Apache is functioning normally
FHFA revises current single-family mortgages backed by Fannie Mae, Freddie Mac (iStock)
FHFA revises current single-family mortgages backed by Fannie Mae, Freddie Mac (iStock)
The Federal Housing Finance Agency (FHFA) will revise the treatment of active single-family mortgages backed by government-sponsored enterprises Fannie Mae and Freddie Mac for which borrowers elected a COVID-19 forbearance under the Enterprises’ representations and warranties framework, according to its newest media release.
“Under the updated rep and warrant policies, loans for which borrowers elected a COVID-19 forbearance will be treated similarly to loans for which borrowers obtained forbearance due to a natural disaster,” the FHFA said. “As a result, loans with a COVID-19 forbearance will remain eligible for certain rep and warrant relief based on the borrower’s payment history over the first 36 months following origination.”
FHFA Director Sandra L. Thompson argued that homeowners, who needed more time to keep up with housing costs during the pandemic, benefited from a mortgage forbearance plan that would reduce or suspend mortgage payments.
“Forbearance was an invaluable tool for borrowers experiencing financial hardship due to the COVID-19 pandemic,” Thompson said. “Servicers went to great lengths to implement forbearance quickly amid a national emergency, and the loans they service should not be subject to greater repurchase risk simply because a borrower was impacted by the pandemic.”
The Enterprises’ existing rep and warrant policies with respect to natural disasters allow the time the borrower is in forbearance to be included when demonstrating a satisfactory payment history in the first 36 months following origination, the FHFA noted. These policies will now expand to loans for which borrowers elected a COVID-19 forbearance.
Thompson stressed the importance of helping current and prospective homeowners manage present housing conditions at the Mortgage Bankers Association Annual Convention last week. “In a housing market like this one, it is all the more important that both our policies and the industry’s efforts align to support existing and aspiring homeowners,” Thompson said. “That is why I believe a model based on partnership and mutual feedback is necessary for us to achieve our shared goal of promoting affordable and sustainable housing opportunities.”
If you’re considering becoming a homeowner, it could help to shop around to find the best mortgage rate. Visit Credible to compare options from different lenders and choose the one with the best rate for you.
MORTGAGE RATES KEEP CLIMBING, BUT BUYERS CAN FIND THE BEST DEALS BY DOING THESE TWO THINGS: FREDDIE MAC
Mortgage rates are continuing their ascent. The average 30-year fixed-rate mortgage rose to 7.63% for the week ending Oct. 19, according to the Freddie Mac’s latest Primary Mortgage Market Survey. This time in 2022, the 30-year fixed-rate was below 7%.
Buyers may do well for themselves by browsing for the best home loans and making a considerable down payment. Freddie Mac’s Chief Economist Sam Khater said “in this environment, it’s important that borrowers shop around with multiple lenders for the best mortgage rate.”
Freddie Mac announced last week the launch of DPA One®, a new tool that strives to help mortgage lenders quickly find and match borrowers to down payment assistance programs nationwide.
“DPA One delivers a one-stop shop at no cost that brings lenders and their borrowers greater detail and visibility into these programs, while seamlessly connecting the right assistance program with the lender, housing counselors and borrowers who need this assistance the most,” Sonu Mittal, Freddie Mac’s senior vice president of and head of single-family acquisitions, explained.
“With research showing down payment is the single largest barrier to first-time homebuyers attaining homeownership, borrowers should also ask their lender about down payment assistance,” Khater said.
If you’re looking to buy a home, you could still find the best mortgage rates by shopping around. Visit Credible to compare your options without affecting your credit score.
MANY AMERICANS PREPARING FOR A RECESSION DESPITE SIGNS THAT SAY OTHERWISE: SURVEY
By end of 2023, there is likely to have been around 4.1 million existing home sales in the U.S., which would mark the weakest year of home sales since the Great Recession of 2008, according to a Redfin report.
Redfin’s Economic Research Lead Chen Zhao said current conditions have led to buyer and seller hesitancy across the board.
“Buyers have been in a bind all year,” Zhao said. “High mortgage rates and still-high prices are making it harder than ever to afford a home, shutting many young people out of homeownership and causing homeowners to reevaluate whether 2023 is the right time to move. Mortgage rates are staying high longer than anticipated, keeping away everyone except those who need to move and pushing our sales projection for the year down to a 15-year low.
“The last time home sales were this low was during the Great Recession,” Zhao continued.
Redfin agents suggest that buyers invest in newly built properties which are performing more strongly than existing-home sales. Newly constructed homes saw sales increase 1.5% year-over-year in September as prices dropped about 4%, according to Redfin’s data.
Based on the findings from a National Association of Realtors (NAR) report, the total amount of home sales decreased by 2% from August to September and have dropped 15.4% since September 2022.
Looking to reduce your home buying costs? It may benefit you to compare your options to find the best mortgage rate. Visit Credible to speak with a home loan expert and get your questions answered.
AFFORDABILITY KEEPING YOU FROM OWNING A HOME? HERE’S HOW YOU CAN GET READY
Have a finance-related question, but don’t know who to ask? Email The Credible Money Expert at [email protected] and your question might be answered by Credible in our Money Expert column.
Source: foxbusiness.com
No one can predict the future of real estate, but you can prepare. Find out what to prepare for and pick up the tools you’ll need at Virtual Inman Connect on Nov. 1-2, 2023. And don’t miss Inman Connect New York on Jan. 23-25, 2024, where AI, capital and more will be center stage. Bet big on the future and join us at Connect.
Economists are scratching their heads and housing industry leaders are venting their frustrations as mortgage rates continue a relentless climb to new heights not seen in more than two decades, chasing yields on government debt that are being pushed higher by factors beyond Federal Reserve tightening.
The Optimal Blue Mortgage Market Indices, which track daily rate lock data, show rates on 30-year fixed-rate conforming loans hitting a new 2023 high of 7.59 percent Tuesday — an all-time high in Optimal Blue records dating to 2017.
At 7.95 percent, rates on jumbo mortgages that exceed Fannie Mae and Freddie Mac’s loan limits looked poised to push through the 8 percent benchmark, as paper losses mount at banks that fund most jumbo lending and Treasury yields rise.
National Association of Realtors Chief Economist Lawrence Yun vented his frustration with Fed policymakers, who have telegraphed their intention to implement at least one more rate hike this year.
“The Fed is overdoing the rate hike,” Yun said in a LinkedIn post Wednesday. “The economy is measurably slowing. Even the lagging indicator job gains are coming in light.”
Yun said he’s worried that rising interest rates could actually fuel inflation as would-be homebuyers throw in the towel, fueling more demand for rentals, and making housing more scarce as builders balk at paying higher rates on construction loans.
A weekly survey of lenders by the Mortgage Bankers Association (MBA) showed that applications for purchase loans were down a seasonally adjusted 6 percent last week when compared to the week before, and 22 percent from a year ago.
Joel Kan
“The purchase market slowed to the lowest level of activity since 1995, as the rapid rise in rates pushed an increasing number of potential homebuyers out of the market,” MBA Deputy Chief Economist Joel Kan said in a statement.
With rates on 30-year fixed-rate conventional loans rising for the fourth consecutive week to the highest rate since 2000, Kan said some borrowers searching for ways to lower their monthly payments are turning to adjustable-rate mortgage (ARM) loans.
Although ARM loans accounted for 8 percent of mortgage applications last week, they had an even bigger share when mortgage rates made a similar surge last fall. During the second week of October 2022, ARM loans accounted for 13 percent of applications, the highest share since March 2008.
Appearing on CNBC’s “Squawk Box,” Yun noted that rates on ARM loans aren’t much lower than those for more traditional 30-year fixed-rate conventional loans (according to the MBA survey, rates on ARM loans averaged 6.49 percent last week).
“My advice right now is go into the 30-year fixed, because even with that, one can always refinance once the interest rate goes down,” Yun said. “The mortgage rates are topping out now — hopefully there is some downward drift in the upcoming months.”
MBA CEO Bob Broeksmit expressed similar sentiments on CNBC Wednesday, urging the Fed to “be clear that they’re done with rate increases” and to also “make clear that they’re not going to sell mortgage-backed securities off their balance sheets.”
Homebuyers seeking jumbo mortgages exceeding Fannie and Freddie’s conforming loan limits — $726,200 for one-unit properties in most areas of the country — have been hit particularly hard by recent rate increases.
At this time last year, rates on jumbo mortgages were about half a percentage point less than for conforming loans. Now the situation has reversed, with the “spread” between jumbo mortgages and conforming loans widening to nearly 40 basis points on Wednesday, according to Optimal Blue rate lock data.
Conforming loans are largely financed by investors who buy mortgage-backed securities guaranteed by Fannie and Freddie. But jumbo mortgages are mostly provided by banks that hold the loans on their books. Stresses on regional banks sparked by the failures of Silicon Valley Bank, Signature Bank and First Republic Bank have made jumbo loans more expensive and harder to come by this year.
This week, Rocket Mortgage began offering some relief by pricing mortgages of up to $750,000 as conforming, in anticipation that Fannie and Freddie’s 2024 loan limits will go up by at least 3 percent on Jan. 1 to reflect home price appreciation over the last year.
Mike Fawaz
“The market has changed a lot, and jumbo pricing isn’t as favorable as it used to be,” Mike Fawaz, executive vice president of Rocket’s wholesale channel, Rocket Pro TPO, told Inman.
Banks that have large holdings of Treasurys are seeing the value of those assets decline as interest rates rise, helping push unrealized losses on bank balance sheets up by 8.3 percent during the second quarter, to $558.4 billion, according to the Federal Deposit Insurance Corp.
Yields on 10-year Treasury notes, a barometer for mortgage rates, surged to a new 2023 high of 4.80 percent Tuesday, a level not seen since August 2007 on the eve of the subprime mortgage crisis.
While the Fed has tight control over short-term interest rates, rates on long-term assets like Treasurys and mortgage-backed securities (MBS) that fund most home loans are dependent on investor demand. When investors are eager to put their money in bonds and MBS, that pushes rates down. But when investors lose their appetite for those assets, that drives rates up.
The recent surge in long-term Treasury yields has defied many forecasters’ expectations, and economists are searching for reasons.
Last year’s rise in long-term rates was driven “by market expectations of higher short-term rates as the Fed tightened policy and by investors’ demands for extra compensation to hold longer-dated assets because of fears of higher inflation,” The Wall Street Journal’s Nick Timiraos reported Wednesday.
With inflation seemingly cooling and the Fed signaling that it’s done, or will soon be done, raising short-term rates, economists suspect flagging demand for Treasurys by foreign investors, U.S. banks and investment managers could be factors in the sustained rise in long-term rates, Timiraos reported.
Even if long-term rates have peaked, there’s increasing uncertainty over whether they’ll come down next year, as many economists and investors had been anticipating.
“What we’re seeing is a reappraisal of how the bond market prices uncertainty itself,” PGIM Fixed Income economist Daleep Singh told Timiraos. “The compensation required to underwrite potentially the new structural regime with more volatile growth and inflation and fewer predictable sources of demand to absorb record amounts of government debt issuance has clearly risen.”
Another factor crimping demand is that the Fed, which bought trillions of Treasurys bonds and MBS during the pandemic to bring borrowing costs to historic lows, is now letting those investments roll off its books.
Source: Board of Governors of the Federal Reserve System, Federal Reserve Bank of St. Louis
The Fed’s Treasury and MBS holdings peaked at $8.5 trillion last year, but a shift to “quantitative tightening” has allowed the central bank to trim its assets by more than $1 trillion by allowing $60 billion in maturing Treasurys and $35 billion in MBS to roll off its books each month.
Broeksmit said that the spread between 10-year Treasury yields and 30-year fixed-rate mortgages is about 125 basis points higher than its historic norm and that the Fed is partly responsible.
“I still think some of the increase in the spread between the Treasury and the mortgages is a fear that the Fed would actually sell [MBS] in the open market,” Broeksmit said on CNBC. “So if they were to make clear that that’s not on the horizon, I think that that would help and the bank demand will, I think, come back. We’ve seen some increase in supply with some of the failed banks MBS being on the market, but I think that’s mostly been resolved.”
Futures markets tracked by the CME FedWatch Tool put the probability of one or more additional Fed rate hikes this year at 37 percent, but see a one-in-five chance (19.6 percent) that the Fed will bring rates back down below current levels by March before the spring homebuying season kicks off.
The upcoming Nonfarm Payrolls report to be released Friday by the U.S. Bureau of Labor Statistics is likely to play a factor in determining where rates are headed next, as Fed policymakers see tightness in the labor market as a key driver of inflation.
Tuesday’s release of the Bureau of Labor Statistics’ Job Openings and Labor Turnover Survey (JOLTS) report seemed to panic bond market investors, sending yields on 10-year Treasurys up 12 basis points.
The JOLTS data, which showed job openings increased by 690,000 at the end of August, to 9.6 million, “was startling, but the data are very noisy and are subject to large revisions,” Pantheon Macroeconomics analysts said in their U.S. Economic Monitor report Wednesday.
“We don’t take JOLTS seriously, but the surge in yields and plunge in stock prices after the release of the data yesterday says a great deal about the pervasive nervousness of investors,” Pantheon economists Ian Shepherdson and Kieran Clancy wrote.
Bond market investors “appear to be taking seriously the Fed’s collective assertion that rates will stay higher for longer, despite the abundant evidence that the Fed’s interest rate forecasts are rarely correct,” they said.
Fed policymakers voted unanimously on Sept. 20 to keep the central bank’s target for the short-term federal funds rate at 5.25 to 5.5 percent.
But looking at the Federal Open Market Committee’s latest “dot plot” — projections of where policymakers think the short-term federal funds rate will be in the future — most see the need for one more rate hike this year. By the end of next year, however, some think it will be as low as 4.375 percent or as high as 6.125 percent (hawkish Federal Reserve Governor Michelle Bowman could be the outlier on the high end).
That is an “enormous” spread of 1.75 percentage points, Shepherdson and Clancy wrote, “but markets for now are interested only in the upside risks.”
Betting that Treasury yields have peaked “seems extraordinarily risky,” the Pantheon economists concluded. “But unless you think the U.S. economy can grow at a real 2 1⁄2 percent pace forever, untroubled by the Fed, 10-year yields can’t be sustained at the current level. The market won’t flip, though, until the data shift, and Fed officials acknowledge the change.”
In the meantime, Pantheon economists say, “yields could overshoot further.”
Get Inman’s Mortgage Brief Newsletter delivered right to your inbox. A weekly roundup of all the biggest news in the world of mortgages and closings delivered every Wednesday. Click here to subscribe.
Email Matt Carter
Source: inman.com
How does an additional $1 trillion in annual home loan origination volume sound?
At the moment, it sounds incredible if you’re in the mortgage industry and struggling to drum up business.
Volume has plummeted over the past year thanks to sky-high mortgage rates and a lack of for-sale inventory.
But that could change if interest rates creep back down and inventory begins to rise again.
Even if conditions don’t improve all that much, FICO score competitor VantageScore believes the implementation of their credit scoring model could help tremendously.
At the moment, mortgage lenders rely solely on FICO scores to determine a borrower’s creditworthiness.
These scores range from 300 to 850, with scores below 620 considered subprime.
Come 2024, a new credit score provider will join the fray, at least for loans backed by Fannie Mae and Freddie Mac.
The Federal Housing Finance Agency (FHFA), which oversees Fannie and Freddie, announced earlier this year that the implementation of the new credit score models is expected to roll out over two phases in 2024 and 2025.
In the third quarter, they anticipate the delivery and disclosure of additional credit scores provided by VantageScore. And the replacement of FICO legacy scores with the new 10T model.
By the fourth quarter of 2025, this will include the incorporation of the new scores into pricing, capital, and other processes.
Along with that, they are transitioning from requiring three credit reports (known as a “tri-merge”) to requiring just two credit reports (“bi-merge”).
So borrowers with credit scores from just two of the three major credit bureaus will have less issue qualifying for a mortgage.
And it may be cheaper to purchase a bi-merge credit report instead of a tri-merge report.
But the biggest potential impact is in allowing a completely new credit score provider into the mortgage space.
VantageScore believes it can expand homeownership because its credit score incorporates many more credit-invisible borrowers.
Their research found that millions of consumers characterized as “dormant” are simply infrequent or rare users of credit.
They cite an example might of a consumer who prefers to pay in cash but recently repaid an auto loan without missing a payment.
While these consumers may not have FICO scores, they could be scored with VantageScore.
The company says such consumers accounted for 73% of the newly scoreable population and 91% of the newly scoreable population with credit scores over 620.
In total, VantageScore estimates that 33 million consumers can only be scored by them.
Of those, some 13 million have a VantageScore of over 620, which as stated is the subprime cutoff.
It’s also the lowest credit score accepted by Fannie Mae and Freddie Mac for a conforming loan.
They further break it down to 4.9 million mortgage-eligible consumers aged 25 to 65 and estimate that there are about 1.83 adults per household.
This could result in 2.7 million more mortgages, resulting in an additional $1 trillion in annual loan origination volume.
And 1.9 million minority mortgage-eligible consumers, which is a big focus for the GSEs and individual banks and lenders.
The math works out to an average loan amount of roughly $370,000. It’s a big number, but even if some of their claim materializes, it could be a big shot in the arm for the mortgage industry.
You might be wondering if using a new, relatively unheard of credit score is a good idea in the mortgage space.
Especially at a time when housing affordability has rarely been worse. It’s a legitimate question.
While this has certainly been an obvious concern, the company claims default rates for consumers “were better or similar to those of consumers conventionally scored.”
This is based on “rigorous testing performed during model development and on an ongoing basis.”
But ultimately, we won’t know for sure until these credit scores are actually put to the test.
Either way, one could argue that allowing alternative scores from multiple vendors is good for avoiding monopolies.
By the way, VantageScore was developed by the nation’s three Nationwide Consumer Reporting Agencies (NCRAs), Equifax, Experian, and TransUnion.
It was launched in 2006, and has taken nearly 20 years to get this point. So it will surely be a big deal once implemented.
Their newest model scores approximately 94% of all adults 18 and older, “without sacrificing safety and soundness.”
This includes historically marginalized, minority, and lower-to-middle income Americans.
The company said more than 3,000 lenders used more than 19 billion VantageScore credit scores in 2022, a 30% increase from 2021.
Source: thetruthaboutmortgage.com
Following in the footsteps of Bank of America and Countrywide, Washington Mutual is pulling the plug on scores of existing home equity lines, according to a report from the San Francisco Business Times.
The Seattle-based thrift and mortgage lender will begin sending out letters to homeowners notifying them that their home equity lines of credit will be reduced or shut off completely, depending upon where they live and perhaps their current loan to value ratio.
WaMu has apparently reduced the amount of home equity able to be tapped from customer’s homes by a whopping $6 billion to mitigate risk in depreciating markets, regardless of credit profile.
But the bank defended its position, claiming that the move will also protect homeowners and prevent them from falling underwater if home prices continue to sink.
Additionally, it said it has a process in place for those looking to appeal the decision, and has pledged to assist those with special circumstances.
The move comes as the mighty savings and loan continues to struggle amid the ongoing mortgage crisis, with many of its loans made in rapidly depreciating areas of California.
Last month, WaMu unveiled plans to exit wholesale lending, cut 3,000 jobs, shut all its freestanding home loan offices, slash its dividend to a penny, and raise $7 billion via a TPG investment after reporting a $1 billion loss.
That’s on top of the 3,000 previous job cuts that took place back in December 2007 when the bank halted subprime lending.
Home equity line losses have rattled a slew of banks in recent quarters, forcing most to withdraw the products altogether.
Shares of WaMu fell 18 cents, or 1.74%, to $10.14 in midday trading on Wall Street.
(photo: lunchtimemama)
Source: thetruthaboutmortgage.com
Editor’s Note: On June 30, 2023, the Supreme Court announced its decision to reject the Biden-Harris Administration’s Student Debt Relief Program on the grounds that it required Congressional approval. Previously, it was announced that interest accrual on federal student loans will resume on Sept. 1, while loan payments will be due starting in October. Borrowers will learn their new monthly payment amount and due date at least 21 days in advance.
After graduation and your six-month federal student loan grace period, it’ll be time to start paying your dues. If you are on the Standard Repayment Plan, you’ll pay at least $50 a month for 10 years. But there are other ways to pay back your student loans: through income-driven repayment plans.
Not all of these plans have the same repayment strategy, and not all federal loans qualify for income-driven repayment. We’ll help you find the one that aligns with your financial situation before you commit.
The U.S. Department of Education offers four income-driven repayment (IDR) plans for holders of federal student loans:
• Income-Based Repayment (IBR)
• Income-Contingent Repayment (ICR)
• Pay As You Earn (PAYE) Plan
• Saving on a Valuable Education (SAVE) Plan
For most IDR plans, your monthly payment is calculated as a portion of your discretionary income. The Department of Education defines discretionary income as your adjusted gross income in excess of a protected amount.
Discretionary income under the SAVE Plan, for example, is any adjusted gross income you have above 225% of the federal poverty guideline appropriate to your family size. You’ll have a $0 monthly payment under the SAVE Plan if your annual income doesn’t exceed the protected amount of $32,805 for a single borrower and $67,500 for a family of four in 2023.
If you don’t qualify for a $0 monthly payment on the SAVE Plan, your monthly payment beginning in July 2024 will be set at 5% of discretionary income for undergraduate loans, 10% for graduate loans, and a weighted average if you have both.
On the IBR plan, your monthly payment is typically set at 10% to 15% of your discretionary income above 150% of the federal poverty guideline appropriate to your family size. But unlike the SAVE Plan, a borrower’s monthly payment on the IBR plan will never be more than what you would have paid through the Standard Repayment Plan.
All federal IDR plans can end with your remaining loan balance being forgiven after 20 or 25 years, but some borrowers may receive forgiveness sooner under the SAVE Plan. Beginning in July 2024, federal student loan borrowers with original principal balances of less than $12,000 can have their remaining loan balance forgiven after 10 years of monthly qualifying payments on the SAVE Plan.
For more details on federal IDR debt relief benefits, check out our Guide to Student Loan Forgiveness.
Your personal circumstances and goals may dictate which student loan repayment plan is right for you. You can estimate how much your monthly payments will be through the federal Loan Simulator calculator.
💡 Quick Tip: Ready to refinance your student loan? You could save thousands.
Deciding which IDR plan is right for you (and that you may qualify for) depends on your financial situation and your loan type(s). Here’s what they all mean:
• IBR (Income-Based Repayment). This plan is based on your income and family size. The potential IBR payment must be less than what you would pay under the Standard Repayment Plan to qualify. Any remaining balance is forgiven after 20 or 25 years.
• ICR (Income-Contingent Repayment). Under this plan, your monthly payment is adjusted based on your income (sometimes set at 20% of your discretionary income above 100% of the federal poverty guideline appropriate to your family size). It might not lower your payments as much as other plans, but it’s the only IDR plan that allows Parent PLUS Loans. Any remaining balance is forgiven after 25 years.
• PAYE (Pay As You Earn). With this plan, you’ll never pay more than the fixed Standard Repayment Plan amount. Payments are typically set at 10% of your discretionary income above 150% of the federal poverty guideline appropriate to your family size. Any remaining balance after 20 years of payments is forgiven.
• SAVE (Saving on a Valuable Education). This IDR plan replaced the former REPAYE Plan. Anyone with qualifying student loans can enroll into the SAVE Plan. However, you could end up paying more per month under this plan than the Standard Repayment Plan. You’ll have a $0 monthly payment under the SAVE Plan if your annual income falls below 225% of the federal poverty guideline appropriate to your family size.
The 2023 debt ceiling bill officially ended the three-year Covid-19 forbearance, requiring federal student loan interest accrual to resume on Sept. 1, 2023, and payments to resume in October 2023.
Aside from the Standard Repayment Plan, there are a few options to consider instead of IDR:
If you have federal student loans, you can get a Direct Consolidation Loan. This will move all your eligible federal student loans into one monthly payment. Your new interest rate is the weighted average of all your loans, rounded up to the nearest eighth of a percent.
This can be helpful if you have many smaller loans that each have a minimum monthly payment. It typically won’t lower your monthly payment, however, but it can make it manageable and easier to keep track of. Only federal loans are eligible for a Direct Consolidation Loan.
Refinancing is similar to consolidation. You get one loan to replace all of your other loans, but it’s a new loan with a new interest rate from a private lender or bank. Your credit report and other personal financial factors are considered to see if you’re a responsible borrower. If you previously had a co-borrower, such as a parent, you can look into refinancing without a cosigner.
Many lenders allow you to refinance all of your student loans, not just federal student loans. So if you have a mix of private student loans and federal student loans, refinancing will create one new loan with one payment to replace them.
If you qualify for a lower interest rate and a shorter term, it could reduce the amount of money paid in interest over the life of the loan. You may pay more interest over the life of the loan if you refinance with an extended term. You can explore different scenarios with our Student Loan Refinance Calculator.
You may ask, “Should I refinance my federal student loans?” Refinancing federal student loans with a private lender forfeits your access to Public Service Loan Forgiveness (PSLF), Teacher Loan Forgiveness, and federal IDR plans. You can weigh the pros and cons when determining whether student loan refinancing is right for you.
💡 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.
The Department of Education considers three different components when calculating a borrower’s income. While this may seem needlessly complicated, it actually benefits borrowers:
Any income that’s taxable counts toward the Education Department’s calculation. That means regular wages, plus interest and dividends from savings and investments, unemployment benefits, etc. On the flip side, any income that isn’t taxed doesn’t count: gifts and inheritances, cash rebates from retailers, child support payments, and so on.
If you and your spouse file a joint tax return, then their income must also be factored in. If you file separately, only your income counts.
Your family size is the number of people who live with you and receive more than half their support from you. This includes children but also dependent adults, such as an older parent.
There are four income-driven repayment plans for federal student loan holders, including IBR, ICR, PAYE, and SAVE. No new PAYE enrollments will occur after July 1, 2024, although current PAYE enrollees can remain on the plan after that date.
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.
If you are a federal student loan borrower you should take time now to prepare for your payments to restart, 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.
SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs.
SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility-criteria for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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.
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.
SOSL1023007
Source: sofi.com
Perks like airline seat upgrades or free food are certainly welcome when it comes to loyalty programs, but travelers want more. For the majority of U.S. travelers, their top loyalty program priority is lower fees. That’s according to the Barclays US Consumer Bank’s 2023 Travel Rewards and Loyalty Report, which surveyed 1,000 U.S. adult travelers online in May.
In fact, perks ranked No. 4 in the survey. When asked to choose from seven travel loyalty program priorities, 52% said lower fees were a priority. Meanwhile, 42% of respondents preferred perks, which might entail free hotel night certificates, room or seat upgrades or free breakfast (respondents could select multiple answers).
Here’s what travelers prioritized, from most to least important:
Lower fees (52%).
Flexibility in redeeming miles or points (47%).
Ability to earn more miles or points (46%).
Perks I receive (42%).
Ability to make last-minute changes (37%).
More choice in airlines or hotels (32%).
Personalized support (27%).
Of the survey respondents who said lower fees were a priority, 72% of them said the importance of lower fees has increased from five years ago. Perhaps that’s due to the onslaught of fees that travelers have been hit with lately.
In air travel, fees easily manifest via basic economy airfares, which have grown in popularity over the past decade and in 2018 were dubbed “a permanent fixture in the U.S. marketplace” by the CAPA Centre for Aviation, which is a company that conducts air travel analysis and research.
Sure, basic economy airfares have been credited as a major driver for declining airfares. For example, August 2023 airfares were 19% lower than what they were in the same month in 2013, according to consumer price index data released by the U.S. Bureau of Labor Statistics. But lower airfares have been accompanied by a la carte pricing for items that used to be included in standard airfares, such as the ability to check bags or to select your seat upon booking a flight.
Such fees aren’t limited to air travel only, either. In the hotel industry, the most hated fees include resort fees, which promise to cover the cost of resort-style amenities such as the pool, and even mundane benefits like Wi-Fi.
The first known resort fees sprang up in the late 1990s, according to the Federal Trade Commission, but they’ve become a special source of ire. Just look to the Junk Fee Prevention Act, which is proposed legislation that would limit hidden fees and surcharges across a range of industries, including resort fees. NerdWallet analyzed more than 100 U.S. hotels with December 2023 check-in dates and found that — among the hotels that charge them — the average resort fee was $38.82 per night.
Some frequent traveler rewards offer ways to save on those fees. For example, both the Hilton Honors and World of Hyatt loyalty programs waive resort fees for stays booked on points.
And in a similar vein are cleaning fees, which are often charged by hosts who use vacation rental companies such as Vrbo and Airbnb. A NerdWallet analysis of 1,000 U.S. Airbnb reservations with check-in dates in 2022 or 2023 found that the median cleaning fee per listing for a one-night stay was $75.
This year, Airbnb launched a toggle that allows customers to display listings based on total price, rather than simply seeing the base price without fees until the checkout page. Since the launch of the tool, more than 8 million guests have booked travel on Airbnb using the total price display, and more than 260,000 listings lowered or removed cleaning fees, according to the company’s fall 2023 update.
While lower fees are critical, travelers also say they seek flexibility in earning and redeeming miles or points. That’s likely because many travelers rely on redemptions to make their trips possible.
Miles and points are typically accrued not just through frequent travels with that company, but through spending on travel credit cards. According to that same Barclays survey, 76% of travelers who participate in loyalty programs said they couldn’t imagine taking the kinds of trips they want without the benefits of such a program.
You want a travel credit card that prioritizes what’s important to you. Here are our picks for the best travel credit cards of 2023, including those best for:
Source: nerdwallet.com
Chances are, your mortgage interest probably makes up a large proportion of your monthly expenses.
So, how can you secure the best mortgage rate possible? The potential savings you unlock can have a substantial and lasting impact on your lifestyle and disposable income for many years to come.
Read on as we delve into the world of mortgage interest rates, where we’ll explore their implications, and reveal the keys to securing the most favorable terms.
Verify your home buying eligibility. Start here
In this article (Skip to…)
Merriam-Webster defines interest as “a charge for borrowed money, generally a percentage of the amount borrowed.” You can think of it as the rent you pay to lenders for giving you access to their money.
That makes it different from the money you access. The money you borrow is called the “principal,” and the interest you pay is almost always a percentage of that.
Verify your home buying eligibility. Start here
You pay the interest monthly, but it’s calculated annually. So, if you borrow $100,000 at a 5% interest rate, you’ll pay $5,000 a year in interest, which is $600 a month.
With an installment loan, such as a mortgage, you have to pay the principal back over the life of the loan plus the interest that accumulates.
Nearly all mortgages are “fully amortized.” That means, for a fixed-rate loan, all the monthly payments are the same. But your mortgage lender works them out so you zero your balance (including interest and the principal sum borrowed) when you make the final monthly payment at the end of your home loan’s term, often 30 years.
When you make your first monthly payment on a new mortgage, you owe a huge amount of money. So, almost all that payment goes on interest and your principal debt reduces only a little.
Gradually, over the years, your principal decreases and the interest you owe each month does, too. As each payment is made, the percentage allocated to interest shrinks while the portion allocated to reducing the debt grows larger and larger.
By the time you make your last payment, only a tiny bit is interest and nearly all of it reduces your principal — to zero.
This stuff isn’t easy. So, to discover more, read How mortgage amortization works, and why it matters.
When this was written, in October 2023, mortgage rates had just reached a 20-year high. So, it may feel as if mortgage interest is expensive.
But, of course, mortgages are actually one of the least costly ways of borrowing. The problem isn’t the mortgage interest itself but the large sums home buyers borrow over long periods.
Even a low interest rate can result in high monthly mortgage payments when you’re borrowing big. And your mortgage is likely to be by far your largest loan, at least at the start.
Verify your home buying eligibility. Start here
So, how much might your mortgage interest cost on a conventional 30-year, fixed-rate mortgage? Let’s try an example. We’re basing it on the average rate for such a loan on the day this was written (7.522%) and on a property at the current median home price ($416,100 in the second quarter of 2023). We’ll assume a 20% down payment.
We fed those numbers into our mortgage calculator. And you can do the same with your own figures. Here’s what we got:
So, that’s $2,333 each month for the mortgage, plus property taxes and homeowners insurance. Did you spot the View Full Report button at the bottom? That provides the real low down:
So, as the Totals section reveals, “By the end of the 30-year mortgage loan term, you would pay $839,722 in total amount ($332,880 would be for the original loan amount and $506,845 in interest).”
Yes, that sounds a lot. But you’re borrowing a considerable loan amount over a long period of time.
It’s actually good value, especially when you think that, at the end, you’re likely to own outright a hugely valuable asset. And you won’t have had to pay rent for the next 30 years to live somewhere else.
By the way, the graph top-right on that page shows amortization in action.
There are two main groups of factors that affect the mortgage rates you’ll be quoted: Things you can change and things you can’t.
Verify your home buying eligibility. Start here
Let’s start with what’s outside your control. That’s mostly the economy and its effect on the bond market for mortgage-backed securities. It’s that market that largely determines current mortgage rates.
Generally, mortgage rates fall when the economy’s in trouble and rise when it’s thriving. Inflation also plays a role, with above-average price rises tending to drive higher interest rates.
Now, for some things you can control. Lending is all about risk. Lenders know that some of their home loans will turn bad. But which?
So, they analyze your personal finances to discover how much of a risk you pose. And the bigger that perceived risk, the higher the interest rate they’ll quote you. Of course, if they think there’s a serious danger of your mortgage loan turning bad, they’ll simply decline your application.
So, what specifically do they look for? It’s mainly:
Each of those normally affects a lender’s calculations when deciding what mortgage interest rate to quote you. And, of course, you have a great deal of control over them.
For example, spending time before you apply, building your credit score and reducing your debt (especially card balances) can earn you an appreciably lower interest rate.
Verify your home buying eligibility. Start here
How would you like to save more than $1,000 a year for many years to come for just a few hours’ work?
It’s easy. And yet, a surprising number of mortgage borrowers pass on the opportunity.
In May 2023, federal regulator the Consumer Financial Protection Bureau (CFPB) released a report under the headline:
Mortgage data shows that borrowers could save $100 a month (or more) by choosing cheaper lenders
The CFPB found the spread among different lenders’ mortgage interest rates is “often around 50 basis points of the annual percentage rate.” Fifty basis points is 0.5%. So, it could be the difference between paying a rate of 7% or 6.5%. Try running those figures through our mortgage calculator!
The report also says that such differences apply in “virtually every segment of the mortgage housing market, including loans backed by Fannie Mae and Freddie Mac, Federal Housing Administration loans, U.S. Department of Veterans Affairs (Veterans Affairs) loans, as well as jumbo loans.”
And all you have to do to unlock such potential savings is request quotes from multiple lenders. Of course, your preferred lender may come up with the best deal. But suppose it doesn’t.
Most Americans, especially first-time home buyers, opt for a fixed-rate mortgage (FRM). They’re prepared to pay a little more for the security of knowing that every monthly payment they make on their loan will be the same as the last one.
A fully amortized FRM is as predictable as anything gets. You pay the same $x each month until you finish paying down the loan — or sell the home or refinance the mortgage.
Verify your home buying eligibility. Start here
Adjustable-rate mortgages (ARMs) are very different. Or they can be after a few years.
An ARM almost always starts with a lower interest rate than an FRM. And that rate is fixed for an initial period, after which it can float in line with general interest rates, usually once each year.
So, a 5/1 ARM has a fixed rate for the first five years, a 7/1 ARM’s rate is fixed for seven years, and so on. The second numeral tells you how often the rate can be adjusted after the initial fixed-rate period expires. That numeral is most often a 1, meaning the rate can then float up or down annually (once a year).
That’s fine as long as mortgage rates remain low. But it can cause real pain when those interest rates shoot up, as they have done in recent years.
Luckily, that pain is usually moderated because most ARMs come with caps that limit how much their interest rates can rise. But even moderated pain is still pain.
Some home buyers can still be better off with ARMs. If you know you’ll be moving home within seven years and choose a loan type such as the 7/1 ARM, your mortgage interest rate will be fixed for as long as needed.
At worst, mortgage interest is often seen as a practical necessity. The other option is to spend a lifetime paying rent, ultimately without the prospect of building valuable assets.
When mortgage rates are high, the weight of interest payments can become a substantial concern. But, if mortgage rates fall one day, refinancing is always an option, provided you remain creditworthy.
And there are things you can do to pay as low a mortgage interest rate as possible. Comparison shopping among several lenders could save you $100+ a month. Meanwhile, improving your credit score and reducing your existing debts can make another big difference.
Homeownership remains as much a part of the American dream as it always has. If you’re ready to fulfill your dream, don’t delay.
Time to make a move? Let us find the right mortgage for you
Source: themortgagereports.com
While existing homebuyers have been battling high mortgage rates for months — which are now at 8% — the builders are wooing buyers with lower rates and incentives. Today, the new home sales data beat expectations and surprised people. However, sales have been rising slowly for some time.
Using a low bar of sales from last year, the builder’s incentives have created more sales growth and their significant advantage is that they’re offering lower rates to move homes. Imagine what the existing home sales market would look like if mortgage rates were below 6%. We certainly wouldn’t be trending below 4 million existing home sale today if that was the case.
From Census: New Home Sales: Sales of new single‐family houses in September 2023 were at a seasonally adjusted annual rate of 759,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 12.3 percent (±16.6 percent)* above the revised August rate of 676,000 and 33.9 percent (±22.9 percent) above the September 2022 estimate of 567,000..
As you can see in the chart below, new home sales are slowly growing, There’s nothing gangbusters here, but new home sales have been slowly moving higher for some time. This is very different from the housing bubble years, where sales were booming like crazy and got close to 1.4 million. Currently, the seasonal adjusted annual rate of sales is just 759,000.
From Census: For Sale Inventory and Months’ Supply The seasonally adjusted estimate of new houses for sale at the end of September was 435,000. This represents a supply of 6.9 months at the current sales rate.
Here’s my model for understanding the builders.
We have been able to build more single-family housing, and single-family permits have been slowly rising, which offsets the multifamily weakness that should be here for some time now, as we can see in the chart below. The monthly supply of new homes is falling from the recent peak but needs more work to return to pre-COVID-19 levels.
One of the things I like to do is break down the monthly supply data into subcategories. We have a lot of homes in the pipeline that still need to get built; this is why the builders are making deals. As we see in the monthly supply data, they had a spike last year and are forced to create incentives to move homes. Here’s how the supply breaks down:
One of the data lines that very few people know about, but is critical to the inventory story in the U.S., is how many new homes are built and ready for sale! It’s not a lot now, nor has it ever been a lot. Even during the housing bubble crash years, we never got above 200,000. Most active listings’ inventory growth comes from the existing home sales market.
Keep things simple with today’s new home sales report: the builders confidence has been falling for months as rates have risen; many builders can’t pay down rates, and the ones that do are taking a hit on their profit margins.
However, the builders’ profit margins are still higher today than in the previous decade. This is the first time this century that we have seen a noticeable gap between purchase application data and new homes because, as we all know, the builders are singing: Baby, it’s cold outside…come inside for lower rates.
Source: housingwire.com
Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations.
Having no credit or bad credit both present different challenges. Bad credit can prompt frequent collection calls and take a long time to repair, while no credit can reduce your eligibility for most loans.
Whether you’re new to credit or you have years of activity (and a few blemishes on your report), you may wonder, “Is no credit better than bad credit?” No credit and bad credit can both hold you back in their own ways. No credit means that lenders can’t easily review your credit history, while bad credit means you’ve earned derogatory marks on your credit profile.
We’ll explore the nuances of both situations and share ways you can bolster your credit.
Key Takeaways
Credit scores, alongside a person’s employment status and annual income, help lenders decide if they’ll approve an applicant for loans, credit cards, and low interest rates. Borrowers with no or bad credit can still secure loans despite their current credit status, but it helps to know how their prospects might be affected.
People start to build credit when they make financial decisions that can be reported to a credit bureau. Applying for a credit card, paying down a student loan, or paying rent for a property you’ve leased are just a few actions that would fall under this umbrella.
Lenders may have a harder time getting a sense of a no-credit borrower’s credit risk since the borrower won’t have a credit report. Some effects of having no credit score include:
A person’s credit score can fall for multiple reasons. While certain actions, like applying for new credit cards, can temporarily cause one’s score to dip, long-term financial habits determine credit scores the most.
Consistently making late payments, exceeding your credit limit, and neglecting your oldest accounts can lead to a bad credit score. Bad credit can present some of the same challenges that no credit can, as well as unique hurdles, including:
Whether you have bad credit or no credit history whatsoever, you have the power to improve your scores—and your financial opportunities as a result. The following five recommendations can bolster your credit over time.
Payment history influences 35% of your FICO® credit score, which is the model most lenders rely on. Consistent, on-time payments will demonstrate financial responsibility and gradually raise your credit.
Each time you apply for new credit cards or loans, your profile receives a hard inquiry that temporarily lowers your score. Applying for too much credit all at once can significantly hurt your score.
Reviewing your credit report grants you insight into your financial habits, as well as errors or inconsistencies. Credit.com offers a free credit report card that reviews your financial habits in five categories, including the number of inquiries on your account and the diversity of your credit mix.
A credit builder loan helps no- or poor-credit borrowers improve their credit by paying down a small amount of debt. These loans usually cap out at $1,000 and have 6- to 24-month repayment terms. Check if a loan’s interest rate or repayment terms will fit within your budget before you sign any agreements.
Keeping your oldest credit card accounts open will typically benefit your credit, even if you don’t use them anymore. This is because your oldest accounts help boost your credit age, and they can also help you keep your credit utilization ratio lower, both of which have a positive effect on your overall credit health.
With a bit of effort and the right know-how, you’ll find multiple avenues to get credit cards for bad credit. Signing up for a credit monitoring service is a great first step. You’ll get strategies for handling debt and recommendations for credit cards and loans based on your current circumstances.
Many commercial banks offer at least one credit card for low-credit applicants. These cards often have low credit limits and may not have premium features like cashback or reward points. Nevertheless, responsibly using and paying down these cards will help display your creditworthiness over time.
The best credit cards and loan options become available with a higher credit score. As you take positive steps to build your credit, you’ll be eligible for more favorable offers—which can further enhance your credit profile. Resources like Credit.com can help you better understand your overall credit profile.
Challenges are par for the course on any person’s credit journey, whether they have excellent credit or no credit history whatsoever.
Credit.com’s free credit report card can help you navigate those challenges by reviewing your credit age, payment history, and account mix—then offer advice that you can implement when managing your credit.
Source: credit.com
You may have read a certain ABC news report that a man made his final mortgage payment with pennies he had collected over the years.
If not, the story goes like this. During the past 35 years, Milford, Massachusetts resident Thomas Daigle began saving pennies to pay off the mortgage on his first home.
The first one was supposedly found on the ground of the parking lot as he left the bank where he obtained his mortgage.
He told his wife at the time that he’d use pennies to make his final mortgage payment, and because “his word” meant everything, he stuck to it.
As time went on, any penny he encountered would be collected and put with the rest, eventually rolled and packed into boxes in his basement.
He kept a tally of the total number of pennies so he’d know when he met his goal.
And in April, on his 35th wedding anniversary, he took the pennies down to Milford Federal Savings and Loan Association and made his final payment, just as he said he would.
It is estimated that the 62,000 pennies weighed roughly 427 pounds, depending on the material they were made with.
While this story is heartwarming and certainly admirable in a very unconventional type of way, it’s clearly nowhere close to practical.
Sure, he was able to save $620 worth of pennies and make a “free” mortgage payment, but let’s analyze the amount of work he put into it.
The man picked up pennies and sifted through his coins for pennies and rolled them for decades – that is certainly a lot of work for $620, especially when inflation adjusted.
He probably also obsessed over pennies for years and drove his wife nuts.
The poor employees at the savings and loan also had to count the 400 pounds of pennies once he brought them in, probably only agreeing to it because of the nature of the story and the fact that it’s their 125th anniversary this year.
What Daigle could have done instead was make biweekly payments, or simply make an extra payment each year.
Or pay a little extra each time he made a monthly mortgage payment.
Even if he only added $10 or $20 to his mortgage payment each month, he would have saved a whole lot more than one single payment.
He probably could have refinanced his mortgage as well as mortgage rates dropped over the years and shortened his term.
And he would have paid his mortgage off early while saving thousands of dollars, not just $620.
Oh, and he wouldn’t have had to touch a single penny or waste hours rolling them.
Of course, he may have enjoyed the whole process, and clearly was happy to have met his goal.
The takeaway here is that simple things like paying a little bit extra or refinancing when rates drop substantially can lead to huge savings on your mortgage over the long term.
So take a proactive approach to your mortgage – it’s a huge financial decision and one that needs lots of care and attention over the years, not just at the outset.
For the record, Daigle said he’s no longer saving pennies, and seems to want nothing to do with them at this point.
He’s now focused on collecting grandchildren, who will likely pass down this story for generations. Hopefully none will repeat it.
Source: thetruthaboutmortgage.com