24 and Q3/24).
The numbers in the table below are for 30-year, fixed-rate mortgages. Fannie’s were updated on Dec. 19 and the MBA’s on Dec. 13.
Forecaster
Q4/23
Q1/24
Q2/24
Q3/24
Fannie Mae
7.4%
7.0%
6.8%
6.6%
MBA
7.4%
7.0%
6.6%
6.3%
Of course, given so many unknowables, both these forecasts might be even more speculative than usual. And their past record for accuracy hasn’t been wildly impressive.
Important notes on today’s mortgage rates
Here are some things you need to know:
Typically, mortgage rates go up when the economy’s doing well and down when it’s in trouble. But there are exceptions. Read ‘How mortgage rates are determined and why you should care’
Only “top-tier” borrowers (with stellar credit scores, big down payments, and very healthy finances) get the ultralow mortgage rates you’ll see advertised
Lenders vary. Yours may or may not follow the crowd when it comes to daily rate movements — though they all usually follow the broader trend over time
When daily rate changes are small, some lenders will adjust closing costs and leave their rate cards the same
Refinance rates are typically close to those for purchases.
A lot is going on at the moment. And nobody can claim to know with certainty what will happen to mortgage rates in the coming hours, days, weeks or months.
Find your lowest mortgage rate today
You should comparison shop widely, no matter what sort of mortgage you want. Federal regulator the Consumer Financial Protection Bureau found in May 2023:
“Mortgage borrowers are paying around $100 a month more depending on which lender they choose, for the same type of loan and the same consumer characteristics (such as credit score and down payment).”
In other words, over the lifetime of a 30-year loan, homebuyers who don’t bother to get quotes from multiple lenders risk losing an average of $36,000. What could you do with that sort of money?
Verify your new rate
Mortgage rate methodology
The Mortgage Reports receives rates based on selected criteria from multiple lending partners each day. We arrive at an average rate and APR for each loan type to display in our chart. Because we average an array of rates, it gives you a better idea of what you might find in the marketplace. Furthermore, we average rates for the same loan types. For example, FHA fixed with FHA fixed. The end result is a good snapshot of daily rates and how they change over time.
How your mortgage interest rate is determined
Mortgage and refinance rates vary a lot depending on each borrower’s unique situation.
Factors that determine your mortgage interest rate include:
Overall strength of the economy — A strong economy usually means higher rates, while a weaker one can push current mortgage rates down to promote borrowing
Lender capacity — When a lender is very busy, it will increase rates to deter new business and give its loan officers some breathing room
Property type (condo, single-family, town house, etc.) — A primary residence, meaning a home you plan to live in full time, will have a lower interest rate. Investment properties, second homes, and vacation homes have higher mortgage rates
Loan-to-value ratio (determined by your down payment) — Your loan-to-value ratio (LTV) compares your loan amount to the value of the home. A lower LTV, meaning a bigger down payment, gets you a lower mortgage rate
Debt-To-Income ratio — This number compares your total monthly debts to your pretax income. The more debt you currently have, the less room you’ll have in your budget for a mortgage payment
Loan term — Loans with a shorter term (like a 15-year mortgage) typically have lower rates than a 30-year loan term
Borrower’s credit score — Typically the higher your credit score is, the lower your mortgage rate, and vice versa
Mortgage discount points — Borrowers have the option to buy discount points or ‘mortgage points’ at closing. These let you pay money upfront to lower your interest rate
Remember, every mortgage lender weighs these factors a little differently.
To find the best rate for your situation, you’ll want to get personalized estimates from a few different lenders.
Verify your new rate. Start here
Are refinance rates the same as mortgage rates?
Rates for a home purchase and mortgage refinance are often similar.
However, some lenders will charge more for a refinance under certain circumstances.
Typically when rates fall, homeowners rush to refinance. They see an opportunity to lock in a lower rate and payment for the rest of their loan.
This creates a tidal wave of new work for mortgage lenders.
Unfortunately, some lenders don’t have the capacity or crew to process a large number of refinance loan applications.
In this case, a lender might raise its rates to deter new business and give loan officers time to process loans currently in the pipeline.
Also, cashing out equity can result in a higher rate when refinancing.
Cash-out refinances pose a greater risk for mortgage lenders, so they’re often priced higher than new home purchases and rate-term refinances.
Check your refinance rates today. Start here
How to get the lowest mortgage or refinance rate
Since rates can vary, always shop around when buying a house or refinancing a mortgage.
Comparison shopping can potentially save thousands, even tens of thousands of dollars over the life of your loan.
Here are a few tips to keep in mind:
1. Get multiple quotes
Many borrowers make the mistake of accepting the first mortgage or refinance offer they receive.
Some simply go with the bank they use for checking and savings since that can seem easiest.
However, your bank might not offer the best mortgage deal for you. And if you’re refinancing, your financial situation may have changed enough that your current lender is no longer your best bet.
So get multiple quotes from at least three different lenders to find the right one for you.
2. Compare Loan Estimates
When shopping for a mortgage or refinance, lenders will provide a Loan Estimate that breaks down important costs associated with the loan.
You’ll want to read these Loan Estimates carefully and compare costs and fees line-by-line, including:
Interest rate
Annual percentage rate (APR)
Monthly mortgage payment
Loan origination fees
Rate lock fees
Closing costs
Remember, the lowest interest rate isn’t always the best deal.
Annual percentage rate (APR) can help you compare the ‘real’ cost of two loans. It estimates your total yearly cost including interest and fees.
Also, pay close attention to your closing costs.
Some lenders may bring their rates down by charging more upfront via discount points. These can add thousands to your out-of-pocket costs.
3. Negotiate your mortgage rate
You can also negotiate your mortgage rate to get a better deal.
Let’s say you get loan estimates from two lenders. Lender A offers the better rate, but you prefer your loan terms from Lender B. Talk to Lender B and see if they can beat the former’s pricing.
You might be surprised to find that a lender is willing to give you a lower interest rate in order to keep your business.
And if they’re not, keep shopping — there’s a good chance someone will.
Fixed-rate mortgage vs. adjustable-rate mortgage: Which is right for you?
Mortgage borrowers can choose between a fixed-rate mortgage and an adjustable-rate mortgage (ARM).
Fixed-rate mortgages (FRMs) have interest rates that never change unless you decide to refinance. This results in predictable monthly payments and stability over the life of your loan.
Adjustable-rate loans have a low interest rate that’s fixed for a set number of years (typically five or seven). After the initial fixed-rate period, the interest rate adjusts every year based on market conditions.
With each rate adjustment, a borrower’s mortgage rate can either increase, decrease, or stay the same. These loans are unpredictable since monthly payments can change each year.
Adjustable-rate mortgages are fitting for borrowers who expect to move before their first rate adjustment, or who can afford a higher future payment.
In most other cases, a fixed-rate mortgage is typically the safer and better choice.
Remember, if rates drop sharply, you are free to refinance and lock in a lower rate and payment later on.
How your credit score affects your mortgage rate
You don’t need a high credit score to qualify for a home purchase or refinance, but your credit score will affect your rate.
This is because credit history determines risk level.
Historically speaking, borrowers with higher credit scores are less likely to default on their mortgages, so they qualify for lower rates.
For the best rate, aim for a credit score of 720 or higher.
Mortgage programs that don’t require a high score include:
Conventional home loans — minimum 620 credit score
FHA loans — minimum 500 credit score (with a 10% down payment) or 580 (with a 3.5% down payment)
VA loans — no minimum credit score, but 620 is common
USDA loans — minimum 640 credit score
Ideally, you want to check your credit report and score at least 6 months before applying for a mortgage. This gives you time to sort out any errors and make sure your score is as high as possible.
If you’re ready to apply now, it’s still worth checking so you have a good idea of what loan programs you might qualify for and how your score will affect your rate.
You can get your credit report from AnnualCreditReport.com and your score from MyFico.com.
How big of a down payment do I need?
Nowadays, mortgage programs don’t require the conventional 20 percent down.
In fact, first-time home buyers put only 6 percent down on average.
Down payment minimums vary depending on the loan program. For example:
Conventional home loans require a down payment between 3% and 5%
FHA loans require 3.5% down
VA and USDA loans allow zero down payment
Jumbo loans typically require at least 5% to 10% down
Keep in mind, a higher down payment reduces your risk as a borrower and helps you negotiate a better mortgage rate.
If you are able to make a 20 percent down payment, you can avoid paying for mortgage insurance.
This is an added cost paid by the borrower, which protects their lender in case of default or foreclosure.
But a big down payment is not required.
For many people, it makes sense to make a smaller down payment in order to buy a house sooner and start building home equity.
Verify your new rate. Start here
Choosing the right type of home loan
No two mortgage loans are alike, so it’s important to know your options and choose the right type of mortgage.
The five main types of mortgages include:
Fixed-rate mortgage (FRM)
Your interest rate remains the same over the life of the loan. This is a good option for borrowers who expect to live in their homes long-term.
The most popular loan option is the 30-year mortgage, but 15- and 20-year terms are also commonly available.
Adjustable-rate mortgage (ARM)
Adjustable-rate loans have a fixed interest rate for the first few years. Then, your mortgage rate resets every year.
Your rate and payment can rise or fall annually depending on how the broader interest rate trends.
ARMs are ideal for borrowers who expect to move prior to their first rate adjustment (usually in 5 or 7 years).
For those who plan to stay in their home long-term, a fixed-rate mortgage is typically recommended.
Jumbo mortgage
A jumbo loan is a mortgage that exceeds the conforming loan limit set by Fannie Mae and Freddie Mac.
In 2023, the conforming loan limit is $726,200 in most areas.
Jumbo loans are perfect for borrowers who need a larger loan to purchase a high-priced property, especially in big cities with high real estate values.
FHA mortgage
A government loan backed by the Federal Housing Administration for low- to moderate-income borrowers. FHA loans feature low credit score and down payment requirements.
VA mortgage
A government loan backed by the Department of Veterans Affairs. To be eligible, you must be active-duty military, a veteran, a Reservist or National Guard service member, or an eligible spouse.
VA loans allow no down payment and have exceptionally low mortgage rates.
USDA mortgage
USDA loans are a government program backed by the U.S. Department of Agriculture. They offer a no-down-payment solution for borrowers who purchase real estate in an eligible rural area. To qualify, your income must be at or below the local median.
Bank statement loan
Borrowers can qualify for a mortgage without tax returns, using their personal or business bank account. This is an option for self-employed or seasonally-employed borrowers.
Portfolio/Non-QM loan
These are mortgages that lenders don’t sell on the secondary mortgage market. This gives lenders the flexibility to set their own guidelines.
Non-QM loans may have lower credit score requirements, or offer low-down-payment options without mortgage insurance.
Choosing the right mortgage lender
The lender or loan program that’s right for one person might not be right for another.
Explore your options and then pick a loan based on your credit score, down payment, and financial goals, as well as local home prices.
Whether you’re getting a mortgage for a home purchase or a refinance, always shop around and compare rates and terms.
Typically, it only takes a few hours to get quotes from multiple lenders — and it could save you thousands in the long run.
Time to make a move? Let us find the right mortgage for you
Current mortgage rates methodology
We receive current mortgage rates each day from a network of mortgage lenders that offer home purchase and refinance loans. Mortgage rates shown here are based on sample borrower profiles that vary by loan type. See our full loan assumptions here.
If you want to start a business, one thought may go through your mind (particularly if you’re funding your business out of pocket): “If I didn’t have to repay my student loans, I’d have more money to put toward my business.”
No doubt about it, student debt can be steep. The current average federal student loan debt per borrower is $37,338 and $54,921 per private loan borrower. Student loan borrowers who feel stymied by their debt may wonder how to get their business idea off the ground.
If student loans gobble up a chunk of your cash every month, refinancing might free up funds to put your fledgling business on the right track. Read on to learn how refinancing student loans can benefit the launch of your new business.
What Is Student Loan Refinancing?
Before diving into the definition of student loan refinancing, let’s discuss the components that make up a student loan: principal, interest rate, and loan term.
• Principal: The principal is the original amount that you borrowed, which you will repay with interest over time.
• Interest rate: The interest rate is a percentage of the loan principal that you pay monthly — on top of a portion of the principal. This is charged by the lender and is how they earn money while lending you cash.
• Loan term: The loan term is the amount of time in which you will repay your loan.
Student loan refinancing means replacing your existing student loan with a new student loan. You can refinance either federal or private loans with funds from a private lender. There are two important points to keep in mind if you are considering refinancing. These factors can help you determine if refinancing is a good fit for you.
• When you refinance federal loans with a private loan, you forfeit federal protections and benefits, such as deferment and forbearance.
• If you refinance for an extended term, you may end up paying more in interest over the life of the loan, even if your monthly payment is lower.
💡 Quick Tip: Get flexible terms and competitive rates when you refinance your student loan with SoFi.
Benefits of Student Loan Refinancing
Some of the key reasons to refinance your student loans include the following:
• Potentially lowering your interest rate: Reducing your interest rate on your student loans can save you a lot of money over time because you won’t pay as much in interest per monthly payment. Check with various lenders to ensure you’re getting the lowest interest rate possible. You can usually get the best rates by having a strong credit score and a steady source of income. Your credit score is the three-digit number that reflects how well you’ve paid back debts in the past.
• Reducing your monthly payment: When you work with a lender to extend your loan term, you may reduce your student loan payments per month. For example, you may extend your loan term from 10 years to 15 years, though the specific options will depend on your lender. Note, however, as mentioned above, that extending your term often means you’re likely paying more interest over the life of your loan.
• Obtaining a single monthly payment: Instead of making multiple monthly payments, you can refinance and make one monthly payment. Sticking to one monthly payment can help you stay organized and make your payments on time. You don’t have to refinance all of your student loans, however. For example, if you have five student loans and you have a low interest rate on one and a high interest rate on the rest, you could refinance just those four. Use a student loan refinance calculator to determine how different refinance scenarios might work to your advantage.
• Choosing between variable- and fixed-rate loans: Refinancing may allow you to choose between a fixed- or variable-rate loan. A fixed-rate means your interest rate stays the same throughout the life of the loan, while a variable rate changes — and could increase or fall over time.
Note that you can also consolidate student loans, which involves combining several federal student loans into one loan, through the Direct Loan Program. 💡 Quick Tip: Refinancing could be a great choice for working graduates who have higher-interest graduate PLUS loans, Direct Unsubsidized Loans, and/or private loans.
How Refinancing Student Loans Can Benefit a New Business
So, how exactly does refinancing student loans benefit a new business? Here’s a closer look.
1. Lower Your Loan Payments
As mentioned earlier, refinancing can help lower your loan payments by possibly offering a lower interest rate and/or by stretching out your loan term. Lowering your monthly payments can allow you to devote more financial resources toward your new business. You can also use the extra money to pay for household expenses or financial goals, like the down payment on a house or your retirement nest egg.
2. More Money to Get Business Loan
First, to clarify: Using student loans to start a business is a no-go. Student loan money should go toward education costs, living expenses, and housing. When you refinance, you can lower your monthly repayment amount. That can help your overall financial outlook. Then, if you apply for a business loan, you may have a more creditworthy profile.
A bank or credit union will review your financial information to evaluate your qualifications for a business loan. If you refinance your student loans and lower your monthly payment, that could help improve your debt-to-income ratio (DTI), an important indicator when you apply for a loan. Your DTI is calculated by all your monthly debt payments divided by your gross monthly income. If you lower a component of your monthly debt (say, your student loan), you can lower your overall DTI, which is a positive.
3. Use Business Income to Pay Student Loans
Are you wondering, “Can my business pay my student loans?” The answer to that is “no,” if you mean pay directly through your enterprise. However, if you launch a business and earn income, of course you can use your pay to eliminate your debt, whether from a student loan or another source.
Keep in mind that as a business owner, you could get tax breaks that other taxpayers can’t claim, but you can’t deduct the principal payments you make on student loans.
Recommended: How to Get Out of Student Loan Debt
Refinancing Student Loans With SoFi
Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.
With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.
FAQ
Can you start a business if you have student loans?
Yes, you can start a business if you have student loans, but it may be harder to access business credit and save cash to put toward your business. No matter what, you must keep up with your student loan payments. Not making your payments can hurt your credit score later, which in turn can hurt your application for a small business loan.
How do I start a student loan?
You can apply for federal student loans by filing the Free Application for Federal Student Aid (FAFSA), which helps determine the amount of federal student aid you can receive. You can apply for private student loans on lender websites.
Can I get an SBA loan with defaulted student loans?
Through the Small Business Administration, SBA loans require potential borrowers to keep up to date on student loan payments. Unfortunately, you could become ineligible with defaulted student loans.
Photo credit: iStock/ferrantraite
SoFi Loan Products SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
SoFi Student Loan Refinance If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.
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.
Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
Editorial Note: We earn a commission from partner links on Forbes Advisor. Commissions do not affect our editors’ opinions or evaluations.
Currently, the current average mortgage rate on a 30-year fixed mortgage is 7.30%, compared to 7.29% a week ago.
For borrowers who want to pay off their home faster, the average rate on a 15-year fixed mortgage is 6.44%, up 0.09 percentage points from the previous week.
Homeowners who want to lock in a lower rate by refinancing should compare their existing mortgage rate with current market rates to make sure it’s worth the cost to refinance.
Current Mortgage Rates for January 9, 2024
30-Year Mortgage Rates
Borrowers will pay more in interest this week as the average rate on a 30-year mortgage is 7.30% compared to a rate of 7.29% a week ago.
The annual percentage rate (APR), which includes the interest and all of the lender fees, on a 30-year, fixed-rate mortgage is 7.19%. The APR was 7.22% last week.
If your mortgage is $100,000 and you have a 30-year, fixed-rate mortgage with the current rate of 7.30%, you will pay about $686 per month in principal and interest (taxes and fees not included), the Forbes Advisor mortgage calculator shows. That’s around $146,806 in total interest over the life of the loan.
15-Year Mortgage Rates
The average interest rate on a 15-year mortgage (fixed-rate) sits at 6.44%. This same time last week, the 15-year fixed-rate mortgage was at 6.35%.
The APR on a 15-year fixed is 6.37%. It was 6.30% this time last week.
At today’s interest rate of 6.44%, a 15-year fixed-rate mortgage would cost approximately $868 per month in principal and interest per $100,000. You would pay around $56,177 in total interest over the life of the loan.
Jumbo Mortgage Rates
On a 30-year jumbo, the average interest rate is 7.20%, higher than it was at this time last week. The average rate was 7.18% at this time last week.
Borrowers with a 30-year fixed-rate jumbo mortgage with today’s interest rate of 7.20% will pay $679 per month in principal and interest per $100,000. That means that on a $750,000 loan, the monthly principal and interest payment would be around $5,090 and you’d pay approximately $1.08 million in total interest over the life of the loan.
How Much House Can I Afford?
Buying a house is a huge purchase and can put a big dent in your savings. Before you start looking, it’s important to calculate how much house you can afford and you’re willing to spend.
Not only do you want to consider your income and debt, but you also want to factor in emergency savings and any long-term financial goals such as retirement or college.
These are some basic financial factors that go into home affordability:
Income
Debt
Debt-to-income ratio (DTI)
Down payment
Credit score
How Are Mortgage Rates Determined?
Home loan borrowers can qualify for better mortgage rates by having good or excellent credit, maintaining a low debt-to-income (DTI) ratio and pursuing loan programs that don’t charge mortgage insurance premiums or similar ongoing charges that increase the loan’s annual percentage rate (APR).
Comparing rates from different mortgage lenders is an excellent starting point. You may also compare conventional, first-time homebuyer and government-backed programs like FHA and VA loans, which have different rates and fees.
For the most part, several economic factors influence the trajectory of rates for new home loans. The recent Federal Reserve rate hikes don’t directly cause mortgage rates to rise but have indirectly caused the interest rates for many long-term loans to increase. Rates are more likely to decrease when the Fed pauses or decreases its benchmark Federal Funds Rate.
Further, the inflation rate and the general state of the economy directly impact interest rates. High inflation and a strong economy typically signal higher rates. Cooling consumer demand or inflation may help rates decrease.
What Is the Best Type of Mortgage Loan?
As you compare lenders, consider getting rate quotes for several loan programs. In addition to comparing rates and fees, these programs can have flexible down payment and credit requirements that make qualifying easier.
Conventional mortgages are likely to offer competitive rates when you have a credit score between 670 and 850, although it’s possible to qualify with a minimum score of 620. This home loan type also doesn’t require annual fees when you have at least 20% equity and waive PMI.
Several government-backed programs are better when you want to make little or no down payment:
FHA loans. Borrowers with a credit score above 580 only need to put 3.5% down and applicants with credit scores ranging from 500 to 579 are only required to make a 10% down payment with FHA loans.
VA loans. Servicemembers, veterans and qualifying spouses don’t need to make a down payment when the sales price is less than the home’s appraisal value. VA loan credit requirements vary by lender.
USDA loans. Applicants in eligible rural areas can buy or build a home with no money down using a USDA loan. Moderate-income borrowers can qualify for a 30-year fixed-rate term through the Guaranteed Loan Program. Further, buyers with a very low or low income can receive a 33-year term and payment assistance is available through the agency’s Direct Loans program. Credit requirements differ by lender.
Frequently Asked Questions (FAQs)
What is a good mortgage rate?
A competitive mortgage rate currently ranges from 6% to 8% for a 30-year fixed loan. Several factors impact mortgage rates, including the repayment term, loan type and borrower’s credit score.
How to get a lower mortgage interest rate?
Comparing lenders and loan programs is an excellent start. Borrowers should also strive for a good or excellent credit score between 670 and 850 and a debt-to-income ratio of 43% or less.
Further, making a minimum down payment of 20% on conventional mortgages can help you automatically waive private mortgage insurance premiums, which increases your borrowing costs. Buying discount points or lender credits can also reduce your interest rate.
How long can you lock in a mortgage rate?
Most rate locks last 30 to 60 days and your lender may not charge a fee for this initial period. However, extending the rate lock period up to 90 or 120 days is possible, depending on your lender, but additional costs may apply.
When you think about retirement planning, you may feel like you’re doing alright, especially if you’re contributing part of your monthly paycheck to your employer-sponsored 401(k) plan. You may even have visions of growing old by the ocean or tapping into your Bohemian side with some global travel.
But to truly live the retired life you dream of, rather than scraping the bottom of your savings accounts, you need to be well-prepared. While a 401(k) is a great start, there are other tools you can take advantage of to diversify and maximize your retirement savings.
That’s where a Roth IRA comes in.
This tax-friendly retirement account can not only bolster your retirement money but can also help relieve your future tax burden. An IRA does come with a few rules attached to it, plus some eligibility requirements. However, when used wisely, it can really work to your advantage when it comes time to retire.
We’ll take you step-by-step through everything you need to know to make sure you qualify and how to use a Roth IRA to its fullest.
What is a Roth IRA?
A Roth IRA (Individual Retirement Account) is a type of retirement savings account that allows you to save and invest money for retirement on a tax-advantaged basis.
Contributions to a Roth IRA are made with after-tax dollars, meaning you cannot claim a tax deduction for the money you contribute. However, once the money is in the account, it can grow tax-free, and you can withdraw it tax-free in retirement.
This can be extremely beneficial because the money you contribute to a Roth IRA should grow (ideally substantially) between when you put cash in and when you start to take it out. But since you pay income taxes on it the first time around, you don’t have to do it again, even though the amount is larger.
You get to pick the investments in which to place your Roth IRA funds, such as:
How does a Roth IRA work?
A Roth IRA comes with many tax benefits, which is why it’s so popular these days. Even if you have a 401(k), it’s a great tax-advantaged addition to your retirement plan. And if you’re self-employed or don’t have a 401(k) at work, it’s a good start to investing for your retirement goals.
Here’s how a Roth IRA works:
Eligibility: To be eligible to contribute to a Roth IRA, you must have earned income and your income must fall below certain thresholds.
Contributions: You can contribute up to a certain amount each year to a Roth IRA, depending on your age and income. Contributions are made with after-tax dollars and are not tax-deductible.
Investment options: You can invest the money in your Roth IRA in a variety of ways, such as stocks, bonds, mutual funds, and exchange-traded funds (ETFs).
Tax benefits: Earnings on your investments grow tax-free, and you can withdraw your contributions and earnings tax-free in retirement as long as you meet certain conditions.
Withdrawals: You can withdraw your contributions to a Roth IRA at any time without penalty. However, you may owe taxes and a penalty if you withdraw your earnings before you reach age 59 1/2 and have not held the account for at least five years.
Roth IRAs can be a valuable tool for saving for retirement, especially for people who expect to be in a higher tax bracket in retirement than they are now.
How much can you contribute to a Roth IRA?
As long as you meet certain income requirements (which we’ll discuss shortly), you can contribute up to $6,000 a year to your Roth IRA. That number jumps to $7,000 if you’re at least 50 years old, helping you catch up financially and get ready faster as you approach retirement.
Plus, there are no minimum Roth IRA contribution limits when you turn 70 ½. So, you can use your Roth IRA as a way to provide your family with an inheritance.
Ready to retire early? A Roth IRA can help.
You can start making tax-free and penalty-free IRA withdrawals before you reach the traditional retirement age because you’ve already paid taxes. However, you have to pay taxes and potentially penalty fees on your earnings if you withdraw those early.
Plus, Roth IRAs aren’t just for retirement.
You can also use your funds for qualified education expenses without having to pay penalties or taxes. So, you can help pay for your own or your child’s college tuition, just as you would with a 529 plan (or in addition to it).
Although there are contribution limits, you get a lot of flexibility when you choose a Roth IRA. And when you have financial goals at any stage of life, flexibility is key.
What’s the difference between a traditional IRA and a Roth IRA?
If you’re at all familiar with retirement terminology, you may have heard of an IRA before. But there are a few key differences between a Roth IRA and a traditional IRA.
The most significant difference is when you pay your taxes. Unlike Roth IRAs, a traditional IRA allows you to take a tax deduction the year you actually contribute. So if you’re attempting to drop into a lower tax bracket or lower your overall tax payment, your traditional IRA contribution can help you do that.
Of course, there’s a catch.
When you start to take withdrawals when you retire, you’ll have to pay taxes on the full amount — including your earnings. But that’s not necessarily a bad thing.
If you’re established in your career and already earn a lot of money, you may expect your annual income to drop when you retire. You’re probably not going to withdraw your entire balance at once, so your tax rate might not be that high compared to where you are now.
Minimum Distributions
Speaking of making withdrawals from your account, you have to start taking the required minimum distributions once you hit the age of 70 ½. The minimum amount is based on a formula from the IRS comparing your age to your life expectancy.
If you want to take out funds from traditional IRAs before you reach the age of 59½, you’ll have to pay a 10% penalty on top of your income tax.
Still, like most investments, it’s good to have a diverse mix of products to help you now and in the future. You may want to consider having both a traditional IRA and a Roth IRA, particularly if you want to start lowering your annual federal tax burden.
Tax-Free Distributions
You must have a Roth IRA account opened for 5 tax years to be able to take any distributions, including earnings, that are tax-free. Furthermore, you are only eligible to take tax-free distributions for death or disability, after age 59-1/2, or for a first-time home purchase.
Roth IRA Eligibility Requirements
Unfortunately, there are restrictions on opening a Roth IRA, particularly for high-income earners. Depending on how much you make, you may be restricted on how much you can contribute, or you may not be able to make any contributions at all. Furthermore, you can only contribute earned income to a Roth IRA.
So, where do cutoffs start?
Single Tax Filer
Let’s look at single tax filers first.
For single tax filers and heads of household, you’re allowed to make the maximum contribution if you earn no more than $146,000. You can contribute a reduced amount if you earn more than $146,000, but less than $161,000. If you earn $161,000 or more, however, you can’t make any Roth IRA contributions.
Joint Tax Filer
Now let’s take a look at those married filing jointly.
You can make the maximum contribution if you earn up to $230,000 and a reduced amount if you earn between $$230,000 and $240,000. Once your annual income reaches $240,000 or more, you’re not eligible to contribute anything. Your modified adjusted gross income (MAGI) is what is used to determine IRA eligibility.
Depending on your anticipated income track over the course of your career, it may be worth opening a Roth IRA as soon as possible. That way, you can ensure that you contribute as much as possible while you still meet the requirements. You also give your investments as much time as possible to grow and compound before you’re ready to make withdrawals.
And since you can use a Roth IRA for a greater range of purposes than other types of retirement accounts, you give yourself greater financial flexibility in the future. It isn’t just about setting up a contribution each year and forgetting about it until you retire. Instead, a Roth IRA can be an active part of your near-term and long-term financial plans, like going back to school or retiring early.
How to Open a Roth IRA
Just about anywhere you conduct your financial business, whether it’s at a bank, credit union, online broker, or even a robo-advisor. Compare your options to make sure you’re getting low fees and good customer service.
Check for mutual funds with no transaction fees and ETFs that are commission-free. Some financial brokers still charge high prices for these fees. So, it’s important to make sure that you’re choosing one who will save you money in the long run. After all, those fees can really start to add up over decades of managing your Roth IRA.
Most brokers also allow you to rollover other accounts into your IRAs (both traditional IRAs and Roth IRAs). If this is a service you may need somewhere down the road, make sure your IRA broker is sophisticated enough to handle it.
Some robo-advisors, for example, may not accept rollovers. And if you leave a job where you’ve had a 401(k), you’ll want to make sure you have somewhere to put it once you’re gone.
With a bit of research and comparison, you can find a convenient, low-cost way to manage your Roth IRA over the years.
Where to Open a Roth IRA
To open up a Roth IRA, you need to select a brokerage firm. You may be able to do this at a financial institution you already work with, or you could explore other options. Both online and brick-and-mortar banks can serve as a broker. It really depends on where you want to house your investment and the type of fee structure you prefer.
Start with a bank you already use, but don’t be afraid to compare their offerings and fees to other financial institutions. It’s important to maximize your earnings so that you can retire comfortably.
How do you manage a Roth IRA?
What exactly do you need to do once you’ve opened a Roth IRA? You want to start by making contributions. You can roll over funds from a traditional 401(k) or traditional IRA, but you’ll be required to pay taxes on that money, so make sure you can handle that extra financial burden.
For 2024, you can still make a contribution to your Roth IRA for the previous year until the tax filing deadline of the following year. For instance, if you haven’t contributed the maximum amount to your Roth IRA by December 31, 2023, you have until the federal tax filing deadline in 2024 to make your contribution for 2023. The specific date of the tax filing deadline can vary each year, so it’s important to check the exact deadline for 2024.
Once you start funding your Roth IRA, it’s time to decide how you want to invest that money, just as you would with any other investment. The type of risk and diversity you select should be based on your own risk tolerance, as well as your age. If you’re in your 20s, you can pick much more aggressive investments than if you’re in your 50s.
For a low-cost approach, experts recommend either index funds or ETFs, which allow you to buy stocks and bonds that track broader markets.
Bottom Line
A Roth IRA can be an effective part of your retirement strategy, particularly considering all the tax advantages that come along with it. For the most effective retirement savings plan, look at all the options available to you. Then, see how each piece fits in the puzzle. As you inch closer and closer to retirement, continually reevaluate how you invest your savings.
For example, if you’re expecting a raise or promotion in the upcoming years that will bump you out of the income range for contributing to a Roth IRA, it may be wise to max out your contributions while you can. If you get a job with an employer that matches your 401(K) contributions, make sure you’re taking full advantage of that perk.
Constant reevaluation is necessary to make sure you’re benefitting from your retirement tools as much as possible. And you want to make sure that you’re taking care of your finances now and in the future. A Roth IRA truly is a favorite because regardless of where you are in life today, you can provide yourself with a lot of room to maneuver around whatever comes in life.
Your home equity can improve or harm your financial position, depending on how you use it.
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Your home equity can come in handy when you’re in a financial pinch. Whether you need to take care of home repairs, consolidate high interest credit card debt or cover a number of other potential expenses, your home equity could be the solution to your financial blues. Home equity loans are generally easy to access and typically come with far lower interest rates than personal loans and credit cards. Moreover, the average American homeowner has quite a bit of equity available.
Although home equity loans are widely available and come at a relatively low cost compared to unsecured lending options, they can have a negative impact on your financial stability if you use them improperly. But what should you, and shouldn’t you, do with home equity loans? Below, we’ll break down some important home equity dos and don’ts that owners should know.
Find out how much home equity you can tap into now.
Home equity loan dos and don’ts to know
“A home equity loan can be a great financial tool,” explains Derek Miser, investment advisor and CEO at Miser Wealth Partners in Knoxville, Tennessee. However, “it’s important to understand the dos and don’ts prior to using one.” Here are some of the most important home equity loan dos and don’ts to know:
Do: Review your financial needs
“First and foremost, you need to review your financial needs,” explains Miser. “Understand why you need the funds from a home equity loan and determine how much you need. Typically, home equity loans are used for home improvements, debt consolidation, emergency expenses, etc.”
For example, say you need to replace your roof. Rather than blindly taking out a home equity loan for what you think a roof replacement might cost, reach out to contractors for quotes. Since quotes aren’t always 100% accurate it’s a good idea to take out a loan for 10% more than the quote. So, if you expect your new roof to cost $10,000, you should consider an $11,000 home equity loan.
Use your home equity to access the money you need now.
Don’t: Borrow more than you need
“You want to ensure you don’t borrow more than you need,” says Miser. “Doing so can lead you to overextend yourself, ending in financial strain or even foreclosure, if payments cannot be made.”
Sure, it’s OK to borrow 10% more than you’ve been quoted for a job, but you shouldn’t borrow simply for the sake of borrowing. Using the example above, if you need $10,000 for a new roof, it’s OK to take out a home equity loan for $11,000. But you shouldn’t take one out for $20,000 for the sake of filling your pockets with additional spending cash.
Do: Compare lenders
“As with any large financial decision, shop around and compare rates and terms to find the option that works best,” explains Austin Niemiec, chief revenue officer for Rocket Mortgage.
Miser agrees, saying, “often, banks, credit unions and online lenders offer different rates, fees and repayment terms. Those should all be taken into consideration.”
Don’t: Forget your regular mortgage payment
“You’ll also want to make sure you don’t forget to pay your regular mortgage payment. This will still be required on top of the home equity loan payment,” explains Miser. Be sure to consider this before you apply, too. You wouldn’t want to take out a loan, only to find that when the payment is added to your current mortgage, you struggle to afford it.
Do: Understand the equity in your home
“It is important that homeowners fully understand the equity in their home – specifically the current value and the equity prior to applying for this type of loan,” explains Niemiec. So, you may want to start with an appraisal and compare the results to the remaining balance on your mortgage to determine how much home equity you actually have.
Don’t: Fail to have a repayment plan
Miser says it’s important to know how you’ll pay your loan back before you apply. “If you don’t have a clear plan for repaying the loan, then you probably shouldn’t get it. Make sure you can comfortably manage payments for the entire loan term prior to borrowing.”
Do: Use the funds for their intended purpose
“Finally, ensure you only use the funds for the intended purpose,” says Miser. “If you’re taking out money for an emergency, don’t apply the funds towards something that isn’t part of that emergency.” After all, if you spend the money on something other than what you took the loan out for, you’ll find yourself in the same position as you were before, but with a new loan payment on top of the existing financial hardship.
Find out how affordable home equity loans can be today.
The bottom line
Your home equity can be a valuable financial tool. But if you use it incorrectly, it can be a dangerous proposition. It’s important to consider your financial goals and how a home equity loan might fit into those goals when you decide whether or not to borrow against your home’s equity.
Joshua Rodriguez
Joshua Rodriguez is a personal finance and investing writer with a passion for his craft. When he’s not working, he enjoys time with his wife, two kids, three dogs and 10 ducks.
Investing is more than just saving for the future. It’s about creating a wealth-building strategy to truly make your nest egg grow. That’s because investing typically earns you a higher interest rate than if you put all of your money in a traditional savings account.
While historically low rates are great for when you need to borrow money, they’re pretty dismal when you’re ready to start saving. Investing does come with a higher risk, but you can generally mitigate it with diversified holdings and long-term positions. Plus, it’s easier than ever.
You’re not limited to working with an expensive brokerage or saving a huge amount to reach a minimum investment threshold. Now you can even invest by using an app on your smartphone with the leftover change from your checking account.
Ready to learn how to invest? We’ve got you covered with everything you need to know.
What is investing, and why is it important?
Investing is the act of putting money into financial instruments, such as stocks, bonds, or mutual funds, with the expectation of earning a profit. It allows individuals to save and grow their wealth over time, and can provide a financial cushion for the future, such as during retirement.
The Benefits of Investing
The reason money grows so aggressively through investing is that it’s powered by compound returns. Investments are typically meant for a long-term strategy, rather than taking out money every few months.
When you leave your money untouched in an investment vehicle that offers greater returns than a savings account, your gains continue to compound.
No matter what age you are, it’s a good time to start investing. If you’re younger, you can create a strong foundation to truly accumulate wealth over the coming years.
Even if you’re older, you may be able to catch up faster because of those higher returns. Don’t worry about getting started — even if you can only contribute a small amount each month, you’ll set up the infrastructure and challenge yourself to contribute more as you begin to earn more.
How to Reduce Your Risks in Investing
When investing long-term, you can’t think about your everyday gains and losses; instead, think about how your allocations are performing in the long run. You do want to review your investment choices as you reach different stages in your life; in particular, becoming less aggressive as you get older.
In fact, most investors don’t partake in volatile day trading. They spread their money over diversified investment types to help reduce risk and maximize returns over time.
There will always be economic cycles with highs and lows. But even downturns can be mitigated in your investment portfolio by spacing out your money over different product categories as well as different economic sectors. This can go a long way in protecting your money over time.
If you do want to try out some riskier investments, make sure you view that money as discretionary risk capital, meaning your livelihood and well-being won’t be impacted if you lose it all.
How to Invest Your Money
Diversification is essential, as is setting reminders to review the performance of your picks, such as a quarterly review. It also helps you adjust your asset allocation based on your own financial goals. Are you trying to retire earlier than you initially planned? Are you able to contribute more each month?
With these strategies in mind, here is a comprehensive review of different investment vehicles you can take advantage of to accumulate wealth over time.
Retirement Accounts
Retirement accounts are probably the most common and accessible types of investment accounts. You may be able to open a retirement account through your employer or open one on your own. Each type comes with a different tax treatment, so review the details carefully.
Traditional IRA
A traditional IRA is a tax-advantaged account that allows you to deduct your contributions each year. Once you start making retirement withdrawals, you’ll pay the IRS based on the tax bracket you’re in at that time.
They do have annual contribution limits. For 2024, it’s $7,000 unless you’re 50 years or older, in which case you can contribute up to $8,000.
If you want to take a distribution before you reach the age of 59 ½, you’ll have to pay a 10% penalty on top of your taxes. There are a few exceptions to the penalty, such as when you use the funds for a down payment on a house or qualified college expenses.
Another plus is that there is no income limit for qualifying, unlike other IRA options.
Roth IRA
A Roth IRA is another tax-advantaged retirement account. However, it comes with a few key differences compared to a traditional IRA. You don’t get a tax deduction when you make your contributions, but you do get to deduct your withdrawals once you reach retirement age.
If you think you’ll be in a higher tax bracket once you hit retirement, this could be a useful tool to save on your taxes later in life. For Roth IRAs, the contribution limit is between $7,000 and $8,000, depending on your age.
However, there’s another qualification you’ll have to meet: the income limit.
The more you earn, the less you’re able to contribute. Your contribution limit is reduced when you earn more than $230,000 for those married filing jointly and more than $146,000 for those filing single or as head of household.
Rollover IRA
A rollover IRA is one way to transfer an existing 401(k) from your employer once you decide to leave the company. Sometimes an employer lets you leave it there or transfer your funds to a retirement plan at your new place of work. Whether those two scenarios don’t apply to you or you prefer the flexibility of an IRA, a rollover may be a suitable option for you.
Both traditional and Roth IRAs generally allow you to bring in transfer retirement accounts. Just be sure to check your eligibility for either type, as well as any relevant fees you may incur during the transfer process.
SEP IRA
This type of IRA is designed specifically for self-employed individuals. While traditional and Roth IRAs are often used to supplement retirement savings accrued through employer plans, a SEP IRA allows for higher contribution limits when you work for yourself. The contribution is the lesser of either 25% of your income or $69,000.
Its tax treatment is the same as traditional IRAs. If you have employees, however, you must provide each one with their own SEP IRA and contribute the same salary percentage as you contribute to your own. Still, this can be a strong option to speed up your retirement investments, particularly if you don’t have employees or only have a few.
Stocks
Investing in stocks is typically best for active investors, and ideally, someone who already has experience in the stock market. If you’re just getting started, consider your stock investments as play money rather than something you need to rely on to meet your future financial goals. Because individual stocks are riskier, be sure to diversify the ones you choose to invest in.
Buying and selling stocks can result in hefty commission fees. Consider a buy-and-hold approach to avoid accumulating too many expenses, especially when you’re first getting started.
While you no longer need an established broker to execute trades, you can instead create a brokerage account with one of the larger brokerage firms. Your best bet is to compare fees as well as available research to help you make informed trading decisions.
Mutual Funds
Mutual funds combine your money with other investors to purchase securities for the entire group. The portfolio is professionally overseen by a manager, who then selects different types of stocks, bonds, and other securities on your behalf.
You can gauge the performance of a particular mutual fund by comparing it to its chosen benchmark, such as the S&P 500. If it regularly performs better over the course of a three to five-year period, then it could be a good investment choice.
Mutual funds are a popular choice because you generally don’t need a lot of money to get started. You can often choose one within your retirement account to get around any minimum requirements, or even set up a recurring investment amount.
Plus, mutual funds are extremely diversified, often holding as much as 100 securities in each one. This helps to minimize your risk as well as the amount of time you spend managing your portfolio.
Index Fund
An index fund is a popular type of mutual fund that follows a predetermined investment methodology rather than having a portfolio manager pick the included securities.
For example, you could choose a Dow Jones Industrial Average index fund, which includes 30 powerhouse companies in the U.S. Whiles that’s a large-scale example, different investment firms create their own index funds for investors to conveniently choose from.
Another benefit of investing in an index fund is that transaction costs are often lower, as are their mutual fund expense ratios. Many index funds are also geared toward investors with lower balances. While some firms have high minimum opening balances of $100,000 or more, you can get started with much less when you pick an index fund.
Exchange-Traded Funds (ETFs)
An exchange-traded fund, or ETF, trades the same way a stock does while tracking a certain basket of assets. There are countless types of ETFs to choose from based on your investment goals.
Common options include market, bond, commodity, foreign market, and alternative investment ETFs. They’re bought and sold like stocks throughout the day, but a major difference is that ETFs can issue and redeem their shares at any point.
There are many benefits that go along with an ETF. For starters, you have more control over when you pay your capital gains tax. There are also lower fees, although you’ll still pay brokerage commissions. Finally, while mutual funds can only be settled after the stock market closes for the day, an ETF allows you to trade at any time.
Bonds
Bonds are a good tool to have in your investment portfolio because they are a low-risk option. Different types of bonds include corporate, municipal, and Treasury bonds. Bonds are fixed-income investments, so you know exactly what to expect when those payout dates come throughout the year. Such predictability does come with a few downsides, though.
First, bonds come with a fixed investment period. If you invest in a longer-term bond, then you’re stuck with it until it matures — unless you decide to sell. But there’s a bit of risk involved there, involving the interest.
Bond rates aren’t locked in, so yours could be devalued if the same issuer bumps up the interest rate at a later time. So if new investors get a better interest rate than you did, you’re still locked into your lower rate. In general, bonds generally come with lower growth than other investments, but that’s considered the trade-off for a lower-risk vehicle.
Real Estate
People always need a place to live, so real estate investing can be an attractive option for investors. There are several ways to do this that account for your desired risk tolerance as well as your desired level of involvement.
Investment Properties
If you feel the drive to own property, an investment property is one way to make a real estate investment. Depending on how you choose to manage your property, this can amount to a steady stream of passive income.
Over time, you could also benefit from market appreciation, although that’s not necessarily guaranteed. There are risks involved with investment properties. Unlike investing in a stock or fund, a physical property involves expenses, such as upkeep, marketing, and a management firm if you want a hands-off experience.
You’ll also need some cash to get started, since most investment property loans require at least a 25% down payment. Moreover, the mortgage is considered part of your debt-to-income ratio, which could affect your future financing opportunities.
If you ever want to cash out on your investment, you’ll be subject to the market value of that moment. Plus, it’s a cumbersome, illiquid way to invest money. Still, the returns can be much greater than traditional investments, making investment properties an attractive option to some people.
REITs
If you would like to invest in real estate without the hassle of acting as a landlord, consider a real estate investment trust, or REIT. These are traded on the stock exchange and can also be offered in the form of a mutual fund or ETF.
Returns can increase as property values rise and generally focus on a portfolio of commercial properties. Shareholders also benefit because REITs don’t pay corporate tax, which helps boost returns as well.
You can pick what sector you want to invest in, such as healthcare, residential, hotel, or industrial REITs. Each comes with separate risks that should be weighed thoughtfully. REIT shares can be purchased through a broker, and each one will have its own fee structure to review as well.
Crowdfunding
Real estate crowdfunding is a type of peer-to-peer lending that is growing traction among investors of all levels. New fintech companies are popping up to compete with REITs, claiming better returns. So, what’s the difference between REITs and real estate crowdfunding sites?
The most significant difference is that instead of choosing a portfolio of properties within a certain asset class, you can choose specific commercial properties in which to invest. While individual investors traditionally wouldn’t be able to invest directly in projects like these, crowdfunding lets you enter these markets with a much smaller amount of cash.
One of the benefits is that you can do much more specialized research to determine what property to invest in. The process is much less passive than REITs. On the downside, however, the risk potential could be higher since your money is riding on one single building rather than a diversified portfolio.
See also: How to Build Generational Wealth
Platforms for Investing Your Money
There are many ways to start investing your money. A financial advisor, though charging extra fees, may provide you with much-needed guidance and education, especially if you’re a beginner. But if you prefer a little less hand-holding, you can consider two other options as well.
Online Brokers
Online brokerages give you the convenience of investing online with the added benefit of controlling what you invest in. So, it’s definitely a more hands-on process than the robo-advisor. Like robo-advisors, however, most online brokers don’t have a minimum balance requirement, so they’re still quite accessible to all types of investors.
Instead of paying a percentage of your funds, online brokers usually charge transaction fees for trades, as well as one-off fees. On the plus side, you’re not limited to your choosing certain funds, as you are with a robo-advisor. If you’d like, you can even select individual stocks. Online brokers and robo-advisors cater to two different types of investors, so the best choice depends on your specific goals.
Robo-Advisors
Enlisting the help of a robo-advisor can be helpful for beginning investors or anyone who wishes to utilize a “set it and forget it” mentality for their portfolio.
Robo-advisors don’t use human financial advisors; instead, they rely on computer algorithms to determine your portfolio allocations. Many of them also use tax harvesting strategies to decrease your tax burden at the end of the year.
Service fees are low and generally charged as a percentage of your invested funds. The transparency is excellent for new investors, and you can also benefit from the low minimum balances. Different robo-advisors offer different investment vehicles you can choose from. You can also pick one based on their investing strategy; most, for instance, pick from ETFs and index funds.
Bottom Line
There are a slew of intricacies for building your investment strategy and making your money work for you. Start with a plan that makes sense for your risk tolerance while still leaving room for growth.
You can access countless resources, from free online tutorials to paid financial advisors, to ensure you have a robust investment plan that will generate a passive income strategy to meet your goals.
How to Invest FAQs
What are the different types of investments?
There are many types of investments. The most popular investments include stocks, bonds, mutual funds, exchange-traded funds (ETFs), and real estate. Each type of investment carries its own level of risk and potential return.
What are the risks of investing?
Investing involves risk, including the potential for loss of principal. The value of investments can fluctuate and may be affected by market conditions, economic events, and other factors.
It’s essential to understand the risks associated with any investment and to consider your risk tolerance before making any investment decisions.
How do I choose the best investments for me?
The best investments for you will depend on your financial goals, how much risk you can tolerate, and other personal factors. It can be helpful to consult an investment advisor or do your own research to determine which investments are suitable for you.
It’s also wise to diversify your portfolio, or invest in various assets, to spread risk and potentially maximize returns.
How much money do I need to start investing?
There is no minimum amount required to start investing. In fact, you can get started investing with $500 or less. However, you should first have a sufficient emergency fund in place before investing. Some investments may have minimum investment requirements, such as mutual funds or certain types of brokerage accounts.
What is a brokerage account?
A brokerage account is a type of investment account that allows you to buy and sell assets such as stocks, mutual funds, ETFs, and bonds. When you open a brokerage account, you typically do so with a financial institution, such as a bank, a credit union, or an online brokerage firm.
To open a brokerage account, you will generally need to provide some personal information, such as your name, address, and Social Security number. You will also typically need to make a deposit of money into the account, which you can use to buy investments.
Once you have a brokerage account, you can place orders to buy or sell investments online, over the phone, or through a broker. The brokerage firm will execute the trades on your behalf and will typically charge a commission or fee for the service.
Brokerage accounts offer a convenient way to manage your investments and to buy and sell assets easily and quickly. They also provide a range of tools and resources to help you make informed investment decisions, such as market research, news and analysis, and educational materials.
Can I invest in stocks with just $100?
Yes, it is possible to invest in stocks with a relatively small amount of money, such as $100. Many brokerage firms have no minimum initial deposit requirement and allow you to start investing with whatever amount of money you have available.
How do I diversify my investment portfolio?
Diversification is the process of investing in various assets to spread risk and potentially maximize returns. This can be achieved by investing in different types of assets, such as stocks, bonds, and real estate, or by investing in different sectors or industries within a particular asset class. To maintain a diversified portfolio, review and adjust it periodically.
What is a financial advisor and do I need one?
A financial advisor is a professional who provides advice on financial matters, such as investing and saving for retirement. Whether you need a financial advisor will depend on your financial goals, risk tolerance, and investment experience. Some people may prefer to handle their own investments, while others may benefit from the guidance of an investment advisor.
How do I determine my risk tolerance?
Risk tolerance is an individual’s willingness to accept financial risk in pursuit of potential returns. Factors that may affect how much risk you’re willing to take include age, financial goals, and personal comfort level with risk.
Can I lose money by investing?
Investing always carries some level of risk, as the value of your investments can fluctuate and be impacted by various market conditions and economic events. It’s crucial to understand the risks associated with any investment and to consider your risk tolerance and investment objectives before making any investment decisions.
Diversifying your portfolio and not investing more money than you can afford to lose can help mitigate potential losses. Always be sure to do your research and consider seeking investment advice from a financial advisor before making any decisions.
Negative marks can stay on your credit report for seven or even 10 years. But if you are having trouble managing your finances, don’t panic.
Many people hit a moment at some point when they miss a payment or pay bills late. Or perhaps they face mounting credit card debt or the prospect of foreclosure. If you are grappling with any of these situations, you may wonder how long your credit report will reflect these issues.
While seven years is a typical time period for events to stay on your report and potentially impact your credit score, the time period could be considerably shorter. And as time passes, the effect of these “bad marks” will typically diminish.
Read on to learn more about what can lower your credit score, how long it can take to bounce back, and ways to manage your money responsibly, which can help build your score.
Factors that Can Influence Your Credit Score & Report
A credit score gives a numerical value to a person’s credit history. It can help give lenders a big-picture look at a potential borrower’s creditworthiness. These scores (there isn’t just one) give lenders insight into how reliable a person might be when it comes to repaying their debt.
This can influence a lender’s decision on whether or not to loan a person money, how much money they are willing to lend, and the rates and terms for which a borrower qualifies.
Since credit scores are so widely used, it’s easy to see why some individuals may be interested in improving their credit scores. First, it might be helpful to understand the factors used to actually determine your score. Here’s a snapshot of what goes into a FICO® Score, since that is the credit score used by many lenders right now.
• Your payment history accounts for approximately 35% of your FICO Score, making it one of the most influential factors. Even just one missed or late payment could potentially lower a person’s credit score.
• Credit utilization ratio accounts for 30% of your score. Credit utilization ratio is your total revolving debt in comparison to your total available revolving credit limit. A low credit utilization ratio can indicate to lenders that you are effectively managing your credit. Typically, lenders like to see a credit utilization ratio that is less than 30%.
• The length of your credit history counts for 15%, and that may be a good reason not to close an account that you use infrequently. It might help add to the length of your history.
• Your credit mix accounts for 10% of your score. While not a good reason to go out and open a new line of credit, the bureaus do tend to prefer to see a mix of accounts vs. just one kind of credit.
• The last component, also at 10%, is new credit, meaning are you currently making a lot of requests for credit. The number of hard credit inquiries in your name could make it look as if you are at risk of financial instability and are seeking ways to pay for goods and services.
💡 Quick Tip: Some personal loan lenders can release your funds as quickly as the same day your loan is approved.
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Credit Issues: How Long Do They Linger?
Negative factors like late payments and foreclosures can hang around on your credit report for a while. Generally, the information is included for around seven years.
Bankruptcy is an exception to this seven year guideline—it can linger on your credit report for up to 10 years, depending on the type of bankruptcy filed. Bankruptcies filed under Chapter 7 can be reported for up to 10 years from the filing date. Bankruptcies filed under Chapter 13 can be reported for seven.
While a late payment will be listed on a credit report for seven years, as time passes it typically has less of an impact. So if you missed a payment last month, it will have more of an effect on your score than if you missed a payment four years ago.
These numbers are important to know when you are working to build your credit.
How Long Does It Take For Your Credit Score to Go Up?
Here’s a look, in chart form, at how long it takes for different negative factors to drop off your credit report.
Factor
Typical credit score recovery time
Bankruptcy
7-10 years
Late payment
Up to 7 years
Home foreclosure
Up to 7 years
Closing a credit card account
3 months or longer
Maxing out a credit card account
3 months or longer, depending on how quickly you repay your debt
Applying for a new credit card
3 months typically
Disputing an Error on Your Credit Report
Checking your credit report can help you stay on top of your credit. You’ll also be able to make sure the information is correct, and if needed, dispute any mistakes. There could, for instance, be a bill you paid long ago on your report as unpaid, or perhaps account details belonging to someone else with a similar name erroneously wound up on your report.
There are three major credit bureaus — Equifax®, Experian®, and TransUnion®. Once a year you can request a copy of your credit report from each of the three credit bureaus, at no cost. You can visit AnnualCreditReport.com to learn more. Checking in with each report may feel a little repetitive, but it’s possible that the credit bureaus could have slightly different information on file.
If you find that there are discrepancies or errors, you can dispute the mistake. You’ll have to write to each credit bureau individually. Generally, you’ll need to send in documentation to support your claim. Once you’ve submitted your dispute letter, the bureaus typically have 30 days to respond.
It’s possible that a bureau will require additional supporting documentation, which can lead to some back and forth within or sometimes after the 30 days. It could take anywhere from three to six months to resolve a credit dispute, though some of these situations will take more or less time depending on complexity.
Staying on Top of Efforts to Build Credit
Sometimes, resolving issues on a credit report isn’t enough to build a bad credit score. On the bright side, credit scores aren’t permanent. Here are a few ideas for helping you to build your credit.
Improve Account Management
If you’re struggling to keep up with accounts with a variety of financial institutions, it could be time to simplify. Take stock of your investments, debts, credit cards, and savings or checking accounts. Is there any opportunity to consolidate?
Having your accounts in one, easy-to-check location can make it simpler to ensure you never miss an alert or important deadline. Automating your finances and using your bank’s app to regularly check in with your accounts (say, a few times a week can be a good cadence) can make good money sense as well, helping you keep on top of payment deadlines and when your balance might be getting low. 💡 Quick Tip: Swap high-interest debt for a lower-interest loan, and save money on your monthly payments. Find out why credit card consolidation loans are so popular.
Make Payments On-Time
Did you know that your payment history (as in, do you pay on time) is the single largest factor in determining your credit score? Lenders can be hesitant to lend money to people with a history of late payments. So make sure you’re aware of each bill’s due date and make your payments on time. One idea? As mentioned above, you could set up autopay so you don’t even have to think about it.
Limit Credit Utilization Ratio
It could help to set a realistic budget that leads to a fair credit utilization ratio, meaning that your credit balances aren’t too high in relation to your credit limit. Some accounts will let you set up balance alerts that can warn you as you inch closer to the 30% guideline of the maximum you want to reach. Another option could be paying your credit card bill more frequently (for example, setting up a mid-cycle payment in addition to your regular payment).
Stratege to Destroy Debt
When it comes to paying off debt, having a plan can help. For example, using a credit card can be an effective way to build your credit history, but if not used responsibly, credit card debt can be incredibly difficult to pay off.
Not only that, it could end up impacting your credit score (say, if your credit utilization ratio creeps up above 30%, as noted above). As a part of your plan to build your credit after negative factors have occurred, you might consider putting a debt repayment plan into place.
Your finances and personal situation will be a major factor in the debt payoff plan that works best for you. If you need some inspiration, the methods below may be helpful to reference in your quest to pay off debt. If you decide that one of these options works for you, here’s how you might go about them.
The Snowball
The snowball method of paying off debt is pretty straightforward.
• To put it into action, you would organize your debts from smallest to largest, without factoring in the interest rates.
• Then you’d continue to make the minimum payments on all of your debts while paying as much as possible on your smallest debt.
• When the smallest debt is paid off, you’d then roll that money into debt payments for the next smallest debt — until all of your debt is repaid.
This strategy is all about changing behavior and building in incentives to help keep you going. Starting with the smallest debt means you’d see the reward of paying it off faster than if you had started with the larger debt. While this method can help keep you motivated and laser-focused on eliminating your debt, it isn’t always the most cost effective, since it doesn’t take into account interest rates.
The Avalanche
The debt avalanche method encourages you to focus on your highest-interest debts first.
• Prioritize debts with the highest interest rates by putting any extra cash towards them.
• Continue to make the minimum payments on all of your other debts.
This technique could help save money in interest in the long run. And it could even help you pay off your debts sooner than the snowball method.
The Fireball
The fireball method combines the snowball and avalanche methods in a hybrid approach designed to help you blaze through costly debt so you can focus on the things that matter most to you.
• The first step in this method is to go through all of your debts and categorize them as either “good” or “bad.”
• “Good” debts are those that tend to contribute to your financial growth and net worth; they also tend to have relatively lower interest rates. Good debt might be a student loan that helps you launch your career or a mortgage that allows you to own a home.
• Debts with high interest rates that don’t go towards building wealth (such as credit card debt) are often considered “bad.” With this method, you can list your “bad” debts from the smallest amount to the largest amount.
• Then you’d take a look at your budget and see how much money you have to funnel toward making extra debt payments. While making the minimum monthly payment on all outstanding debts, you’d direct the extra funds toward the bad debt with the smallest amount due.
• When that smallest balance is repaid in full, you’d apply the total amount you were paying on that debt to the next smallest debt. Then you’d continue this pattern, moving through each outstanding bad debt until they are all paid in full.
An important note: While you are moving through your higher-interest debts, you would still follow the normal payment schedule on your lower-interest debts.
By focusing on the debts with the highest interest rates first, this method could save you some change when compared with the snowball method. And, since you’re then targeting bad debt from the smallest balance to the largest, you could still benefit from the same psychological boost as you see your debt shrink, one payment at a time.
Create a Goals-Based Approach
Having financial goals could possibly help you streamline your efforts. If you’re actively working toward saving for, say, a down payment, you may feel less inclined to spend money elsewhere.
You could try setting short-term, mid-term, and long-term goals. In the short-term your goals might be as simple as tracking your spending and setting up a budget. Or perhaps saving for a big vacation that’s a year or so away. For mid-term goals, you might think about something a little further out, like buying a house or saving for a child’s education. Long-term goals are often things like (you guessed it) saving for retirement.
Writing down your goals and setting a time for when you’d like to reach them can help you set up your plan.
Consolidate Your Debt
If you are working on building your credit and want to pay down your credit card balances, one option could be a personal loan to consolidate that high-interest debt.
Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.
SoFi’s Personal Loan was named NerdWallet’s 2023 winner for Best Online Personal Loan overall.
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