AnnieMac is suing a former branch manager to recoup an alleged $500,000 signing bonus, its second such federal lawsuit against a former employee in the past two months.
Peyton Elizabeth Fullerton, a Denver-based originator, owes $496,136.63 after voluntarily leaving the company in January, AnnieMac alleges in its complaint filed last week. The sum stems from a $500,000 retention bonus Fullerton signed when she joined the company last July as an originating branch manager, and it mandated she stay with the firm for at least 18 months or repay the bonus.
Neither AnnieMac, its attorney, nor Fullerton, who is still working for the Denver-based The Mortgage Project, responded to requests for comment last week. A summons for Fullerton in the U.S. District Court for the District of New Jersey was issued June 28.
The lawsuit includes an alleged copy of Fullerton’s electronically signed retention bonus, which said she would receive the sum across her first two paychecks last July. Sections describing Fullerton’s salary and compensation in basis points per volume threshold are redacted.
Fullerton had $3,863.37 deducted from her final paycheck in January to cover the retention bonus, the complaint said. The employment agreement also requires Fullerton to pay for costs of litigation and to consent to litigation in a New Jersey state or federal court.
AnnieMac earlier this month voluntarily dismissed a similar suit against former Pennsylvania-based branch manager Nicholas Roberto DeJesus, who allegedly owed the firm $102,133.01 after his departure. DeJesus, according to the complaint, received a $144,000 retention bonus when he joined in October 2021 but quit last October, falling just short of his agreement’s 12-month stipulation to keep the bonus.
The lender allegedly deducted $41,867 from DeJesus’ final paycheck, and the former branch manager refused to repay the rest. AnnieMac’s voluntary dismissal of the suit June 1 didn’t say whether the sides had reached any agreement.
The company is also facing a discrimination complaint from a former Florida-based mortgage closer, who alleged disparate treatment of Black workers during her employment, and AnnieMac has yet to respond to a summons in that case.
The Mount Laurel, New Jersey-based firm originated over $731 million in mortgage volume between January and April this year and over $4 billion in mortgage volume last year, according to data from analytics firm S&P Global. AnnieMac counts 450 mortgage loan originators according to Nationwide Multistate Licensing System records, and in March it acquired in-state competitor Family First Funding.
The lawsuits over retention bonuses resemble an action by megalender CrossCountry Mortgage, which is also suing at least one former employee to recoup an alleged five-figure sign-on bonus. That case remains pending in an Ohio federal court.
Mortgage rates decreased one basis point to 3.10% in the week ending Dec. 9, remaining low and stable despite tighter housing supply and affordability, according to the latest Freddie Mac PMMS mortgage report.
A year ago at this time, the average 30-year fixed-rate loan averaged just 2.71%, according to the report published on Thursday.
Sam Khater, Freddie Mac’s chief economist, said in a statement that rates have moved sideways over the last several weeks, fluctuating within a narrow range.
“Going forward, the path that rates take will be directly impacted by more information about the Omicron variant as it is revealed and the overall trajectory of the pandemic,” Khater said. “In the meantime, rates remain low and stable, even as the nation faces declining housing affordability and low inventory.”
The survey focuses on conventional, conforming, and fully amortizing home purchase loans for borrowers who put 20% down and have excellent credit.
Lenders – Now is the time to prioritize lead generation
HousingWire Editor-in-Chief Sarah Wheeler and Deluxe Senior Business Development Executive Mark McGuinn discuss the challenges lenders are facing to optimize lead generation, even as mortgage rates continue to change.
Presented by: Deluxe
Economists at Freddie Mac said the 15-year fixed-rate mortgage averaged 2.38% last week, down from 2.39% the week prior. However, it’s higher than it was a year ago, at 2.26%. Meanwhile, the five-year ARM decreased to 2.45%, down four basis points from last week. A year ago, 5-year ARMs averaged 2.79%.
Mortgage rates tend to move in concert with the 10-year Treasury yield, which reached 1.52% on Dec. 8, up from 1.43% a week before.
The year-over-year increase in rates is impacting mortgage applications. The latest Mortgage Bankers Association (MBA) survey published on Wednesday showed a 27.3% decline for the week ending Dec. 3, in comparison to a year ago. The decline is higher in refinance (36.5%) than in purchases (9.4%).
Compared to the previous week, the overall market composite index grew 2% on a seasonally adjusted basis.
“Mortgage rates declined for the first time in a month, prompting a pickup in refinancing, with government refinances increasing more than 20% over the week,” Joel Kan, the MBA’s associate vice president of economic and industry forecasting, said in a statement. “Borrowers are continuing to act on these opportunities, but if rates trend higher as MBA is forecasting, the window of opportunity to refinance will continue to get smaller.”
While there are thousands of mortgage companies nationwide, only a select few land in the top 10.
Today, we’ll examine U.S. Bank Mortgage, which ranked 9th in 2019 for total home loan origination volume.
Being a very large depository institution, they’ve got advantages that other, smaller competitors don’t have.
Namely, lots of liquidity and the ability to keep loans on their books, instead of having to sell them off and rely on short-term financing.
This means they can offer mortgage products that the other guys can’t, and potentially lower mortgage rates too.
Let’s learn more about U.S. Bank’s mortgage division.
U.S. Bank Mortgage Fast Facts
9th largest mortgage lender in 2019 based in Minneapolis, Minnesota
Operates both a retail direct-to-consumer and correspondent lending business
Funded $32 billion in home loans last year
A third of total loan volume took place in California
Nearly half of their volume consisted of jumbo loans
Originate a large share of adjustable-rate mortgages
Available in all 50 states and D.C., branches located in 40 states
How to Apply for a Mortgage with U.S. Bank
You can apply online or by phone via digital mortgage application powered by Blend
A faster pre-qualification or loan estimate is also available if simply shopping around
Can request a call from a loan officer or visit a retail branch if located near you
Once approved you can track loan progress via the U.S. Bank Loan Portal
Those who want to apply for a mortgage with U.S. Bank can do so via their website, without human interaction.
So if you’re the impatient type, or simply know what you’re doing, you can get started straight away.
Their digital mortgage application is powered by Blend, a fintech vendor used by many of the top mortgage companies in the country.
Known as the U.S. Bank Loan Portal, it allows you to link financial accounts and speed through the application process without having to gather paperwork and upload documents.
You can connect payroll, tax, and bank account information securely to ensure your application is accurate and complete.
And once approved, you can track loan progress, get status updates, and send messages to your loan team if you have questions.
Alternatively, you can call them up or request a phone call, or visit a brick-and-mortar branch if you want a more hands-on, personal touch.
If you’ve been referred to someone specific, or want to work with someone in your neck of the woods, they have a loan officer directory as well.
You can filter by both address or by name to find someone you know or an individual who works nearby. Then you can apply for a mortgage directly from their personal website.
It’s also possible to generate a quick pre-qualification via their website if you’re not quite ready to apply, but want to see where you stand.
Or if you’re just shopping around, they offer the ability to generate a loan estimate using limited borrower information (look out for a link to this option on the bottom of the application page).
All in all, U.S. Bank makes it easy to get pricing or apply for a home loan.
What Does U.S. Bank Mortgage Offer?
Home purchase loans, refinance loans, home equity loans/lines
Conventional financing (Fannie/Freddie) and government (FHA, USDA, VA)
Fixed-rate mortgages and ARMs
Jumbo home loans up to $3 million loan amounts
Construction home loans and lot loans
Portfolio loans (non-QM)
Physician mortgages
Available on primary homes, second homes, and 1-to-4-unit investment properties
One thing that separates U.S. Bank Mortgage from other mortgage lenders is its expansive menu of home loan offerings.
You can get a home purchase loan, a refinance loan, both rate and term and cash out, a streamline refinance such as a VA IRRRL, or a home equity loan/line.
As noted, they are a large depository bank, which allows them to offer things their competitors can’t.
Namely, portfolio loans that they keep on their books, with their own set of rules and guidelines that may go above and beyond what others have available.
Sure, you can get a conventional 30-year fixed mortgage from U.S. Bank, like anywhere else. But you can also get a 10/1 ARM, a jumbo loan, a construction loan, or a physician’s mortgage.
Additionally, they’ve got a full menu of adjustable-rate mortgage options, such as a 3/1, 5/1, or 10/1 ARM. It’s unclear if they offer interest-only mortgages at this time.
Those looking to purchase a home can sign up in the U.S. Bank Loan Portal and apply for a mortgage eligibility letter, which is their version of a mortgage pre-approval.
Existing homeowners can take advantage of both home equity lines of credit (HELOCs) and home equity loans if you’re happy with your first mortgage but want to tap equity.
You may also be eligible for a discount on closing costs if you’re an existing U.S. Bank customer or if your company participates in the U.S. Bank Corporate Employee Mortgage Program.
Ultimately, they’ve got you covered no matter what type of financing you need.
U.S. Bank Smart Refinance
U.S. Bank Mortgage also offers a so-called “Smart Refinance,” which is their take on the no closing cost refinance.
It allows you to refinance an existing home loan without incurring the typical closing costs, at least out of pocket.
Interestingly, you can only get a loan term as long as 20 years on the Smart Refinance, which is probably intended to keep your loan payoff on track.
But you can take cash out, so even if your loan balance grows as a result, your payoff should come faster, or at least not be extended.
This can save you interest, though monthly payments will be higher to compensate for the shorter loan term.
And there’s a good chance the mortgage rate will be higher to offset the lack of closing costs, unless those are rolled into the loan.
U.S. Bank Mortgage Rates
One plus is that U.S. Bank openly advertises its mortgage rates right on their website. And they are updated daily as the market changes.
You can see both purchase and refinance rates, along with rates by loan type, such as 30-year fixed or 5/1 ARM, or an FHA loan rate.
I checked them out and their fixed mortgage rates seemed pretty competitive relative to what other lenders are offering.
Their jumbo loans were priced only a little bit higher than their conforming loans, and their government home loans were similarly priced.
Their adjustable-rate mortgage rates were actually pricing higher than their fixed offerings, which is a bit of an oddity, though common at the moment.
Typically, these would be offered at a discount, so if applying with U.S. Bank, a fixed-rate mortgage may be the way to go.
Be sure to pay attention to the loan assumptions – when I checked, many of the loan rates required discount points of 0.862% for the advertised rate.
Additionally, they assumed you were buying or refinancing a single-family, primary residence with 20% down and a FICO score of 740+.
U.S. Bank Mortgage Reviews
U.S. Bank Mortgage has a 4.98 rating out of 5 on Zillow, which is as close to perfection as I’ve seen, especially since it’s based on over 4,000 customer reviews.
That’s a pretty large sample size for such as high rating – many customers indicated that the interest rate and fees were lowered than expected.
The nice thing with the Zillow reviews is you can also see how an individual loan officer performs since most of the reviews show who the customer worked with.
You may want to search for specific loan officers since U.S. Bank is such a large company to ensure you’re matched with one of their best employees.
Their reviews on Trustpilot aren’t nearly as good, though some are for products other than mortgage. Be sure to filter reviews for home loans to get a better idea of what to expect.
They are Better Business Bureau accredited, and have been since 1970. While they have an A+ BBB rating, they’ve only got a 1-star and change rating based on customer reviews.
Again, with a mega bank you’re going to have mixed experiences, which is why comparing individual loan officer reviews is key.
U.S. Bank Mortgage Pros and Cons
The Good Stuff
Available in all 50 states and D.C.
Completely digital loan application with ability to link financial accounts
They advertise their mortgage rates (and provide daily pricing updates)
Discounts for existing U.S. Bank customers
Lots of home loan programs to choose from
Free mortgage calculators to determine affordability
They may service your loan as opposed to selling it off to a different company
The Possible Bad Stuff
No mention of lender fees (may have to pay an origination fee)
May need a high FICO score to get approved
Customer experience may vary since it’s such a large bank
Possibly bureaucratic since you’re dealing with a huge company
Homebuyers didn’t get any relief in mortgage rates this week, leaving them with little choice to either move forward with their purchase plans at elevated rates or stick to the sidelines.
The rate on the 30-year fixed mortgage edged higher to 6.71% from 6.67% the week prior, according to Freddie Mac. Rates have swayed between 6% and 7% since the start of the year, showing little signs of softening this summer.
The high rates have kept many homeowners from listing their homes, driving up prices on what’s left in the market and creating unfavorable conditions for the buyers still on the hunt.
“That move-up buyer is pretty much gone,” Luis Padilla, CEO of Oceanside Realty and Padilla Team in Miami, told Yahoo Finance. “It’s what’s putting the brakes on the market and inventory.”
Rate-trapped homeowners stall inventory growth
The latest data showing homes that went into contract in May underscores the inventory challenges.
Pending home sales, a leading indicator of the housing market’s health, dropped 2.7% in May from the previous month, much more than what was expected. That’s largely because buyers couldn’t find enough homes to make a deal, NAR chief economist Lawrence Yun said, noting that each listing received three offers on average.
The shortages have persisted. There were 459,000 single-family homes on the market for the week ending June 26, according to Altos Research. While up 1.9% from a week prior, that’s 10% fewer homes compared with a year ago.
“Normally by mid June you’d have 10-20% more homes on the market than over the holidays,” Mike Simonsen, CEO of Altos Research, wrote in his blog. “But this year we have fewer.”
Chad Wootton looks at the listings of homes for sale while talking on the phone in Los Angeles. (Jae C. Hong, AP Photo)
The biggest reason for the dearth of properties is reluctance from homeowners, most of whom have a much lower mortgage rate than the prevailing rate.
“That move buyer doesn’t want to give up that 3% mortgage rate,” Padilla said. “They would rather commute 30 minutes to work than pay hundreds more on a monthly mortgage payment.”
Buyers move on to new homes
So what’s a homebuyer to do? Many of them who are still in the market are looking at new builds.
That was one factor that pushed the volume of mortgage applications for purchases up 3% for the week ending June 23, according to the Mortgage Bankers Association (MBA). That’s the third week of increases and the highest level of activity since early May.
“New homes sales have been driving purchase activity in recent months as buyers look for options beyond the existing-home market,” MBA Deputy Chief Economist Joel Kan said in a statement. “Existing-home sales continued to be held back by a lack of for-sale inventory as many potential sellers are holding on to their lower-rate mortgages.”
A Beazer home is shown under construction in Gilbert, Ariz. (Matt York, AP Photo)
Though new inventory offers a glimmer of hope, very few homes that are available are affordable to entry-level buyers.
Padilla noted that while the share of active listings had increased 19.5% in May in the Miami-Dade area, the average cost of a single-family home was $620,000, up 7.8% from a year prior. Prices for condos increased 6.5% to $415,000.
That tracks with national data this week showing prices have increased for three months in a row, making conditions worse for buyers out there.
“This is good news for homeowners gaining more equity,” Mark Fleming, First American’s chief economist, previously told Yahoo Finance. “But it will pressure affordability for the potential first-time homebuyer.”
Gabriella is a personal finance reporter at Yahoo Finance. Follow her on Twitter @__gabriellacruz.
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CMG Financial isn’t new to the mortgage industry, having been around since 1993.
That makes them a veritable veteran in the home loan space, as many of today’s top mortgage lenders have only been around since the 2000s.
Of course, age isn’t everything, so let’s talk about what sets apart this top-30 lender, with aspirations to crack the top-25 and beyond.
CMG Financial Quick Facts
Privately held retail mortgage lender founded in 1993
Located in San Ramon, California
Operates in all 50 states and the District of Columbia
Funded roughly $7 billion in home loans via retail channel during 2019
Top states based on loan volume include California, Tennessee, and Texas
Also runs correspondent and wholesale lending divisions
As noted, the company got its start all the way back in the early 1990s, when Christopher M. George established CMG Mortgage, Inc. in Pleasanton, California.
If you’re wondering what CMG stands for, well, now you know. Or at least I hope you know!
The company later began doing business as CMG Financial to better reflect its philosophy of making sure borrowers found the right solution for their broader financial goals, not just the mortgage.
They might be most famous for their Home Ownership Accelerator, now known as the “All In One Loan,” which received a U.S. patent in 2009. It’s a loan that functions as a checking account to help homeowners save on mortgage interest.
Last year, the company did roughly $7 billion in home loan origination volume via the retail channel, putting it near the top-25 nationally.
They were most active in the states of California, Tennessee, and Texas, but are licensed nationally.
Applying for a Home Loan with CMG Financial
You can apply directly from their website or smartphone app
Alternatively you can visit a local branch or call them up on the phone
They offer a digital mortgage application with the ability to scan and upload documents
Can track loan progress and receive status updates via the CMG Home app
If you’re ready to apply or get a mortgage pre-approval, CMG Financial allows you to apply directly from the website or via their mobile app.
They’ll ask if you’re already working with a CMG loan officer, and if yes, will prompt you to find your loan officer by name or location.
If no, you simply get started by providing your email address, at which point you can begin the home loan application process.
From there, you’ll be able to securely scan and upload documents, check loan progress, and receive updates as you move toward the finish line.
You can also message your loan officer if you need assistance at any time during the process.
CMG Financial operates a correspondent and wholesale lending division as well, meaning it’s possible you could be sold a mortgage from them via a credit union or a mortgage broker.
Loan Types Offered by CMG Financial
Home purchase loans and refinance loans
Conventional loans including Fannie Mae HomeReady and Freddie Mac Home Possible
Government loans including FHA loans, USDA loans, and VA loans
Home renovation loans
Jumbo loans up to $5 million loan amounts
Their proprietary All In One Loan
Fixed-rate options: 10, 15, 20, 25, and 30-year loan terms
Adjustable-rate options: 3/1, 5/1, 7/1, and 10/1 loan terms
CMG Financial offers all the usual stuff for those looking to purchase a home or refinance an existing home loan, along with some proprietary offerings.
You can get a conforming loan backed by Fannie Mae or Freddie Mac, or a jumbo loan with a loan amount as high as $5 million.
They also offer the full suite of government home loan options, including FHA loans, USDA loans, and VA loans.
Those purchasing or refinancing a fixer-upper can take advantage of the FHA 203k loan program.
In terms of loan programs, you can get a fixed-rate mortgage such as a 30-year fixed or 15-year fixed, or an adjustable-rate mortgage like the 5/1 ARM.
They also participate in the Freddie Mac BorrowSmart program, which offers up to $2,500 in closing cost assistance to qualified borrowers.
Those in need of down payment assistance can take advantage of CMG’s HomeFundIt, which is a crowdfunding down payment solution that works sort of like GoFundMe.
The All In One Loan from CMG Financial
CMG refers to the All In One Loan as “the nation’s first transactional offset type-mortgage program.”
What they mean by that is you can potentially save thousands of dollars and shave years off your home loan by combining your mortgage and personal bank account.
Simply put, deposits you make into the account each month lower your loan’s principal balance, which reduces monthly interest payments.
It’s actually a 30-year home equity line of credit (HELOC), so the funds remain available for expenses too during the early years of the loan, without the need to refinance if you need cash access.
At the moment, it’s tied to the 1-month LIBOR, but once that index is phased out soon, it’ll be replaced with a similar mortgage index.
All in all, it’s a product geared toward a homeowner who wants to pay off their mortgage quickly, with added flexibility in case they need extra cash.
CMG Financial Mortgage Rates
Unfortunately, CMG Financial doesn’t disclose their mortgage rates on their website. So you’ll need to request a mortgage quote and/or apply to see their pricing.
As such, you won’t know how competitive they are unless you gather several quotes from competing lenders.
Additionally, there’s no mention of lender fees, so it’s not clear if they charge typical lender fees like an underwriting charge or a loan origination fee.
Be sure to inquire about both when shopping your home loan with CMG Financial to ensure you get the best deal on your mortgage, interest rate aside.
CMG Financial Reviews
They’re nearly perfect on Zillow, sporting a 4.98 star rating out of 5 based on nearly 2,500 customer reviews, with a lot of them indicating a lower interest rate than expected.
Additionally, they’ve got a 4.9 star rating out of 5 on TestimonialTree based on over 17,000 customer reviews.
Each loan officer also has their own hosted review page via TestimonialTree, which lists all their past customer reviews.
On BirdEye, they have a 4.3 rating out of 5 based on just over 125 reviews, but the comments are pretty thin.
While they are not Better Business Bureau accredited, they do have an A+ BBB rating. However, their customer review rating on the BBB website is less than 2 stars.
As always, try to find your specific loan officer’s reviews for the best indication of quality of service, experience, etc.
CMG Financial Pros and Cons
The Good
Licensed in all 50 states and DC
Branch offices in many locations nationwide
Can apply for a mortgage online or via the app
Lots of loan programs to fit all scenarios including proprietary offerings
Mostly excellent reviews from past customers
Free smartphone mortgage app and mortgage calculators
They service their home loans
The Possible Bad
Do not advertise their mortgage rates
Unclear what lender fees they charge
No second mortgages or home equity loan products available
If high mortgage rates are holding you back from buying a house, there are strategies that might help.
/Getty Images
Buying a home can be challenging these days. Home prices remain high, and interest rates are up significantly compared to a few years ago. In fact, according to Freddie Mac, the average rate on 30-year loans is now creeping toward 7%.
Will rates stay high for the foreseeable future? There’s no way to tell for sure, but there are ways to get around them if they do.
Find out what today’s mortgage rates are here.
What to do if mortgage interest rates stay high
If you’re looking to purchase a house but high mortgage rates are holding you back, here are the strategies that might help.
Buy now, refinance later
One clear option is to buy a house now, at today’s rate, and then refinance your loan when interest rates inevitably drop.
According to Robert Esposito, director of sales at RelatedISG Realty, mortgage refinancing is a particularly good option for those searching for average-priced homes, as their value will only increase in price as time goes on.
“They will encounter the most competition,” Esposito says. “A property worth $500,000 today might be worth $600,000 a year from now, and then you realize you didn’t save any money.”
Check out current mortgage rates here to start exploring your options.
Make a larger down payment
Making a big down payment can help in two ways. First, “it could offer a lower interest rate,” says Sam Sharp, executive vice president of national sales at Guaranteed Rate.
It will also reduce your total loan balance and help you avoid private mortgage insurance, which means lower monthly payments.
“Making a large down payment lowers the total loan amount and interest rate,” Esposito says.” It also makes you eligible for better loan terms or even to avoid private mortgage insurance altogether.”
Consider different loan options
Exploring less-common mortgage products is another option. Adjustable-rate mortgages, for example, offer lower rates than fixed ones for the first few years of the loan. These are good if you only plan to be in the home for a few years — before your rate can increase.
“Having worked with buyers in every stage of life over the years, we find that most people overestimate the amount of time they will live in a property and thus end up with a rate higher than necessary,” says Lindsay Barton Barrett, a licensed associate real estate broker at Douglas Elliman. “If you can get an ARM, you can save substantially — even if you stay beyond the adjustment date. What happens is that you pay a higher mortgage rate for one year in five years versus paying a higher rate for all six years.”
Getting a shorter-term loan can help, too. For example, the current average rate on 30-year loans is 6.71%, according to Freddie Mac. With 15-year loans, though, the average drops to just 6.06%. This could save you quite a bit in long-term interest. Just keep in mind that you’ll have a higher payment due to the shortened pay-off timeline.
Begin comparing your loan options online today.
Stay put and improve your current home instead
If you already own a home, tapping into your equity with a home equity loan, home equity line of credit (HELOC) or cash-out refinance may be another strategy. These allow you to borrow from your home equity, which could provide funds for improving or expanding your current home as needed.
According to CoreLogic, the typical homeowner has a whopping $274,000 in home equity, so this could be a viable option for many. Still, it depends on where you live. If you’re in a condo or tight urban area, for example, there may not be space to expand.
Using your home equity also means taking on more debt, often at variable rates. These rates can be volatile, particularly as the Federal Reserve continues to fight inflation.
“Home equity lines at a variable rate track higher interest rate numbers since they are tied to factors like benchmark rates, which are currently very high,” Barrett says.
See today’s home equity rates and find out how much you may be eligible to borrow.
Buy down your rate
Buying down your rate can work as well. In this scenario, you purchase “points” — usually for 1% of the loan amount — which reduces your interest rate by a nominal amount (typically 0.125% to 0.25%).
“In recent years, we’ve found it very common for buyers to buy points, which act as prepayment interest and reduce the overall interest rate on the mortgage,” Esposito says.
Some lenders also offer temporary buydowns, where a seller or lender pays to reduce a buyer’s interest rate for a set period. After that, it goes back to the normal rate.
“This will allow for a credit from the seller that will pay the interest difference on a loan over the course of one to three years, resulting in a temporary rate reduction as high as 3% below the market rate,” Sharp says. “This is a great way to lower the monthly payment for homebuyers.”
Wait for rates to drop
Finally, you can always wait it out. As they say, “what goes up, must come down,” so mortgage rates will inevitably fall at some point. The question is when.
Fannie Mae’s forecast currently projects rates will finish out 2023 at an average 6.3%. The Mortgage Bankers Association predicts a bigger drop to 5.8%.
Still, these aren’t guarantees. And even if rates drop, it could mean more buyers in the market, which could drive up home prices.
“If rates decrease because inflation is deemed under control, then the economy overall will be more stable and lend itself to confidence,” Barrett says. “Between more purchasing power and confidence in the market, home prices would increase — meaning many will have missed the opportunity to buy real estate.”
Ready to see your mortgage options? Start by viewing today’s rates here.
Every situation is different
There’s no clear-cut strategy for dealing with today’s high mortgage interest rates. The right move for you will depend on your goals, your budget and your personal situation, so make sure to talk to a mortgage professional before deciding how to proceed.
And once you do decide to move forward, make sure to shop around for your mortgage. Freddie Mac estimates that getting at least four rate quotes can save you up to around $1,200 every year.
Last week, I announced that Kris and I have refinanced our mortgage at 4.96% for 30 years. In the comments, Ian expressed disappointment that we’d opted for the longer term when we could have afforded to take out a 15 year mortgage at 4.625%. “Starting your 30 years over is no way to get rich slowly,” he wrote.
He has a point.
Kris and I took out the 30-year mortgage because we wanted a safety net. We will continue to pay $2,000 each month toward our mortgage, so we could have afforded the shorter term, but we opted to take a longer mortgage so that we had a cushion if something happened.
But was this a smart move? How much will it cost us to do this? Let’s find out.
Running the Numbers
You all know that I love to play with spreadsheets. I pieced one together to run the numbers on our mortgage. Just for curiosity’s sake, I first looked at what might have happened if we had not refinanced at all and planned to repay the old loan on a normal schedule (you can play with actual mortgage rates get current numbers):
Existing mortgage pre-refinance
Principal remaining: $206,345.33 Interest rate: 6.25% Total payments remaining: 303 (25 years, 3 months) Regular payment amount: $1386.60 Total repaid: $420,139.80 Total interest paid: $213,794.47 Interest/Principal: 103.61%
Now, here are the totals if we were to pay the refinanced, 30-year mortgage without any sort of acceleration. Note that the payment amount does not include taxes and insurance (which adds another $280.21 to our monthly obligation).
30-year without acceleration
Principal borrowed: $212,900 Interest rate: 4.96% Total payments: 360 (30 years) Regular payment amount: $1137.69 Total repaid: $409,568.40 Total interest paid: $196,668.40 Interest/Principal: 92.38%
By refinancing, we’re saving $10,571.40, even if we don’t pay extra, and even if we stretch the loan out to 30 years. Next, I looked at a 15-year mortgage without any sort of acceleration.
15-year without acceleration
Principal borrowed: $212,900 Interest rate: 4.625% Total payments: 180 (15 years) Regular payment amount: $1642.30 Total repaid: $295,614.00 Total interest paid: $82,714.00 Interest/Principal: 38.85%
Clearly, a 15-year mortgage is a better option — if you can afford to make the payments, which in this case would cost an extra $504.61 every month. (And if inflation isn’t running rampant. I have not accounted for inflation in any of these scenarios.)
But Kris and I pay more than the minimum. We pay a flat $2,000. If we subtract $280.21 for taxes and insurance, that means we’ll be paying $1719.79 toward principal and interest each month. How does this affect our costs? Let’s look at the 30-year loan with accelerated payments:
30-year with acceleration
Principal borrowed: $212,900 Interest rate: 4.96% Total payments: 174 (14 years, 6 months) Regular payment amount: $1719.79 ($1327.97 final month) Total repaid: $298,851.64 Total interest paid: $85,951.64 Interest/Principal: 40.37%
This is the plan we intend to follow. For us, there is a huge difference in the total we pay (and how long it takes us to pay it) between an accelerated and a non-accelerated 30-year mortgage. We save over $110,000 and 15 years by making extra payments.
But we will still pay more interest than if we had taken the 15-year mortgage. What about accelerating the 15-year mortgage? Let’s look:
15-year with acceleration
Principal borrowed: $212,900 Interest rate: 4.625% Total payments: 169 (14 years, 1 month) Regular payment amount: $1719.79 ($960.31 final month) Total repaid: $289,885.03 Total interest paid: $76,985.03 Interest/Principal: 36.16%
Financially, this is the best option of all. But it only shaves 11 months and about $6,000 from the standard 15-year option. Ian may be right: it might have made more sense for us to take a 15-year loan.
Doing What Works For Us
Let’s assume that Kris and I are going to be able to make our $2,000 payments every month for the next 15 (or so years). If we had opted for the lower-rate 15-year loan instead of accelerating the 30-year loan, we would have the debt paid off five months earlier. What’s more, we would save $8,966.61 in interest payments, or roughly $640 per year ($53 per month).
Ian’s point — and it’s a good one — is that although Kris and I saved $250 per month by refinancing, we could have saved another $50 per month (with no changes to our current plans!) by choosing a 15-year mortgage instead of a 30-year mortgage.
Did we make the wrong decision? Time will tell. If nothing happens along the way, then this will have been a poor choice. But if we experience some sort of financial setback, our caution just might save our bacon. With the lower payments of the 30-year option, we could live indefinitely on either one of our salaries alone. As with all investments, lower risk brings lower reward — and that’s the choice we made this time.
What choice would you have made and why? I suspect that many GRS readers opt for 30-year mortgages when they could afford the higher payments and the shorter term. I know that we’re certainly not the only ones among our friends who have done this!
Note: I did not save the spreadsheet that I used to run these numbers. If you’re wanting to do similar math, check out the mortgage calculators at Dinktown.
With the news this month that the housing market hit a milestone by showing the first year-over-year price decline in recent memory, homeowners who’d considered finally selling their home this year are finding themselves discouraged yet again.
What happened, they might wonder, to the not-so-distant glory days of frantic bidding wars and over-ask offers? Plenty of frustrated owners seem worried that the window for a fast and lucrative home sale might be shutting fast.
But here’s the reality: The U.S. housing market is no monolith. Although it’s true that many of the hottest markets of the past few years have seen prices fall in the wake of higher mortgage interest rates that broadly dampened home shoppers’ buying power, there are still cities where buyers continue to snatch up homes quickly and where sellers are getting their full asking price—or more.
This is why the Realtor.com® data team dug in to find the U.S. real estate markets that most favor sellers. (Sorry, buyers!)
The best places for sellers generally have persistently low housing inventory, strong demand from buyers, and often—but not always—lower prices that have room to swell. These are generally affordable metropolitan areas in the Northeast with a few in the Midwest.
Three of the metros on our list—Hartford, CT, Worcester, MA, and Providence, RI—are so close, you could tour homes in all of them in a single day. Our ranking also has one spot in the South and a somewhat bizarre outlier in California—more on that later.
To figure out if an area is a buyer’s or seller’s market, Pamela Ermen likes to track the change in the number of closed sales per month, compared with the change in the number of new listings per month.
“When sales are going up and inventory is going down, that’s a real seller’s market,” says Ermen, a Virginia Beach–based Realtor® at Re/Max and a speaker and coach at Real Estate Guidance.
Still, sellers who focus solely on low inventory can wrongly conclude that they can list their home at a higher price than an agent might advise. That can lead to their property languishing on the market not receiving strong offers. Meanwhile, buyers who focus only on the number of sales going down might wrongly think there’s less competition. That might result in heartache when they find out the hard way that many homes are still getting multiple offers.
To find true seller-friendly places, the Realtor.com data team looked at the May 2023 listing data for the 100 largest metropolitan areas. Then we ranked each based on the number of days that the median listing is on the market, combined with the portion of listings that have had the price reduced. These metrics tell us where homes are selling faster than average and with fewer sellers having to reduce their price to make the sale.
We selected just one metro area per state to ensure geographical diversity. (Metros include the main city and surrounding towns, suburbs, and smaller urban areas.)
Here’s where sellers can expect the market to be most tilted in their favor this summer.
A house currently on the market for $174.9K in Rochester, NY
(Realtor.com)
Median list price: $265,000 Median days on the market: 13 Listings with a price reduction: 1 in 17
Rochester, on the western edge of New York along the southern shore of Lake Ontario, not only is at the top of our seller’s saviors list—it’s also in a class of its own. Rochester had both the lowest number of days on the market and the lowest portion of listings with a price reduction. But this is nothing new for the so-called Flower City.
The metro area has become a mainstay of the Realtor.com hottest real estate markets list. It’s also where sellers are usually still getting their asking price, and where buyers can find one of the largest selections of homes for less than $200,000. Plus, home prices are well below the national median list price of $441,500 in May.
These affordable homes have made the area appealing to locals, out-of-towners, and investors.
“If you’re priced right in our market, you can expect to still sell in about one week,” says Jenna May, a local real estate agent at Keller Williams Realty.
When the market was at its pandemic peak in 2022, and even before anyone had heard of COVID-19, Rochester was still leading the nation in the low number of days on the market. Demand here for homes is high and seems destined to stay that way.
“There are people who are offering $80,000 over listing price and not getting the home,” says May. “It’s that competitive.”
A house currently on the market for $355K in Hartford, CT
(Realtor.com)
Median list price: $424,925 Median days on the market: 19 Listings with a price reduction: 1 in 14
The capital city of Connecticut is also no stranger to the Realtor.com list of the nation’s hottest real estate markets. Hartford is the largest population hub in the state, with 1.2 million residents.
It also boasts home prices that are about 5% below the national median.
“The Northeast has been well undervalued compared with other markets—and not just for years, but for decades,” says Lisa Barrall-Matt, a senior broker at Berkshire Hathaway in West Hartford.
Homes in the Hartford area have been priced $100,000 less than comparable homes in other markets, Barrall-Matt says, for so long that she began to take it for granted.
Now, she’s feeling vindicated: “I used to say, ‘Why aren’t prices higher?’ Now I’m saying, ‘Where’s the ceiling?’”
A house currently on the market for $499K in Portland, ME
(Realtor.com)
Median list price: $622,500 Median days on the market: 24 Listings with a price reduction: 1 in 13
Portland became a popular pandemic destination for Northeasterners looking for a scenic, coastal city with some great restaurants, entertainment, and a brewery scene. The area has a rich history, having a Native American presence dating more than 10,000 years before becoming an early Colonial settlement.
The above-average prices in this artsy city on Casco Bay aren’t keeping sellers from enjoying quick sales. In fact, few listings are getting marked down. The demand for housing here is just so strong. Portland has been featured on our list of the best places to retire in 2022, and it has one of the last year’s hottest neighborhoods: Windham, just on the northwestern edge of Portland proper.
Prices in Portland have grown significantly faster during the pandemic—from May 2019 to now—than they did in most of the country. Where prices rose about 40% nationally, prices in Portland have grown by about 62%. Just since this time last year, prices rose 17%.
A newer four-bedroom home in South Portland that’s within walking distance of Fore River is listed for $650,000, close to the area average.
A house currently on the market for $380K in Worcester, MA
(Realtor.com)
Median list price: $517,450 Median days on the market: 19 Listings with a price reduction: 1 in 10
Worcester, about 40 miles west of Boston, was nicknamed the “Heart of the Commonwealth” because of its central location in Massachusetts.
This medium-sized metro has a name that’s fun to say, like “rooster” but with a W. But it simply doesn’t have enough homes to match the high interest from potential buyers, according to Nick McNeil, a local Realtor with the Lux Group.
“The amount of demand and the absolute lack of inventory is nuts,” he says. “And there’s not much room for new construction in this area, with tight regulations on what can be built.”
Until there’s some kind of change in the supply and demand dynamic in the area, McNeil says, it’s going to be hard for buyers, and relatively easy for sellers—as long as they’re not also trying to buy.
“The best situation you can be in is if you can sell now,” he says.
A house currently on the market for $549K in Allentown, PA
(Realtor.com)
Median list price: $384,250 Median days on the market: 25 Listings with a price reduction: 1 in 10
Amid the rolling hills of Eastern Pennsylvania’s Lehigh Valley, about 60 miles northwest of Philadelphia, Allentown has a few things going for sellers right now. The portion of homes with a price reduction is about half the national average, and homes are selling about 40% faster.
Like some other places on this list, the homes in this historic steel town are priced below the national average. But local incomes are a bit higher than average, offering buyers more affordability. That’s helping the real estate market to remain competitive as buyers seek out deals.
Allentown offers a mix of urban, suburban, and rural lifestyles, making it broadly attractive for buyers.
What’s especially notable about the area is the price growth over the past several years. Allentown metro prices have risen by 78% since before the pandemic, ahead of all the other places on this list.
For about the local median price in Allentown, buyers can find a five-bedroom bungalow in the Hamilton Park neighborhood west of downtown Allentown.
A condo currently on the market for $225K in Milwaukee, WI
(Realtor.com)
Median list price: $374,950 Median days on the market: 29 Listings with a price reduction: 1 in 11
Perched on the western shore of Lake Michigan in southeastern Wisconsin, Milwaukee is known for its breweries, including Miller and Pabst. It’s also where Harley-Davidson was founded. And it’s been a staple of housing affordability for some time.
However, prices have been rising in Milwaukee’s metro area: They rose by around 11% compared with this time last year.
The median number of days on the market is below the average now, just like it was before the pandemic. The same goes for the portion of listings with a price reduction. This is all very good news for home sellers hoping for a quick, profitable sale.
For $375,000, a buyer can get a large, four-bedroom home just 5 minutes from hiking trails, a golf course, and a dog park, all along the shoreline.
A new construction home currently on the market for $400K in Virginia Beach, VA
(Realtor.com)
Median list price: $386,973 Median days on the market: 29 Listings with a price reduction: 1 in 9
The Virginia Beach metro area, a popular vacation spot for beach, maritime history, and seafood lovers, is another place where incomes are higher than average and home prices are lower.
Last year, sellers could count on getting multiple offers, usually leading to potential buyers bidding up the price, says Virginia Beach–based Realtor Ermen. Now, it’s not as easy to figure out that pricing sweet spot. If the home is listed too high, that’s when there’s eventually pressure to reduce the price.
In the month of May, even with a low number of price reductions, Erman says, “90% of price reductions were made before the listing hit the average time on market.”
That indicates sellers are getting antsy, and probably would have been better off pricing the home lower to begin with. But homes that are priced to sell are still moving briskly.
A house currently on the market for $1.3M in San Jose, CA
(Realtor.com)
Median list price: $1,530,000 Median days on the market: 25 Listings with a price reduction: 1 in 9
San Jose is the oddball on this list.
Nestled in the heart of Silicon Valley, it is one of the most expensive real estate markets in the nation. Homes in this San Francisco Bay Area hot spot cost more than triple the national average, which means real estate attracts a very specific buyer.
Because San Jose is a global technology hub, its population is very diverse, and not just racially or ethnically. Roughly 40% of residents were born outside of the U.S., according to the U.S. Census Bureau. Most significantly, many residents have tons of money to spend, whether they’re high-salaried tech employees or they have had an entrepreneurial startup windfall.
Local real estate agents will tell you that San Jose is simply insulated from many of the market dynamics because the clientele is so wealthy. If they’re making an all-cash purchase, they don’t have to worry about higher mortgage rates. And that’s a big boon for sellers.
A condo currently on the market for $450K in Providence, RI
(Realtor.com)
Median list price: $539,950 Median days on the market: 31 Listings with a price reduction: 1 in 10
Providence, home to Brown University and the Rhode Island School of Design, is a bustling town filled with older homes. About 50 miles southwest of Boston, it’s one of the medium-sized, Northeastern metros on our list that are enjoying especially strong housing markets right now.
Providence prices are significantly above the national average, but compared with nearby Boston, where the median list price is north of $850,000, Providence is a downright bargain.
Plus, it’s got a lot going for it. It boasts beautiful scenery along the Seekonk River, a thriving arts scene, and good jobs. The headquarters for CVS is located in nearby Woonsocket.
In Providence, for $550,000, a little above the local average, buyers can find a midcentury two-bedroom home with classic brick construction about 15 minutes from downtown.
A house currently on the market for $150K in Toledo, OH
(Realtor.com)
Median list price: $229,950 Median days on the market: 31 Listings with a price reduction: 1 in 9
Home prices in this Rust Belt city, which has struggled in more recent years, are still dramatically lower than the national average—about 45% less expensive. And with the focus of buyers on affordability, it’s no wonder that Toledo has taken off.
In the past year, median list prices in Toledo have risen by 25% (10% per square foot), which is quite a bit higher than before the pandemic.
For less than the median list price in Toledo, buyers can get a massive, six-bedroom home in Toledo’s Old West End neighborhood, just northwest of downtown.
What if you could tame long-term inflation? Right now, this is one of the biggest questions in financial circles. After nearly 40 years of very stable money, in 2021 and 2022 prices surged. For the first time in a generation, inflation seriously beat the Federal Reserve’s 2% benchmark.
As of July 2023, this immediate problem appears to be easing somewhat. But investors as a group are understandably spooked. Was last summer’s 9% inflation rate a one-shot problem brought on by the unique conditions of a pandemic economy, massive federal spending and a destabilizing war? Or will inflation return as a cyclical issue?
Consider working with a financial advisor to build an investment portfolio that accounts for inflation.
Financial advisor and author Allan Roth of ETF.com thinks that investors would be wise to prepare in case inflation remains high, or even surges back to 2022 levels. This is a particular risk, he warns, for retirees without the luxury of new wages that keep pace with higher prices.
What if, he writes, inflation averages 5% during your retirement? Over the course of 20 years, a retiree who started out withdrawing $4,000 per year from a given account would need to increase those withdrawals to $10,613 just to keep up with prices. This could easily shatter carefully planned finances.
To fix this, Roth writes, “I built and purchased a 30-year TIPS ladder with roughly $1 million of my own money… By buying as close as possible to bonds maturing each year, I was able to create a 30-year cash flow paying me an inflation-adjusted average of $43,800, or 4.38% annually.”
In other words, by building a TIPS ladder fund, Roth argues that he has added a stable source of inflation-protected income to his retirement fund. A TIPS ladder fund could help investors hedge against both market risks and inflation. While not explicitly a “growth” strategy, it could be a very strong security-oriented strategy for retirees. Here’s how it works.
How a TIPS Ladder Fund Works
A ladder fund is a portfolio of maturing assets, like bonds or CDs, built around staggered maturity dates. For example, you might buy a portfolio with bonds that mature in 5, 10, 15 and 20 years. This fund would “ladder,” as the bonds would mature in stages like the rungs of a ladder, as opposed to all at once.
The idea behind a ladder fund is to hedge against timing risk. For example, say you had invested in bonds in 2019, when rates were extremely low. A portfolio of long-term assets might be stuck with low-value, low-yield assets. A ladder fund, on the other hand, would have short-term bonds. As those assets mature, you could collect back your principal and invest in new, higher-interest assets.
A TIPS bond, or Treasury Inflation Protected Security, is a marketable Treasury asset built to correct for inflation. Each month the Treasury adjusts the underlying principal on all TIPS bonds based on the Consumer Price Index. When the bond matures, the holder receives the greater of either the bond’s original value or its inflation-adjusted value. Since the bond calculates interest based on its underlying principal, this means that the asset’s periodic interest payments will also increase based on inflation.
A TIPS ladder fund, as suggested by Roth, is a portfolio built out of TIPS bonds with staggered maturity dates. This, he argues, would provide a source of inflation-protected income, due to the structure of a TIPS bond, while also giving investors a hedge against market timing risks due to the periodic maturity of the ladder.
Can TIPS Ladders Protect Your Money From Inflation?
While a niche and technical idea, the TIPS ladder fund has been well received. Morningstar’s John Rekenthaler writes that it can potentially offer investors a strong supplement to more traditional assets like stocks and annuities.
“TIPS ladders take the concept of bond ladders a giant leap further,” Rekenthaler writes. “Whereas traditional ladders merely reduce investment risk, TIPS ladders eliminate the possibility entirely. In that they are unique. Conventional Treasuries face no conceivable credit risk, but they certainly court inflation risk… In contrast, every inflation-adjusted penny from a TIPS ladder is known in advance.”
Thanks to the combination of bond interest payments and inflation adjustment, you can know exactly what this portfolio will pay out for its entire lifetime. Thanks to its nature as a government asset, you can know that this portfolio will not default. That’s about as much security as anyone can ask for.
Does this mean that TIPS ladders will be an investor’s forever home? Not entirely, as there are two main catches to this portfolio. First, a TIPS ladder is difficult and expensive to construct, with relatively marginal yields on low-value transactions. As a result, most retail investors won’t have the skill set or capital to build a useful TIPS ladder on their own.
This is why both Rekenthaler and Roth recommend an ETF that offers this structure. A large-scale fund, built and managed by professional investors, could solve both the complexity and the funding problems. Retail investors could buy in using the flexibility of the ETF structure, making this far more practical for them.
Second, a TIPS ladder still offers government interest rates. The reliability of a Treasury asset comes at the cost of lower returns relative to the market at large, even if those returns are inflation protected. This is why Rekenthaler points out that a TIPS ladder should be treated as a specialized asset rather than an all-purpose investment.
“The concept is unsuited for workers,” he writes, “as they attempt to grow their assets rather than spend them… However, to the extent that Social Security payments fail to meet a retiree’s fixed expenses, a TIPS ladder fund would fill the gap – more neatly, I think, than any conceivable competitor.”
A TIPS ladder might not help you build the retirement account that you need. For that, higher-value assets like stocks will probably do better. But once you approach retirement, it might help you build exactly the kind of security that you need. It’s a good investment to keep an eye out for.
Inflation Investing Tips
A financial advisor can help you build a comprehensive investing plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Check out SmartAsset’s inflation calculator to get a quick estimate of the buying power of a dollar over time.
Eric Reed
Eric Reed is a freelance journalist who specializes in economics, policy and global issues, with substantial coverage of finance and personal finance. He has contributed to outlets including The Street, CNBC, Glassdoor and Consumer Reports. Eric’s work focuses on the human impact of abstract issues, emphasizing analytical journalism that helps readers more fully understand their world and their money. He has reported from more than a dozen countries, with datelines that include Sao Paolo, Brazil; Phnom Penh, Cambodia; and Athens, Greece. A former attorney, before becoming a journalist Eric worked in securities litigation and white collar criminal defense with a pro bono specialty in human trafficking issues. He graduated from the University of Michigan Law School and can be found any given Saturday in the fall cheering on his Wolverines.
Life insurance provides financial protection to individuals and their loved ones in the event of unexpected circumstances. One key aspect to consider when choosing a life insurance policy is whether it generates immediate cash value. In this article, we will explore different types of life insurance policies and discuss which ones offer the benefit of immediate cash value.
Life insurance policies are critical financial planning tools designed to provide financial security for policyholders’ beneficiaries upon their demise. They work by offering a lump-sum payment, known as a death benefit, to beneficiaries after the insured person’s death.
But some life insurance policies offer an additional feature – the accumulation of cash value over time.
This is a unique feature that allows the policyholder to access a portion of the insurance money during their lifetime. This article will delve further into the types of life insurance policies that generate immediate cash value.@media(min-width:0px)#div-gpt-ad-goodfinancialcents_com-medrectangle-3-0-asloadedmax-width:300px!important;max-height:250px!important
Table of Contents
Decoding Cash Value in Life Insurance
The cash value in a life insurance policy is a savings component that grows over time. This feature is inherent in permanent life insurance policies, unlike term life insurance policies that only provide coverage for a predetermined period.
When a policyholder pays premiums towards a permanent life insurance policy, a portion of these payments contributes towards building the cash value.
This cash value grows over time and can be accessed by the policyholder during their lifetime, offering an extra layer of financial security.
Understanding Different Life Insurance Policies
The life insurance market is diverse, offering several types of policies. Some of the main types include term life insurance, whole life insurance, and universal life insurance. Each of these has its unique features, advantages, and suitability for different individuals.
Term Life Insurance
As highlighted by CNBC, term life insurance is designed to offer coverage for a specific period, typically 10, 20, or 30 years. If the policyholder passes away during this term, the insurance company pays a death benefit to the beneficiaries.
But according to financial experts like Dave Ramsey, it could be the best option for most people because it’s simple and affordable. It’s like an umbrella for a rainy day, shielding your loved ones financially if you pass away during the policy term.
However, term life insurance does not provide any cash value component. It’s often chosen for its affordability and simplicity, focusing solely on providing financial protection in the event of the policyholder’s death during the policy term.@media(min-width:0px)#div-gpt-ad-goodfinancialcents_com-banner-1-0-asloadedmax-width:580px!important;max-height:400px!important
Whole Life Insurance
Whole life insurance, as the name suggests, offers coverage for the insured person’s entire lifetime, as long as the premiums are paid. Unlike term life insurance, it combines a death benefit with a cash value component.
A portion of the premiums paid contributes to this cash value, which grows over time. Importantly, this growth is at a guaranteed rate, offering predictability and security for the policyholder. According to The Motley Fool, this type of insurance is often more expensive than term life insurance due to this cash value component and the lifetime coverage it provides.
Universal Life Insurance
Universal life insurance is another type of permanent life insurance policy that combines a death benefit with a cash value component. However, it differentiates itself with its flexibility in premium payments and death benefits. The cash value component in universal life insurance grows based on prevailing market interest rates. @media(min-width:0px)#div-gpt-ad-goodfinancialcents_com-large-leaderboard-2-0-asloadedmax-width:300px!important;max-height:250px!important
Policyholders can adjust the premium amount and death benefit within certain limits, providing them with a degree of control over the policy’s costs and benefits.
Among the various life insurance policy options, it’s the whole life insurance and universal life insurance policies that generate immediate cash value. From the moment these policies are enforced, the cash value starts growing, offering policyholders access to a part of their insurance payout during their lifetime.
Whole Life Insurance and Cash Value
With whole life insurance policies, the cash value grows at a guaranteed rate, offering a predictable savings growth mechanism. The cash value in whole life insurance is built from the premiums paid by the policyholder. This cash value can be borrowed against, offering a valuable source of funds when needed. Alternatively, the policyholder can choose to surrender the policy and receive the accumulated cash value.
Universal Life Insurance and Cash Value
Universal life insurance is a form of permanent life insurance policy that combines the death benefit of term insurance with a cash value component. This type of policy is known for its flexibility, as it allows policyholders to adjust the premium payments and death benefit within certain limits. This flexibility can be instrumental in managing life’s financial uncertainties.
The cash value in universal life insurance grows based on prevailing market interest rates, offering the potential for significant growth during periods of high interest rates. It’s important to note that while this offers an opportunity for financial gain, it can also present challenges. In periods of low-interest rates, the cash value growth can slow down, potentially affecting the policy’s overall value.
Policyholders can access the cash value in a universal life insurance policy through withdrawals or policy loans. This can offer valuable financial flexibility in times of need.
A Word of Caution on Universal Life Insurance
While universal life insurance offers flexibility and potential cash value growth, it’s not without risks. According to the New York Department of Financial Services, policyholders must be cautious about the fluctuating costs and benefits of these policies.
Interest rates can fluctuate, and when they’re low, the cash value of a universal life insurance policy may not grow as expected. This could mean that the policyholder has to pay higher premiums to keep the policy active, especially if the policy costs are being paid from accumulated cash value.
Policyholders should regularly review their universal life insurance policies. If the policy’s cash value is depleting faster than expected, or if the policy costs are increasing, it might be necessary to adjust the premiums or the death benefit to keep the policy in force.
Beware of UL Insurance
Universal life insurance policies also often have complex cost structures, with various fees and charges that can affect the cash value and the death benefit. It’s important to understand these costs and to consider them when deciding on a universal life insurance policy.
Factors Influencing Cash Value Growth
@media(min-width:0px)#div-gpt-ad-goodfinancialcents_com-leader-1-0-asloadedmax-width:336px!important;max-height:280px!importantThe growth of cash value in a life insurance policy is subject to several factors. These can vary greatly from policy to policy, and understanding them can help policyholders make an informed decision. The following are some critical factors:
Premium Payments
The amount of premium paid and the frequency of the payments directly impact the growth of the cash value. Regular and timely premium payments can accelerate the accumulation of cash value over time.
Policy Expenses
Insurance policies come with various expenses, such as administrative fees, mortality charges, etc. These charges are typically deducted from the premium payments before the remaining amount is allocated to the cash value component, thus potentially affecting its growth rate.
Interest Rates
The interest rate at which the cash value grows plays a significant role in its accumulation. A higher interest rate leads to a quicker accumulation of cash value, while a lower rate may slow it down. This is particularly relevant for universal life insurance policies where the interest rate is tied to the prevailing market rates.
Opting for a life insurance policy with immediate cash value can offer several benefits:
Financial Flexibility: The cash value in these policies can be accessed during the policyholder’s lifetime, providing financial flexibility for various needs such as emergencies, education expenses, or retirement planning.
Asset Accumulation: The cash value component of the policy acts as an asset that can grow over time. It can serve as a source of additional funds or supplement retirement income.
Borrowing Options: Policyholders can borrow against the cash value of their life insurance policy. This can be a convenient source of funds without the need for a separate loan application or credit check.
Tax Advantages: The growth of cash value in a life insurance policy is typically tax-deferred. This means that policyholders can enjoy the growth without immediate tax obligations until they withdraw or surrender the policy.
Considerations When Choosing a Policy
When selecting a life insurance policy with immediate cash value, it’s important to consider the following factors:
Financial Goals: Determine your financial goals and how the policy aligns with them. Consider whether you prioritize cash value growth, death benefit coverage, or a combination of both.
Premium Affordability: Evaluate your budget and ensure that the premium payments are affordable in the long run. Remember that missing premium payments can impact the cash value growth and policy coverage.
Long-Term Planning: Assess your long-term financial plans and how the policy fits into them. Consider factors such as retirement, education expenses, and other financial milestones.
As Life Happens points out, life insurance is valuable at any age. It’s not just for when you’re in your golden years and start worrying about leaving a financial safety net for your loved ones. With policies that offer immediate cash value, you’re getting both protection and a financial resource you can access during your lifetime.
Remember that gem of a piece of advice from Dave Ramsey? He says, “Term life insurance is bought, while whole life insurance is sold.”
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This simply means that term life insurance, with its lower cost and straightforward benefits, is generally the go-to choice for most people. But the whole life insurance policies, with their additional features, are actively promoted by insurance companies.
Keep in mind that in the wild world of insurance, there’s no right or wrong choice, only what works best for you. It’s like trying to choose between a coffee and a milkshake – they both have their perks, but it ultimately depends on your taste (or in this case, your financial goals).
Are you someone who wants protection with the added benefit of cash value growth, or do you prefer a no-frills approach with just coverage? Can you consistently afford the premium payments to reap the full benefits? How does a policy fit into your long-term plan, considering things like retirement, education expenses, or other financial milestones?
Term Life Insurance
Cash Value Policy (Whole/Universal Life)
PROS
Cost
Generally cheaper
More expensive, but part of premium builds cash value
Simplicity
More straightforward as it provides only a death benefit
More complex due to the cash value component
Duration
Fixed term (usually 10, 20, or 30 years)
Provides coverage for the entire lifetime of the policyholder
Financial Flexibility
No cash value or loan option
Offers a cash value component that can be borrowed against
Investment
No investment component
Can be viewed as an investment due to cash value growth
CONS
Cost
No cash value or return of premium if the term expires before death
Higher premiums due to the cash value feature
Duration
Coverage ends if the term expires before death
Might be unnecessary if coverage is not needed for entire life
Complexity
Doesn’t require much management
Requires active management due to the cash value component
Risk
No risk as it only provides death benefit
The cash value growth might be slower than other investments
Flexibility
No option to borrow against the policy
Policyholders can borrow against the cash value, but this can reduce the death benefit
Choosing a life insurance policy with immediate cash value can provide both protection and financial flexibility. Whole life insurance and universal life insurance policies are two types that offer this benefit. Understanding the factors that influence cash value growth and considering personal financial goals are crucial when making a decision. By selecting the right policy, individuals can secure their loved ones’ future while also building a valuable asset.