Mass Mortgage Refinancing Plan: Obama’s Ace In the Hole

Last updated on January 25th, 2018

We’ve heard talk of mass refinancing plans for years now, but nothing has quite delivered.

Sure, the Home Affordable Refinance Program (HARP) was recently expanded to allow just about any homeowner to refinance, regardless of negative equity issues.

But since it was announced in late October, I haven’t heard too much about it. Perhaps because it’s voluntary for mortgage lenders and still comes with cumbersome underwriting requirements?

Now there’s word of a “true mass refinance program,” one that allows pretty much anyone to refinance to today’s super low mortgage rates with few, if any restrictions.

A blog post written by James Pethokoukis that appeared on the American Enterprise Institute website yesterday is grabbing some serious headlines at the moment regarding the supposed plan.

In short, it suggests that Obama is looking to replace the current FHFA director with one of his own, which will allow the President to implement such a program. Just in time for election season too (not that I want to get political about this).

And because the FHFA oversees both Fannie Mae and Freddie Mac, anyone with a mortgage guaranteed by the pair, which is most homeowners, will be able to participate.

How the Mass Mortgage Refinancing Plan Would Work

Apparently it would be modeled after a plan originally thought up by Columbia University economists Glenn Hubbard and Christopher Mayer.

Every homeowner with a Fannie/Freddie backed mortgage would be eligible to refinance their existing first mortgage to a fixed rate of 4% or less.

The only requirement would be that the homeowner is current on their mortgage, or that they become so for a minimum of three months.

Even those with FHA loans and VA loans would be eligible, though interest rates would be higher.

No other qualification criteria would be used – no appraisal requirement, no income verification, no asset documents, LTV limits, etc.

Homeowners would get the option of refinancing into a 30-year fixed or a 15-year fixed.

But only first mortgages can be refinanced, so any second mortgages would need to be resubordinated.

Why It Works

Fannie and Freddie would get higher guarantee fees for implementing the plan, and loan servicers would receive the right to originate/service the mortgages without being responsible for “reps and warranties” violations of past servicers.

Banks and mortgage lenders would be able to refinance the mortgages quickly and cheaply thanks to the lack of underwriting requirements.

Private mortgage insurers could continue to insure the mortgages, and with lower monthly payments the mortgages would be deemed safer.

Roughly 25 million homeowners would benefit from the program in the form of lower monthly mortgage payments, with estimated annual savings of $2,800 per homeowner, or $70 billion in aggregate reduced housing costs.

These lower mortgage payments would also serve to stabilize the housing market and reduce the risk of future defaults.

It could also motivate homeowners on the brink to stay current in order to participate, unlike many loan modification programs that only serve those who fall behind on payments.

This could effectively push home prices higher, easing home equity concerns for those “on the fence” about staying or going.

Additionally, taxpayers would stand to benefit because Fannie and Freddie would reduce their losses and lower mortgage payments would mean reduced mortgage interest deductions.

The only “loser” would be mortgage bondholders, which the economists argue have already benefited tremendously from government actions taken during the mortgage crisis.

Additionally, thanks to current roadblocks, the relatively slow rate of refinancing allowed these bondholders to benefit more than they would have historically.

So there you have it. A possible mass refinance program with very few constraints. Even ineligible borrowers would “benefit” indirectly if the housing market improved as a result.

Not that I’m sold on it.  There are still a ton of question marks, namely those who can’t afford even a reduced housing payment, those already in foreclosure, the excess housing inventory, the impact of future mortgage rates, etc, etc.

Regardless, it’s clear housing policy will play a major role in the upcoming election.

(photo: KE Design)

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

Happy Holidays: Your Gift is Record Low Mortgage Rates

Last updated on March 9th, 2018

You guessed it. Just in time for the holidays, mortgage rates fell to yet a new record low. What a nice gift to give existing and prospective homeowners.

Average interest rates on the popular 30-year fixed-rate mortgage slipped to 3.91% during the week ending December 22, down from 3.94% a week earlier, per Freddie Mac data released today.

The loan program had hit a record low a week earlier as well, though it hasn’t displayed much movement for about six months. It has basically hovered around its current level for months now.

In fact, you’d have to go all the way back to July to see any significant movement. Back then it averaged a still absurdly low 4.55%.

However, rates are now nearly a point below the 4.81% average seen a year ago, meaning all those who refinanced recently may have to take another look at their mortgage.

Obviously, this is good news for the mortgage industry, as loan origination volume should receive yet another boost. But it’s a pain for borrowers who have to continually go through the process of refinancing. Or determine when that “right time” is.

Of course, the reward for all that hard work is lower and lower mortgage payments, and greater affordability for those who choose to own homes.

Meanwhile, interest rates on the 15-year fixed held firm at their current record low of 3.21% and are about a point below year-ago levels when they averaged 4.15%.

[30-year fixed vs. 15-year fixed]

Interest rates on adjustable-rate mortgages didn’t display much movement week to week. The 5/1 ARM dipped to 2.85% from 2.86%, and the one-year ARM slipped to 2.77% from 2.81%.

Both are significantly lower than they were a year ago, at 3.75% and 3.40%, respectively.

Mortgage Rates Tend to Be Low When the Economy Is in Bad Shape

So we know mortgage rates keep dipping lower, and while it’s good news for those who own homes, and those who aspire to own homes, it’s not good news for the economy as a whole.

When interest rates are low, it’s a signal that not all is well in the economy. Of course, you don’t need to know where interest rates are at to recognize that these days.

It’s pretty clear that the economy is in the dumps, and it’d be hard to imagine things turning around very quickly.

In other words, even though mortgage financing is historically cheaper than it has ever been, it’s not necessarily the greatest time to buy a home.

The forecasts are still grim, and home prices may continue to fall for the foreseeable future.

[How do interest rates affect home prices?]

There’s plenty of uncertainty in the air, and so it’s difficult to determine if buying now is a bargain or if you’ll simply be catching a falling knife.

Again, if you buy and hold for the long run, it doesn’t seem like a terrible time to buy real estate.

After all, there are many millions of existing homeowners who are in worse (home equity) positions than you will be, so you’ll have a pretty good head start. And a super low interest rate to boot!

The big question is how long it’ll take for things to turn around? Something to ponder…

Happy Holidays!

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

Are the Low Mortgage Rates a Home Buyer Trap?

Despite a slight uptick this week, mortgage rates are still pretty much rock bottom, and unarguably at ridiculously low levels.

This has sparked yet another refinance boom, with mortgage application volume rising to its highest point since May 2009, per the latest data dump from the Mortgage Bankers Association.

This is great news for existing homeowners with plenty of home equity looking to refinance to a lower rate. It’s also working out nicely for those who don’t have equity thanks to programs like HARP 2.0.

All in all, it’s a gift to these borrowers who are experiencing some serious monthly mortgage payment relief.

But what about new and prospective home buyers?

Are People Buying Because of the Low Rates?

With rates this low, you have to wonder if it’s all a big trap (whether intentional or not) to lure would-be buyers off the sidelines and into the game.

If you’ve followed the housing market lately, at least in certain regions of the country, such as Los Angeles, homes are speeding into pending status just days after being listed.

In fact, many are pending just one or two days after being listed. It’s looking like a serious seller’s market, though obviously a very unconventional one.

The low rates have increased affordability so much that a new pool of buyers has essentially been created, which has facilitated both standard and short sales.

Again, great news for those who have waited very patiently to sell their homes; many can finally do so!

And perhaps even better for the housing/mortgage market, with seemingly bad loans being replaced with better ones.

Heck, I’m even seeing a ton of flips that are actually selling for a tidy profit. I thought flips were dead?

Reminder of the Homebuyer Tax Credit

But it all seems reminiscent of the boost seen with the now infamous homebuyer tax credit.

That “free money” created a short-lived, yet steep run-up in home prices as first-time home buyers came out in droves.

Just a short time later, it became clear that those who purchased a home did so at a premium, and their tax credit was quickly eclipsed by a larger loss in home value.

If you take a look at this home price chart, you’ll see how the homebuyer tax credit stoked demand, but its effect was clearly fleeting.

In fact, those who purchased before the tax credit expiration were actually worse off compared to those who bought later on.

To bring it all together, home prices were pumped up as a result, similar to what we may be seeing with the record low mortgage rates.

With rates so low, homeowners and their clever real estate agents probably feel they can list their homes for more than they could have six months ago.

And the whole “it’s never been a better time to buy” adage is back.

Economy Still in Disarray

The big problem is that the economy is still a huge mess, with the European crisis hanging over our heads, and domestic unemployment still far from unresolved.

Then there are the millions of homes in the process of foreclosure, or knocking at its door.

So is this artificial stimulus actually going to help the real estate market long-term, or is it just another quick fix with no staying power?

My gut tells me that this recent run-up in prices and virtual 180 in consumer sentiment is bad news.

Getting into a bidding war over a house just months after no one was interested seems really fishy.

Additionally, all these calls of a “housing bottom” are concerning as well. You always have to wonder when every single media outlet (including your local news channel) is claiming that the worst is behind us.

Of course, the low rates have led to lower mortgage payments, even with the recent home price increases factored in.

So there’s some serious power behind those rates. The question is will you be able to buy a home next year at an even better price with a similar (or even lower) interest rate?

Read more: Home prices vs. mortgage rates.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

Stock Analyst Accuracy – Why Ratings Can Be Wrong & When to Listen

The stock market is a complex machine made up of intricate technologies, financial experts, and investors.

Some of the most highly-regarded experts on Wall Street are the research analysts who spend their days looking into opportunities in the stock market. These analysts make their money by sharing their opinions about what they believe will happen in the future.

Knowing that successful investing is born in research, many beginner investors make the decision to blindly follow the opinions of analysts rather than doing their own research when making investment decisions.

This is a very dangerous activity. Here’s why.

What Do Stock Market Research Analysts Do?

Research analysts — also called investment analysts, securities analysts, equity analysts, sell-side analysts, or financial analysts — are financial professionals charged with analyzing the financial stability and potential for growth of publicly traded companies.

Research analysts look into company metrics like historic revenue growth and earnings growth. They also dive into market conditions.

For example, if the company being analyzed is in the computer gaming industry, the analyst researches how large that industry is, how fast it’s growing, and what percentage of the industry the company has tapped into.

Once their research is complete, research analysts make predictions, including:

  • Earnings Per Share (EPS). Stock market analysts will attempt to predict the earnings per share (EPS) that companies they follow will produce. EPS divides the total net income generated in any given period by the number of shares of the company in existence.
  • Revenue. Research analysts also take a stab at predicting how much revenue the company will generate over the next year. Investors pay close attention to revenue because when revenue grows, it shows that sales are increasing, helps to increase profit margins, and ultimately leads to increased profitability for the company.
  • Share Price. Finally, research analysts make an attempt to predict what the price of the stock will become over the next year. This statistic is known as the price target.

Stock market analysts also make recommendations and providing ratings, generally including:

  • Buy. A buy rating, sometimes called an Outperform or Overweight rating, insinuates that buying the stock at the current share price is a good deal. This rating means the analyst believes that the stock has the potential to produce gains that outperform the overall stock market’s returns in the next 12 months.
  • Hold. A hold rating, sometimes called a Market Perform or Equal Weight rating, suggests the stock is likely to perform in line with the overall stock market. Analysts don’t believe that you’re going to earn returns any larger than the average across the market but believe that growth is still likely ahead.
  • Sell. The sell rating, also called the Underperform or Underweight rating, is a recommendation that investors avoid the stock if they don’t already own it and sell it if they do. This rating means that the analyst believes the stock’s performance will lag compared to the stock market as a whole, and purchasing of the stock could lead to losses.

Why You Shouldn’t Blindly Follow the Opinions of Research Analysts

With predictions surrounding earnings per share, revenue, and share price, coupled with ratings from research analysts, many newcomers believe the research legwork has been done for them, deciding to dive into any stock analysts deem to be a strong investment opportunity.

After all, isn’t that the analysts’ job? Why put the time into researching something that the professionals have already analyzed?

There are plenty of reasons to research your own investment opportunities rather than blindly following analysts. While research analysts are highly paid experts that have a knack for making decisions in the stock market, their opinions often can’t be trusted as the basis for objective investing decisions, as you’ll see below.

1. A Vested Interest

Research analysts don’t make predictions on stocks for the pure joy of helping investors. They have to make their six-figure salaries somewhere. As a result, these analysts often work for:

  • Brokerages. Although regulatory authorities are supposed to keep sell-side analyst opinions as far away from brokerages as possible in order to maintain objectivity in the investing process, that doesn’t seem to be happening. Brokerages often make investment recommendations based on the research provided by their analysts. This often creates a bias, with analysts recommending stocks that are best for their employers rather than the investors their employers serve.
  • Mutual Funds, ETFs, and Index Funds. Analyst opinions have the ability to move the market. A positive opinion about a company can send a stock soaring while a negative opinion can cause sharp declines. Mutual funds and many exchange-traded funds (ETFs) employ research analysts, which gives the analyst a vested interest in forming an opinion about a stock that’s in the best interest of the fund’s portfolio, and not always an unbiased depiction of what to expect from the stock.
  • Hedge Funds. The Big Short Squeeze involving GameStop, AMC, and several other stocks outlined the battle between hedge funds and retail investors. However, some of the research analysts most trusted by retail investors happen to work for the hedge funds that bet against them. Again, the analysts’ employment at hedge funds creates a potential bias when making predictions about trending tickers.

The bottom line is that research analysts aren’t working for you. Who they work for can create biases that make their work unreliable at best; the average retail investor simply shouldn’t trust them.

2. Analysts Are Highly Inaccurate

You would think financial professionals who spend their lives analyzing opportunities in the stock market would be pretty good at what they do. You might be surprised to learn that the average stock market analyst isn’t nearly as accurate as you may think.

Here are the stats analysts don’t want you to know, courtesy of FactSet.com:

  • Historic Performance: The majority of publicly traded companies listed on the S&P 500 beat analyst expectations when reporting financial results, and this percentage is growing quickly.
  • EPS Surprise: In the fourth quarter of 2020, 81% of companies listed on the S&P 500 reported a positive EPS surprise, meaning that these companies beat analyst expectations. That’s a huge miss on a key valuation metric used by most investors.
  • Revenue: In the fourth quarter of 2020, 79% of companies listed on the S&P 500 beat analyst expectations in terms of revenue.

Those are staggering statistics that show the highly paid research analysts who are expected to be pretty accurate had up to an 81% failure rate. If your investment advisor admitted to being wrong 81% of the time, would you continue to pay them to manage your investment portfolio?

3. Misleading Predictions Artificially Inflate Success Rates

Unfortunately, Wall Street doesn’t gauge the success of Wall Street analysts based on the accuracy of their EPS, revenue, or share price predictions. Research analyst success is gauged solely on their ratings system. What percentage of buy-rated stocks grew, and what percentage of sell-rated stocks fell?

Analysts use this incomplete view to their advantage, artificially inflating their success rate.

For example, say an analyst has a buy rating on a stock and expects earnings per share will come in at $0.50 on revenue of $50 million for the quarter. They know that when companies beat analyst expectations, investors react in positive ways.

So the analyst may make a public prediction that the company will report earnings of $0.45 per share on $47 million in revenue. These publicly stated estimates leave room for error and then some.

When the company reports its financial results, it is more likely to beat expectations than it would be if the analyst had shared their true opinion.

Moreover, as a result of the beat expectations, the stock is more likely to climb, making the analyst’s buy rating more likely to be placed in the books as an accurate one.

4. Stock Price Predictions Are Only Good for One Year

Building wealth in the stock market is a long-term process. Most successful investors invest with a time horizon measured in decades.

However, research analysts only follow 12-month time frames. A stock with a great outlook in the short term may be a horrible long-term investment.

Moreover, short-term predictions in the stock market are exposed to the short-term volatility that’s become the norm, making them highly unreliable. After all, stock market analysts can’t predict major events that may cause short-term volatility.

One of the best examples of this is the COVID-19 pandemic.

An analyst may have seen great promise in a well-run and profitable travel company in May of 2019, with no sign that a pandemic was coming that would grind most travel to a halt. The analyst may have expected strong revenues and earnings over the next year, coupled with incredible share price growth.

By the end of the 12-month time frame, the analyst would have been way off. In May of 2020, travel stocks were having a horrible time. Almost nobody could expect a travel stock to have a great year when half the country is locked down.

Many of these stocks saw a strong recovery as 2020 came to a close and travel restrictions eased, but the research analyst’s view doesn’t go any farther than the 12-month mark.

So was the analyst right or wrong for liking the travel stock in May 2019? This example demonstrates why the short-term nature of analysts’ predictions makes them pretty unreliable.

5. Research Analysts Are More Likely to Rate a Stock a Buy Than a Sell

The vested interest research analysts often have in the stocks they cover clearly comes out when you look into the statistics of the ratings they provide.

According to FactSet, there were 11,147 analyst ratings on S&P 500 companies as of December 31, 2017. Here’s how the total universe of analyst ratings broke down:

  • Buy Ratings: 49.5%
  • Hold Ratings: 45.3%
  • Sell Ratings: 5.2%

Sure, it’s true that more publicly traded companies do well than fail. However, you’d be right to question whether 94.8% of stocks are worth buying or holding.

Moreover, it’s impossible for 49.5% of stocks to outperform the market, 45.3% of stocks to trade in line with market performance, and just 5.2% of stocks to underperform the market. The numbers just don’t add up.


Wall Street Analysts Have Their Place

Although it’s never a good idea to blindly follow anyone into an investment, including research analysts, these analysts do have their place. For all their shortcomings, here’s how research analysts can provide valuable insights to everyday retail investors:

1. As a Source of Validation for Your Own Research

Hopefully, by now, you know that you should do your own due diligence before you invest in a company. However, it’s nice to have some way to validate your research.

Analyst opinions are a great way to do that.

Sure, analyst predictions aren’t always accurate, but if you’ve done your own research and believe that a stock is going to rise in value, it’s a good idea to look into what percentage of analysts rate the stock a buy.

If the overwhelming opinion among analysts is a buy rating, chances are you’re on the right track with your research.

TipRanks is a free way to go about seeing how many analysts cover a stock and what their overall opinion on the stock is.

2. As a Clear Red Flag on Stocks In Trouble

Analysts generally have a bias when it comes to stocks they cover, and they tend to rate stocks in a positive way. As such, if the vast majority of analysts that cover a particular stock rate it a sell, that acts as a big red flag that something is wrong with the company.

Sure, you don’t want to blindly follow analysts into a fire, but you also shouldn’t ignore blatant warnings that a stock is likely to fall. If lots of analysts are heading for the exits, they might be smelling smoke.

3. As a Gauge of Popularity Among Investors

Analysts don’t tend to waste their time researching stocks that nobody’s interested in. Instead, they want their research to be read and their name to be seen.

As a result, you can use the number of analysts that cover a stock to gauge that stock’s popularity. After all, the more popular a stock is, the more liquid an investment in it becomes.

For example, consider the following:

  • Amazon.com (AMZN). Amazon.com has 31 analysts covering the stock, all of which rate it a Buy. This suggests that an investment in Amazon.com would be a highly liquid one — there are lots of buyers for it on the market — because the stock has garnered quite a bit of positive coverage.
  • Tesla (TSLA). 29 analysts are weighing in on Tesla stock, with seven Buy ratings, seven Sell ratings, and 15 hold ratings. Once again, the high level of analyst coverage suggests that an investment in Tesla would be highly liquid.
  • Gevo (GEVO). Gevo, on the other hand, has two analysts covering it, both of whom rate it a Buy. Although the ratings and opinions are positive, the lack of widespread analyst coverage suggests that the stock is less popular than Amazon.com or Tesla, and thus, less liquid. That means you may have a harder time finding a buyer to pay your asking price if you decide you want to sell your shares.

The simple fact is that it takes investors to move the stock market. If nobody’s buying or selling, prices aren’t going up or down.

As such, the popularity of a stock you’re considering investing in should play into your decision to invest.


Final Word

This article admittedly has been critical of stock market analysts. The fact is, professional analysts are human beings who make their best efforts to succeed in their careers, just like you. They’re not bad people, but their interests aren’t always aligned with yours.

Interests among two conflicting parties rarely align; that’s why nothing gets done in Congress. Nonetheless, each party plays an important role, with analysts and retail investors essentially representing separate parties in the case in the stock market.

The bottom line is that nobody is going to hold your best interest as highly as you will. As such, you shouldn’t trust anyone’s opinion more than your own when it comes to your money. Instead, do your own research and look to experts to validate your own educated opinions.

Source: moneycrashers.com

7 Super Small-Cap Growth Stocks to Buy

Stocks with smaller market values are outperforming by a wide margin so far this year, and strategists and analysts alike say small caps should continue to lead the way as the economic recovery gains steam.

“The U.S. economy is currently trending toward high-single digit GDP growth in 2021 as COVID-19 vaccine distribution expands and we gradually emerge from the pandemic,” says Lule Demmissie, president of Ally Invest. “That environment favors small-cap names, which tend to have a more domestic focus than larger multinational firms.”

Small caps tend to outperform in the early parts of the economic cycle, so it should come as no surprise that they are clobbering stocks with larger market values these days.

Indeed, the small-cap benchmark Russell 2000 index is up 13.6% for the year-to-date through April 8, while the blue chip Dow Jones Industrial Average added just 9.5% over the same span.

Keep in mind that small-cap stocks come with heightened volatility and risk. It’s also important to note that it can be dangerous to chase performance. But small-cap growth stocks – particularly in this environment – can offer potentially much greater rewards. 

Given the increased interest in these securities, we decided to find some of analysts’ favorite small caps to buy. To do so, we screened the Russell 2000 for small caps with outsized growth prospects and analysts’ highest consensus recommendations, according to S&P Global Market Intelligence.

Here’s how the recommendation system works: S&P Global Market Intelligence surveys analysts’ stock recommendations and scores them on a five-point scale, where 1.0 equals a Strong Buy and 5.0 is a Strong Sell. Any score below 2.5 means that analysts, on average, rate the stock as being Buy-worthy. The closer a score gets to 1.0, the stronger the Buy recommendation.

We also limited ourselves to names with projected long-term growth (LTG) rates of at least 20%. That means analysts, on average, expect these companies to generate compound annual earnings per share (EPS) growth of 20% or more for the next three to five years. 

And lastly, we dug into research, fundamental factors and analysts’ estimates on the most promising small caps. 

That led us to this list of the 7 best small-cap growth stocks to buy now, by virtue of their high analyst ratings and bullish outlooks. Read on as we analyze what makes each one stand out.

Share prices are as of April 8. Companies are listed by strength of analysts’ consensus recommendation, from lowest to highest. Data courtesy of S&P Global Market Intelligence, unless otherwise noted.

1 of 7

Q2 Holdings

Digital banking technologyDigital banking technology
  • Market value: $5.7 billion
  • Long-term growth rate: 150.0%
  • Analysts’ consensus recommendation: 1.68 (Buy)

Q2 Holdings (QTWO, $103.06) provides cloud-based virtual banking services to regional and community financial institutions. The idea is to make it so that smaller firms – which are sometimes small caps themselves – can give account holders the same kind of top-flight online tools, services and experiences as the industry’s big boys.

To that end, Q2 recently announced the acquisition of ClickSWITCH, which focuses on customer acquisition and retention by making the process of switching digital accounts easier. Terms of the deal were not disclosed. 

Q2’s business model and execution has Wall Street drooling over the small cap’s growth prospects. Indeed, analysts expect the software company to generate compound annual earnings per share growth of 150% over the next three to five years, according to data from S&P Global Market Intelligence. 

“In the last year, the pandemic has accelerated the digital transformation efforts and investments of the financial services industry, and we believe Q2 Holdings is well positioned to support and grow its customer base,” writes Stifel equity research analyst Tom Roderick, who rates the stock at Buy. 

Of the 19 analysts covering Q2 tracked by S&P Global Market Intelligence, 10 call it a Strong Buy, five say Buy and four rate it at Hold. Their average target price of $152.25 gives QTWO implied upside of almost 50% over the next 12 months or so. Such high expected returns make it easy to understand why the Street sees QTWO as one of the best small-cap growth stocks.

2 of 7

BellRing Brands

A man drinking a protein shakeA man drinking a protein shake
  • Market value: $962.8 million
  • Long-term growth rate: 21.6%
  • Analysts’ consensus recommendation: 1.60 (Buy)

BellRing Brands (BRBR, $24.37), which sells protein shakes and other nutritional beverages, powders and supplements, is forecast to generate unusually healthy EPS growth over the next few years. 

Stifel equity research, which specializes in small caps, says BellRing offers a “compelling growth opportunity” thanks to its positioning in the large and fast-growing category known as “convenient nutrition.”

U.S. consumers are increasingly turning toward high-protein, low-carbohydrate foods and beverages for snacks and meal replacement, Stifel notes, and BellRing Brands, spun off from Post Holdings (POST) in late 2019, is in prime position to thrive from those changing consumer tastes. 

After all, the company’s portfolio includes such well-known brands as Premier Protein shakes and PowerBar nutrition bars. 

In another point favoring the bulls, BellRing’s “asset-light business model requires limited capital expenditures and generates very strong free cash flow,” notes Stifel analyst Christopher Growe, who rates the stock at Buy.

Most of the Street also puts BRBR in the small-caps-to-buy camp. Of the 15 analysts covering BRBR, eight call it a Strong Buy, five say Buy and two have it at Hold. Their average price target of $28.33 gives the stock implied upside of about 16% over the next year or so. 

With shares trading at just a bit more than 25 times estimated earnings for 2022, BRBR appears to offer a compelling valuation.

3 of 7

Rackspace Technology

Cloud technologyCloud technology
  • Market value: $5.3 billion
  • Long-term growth rate: 21.8%
  • Analysts’ consensus recommendation: 1.50 (Strong Buy)

Rackspace Technology (RXT, $25.61) partners with cloud services providers such as Google parent Alphabet (GOOGL), Amazon.com (AMZN) and Microsoft (MSFT) to manage its enterprise customers’ cloud-based services. 

And make no mistake, this sort of expertise is much in demand.

The pandemic accelerated many industries’ migration to cloud technology. As such, plenty of firms have discovered they need all the help they can get when it comes to transitioning and managing their operations – often with more than one cloud service provider.

“The prevalence of a multicloud approach has created integration and operational complexity that require expertise and resources most companies lack,”  writes William Blair analyst Jim Breen, who rates RXT at Outperform (the equivalent of Buy). “This creates an opportunity for a multicloud services partner to enable businesses to fully realize the benefits of cloud transformation.”

Breen adds that research firm IDC forecasts the managed cloud services market to grow 15% a year to more than $100 billion by 2024.

As the leading company in the field of multicloud services, bulls argue that Rackspace stands to benefit disproportionately from all this burgeoning demand. 

Speaking of bulls, of the 10 analysts covering the stock tracked by S&P Global Market Intelligence, five rate RXT at Strong Buy and five call it a Buy. The bottom line is that Rackspace easily makes the Street’s list of small-cap growth stocks to buy.

4 of 7

Chart Industries

Cryogenic technologyCryogenic technology
  • Market value: $5.3 billion
  • Long-term growth rate: 34.2%
  • Analysts’ consensus recommendation: 1.50 (Strong Buy)

Shares in Chart Industries (GTLS, $146.76), which manufactures cryogenic equipment for industrial gasses such as liquefied natural gas (LNG), are riding the global secular trend toward sustainable energy.

The market certainly likes GTLS’ commitment to greener energy. The small-cap stock is up more than 410% over the past 52 weeks – analysts expect a torrid pace of profit growth over the next few years to keep the gains coming. Indeed, the Street forecasts compound annual EPS growth of more than 34% over the next three to five years.

Analysts say the company’s unique portfolio of technologies gives it an edge in a growing industry. To that end, they applauded its $20 million acquisition of Sustainable Energy Solutions in December because it bolsters the company’s carbon capture capabilities.

“In the context of the decarbonization megatrend, Chart is a one-of-a-kind play on the global shift to more gas-centric economies,” writes Raymond James analyst Pavel Molchanov in a note to clients. “There is upside potential from large liquefied natural gas projects. Notwithstanding the lingering headwinds from the North American energy sector, we reiterate our Outperform [Buy] rating.”

Stifel, which chimes in with a Buy rating, says GTLS deserves a premium valuation given its outsized growth prospects. 

“With potentially a decade or more of high single-digit to low double-digit revenue growth, more recurring revenue, accelerating hydrogen opportunities, and the potential big LNG surprise bounces, we expect shares could trade north of 30 times normalized earnings,” writes analyst Benjamin Nolan.

The stock currently trades at nearly 30 times estimated earnings for 2022, per S&P Global Market Intelligence. Small caps to buy often sport lofty valuations, but with a projected long-term growth rate of more than 34%, one could argue GTLS is actually a bargain.

Raymond James and Stifel are very much in the majority on the Street, where 12 analysts rate GTLS at Strong Buy, four say Buy, one has it at Hold and one says Sell.

5 of 7

NeoGenomics

Lab equipmentLab equipment
  • Market value: $5.5 billion
  • Long-term growth rate: 43.0%
  • Analysts’ consensus recommendation: 1.33 (Strong Buy)

NeoGenomics (NEO, $47.87), an oncology testing and research laboratory, is still coming out from under the pressure of the pandemic, which led to the cancellation of legions of procedures.

But there’s been quite a lot of activity at the company, nevertheless, and analysts still see it as one of the better small-cap growth stocks to buy.

In February, the company said longtime Chairman and CEO Doug VanOort would step aside to become executive chairman in April. He was succeeded by Mark Mallon, former CEO of Ironwood Pharmaceuticals (IRWD). The following month, NeoGenomics announced a $65 million cash-and-stock deal for Trapelo Health, an IT firm focused on precision oncology. 

All the while, shares have been lagging in 2021, falling more than 11% for the year-to-date vs. a gain of 13.5% for the small-cap benchmark Russell 2000.

Although COVID-19 has been squeezing clinical volumes – and bad winter weather is always a concern – analysts by and large remain fans of this small cap’s industry position. 

“We continue to find the company’s leading market share in clinical oncology testing and expanding presence in pharma services for oncology-based clients to be a very attractive combination,” writes William Blair equity analyst Brian Weinstein, who rates NEO at Outperform. 

Of the 12 analysts covering NEO tracked by S&P Global Market Intelligence, nine call it a Strong Buy, two say Buy and one says Hold. With an average target price of $63.20, analysts give NEO implied upside of about 32% in the next year or so. That’s good enough to make almost any list of small caps to buy.

6 of 7

Lovesac

A Lovesac storeA Lovesac store
  • Market value: $917.3 million
  • Long-term growth rate: 32.5%
  • Analysts’ consensus recommendation: 1.14 (Strong Buy)

The Lovesac Co. (LOVE, $62.47) is a niche consumer discretionary company that designs “foam-filled furniture,” which mostly includes bean bag chairs. 

Although it operates about 90 showrooms at malls around the country, revenue – thankfully – is largely driven by online sales. That’s led to a boom in business as folks, stuck at home, shop online for ways to spruce up their living spaces.

Shares have followed, rising about 45% for the year-to-date and more than 1,000% over the past 52 weeks. And analysts expect even more upside ahead, driven by a long-term growth rate forecast of 32.5% for the next three to five years, according to S&P Global Market Intelligence. 

Stifel, which says LOVE is among its small caps to Buy, expects the consumer shift to buying furnishing online to persist, and even accelerate, once the pandemic subsides.

“Lovesac is well positioned for continued share gains in the furniture category with its strong product, omni-channel capabilities and enhancements to the platform, many of which were initiated during the pandemic,” writes Stifel’s Lamont Williams in a note to clients.

The analyst adds that LOVE has a long ramp-up opportunity thanks to a new generation of home buyers.

“As the housing market remains healthy there is the opportunity to capture new buyers as more middle- to upper-income millennials become homeowners and increase spending on [the company’s] category,” Williams writes. 

Of the seven analysts covering the stock tracked by S&P Global Market Intelligence, six rate it at Strong Buy and one says Buy. That’s a small sample size, but the bull case for LOVE as one of the better small-cap growth stocks to buy still stands.

7 of 7

AdaptHealth

An elderly person using a walker during home rehabAn elderly person using a walker during home rehab
  • Market value: $4.3 billion
  • Long-term growth rate: 43.0%
  • Analysts’ consensus recommendation: 1.11 (Strong Buy)

AdaptHealth (AHCO, $37.61) comes in at No. 1 on our list of small caps to buy thanks to their outsized growth prospects. The bull case rests partly on demographics and the aging of baby boomers. 

AdaptHealth provides home healthcare equipment and medical supplies. Most notably, it provides sleep therapy equipment such as CPAP machines for sleep apnea – a condition that tends to increase with age and weight.

With the majority of the boomer cohort of roughly 70 million Americans hitting their 60s and 70s, home medical equipment for sleep apnea and other conditions is increasingly in demand.

Mergers and acquisitions are also a part of the company’s growth story, notes UBS Global Research, which rates AHCO at Buy. Most recently, in February, the company closed a $2 billion cash-and-stock deal for AeroCare, a respiratory and home medical equipment distributor. 

“AdaptHealth exits 2020 with material themes of accelerating growth,” writes UBS analyst Whit Mayo. “In each quarter of 2022, we assume that AHCO acquires $35 million in annual revenues, closing these deals at the middle of the quarter. This drives estimated acquired revs from yet to be announced deals of $70 million.”

Small caps have been rallying in 2021, but not AHCO, which is essentially flat for the year-to-date. Happily, the Street expects that to change sooner rather than later. With an average target price of $47.22, analysts give the stock implied upside of about 25% over the next 12 months or so.

Of the nine analysts covering AHCO tracked by S&P Global Market Intelligence, eight rate it at Strong Buy and one says Buy. As noted above, they expect the company to generate compound annual EPS growth of 43% over the next three to five years.

Source: kiplinger.com

7 Signs it’s Time for a Mortgage Refinance

Maybe you’ve considered refinancing your mortgage, but you’ve only dipped your toe in the exploratory waters. Is now the right time? Will rates stay low? Could they go lower?

It can be hard to know when to take the plunge.

Whether you purchased a home recently or bought a home years ago, you probably noticed that average mortgage rates continued to hover near historic lows in early 2021.

But as with any financial rate or data point, it is hard—if not impossible—to time the market or predict the future.

Homeowners often look to refinance when it could benefit them in some way, like with a lower monthly payment. Refinancing is the process of paying off a mortgage loan with new financing, ideally at a lower rate or with some other, more favorable, set of terms.

Here are seven signs that locking in a lower mortgage rate now could be the right move.

1. You Can Break Even Fairly Quickly

Refinancing a mortgage costs money—generally 2% to 5% of the principal amount. So if you are refinancing to save money, you’ll likely want to run numbers to be sure the math checks out.

To calculate the break-even point on a mortgage refinance—when savings exceed costs—do this:

1. Determine your monthly savings by subtracting your projected new monthly mortgage payment from your current monthly payment.
2. Find your tax rate (e.g., 22%) and subtract it from 1 for your after-tax rate.
3. Multiply monthly savings by the after-tax rate. This is your after-tax savings.
4. Take the total fees and closing costs of the new mortgage loan and divide that number by your monthly after-tax savings. This yields the number of months it will take to recover the costs of refinancing—or the break-even point.

For example, if you’re refinancing a $300,000, 30-year mortgage that has a fixed 6% rate to a new 4% rate, refinancing will reduce your original monthly payment from $1,799 to $1,432—a monthly savings of $367. Assuming a tax rate of 22%, the after-tax rate would be 0.78, which results in an after-tax savings of $286.26. If you have $12,000 in refinancing costs, it will take nearly 42 months to recoup the costs of refinancing ($12,000 / $286.26 = 41.9).

The length of time you intend to own the home can affect whether refinancing is worth the expense. You’ll want to run the calculations to make sure that you can break even on a timeline that works for you.

The rate and fees usually work in tandem. The lower the rate, the higher the cost. (“Buying down the rate” means paying an extra fee in the form of discount points. One point costs 1% of the mortgage amount.)

If you’re shopping, each mortgage lender you apply with is required to give you a loan estimate within three days of your application so you can compare terms and annual percentage rates. The APR, which includes the interest rate, points, and lender fees, reflects the true cost of borrowing.

2. You Can Reduce the Rate by at Least 0.5%

You may have heard conflicting ideas about when you should consider refinancing. The reason is that there is no one-size-fits-all answer; individual loan scenarios and goals differ.

One commonly espoused rule of thumb is that the home refinance rate should be a minimum of two percentage points lower than an existing mortgage’s rate. What may work for each individual depends on things like loan amount, interest rate, fees, and more.

However, the combination of larger mortgages and lenders offering lower closing cost options has changed that. For a large mortgage, even a change of 0.5% could result in significant savings, especially if the homeowner can avoid or minimize lender fees.

Maybe rates are low enough that you choose to take a higher rate with a no closing cost refi.

3. You Can Afford to Refinance to a 15-Year Mortgage

When you refinance a loan, you are getting an entirely new loan with new terms. Depending on your eligibility, it is possible to adjust aspects of your loan beyond the interest rate, such as the loan’s term or the type of loan (fixed vs. adjustable).

If you’re looking to save major money over the duration of your mortgage loan, you may want to consider a shorter term, such as 15 years. Shortening the term of your mortgage from 30 years to 15 years will likely cost you more monthly, but it could save thousands in interest over the life of the loan.

For example, a 30-year $1 million loan at a 7.5% interest rate would carry a monthly payment of approximately $6,992 and a total cost of around $1,517,172 over the life of the loan.

Refinancing to a 15-year mortgage with a 5.5% rate would result in a higher monthly payment, about $8,171, but the shorter maturity would result in total loan interest of around $470,750—an interest savings over the life of the loan of about $1,046,422 vs. the 30-year term.

One more perk: Lenders often charge a lower interest rate for a 15-year mortgage than for a 30-year home loan.

4. You’re Interested in Securing a Fixed Rate

Borrowers may take out an adjustable-rate mortgage because they may get a lower rate (at least initially) than on a fixed-rate mortgage for the same property. But just as the name states, the rate will adjust with market fluctuations.

Typically, ARMs for second mortgages such as home equity lines of credit are “pegged” to the prime rate, which generally moves in lockstep with the federal funds rate. First mortgage ARM rates are tied more closely to mortgage-backed securities or the 10-year Treasury note.

Even though ARM loans come with yearly and lifetime interest rate caps, if you believe that interest rates will move higher in the future and you plan to keep your loan for a while, you may want to consider a more stable fixed rate.

Refinancing to a fixed mortgage can protect your loan against rate increases in the future and provide the security of knowing how much you’ll be paying on your mortgage each month—no matter what the markets do.

5. You’re Considering an ARM

You may also be considering a move in the other direction—switching from a fixed-rate mortgage to an adjustable-rate mortgage. This could potentially make sense for someone with a 30-year fixed loan but who plans to leave their home much sooner.

For example, you could get a 7/1 ARM with a potential lower interest rate for the first seven years, and then the rate may change once a year, when up for review, as the market changes. If you plan to move on before higher rate changes, you could potentially save money.

It’s best to know exactly when the rate and payment will adjust, and how high. And it’s important to understand the loan’s margin, index, yearly and lifetime rate caps, and payments.

6. You’re Considering a Strategic Cash-Out Refi

In addition to updating the rate and terms of a mortgage loan, it may be possible to do a cash-out refinance, when you take out a new loan at a higher loan amount by tapping into available equity.

The lender will provide you with cash and in exchange will increase your loan amount, which will likely result in a higher monthly payment.

If you go this route, realize that you’re taking on more debt and using the equity you have built up in your home. Market value changes may result in a loss of home value and equity. Also, a mortgage loan is secured by your home, which means that the lender can seize the property if you are unable to make mortgage payments.

A cash-out refi may make sense if you use it as a tool to pay less interest on your overall debt load. Using the cash from the refinance to pay off debts carrying higher rates, like credit cards, could be a good move.

Depending on loan terms and other factors, a lower rate may allow for overall faster repayment of your other debts.

7. Your Financial Situation Has Improved

When putting together an offer for a mortgage, a lender will often take multiple aspects into consideration. One of those is prevailing interest rates. Another is your financial situation, like your credit history, credit score, income, and debt-to-income ratio.

The better your personal financial situation in the eyes of the lender, the more creditworthy you are—and the better the terms your loan offer could be.

Therefore, it may be possible to refinance your mortgage loan into better terms if your financial situation has improved since you took out the original loan, especially when paired with relatively low market rates.

The Takeaway

Is it time to refinance? Is the prospect of a lower interest rate or different loan term exciting? Locking in a lower rate now could help you achieve your long-term goals by freeing up cash for other stuff, like retirement or a big vacation.

Sometimes folks spend so much time sweating the small purchases (like the dang lattes) when really, it’s the big money moves—like refinancing—that can make the biggest difference over time.

If you’re interested in refinancing, you may want to look for a lender that’s offering competitive rates and great customer service.

That’s SoFi.

SoFi offers a regular mortgage refinance and a cash-out refinance.

Check your rate in two minutes.



SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

SoFi Home Loans
Terms, conditions, and state restrictions apply. SoFi Home Loans are not available in all states. See SoFi.com/eligibility for more information.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Source: sofi.com

HARP Refinancing Takes Off Thanks to New Guidelines

Last updated on August 10th, 2013

As a result of recent enhancements, and perhaps ultra-low mortgage rates, the Home Affordable Refinance Program has actually made a meaningful impact.

Last month, there were a total of 98,885 HARP refinances recorded by the FHFA, which accounted for nearly 24% of all the Fannie Mae and Freddie Mac refis during August.

That’s a big chunk of the business, and represents nearly a quarter of the 400,000 total HARP refis originated in all of 2011.

Since January, 618,217 loans have been refinanced via HARP, bringing the all-time total to 1,640,068 (the program began in 2009).

A total of 1,292,932 HARP refis have been for loan-to-value ratios between 80 and 105 percent, and another 228,666 were for refis between 105-125%.

Helping the 125%

Last month, a total of 26,944 loans refinanced through the program had a loan-to-value north of 125%, which was one of the major program enhancements announced in late 2011 and implemented in 2012.

In fact, fewer borrowers (23,265) with LTV ratios between 105-125% refinanced through the program in August.

Simply put, the program is reaching the hardest-hit borrowers out there, many of whom you would assume are “too far gone” to benefit from such a program, let alone any program.

After all, if you’re underwater on the mortgage by more than 25%, it might be looked at as a losing endeavor, especially if it doesn’t involve any principal forgiveness.

But these numbers show there are believers out there, even in the darkest of times.

For all of 2012, 118,470 borrowers with LTV ratios greater than 125% have taken advantage of HARP 2.0.

And the overall numbers also appear to be picking up. Last month, 99,000 HARP refis were recorded, up slightly from 96,000 in July.

Assuming the numbers held up in September, we’d be looking at quarterly figures around 300,000.

That would be significantly higher than the 243,000 refis in the second quarter, and well above the 180,000 executed in the first quarter of 2012.

Additionally, the last two months’ totals have also surpassed the quarterly numbers seen in the last three quarters of 2011.

Nearly 20% of HARP Borrowers Choose Shorter Terms

Somewhat amazingly, 18 percent of borrowers with LTV ratios above 105% chose to refinance into shorter-term mortgages, such as 15- and 20-year fixed loans.

The rest went with the traditional 30-year fixed. This compares to just 10% in 2011.

[30-year fixed vs. 15-year fixed]

In other words, borrowers really believe in their homes if they’re willing to make larger monthly mortgage payments while underwater.

And if they stick with it, they’ll build home equity a lot faster than those who stick with the traditional route.

Of course, one could argue that now is not the time to pay off your mortgage quicker, considering how low mortgage rates are at the moment.

But still, homeowners who do will help the housing market recover faster.

HARP refis were most popular in the sand states of Arizona, Florida, and Nevada, but well below average in high-priced California.

In Nevada, 66% of refis last month went through HARP. The numbers were similarly high in Arizona (50%) and Florida (54%).

In California, just 19% of total refinances were HARP loans.

Lastly, check out this nifty chart (included in the report) that looks at mortgage rates and the level of refinancing activity:

rates vs refi

Read more: Are consumers even interested in low mortgage rates anymore?

(photo: rfduck)

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.

Source: thetruthaboutmortgage.com

This Often-Overlooked Way to Fund Your Roth IRA Has Many Advantages

A Roth IRA is a uniquely powerful retirement savings tool, because you won’t pay taxes on the money you withdraw during retirement. An annuity is a way of generating guaranteed income. Put them together, and you have a powerful retirement protection tool that can provide guaranteed income for life, with a big plus: It’s completely tax-free.

Anyone may roll over part or all of an existing Roth to a Roth annuity.  You may transfer all or part of the funds in an ordinary Roth to a Roth annuity. While there are income and contribution limits for new money going into a Roth IRA, they don’t apply to rollovers — including rollovers to a Roth annuity.

Different types of annuities accomplish different things and have distinct pros and cons — like the Swiss army knife of personal finance. Since they’re so varied, one type or another can work well for a Roth IRA.  Investment choices, fees and contract provisions vary, so work with an annuity agent who will educate you about your choices and clearly lay out the pros and cons.

What kind of annuity works for a Roth? It depends on which stage of your financial life you’re in. In the accumulation stage, you’re building wealth for retirement. In your decumulation stage, you’re retired and receiving income from your savings.

Here’s how Roth annuities can work in each stage.

Building wealth for those approaching retirement

One attractive option is a fixed indexed annuity. With the stock market continuing to break records, it may be vulnerable to a major long-term downturn. When you’re young, you can ride out the ups and downs. But if you’re in your 50s or 60s, you may want to get growth potential without taking the risk of losing Roth money you’ll need during retirement. If so, an indexed annuity might be a good choice for you.

It pays interest based on an underlying market index, such as the S&P 500 or the Dow Jones Industrial Average. While the interest earnings are locked in, up to a stated cap (you may not get all of the upside) each year, you’ll never lose money when the index declines.

While indexed annuities are linked to one or more underlying market indexes, their value does not vary from day to day. Instead, they pay a varying amount of interest that is credited and locked in each year on the anniversary date of the contract. Since equity markets can be volatile, indexed annuities are designed to be held long-term, whether yoked to a Roth IRA or not.

A fixed-rate annuity — also called a multi-year guarantee annuity, or MYGA — is a more conservative choice. It works like a bank CD, paying a set interest rate for a set period. Fixed-rate annuities these days pay much more than CDs of the same term. As of April 2021, you can earn up to 2.90% a year on a five-year fixed-rate annuity and up to 2.25% on a three-year contract, according to AnnuityAdvantage’s online rate database. The top rate for a five-year CD is 1.25% and 1.05% for a three-year CD, according to Bankrate. 

Fixed-rate annuities can play a key role in asset allocation. Let’s say you decide to split your Roth assets up 50-50 between equities and fixed income. A fixed-rate annuity can give you a much higher rate of interest than you’d get today with safe fixed-income alternatives, such as CDs and Treasury bonds.

For current annuity rates, see this online annuity database. Interest is paid and compounded annually.

How to get tax-free lifetime income during retirement

Other than a traditional employer pension or Social Security, an income annuity is about the only vehicle that can guarantee an income for as long as you live. And by combining an income annuity with a Roth, that income is tax-free.

If you need income from your Roth very soon, consider an immediate income annuity. You can open a Roth annuity with a single payment (such as a tax-free rollover from an existing Roth IRA) to an insurance company. The insurer in turn guarantees you a stream of income. You can choose how long the payments will last — for instance, 15 years. Most people, however, choose lifetime payments as “longevity insurance.”

You can receive your first monthly income payment a month after your annuity contract is issued.

If you’re married, consider the joint-income option. With it, your spouse will receive regular monthly income payments for the remainder of his or her life too. Payments to a surviving spouse are always tax-free.

If you don’t need income right now, consider a deferred income annuity. Here, your income stream will begin at a future date you choose. By deferring payments, you let the insurer credit more interest over the years on your behalf, and you’ll ultimately get more monthly income. For instance, by delaying lifetime annuity payments from age 65 to 75, you’ll get about 85% to 90% more each month. On the other hand, you and/or your spouse won’t receive the deferred payments as long.

Another option is an indexed annuity with an income rider. The rider guarantees a certain income regardless of the performance of the annuity. It provides income like a deferred income annuity, plus the potential upside of an indexed annuity. It’s sometimes called a “hybrid” annuity.

The downside is cost. The rider typically costs about 1% of the annuity value annually. The insurer deducts this amount from your policy.

The advantage is retaining your money. Unlike an income annuity, which typically has no cash surrender value, an indexed annuity with an income rider lets you keep your money while guaranteeing lifetime income, starting on a date you choose.  You thus have flexibility. If you need the money, it will be there for you to withdraw or annuitize. (Wait until the surrender period is over to avoid any penalties.)  If you don’t need the money, you can pass on any remaining value to your heirs.

Is the extra cost worth it?  It all depends on your situation and goals and your desire to leave money to your heirs.

Whether you’re saving for future retirement or are currently retired or soon will be, annuities offer a range of often-overlooked strategies for the Roth IRA and amplify its advantage of tax-free retirement income.

A free quote comparison service with interest rates from dozens of insurers is available at https://www.annuityadvantage.com or by calling (800) 239-0356.

CEO / Founder, AnnuityAdvantage

Retirement-income expert Ken Nuss is the founder and CEO of AnnuityAdvantage, a leading online provider of fixed-rate, fixed-indexed and immediate-income annuities. It provides a free quote comparison service. He launched the AnnuityAdvantage website in 1999 to help people looking for their best options in principal-protected annuities.

Source: kiplinger.com

The Do’s and Don’ts of Home Equity Loans

Home equity burning a hole in your pocket? You may want to think twice about that boat.

Home equity is a valued resource, and if you have it, you might be tempted to tap that wealth for other purposes. A home equity loan, which allows you to use your home’s equity as collateral, is a great way to do this. But depending on your personal situation, it may not be the right thing to do.

Here’s when a home equity loan makes sense — and when it doesn’t.

DON’T: Fund a lifestyle

Remember when homeowners yanked cash out of their homes to fund affluent lifestyles they couldn’t really afford? These reckless borrowers, with their boats, fancy cars, lavish vacations and other luxury items, paid the price when the housing bubble burst. Property values plunged, and they lost their homes.

Lesson learned: Don’t squander your equity! Look at a home equity loan as an investment — not as extra cash when making spending decisions.

DO: Make home improvements

The safest use of home equity funds is for home improvements that will add to the home’s value. If you have a one-time project (e.g., a new roof), then a home equity loan might make sense.

If you need money over time to fund ongoing home improvement projects, then a home equity line of credit (HELOC) would make more sense. HELOCs let you pay as you go and usually have a variable rate that’s tied to the prime rate, plus or minus some percentage.

DON’T: Pay for basic expenses or bills

This is a no-brainer, but it’s always worth reiterating: Basic expenses like groceries, clothing, utilities and phone bills should be a part of your household budget.

If your budget doesn’t cover these and you’re thinking of borrowing money to afford them, it’s time to rework your budget and cut some of the excess.

DO: Consolidate debt

Consolidating multiple balances, including your high-interest credit card debts, will make perfect sense when you run the numbers. Who doesn’t want to save potentially thousands of dollars in interest?

Debt consolidation will simplify your life, too, but beware: It only works if you have discipline. If you don’t, you’ll likely run all your balances back up again and end up in even worse shape.

DON’T: Finance college

If you have college-age children, this may seem like a great use of home equity. However, the potential consequences down the road could be significant. And risky.

Remember, tapping into your home equity may mean it takes longer to pay off the loan. It also may delay your retirement or put you even deeper in debt. And as you get older, it will likely be more difficult to earn the money to pay back the loan, so don’t jeopardize your financial security.

Related:

Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.

Originally published February 23, 2016.

Source: zillow.com