This appears to be a first – digital mortgage lender Neat Loans will provide applicants with a $500 discount if they’re vaccinated for COVID-19.
The Boulder, Colorado-based company believes they are the first mortgage lender, and indeed financial services company, to offer a discount for getting the COVID-19 vaccine.
At a time when cases are surging again in many parts of the country following a bit of a lull, it appears they’re putting safety first.
Of course, this move will probably come with its share of controversy as well, like all things COVID do.
As to why they’re doing this, Neat Capital CEO Luke Johnson said, “Mortgage lenders need to have important conversations with their clients about the home-buying process and their vaccine status as it relates to employment.”
Adding that responsible companies have required their employees to get vaccinated to keep workplaces safe, and without a job, it’s tough to get a home loan.
Vaccinated Customers Will Receive a $500 Lender Credit from Neat Loans
Specifically, Neat Loans will provide a $500 lender credit to borrowers if they provide proof of COVID-19 vaccination.
Borrowers may use any digital or electronic picture of a vaccine record to satisfy the requirement. So you can probably take a photo of a paper copy and upload it as well.
It doesn’t matter which vaccine manufacturer you went with, such as J&J, Pfizer, or Moderna, or the number of doses received.
This offer is available to both those purchasing a home and those who apply for a mortgage refinance.
However, the mortgage loan application must be received on or after August 13th, 2021, and the promotion can come to an end at any time.
The company will also provide the same $500 credit to unvaccinated applicants who declare they’re unable to be vaccinated due to health or religious reasons.
And if you weren’t able to get the shot due to healthcare accessibility, cost, childcare availability, or transportation costs, Neat will ensure free vaccine access so borrowers can receive this promotional credit.
But you’ll need to submit a loan application with Neat first to have those costs covered.
Lastly, not all customers need to be vaccinated in order to apply with Neat Loans, to ensure equal access among all individuals. So you can still get a mortgage from them, just without the lender credit.
This bonus credit aside, Neat Loans says you can get pre-approved for a mortgage in just three minutes, and make cash-like offers in just 48 hours once you receive an official approval.
They’ll even back up their so-called “Platinum Certified” approval for up to $50,000 of your earnest money (5% of the purchase price) if the deal falls through due to financing.
Neat claims to provide “real-time underwriting” designed to close loans 3X faster than the industry average.
And you can even earn $100 to upload required documentation in the first 24 hours, which will all be neatly listed for your convenience.
Another perk to Neat is the fact that their mortgage rates are openly displayed on their website, without the need to sign up first to view them.
They also provide handy estimates of required income and assets you’ll need to qualify for certain loan amounts and loan programs.
Their goal is to provide a “mortgage without the mess,” and close loans quicker with more transparency.
Props to them for having the courage to reward those who are taking their own health seriously and protecting their communities in the process.
At the moment, Neat Loans is only licensed to lend in five states, including California, Colorado, Connecticut, Texas, and Washington.
Welcome to our “Social Security Q&A” series. You ask a question about Social Security, and a guest expert answers it.
You can learn how to ask a question of your own below. And if you would like a personalized report detailing your optimal Social Security claiming strategy, click here. Check it out: It could result in receiving thousands of dollars more in benefits over your lifetime!
Today’s question comes from Mark:
“My husband is 65 and I am 63. Neither one of us have started taking Social Security. He is waiting until full retirement age to take his Social Security. Since half of his Social Security is more than I would receive on my own, I would like to take that.
Do I have to wait until my full retirement age (FRA) to take that option? Or can I start mine earlier and switch to half of his when I reach my FRA?”
The dangers of claiming too early
Mark, you are indeed eligible for a spousal supplement, since your FRA benefit is less than half of your husband’s FRA benefit. The amount of that supplement depends on when you claim benefits.
For illustrative purposes, let’s assume that your FRA benefit is $800 a month and your husband’s FRA benefit is $2,400 a month. If you claim benefits at your FRA, you will receive your benefit of $800 plus a spousal supplement of $400, bringing your total benefit up to $1,200 a month (or one-half of your husband’s FRA benefit).
Mark, you should note that you cannot claim a spousal supplement until your husband claims his own benefits. You can claim your own benefits at any time once you reach age 62. But you need to coordinate claiming the spousal supplement with your husband’s claiming actions.
In this example, you would receive the spousal supplement at the point where your husband claims his own benefit. So, if you claim first, eligibility to receive your spousal supplement is determined entirely by your husband’s claiming decision.
You should be aware that there are significant penalties for claiming either your retirement benefit or your spousal supplement prior to your FRA. As noted above, if you claimed both at your FRA, you would receive $1,200 (based on my assumptions about benefits).
In contrast, if you claimed both at age 62, you would receive about $855 in combined benefits. This is an overall penalty of 28.7% on your combined FRA benefit amounts. (The calculation of this overall penalty rate is not straightforward, since the two benefits have different penalty rates for early claiming.)
You raised the question about claiming your own benefits early and then claiming your spousal benefit at your FRA. You thought you would receive $1,200 a month once you reached your FRA.
Your reasoning here is incorrect. Once you claim your own benefits early (and incur an early claiming penalty), you will never reach your $1,200 target. Your early claiming penalty sticks with you. You can’t simply shed it when you qualify for your spousal supplement.
Here is an example, using the numbers from above: Suppose you claim your retirement benefits early, which reduces your retirement benefits from $800 to about $580 a month. Next, suppose your husband claims his benefits at age 70, so you start your spousal supplement at the same time. You will receive the full $400, since you have passed your FRA at that point.
So, your overall benefit amount is $980, not $1,200.
Got a question you’d like answered?
You can submit a question for the “Social Security Q&A” series for free. Just hit “reply” to the Money Talks News newsletter and email your question. (If you don’t already receive the newsletter, you can sign up for free, too: Click here, and the sign-up box will pop up.)
You also can find all past answers from this series on the “Social Security Q&A” webpage.
About me
I hold a doctorate in economics from the University of Wisconsin and taught economics at the University of Delaware for many years.
In 2009, I co-founded SocialSecurityChoices.com, an internet company that provides advice on Social Security claiming decisions. You can learn more about that by clicking here.
Disclaimer: We strive to provide accurate information with regard to the subject matter covered. It is offered with the understanding that we are not offering legal, accounting, investment or other professional advice or services, and that the SSA alone makes all final determinations on your eligibility for benefits and the benefit amounts. Our advice on claiming strategies does not comprise a comprehensive financial plan. You should consult with your financial adviser regarding your individual situation.
Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.
Not that it matters much these days, but apparently Thursday is the best day to list your home for sale.
This is the latest advice from iBuyer and home valuation company Zillow, which noted that 21% of properties are listed on that particular day of the week.
What’s So Great About a Thursday Anyway?
Roughly 21% of properties are listed for sale on Thursdays (the most of any other day)
The share of homes listed on Thursdays is as high as a third in some markets nationwide (Portland, Seattle)
Properties listed on a Thursday typically go pending faster than homes listed on any other day of the week
And homes listed on Thursdays are more likely to sell above their asking price
I like Thursdays – ever since college it’s been the unofficial start of the weekend, something I didn’t grasp until, well, college.
Fridays are generally the lighter work days (or school days), with most of the heavy lifting completed earlier in the week.
The other special thing about a Thursday, at least when it comes to real estate, is that open houses and private showings often take place on the weekend, when folks aren’t working.
So if a property is listed just a day or two before, there’s a good chance it’ll be seen very shortly after, as opposed to sitting on the market all week before the prospective buyers start showing up.
Conversely, if you put your property on the market on say a Sunday, for some bizarre reason, it might not get a showing until five or six days later.
By then, it could be seen as a stale listing, at least in today’s lightning fast housing market.
And considering the average time a property spent on the market in April was exactly one week (yes, seven days), a day or two more can be meaningful.
Per Zillow, 21% of homes are listed on a Thursday, with a rate around 33% in Portland and Seattle.
Meanwhile, just 13% of homes are listed on a weekend, which is lower than any individual weekday.
[The Best Time to Buy a Home Is in August and September]
Also List Your Home Before Labor Day If Possible
Listing during the week of April 22nd resulted in the best chance of selling above asking
The worst weeks of the year to sell recently were in mid- and late October
Homes sold the slowest during the week ending September 1st (Labor Day 2019)
Early-mid fall is the time when homes tend to sit on the market the longest
While day of the week can play a role, especially if the housing market isn’t bananas, the time of year is probably a lot more important.
Generally speaking, Labor Day tends to represent the end to the traditional home shopping season, which begins in spring.
This is mostly a weather-driven phenomenon, largely because it’s difficult to sell a home during a cold winter when it’s snowing outside.
But in areas of the country where the temperature is nice year-round, it may not be much of a factor.
For example, you might be able to get away with listing a home in Southern California or Florida at any time throughout the year without a noticeable difference in demand and/or sales price.
However, to maximize your chances of a high selling price, list on a Thursday before Labor Day.
As you can see from the chart below, properties sold faster and were more likely to go above list in April for the metro of Los Angeles, based on pre-pandemic 2019 data.
The same held true in many other markets, while late summer and fall tend to perform the worst.
This is typically because families are settled for the school year, assuming they have children, and other prospective buyers might be traveling and/or beginning to hunker down for winter.
In fact, Zillow even refers to that time of year as the “fall stall,” when days on market rise and asking prices fall.
Forget About Dates, Focus on the Details
Dates can certainly play a role in real estate but aren’t the be all, end all
Sellers can see success any time of year if they do their homework and use a good agent
A home sale can also fall flat during peak selling months if the listing and/or agent is poor
And it may not always be convenient to sell at a certain time of year anyway
While “best” days and months of the year are interesting and fun to read about it, perhaps more important is listing your property with care.
That means selecting a competent real estate agent, making necessary repairs ahead of time, staging your property using the latest trends, and even ordering a home inspection for yourself before a buyer does.
All of these things can easily eclipse the value of a specific list date, whether it’s a Monday or a Thursday, an April or an October.
If you don’t take the time to do your homework, clean and stage your home, address any red flags, and so on, it might not matter what day or month you list.
Sure, Sunday is the worst day to list for a quick sale, with properties remaining on the market a full eight days longer than homes listed on a Thursday.
And homes listed on a Sunday (and Saturday for that matter) were less likely to sell above ask. Fortunately, this issue can probably be easily remedied, but not the time of year if life has its say.
Ultimately, understand that there are better and worse times to sell a home throughout the year depending on your individual market, but if you can’t time it perfectly, at least get all the other details right.
Editor’s Note: This story originally appeared on SmartAsset.com.
The number of 401(k) and IRA millionaires reached an all-time high in the first quarter of 2021, according to Fidelity Investments. Retirement account balances have been steadily recovering in the year since COVID-19 first emerged, even surpassing pre-pandemic levels. Today, more than 365,000 Fidelity investors boast seven-figure 401(k) balances, along with more than 307,600 IRA millionaires. A well-funded retirement account can afford you the financial security you need after your career ends. But to become a 401(k) millionaire, there are several steps you’ll need to follow.
There are 10 key moves a 401(k) investor should make to maximize his or her opportunity to retire as a 401(k) millionaire. Of course, there’s no guarantee that following these steps will turn you into a millionaire, but it’s unlikely you’ll reach such a level without making a number of the following moves.
Start Early
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One of the most important factors for your retirement account — or really, any investment — is time. The earlier you begin contributing to your 401(k) account, the longer your money has to grow and the greater your returns can compound (or multiply).
By starting your retirement savings efforts as early as possible, you increase your chances of becoming a 401(k) millionaire and successfully funding your future. What if you’re getting a late start on your retirement savings, though? Do you still have a chance at meeting your goal?
In part, the answer to that depends on you how much you save each year from this point on, and how your retirement savings are invested. Starting today is still better than starting tomorrow (or a year from now), however, especially if you can save as aggressively as possible now.
Calculate What You Need
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Saving a million dollars for your retirement is an exciting goal to set … but is it the right goal for funding the future lifestyle you have in mind?
Odds are that your current spending habits and budget are different from those of your co-workers, your best friend and even your siblings. Your plans for retirement probably differ, too. Some people plan to enter retirement debt-free, for instance, spending their years gardening and visiting the grandkids. Others want to finally travel the world in retirement or buy their dream home at the beach.
It’s important that you spend some time deciding what you want your retirement to look like and how much that lifestyle will realistically cost.
In some cases, you may not even need a million dollars, especially if you have other assets to pull from. For others, though, having a million dollars in a 401(k) won’t be enough to last. Set your retirement savings goals accordingly, in order to properly fund the future you’re eyeing.
Contribute Regularly
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One great thing about a workplace-sponsored 401(k) plan is that your contributions can be automated. Your employer can take the funds out of your paycheck before the deposit ever hits your account, ensuring that you “pay yourself first” every single month and meet your goals.
In some cases, though, your retirement savings may not be automated. If you’re a small-business owner, for example, you may need to set up a SIMPLE 401(k) or a solo 401(k). In that case, you’ll be responsible for setting up your own contributions and meeting your own savings goals.
Be sure that whatever retirement savings vehicles you choose, you are contributing regularly and consistently.
Invest the Maximum
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The more you save today, the more your retirement savings will grow and the better your chances of meeting your goals. Whether you want to be a 401(k) millionaire, are aiming for early retirement, or simply want to be financially independent, saving the maximum you can afford each month will get you there.
The IRS limits the amount you can save in your 401(k) each year; for 2021, this limit is $19,500 (if you’re over 50, you can deposit an extra $6,500 as a catch-up contribution). If your budget allows, try to max out your contributions to better your chances of savings success.
If $19,500 a year isn’t doable for you, simply invest the maximum that you can afford. Aim to save at least 10% to 15% of your income, and watch your balance grow.
Take Advantage of an Employer Match
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An employer match on your retirement contributions is one excellent way to amplify your savings efforts. This is essentially free money, and you should avoid leaving it on the table if at all possible. If your employer is offering to match a portion of what you contribute to your retirement savings, you should ensure that you are depositing at least enough to max out this match. The maximum is usually a percentage of your salary (often between 3% and 5%).
Also note that the funds may be “vested.” This means that you only get the full match amount if you stay with your employer for a minimum amount of time; if you quit your job before that vesting period ends, you won’t get the full match.
Maximize Your Investment Potential
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Your employer may offer multiple investment options for your 401(k). If this is the case, spend some time researching each option so you have the best chance of maximizing your returns.
Consider your risk tolerance and when you plan to retire. The further you are from retirement, the more risk you can afford and the higher your potential returns. Also, be sure to weigh each fund option in terms of expenses.
Limit Your Fees
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Your 401(k) plan will involve various fees and expenses, which will vary from one plan to the next. While these fees may seem small (often a fraction of a percentage point), they can really add up over time.
The fees on your 401(k) will be automatically deducted, so you may not even recognize how much your plan is costing you. Every dollar that you spend on retirement plan expenses is a dollar that can’t grow and compound for your future, though. Do your best to balance projected returns with plan costs and consider switching plans if there’s an opportunity to save on fees.
New Job? Roll Over Funds
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Each employer will offer its own retirement plan options. When you change jobs, you may be offered a managed plan with your new employer, which may be better than the plan that’s currently holding your funds.
You have three primary options for your existing 401(k) savings when you change jobs. You can:
Leave it where it is (with your old employer).
Roll it over to your new employer.
Roll the funds into an IRA.
If you have enough money in that 401(k) — usually $5,000 or more — most plans will let you leave it alone, which could be a good decision if you are seeing great returns there and are happy with the plan’s expenses.
However, if you have less than $5,000 in there, aren’t moving to a new job just yet, or aren’t otherwise happy with the plan’s management or fees, a rollover is a better idea.
The first route to consider is rolling your money into a traditional IRA. This may be the best choice if your new employer doesn’t offer a 401(k), you don’t have another employer lined up, or you just want to have more flexibility with your account options. IRAs are offered by nearly every brokerage and give you a variety of options for your money.
The second option is to roll your savings into your new employer’s 401(k). If they offer better funds or lower fees and expenses on plans, this is probably your best move.
Leave the Money Alone
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Whether you’re trying to reach 401(k) millionaire status or just want a successful retirement, there’s one important rule to keep in mind over your decades of saving: Don’t touch the money.
No matter what life throws at you, avoid the temptation to pull from retirement accounts. Early withdrawals can not only derail your progress exponentially but will also subject you to penalties and fees. In most cases, it’s not worth the added cost.
If an unexpected situation arises, consider the alternative options available before pulling from your retirement funds ahead of schedule. In many cases, a personal loan or home equity line of credit (HELOC) could meet your needs just as well.
Don’t Forget Other Retirement Savings
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While a 401(k) is the most popular retirement account option, it’s not the only one. Depending on your savings strategy and how much you have to save, you may want to consider spreading out your retirement efforts across a variety of different savings avenues.
A traditional or Roth IRA can be another great option for retirement savings, especially if you’re already maxing out your 401(k) contributions. You may also choose to focus on a personal investment portfolio. There, you can invest in funds that your employer doesn’t offer or even individual company stocks.
You can also utilize real estate investments — such as rental property or REITs — to bolster your retirement cash flow. They won’t include the same tax advantages as 401(k)s or IRAs, but can be a great addition to any well-funded retirement strategy.
The Bottom Line
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Saving for retirement is a decades-long journey, whether you’re aiming for a seven-figure balance or comfortable security. Of course, there’s no guarantee that following these 10 steps will turn you into a 401(k) millionaire. But by following them you’ll better your chances of reaching your retirement goals and feeling financially secure after you retire.
Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.
It’s a question a lot of prospective home buyers are asking right now. When will the housing market slow down? When will the bidding wars end and prices fall back to earth?
After an unprecedented year of home price gains, which somehow took place during a global pandemic, would-be buyers are looking for a reprieve.
But is it finally here, or is this just another seasonal fakeout?
It Has Been Very Much a Seller’s Market in 2021
The median home-sale price increased 17% year-over-year to a record high $361,973
Asking prices of newly listed homes are up 10% from the same time a year ago
Half of homes had an accepted offer within the first two weeks of being on the market
52% of homes sold above their list price, up from just 30% a year earlier
First, the bad news, assuming you don’t own yet. Home prices continue to be on a tear, with the median home-sale price rising 17% year-over-year for the week ending August 15th, per Redfin.
That pushed home prices up to an all-time high of $361,973, and was a much more pronounced climb than what we saw in previous years.
Part of that can be attributed to the COVID-inspired home buying frenzy, while the other underlying drivers have been constant for a while now.
There continues to be a supply glut, with too many buyers and not enough homes. Home builders have yet to catch up and don’t appear to be close to doing so.
At the same time, mortgage rates remain at/near record lows, creating even more demand.
When you throw in the need for more space due to stay-at-home orders, you wind up with the perfect storm.
This has made it very much a seller’s market in 2021, just as it has been in years prior. Ultimately, COVID just exacerbated an already dire situation.
Bidding Wars Fading, Home Sellers Slashing Prices?
Now the “good news” for potential home buyers, with a major caveat.
Both bidding wars and listing prices have been falling of late, which could signal an end to the overheated housing market.
Redfin noted that just 60.1% of offers written by their own agents faced competition from other buyers in July.
That was down from a revised rate of 66.5% in June and well below the pandemic peak of 74.1% in April.
However, despite July’s bidding-war rate being the lowest since January, it still exceeded the 57.9% bidding war rate seen in July 2020.
So though it appears as if things are moving in the right direction, they may in fact just be seasonal.
Meanwhile, the average share of homes with price cuts surpassed 5% during the four-week period ending August 15th, its highest level since the four-week period ending October 10th, 2019.
Here’s the problem. It’s all just relative to what has been an incredible period for home prices.
In other words, sure, the gains are moderating, but things like sale-to-list ratios are still above year-ago levels.
It really just tells us that home price appreciation is decelerating, not going away.
And to make matters worse, this can all be attributed to seasonal home price patterns.
Seasonal Patterns May Make It Feel Like the End of the Boom, Again
If you’ve been watching your local housing market, you might be hopeful that we’re returning to a period of normalcy. But don’t get your hopes up.
It’s normal for the housing market to cool off in fall and winter. It’s normal for homes to sit longer on the market as kids get back in school.
Each year, as we approach the end of summer and school gets back in session, the housing market tends to slow down.
This is a typical seasonal pattern that repeats itself each and every year, after the traditionally robust spring home buying season.
In short, April and May are the hottest months, then there’s an expected waning in home buying activity.
It’s usually accompanied by lower asking (and selling) prices, price reductions, fewer bidding wars, and more time on market.
While we are seeing some of that, you still need to keep it in perspective. Home prices and bidding wars are only lower relative to the incredible numbers recorded over the past year.
Imagine Tesla stock trading at only $700 versus its $900 all-time high. Sure, it’s lower than it was, but still up something like 1,500% over the past five years.
With regard to home prices, they’re still achieving new highs. The only thing that might be trending down is the pace of appreciation.
And here’s the worse news – expect the housing market to heat up once again in spring 2022.
Editor’s Note: This story originally appeared on SmartAsset.com.
When managing your nest egg in retirement, there are a number of decisions to make surrounding which withdrawal rate to use and how to rebalance your portfolio. Perhaps the most key, though, is answering what types of investments you should make after you’ve left the workforce.
A major strategic decision in this regard hinges on whether retirees should veer toward safer income investing or wealth investing, which has the potential for more robust rewards. As far as retirees are concerned, income investing is a much better choice in terms of ensuring your money lasts through your golden years, according to a July study from Dimensional Fund Advisors.
The following will explain the difference between these two approaches and inform you about how you can use this information to maximize your retirement savings and stave off the erosion of your funds from inflation.
Wealth-Focused Investing Versus Income-Focused Investing
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While there are many different types of investment strategies, two of the most common are wealth-focused investing and income-focused investing.
Wealth-focused investing, also known as growth investing, relies on stock market gains to increase investor capital. Investing in common stock is an example of wealth-focused investing. If an investor buys a share of a company for $100, for example, and sells it when it is worth $300, he’s added $200 worth of wealth to his portfolio, all through the growth of the market.
Income-focused investing, on the other hand, targets investments that will create guaranteed money for your portfolio. Income-focused investing is often thought of as a less risky investment, but with it comes less potential for big rewards. Buying corporate bonds is a type of income investing. In this scenario, you buy a bond from a company, which essentially means you lend the firm money. You then get paid back with interest over a period of time.
Again, there isn’t the potential for huge windfalls that come with wealth investing, but you are guaranteed a certain income. Stocks with dividends are a way of combining wealth and income investing: There is the potential for big growth from the stock, but you’ll also see a dividend payment, money paid to stockholders either monthly, quarterly or annually.
Research Shows Income Investing Is Safer for Retirees
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Dimensional Fund Advisors published a study that compared three bad investment scenarios. These include poor stock market returns, inflation increases and interest rate decreases. The study concluded that retirees who take a wealth-focused approach to investing in their retirement years face much higher risks than those relying on income investing.
When comparing both types of investors, Dimensional imagined a scenario where both make regular contributions to retirement accounts starting at age 25 and both retire at 65, with all money being invested in stocks at the beginning of their savings and gliding down to an eventual landing point with safer investments in the mix like bonds. In this simulation, Dimensional expected both types of investors to plan for a 30-year retirement.
The first investor ends up at 65 with a portfolio that is 50% equities and 50% short-term nominal bonds. The second investor ends up at 65 with a portfolio that is 25% equities and 75% fixed-income investments. From there, Dimensional ran a “retirement stress test” where a number of economic conditions were applied to the hypothetical portfolios to see how they fared.
For all scenarios, the portfolio focused on wealth ran out of assets by age 85 5.7% of the time, and by 95 30.1% of the time. By contrast, the portfolio with an income-focused investment failed just 0.1% of the time by age 85 and 20.2% of the time by 95.
Inflation and Retirement Investing
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Inflation, simply defined, is a market-wide increase in prices of goods and services, which results in money having less purchasing power. While inflation impacts everyone who participates in a market, it does have the potential to have an even bigger impact on retirees who are no longer actively earning income, as the money they have saved becomes less and less valuable as the years go by, meaning their savings will cover fewer expenses.
The Dimensional study specifically looked at how wealth-focused and income-focused portfolios would fare if there were unexpectedly high inflation. High inflation results in an 8.4% failure rate by age 85 for the wealth-focused portfolio, while the income-focused portfolio still fails just 0.1% of the time. By 95, a wealth-focused portfolio is running out of money 36.3% of the time when there is higher-than-expected inflation, while the failure rate for an income-focused portfolio stays at 20.2%.
The Bottom Line
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You have a lot of choices to make when you’re saving for retirement and managing your investments in retirement itself. One major decision revolves around how you’ll build your portfolio once the active earning portion of your life is done and you are merely trying to preserve your wealth so it lasts you until you’ve shuffled off this mortal coil. This study presents strong evidence that an income-focused portfolio is the option most likely to get you through your life without a major catastrophe, so make sure to consider that when planning your investments during retirement.
Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.
The other day, Jim Cramer was talking mortgage rates, even though he’s a self-described “stock person.”
The backdrop was the better than expected jobs report, which jolted the bond market and sent mortgage rates higher.
In short, more jobs and less unemployment equates to a recovering economy, which ushers in inflation and forces the Fed to act (aka raise rates). Mortgage rates typically follow.
Cramer’s main message to The Street’s Jeff Marks was that banks are probably going to start increasing rates, and if you don’t have a cheap mortgage, you better get one fast.
Cramer Believes You Need to Act Now on Mortgage Rates
If you’re not currently the owner of a super cheap mortgage, you better get going on that. At least, that’s what Jim seems to think.
He told The Street that, “I feel strongly that this is it, the train’s leaving the station on mortgage rates.”
In other words, this ultra-low rate environment we’ve all been enjoying could be wrapping up sooner rather than later. And not returning anytime soon, or ever.
Cramer even went as far as to say that if you don’t have a mortgage at all, but own free-and-clear property, you should take out a mortgage.
What! Take on more debt just for the fun of it, while everyone else is rushing to pay off the mortgage early? More on that in a moment.
With regard to his call that the low mortgage rates are gone forever, I’m not so sure.
As I mentioned in an earlier post, I think there are still a lot of lingering issues both for the economy and COVID.
I don’t expect this fall to be a walk in the park, and thus I expect mortgage rates to stay low longer than expected.
That isn’t to say you should sit and wait for better, but you might have a bit more time than Cramer thinks. But it seems COVID is calling the shots, not inflation.
He Just Took Out a 20-Year Fixed Mortgage on a Property He Owned Free and Clear
Now back to Cramer’s message about taking out a mortgage even if your home is completely paid off.
It might sound crazy, but his logic is pretty sound here – borrowing against your home is very attractive at the moment because interest rates are hovering around record lows.
The man isn’t just telling you to go do it, he actually put his money where his mouth is and took out a new home loan himself.
Apparently, he owned a property free and clear and decided to borrow against it, using a 20-year fixed set at a low 3.25%.
That’s actually not that impressive to be honest, though if it’s an investment property then it’s a slightly different story.
Anyway, his point is that you can lock in a really low interest rate for the next 20 or 30 years and invest your money in the higher-yielding stock market.
He threw out PepsiCo stock as an example, figuring it would beat the 3.25% annual rate of return on his mortgage.
For the record, it’s returned something like 12% annually for the past decade, though the Nasdaq has performed even better.
Regardless, I mostly agree with this philosophy, though I don’t know if I’d go as far as to recommend taking out a new mortgage if you don’t have one.
Simply put, you get to borrow cheap money and invest it for much higher returns in the stock market, hopefully.
You just have to be disciplined and actually do that, as opposed to taking out a mortgage (cash out refinance), thinking you’re rich, and buying a Tesla with the proceeds.
One last funny fact to put a bow on this. It was only four months ago that Cramer paid off his mortgage with bitcoin gains.
So he paid off a mortgage and months later took out a new one.
Declaring that ARMs are back, United Wholesale Mortgage (UWM) has just rolled out a new line of adjustable-rate mortgages for its mortgage broker partners.
The new offering from the nation’s largest wholesale mortgage lender includes a 5-, 7-, and 10-year ARM to flank the usual fixed-rate options, such as the very popular 30-year fixed and the shorter-term 15-year fixed.
What makes these loans interesting is the fact that they come with significantly better pricing than fixed-rate mortgages currently available with other lenders.
And that might be enough to change the ARM argument, which has been decidedly dour for years now thanks to record low fixed mortgage rates.
How Long Will You Actually Keep Your Home Loan?
Something like 90% of purchase mortgages are 30-year fixed loans
And roughly 80% of all mortgages including refinances are 30-year fixed loans
Yet less than 10% of borrowers actually keep their home loan for more than seven years
This means the bulk of homeowners with a mortgage are overpaying for the perceived safety of a fixed interest rate
UWM aptly points out that fewer than 10% of borrowers stay in the same mortgage for more than seven years, yet something like 80% of mortgagors hold 30-year fixed mortgages.
In other words, a large majority are paying too much for their home loan, yet never actually receiving the benefit of an interest rate that is fixed for the life of the loan.
And because many adjustable-rate mortgages come with a lengthy initial fixed-rate period, many of these homeowners could actually benefit from an ARM without ever worrying about a rate adjustment.
UWM notes that pricing on its 7-year ARM could be anywhere from 50 to 75 basis points (.50%-0.75%) better than a 30-year fixed loan.
For example, if a 30-year fixed is priced at 3%, it might be possible to get a 7-year ARM for 2.25%.
If we’re talking about a $350,000 loan amount, that’s a payment difference of about $140 per month and roughly $18,000 in interest saved over 84 months.
That’s the draw of an ARM – to save you money while also providing a lower monthly payment while you hold the thing.
And if you get rid of it during the fixed-rate period, which in the case of these loans is 5, 7, or 10 years, you essentially win.
Are ARMs Set to Get Popular Again?
Adjustable-rate mortgages have mostly been a home loan choice for the very rich lately
The ARM share was just 3.8% of total mortgage applications last week per the MBA
That may begin to change as mortgage rates rise and lenders embrace ARMs again
UWM has been a leader in mortgage innovation so this could be a sign of things to come in the industry
Chances are ARMs will gain in popularity as fixed rates begin to rise, assuming that happens over the next few years.
They may appeal to both new home buyers who want a lower interest rate, and existing homeowners who want to tap equity via a cash out refinance.
The adjustable-rate mortgage was super popular during the housing boom in the early 2000s, though they often featured extra-risky options like interest-only payments and negative amortization.
While an ARM is still a risk to some degree, given you don’t really know where interest rates will be at first adjustment, those who do have a clear vision can benefit, as illustrated above.
UWM’s suite of ARMs are all tied to the newly-launched Secured Overnight Financing Rate, otherwise known as SOFR, the LIBOR’s replacement.
Additionally, they all adjust every six months once they become adjustable, meaning they are 5/6, 7/6, and 10/6 ARMs.
This can be slightly more stressful than an annually adjusting ARM, such as the popular 5/1 ARM or 7/1 ARM.
The good news is the cap at each adjustment is just 1%, meaning the interest rate can’t increase by any more than one percent every six months.
And remember, the first adjustments don’t start for 60, 84, or 120 months, respectively, which as UWM noted, shouldn’t affect many homeowners who either sell their homes or refinance before that time.
The new ARMs are available on primary, second, and investment properties, for purchases, rate and term refinances, and cash out refis.
They are conventional loans (backed by Fannie Mae or Freddie Mac) and a minimum FICO score of 640 is required, with a maximum loan-to-value (LTV) ratio of 95% is permitted.
UWM has been a bit of a vanguard in the mortgage space, so there’s a good chance other mortgage lenders will soon follow suit and begin offering ARMs at a discount to their fixed-rate counterparts.
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.
In an effort to undo some of the damage the Federal Housing Finance Agency (FHFA) basically caused itself, it’s throwing a bone to so-called low-income families to save on their mortgage.
It all spurs from the adverse market fee the very same agency implemented back in August 2020 to contend with heightened losses related to COVID-19 forbearance and loss mitigation.
The 50-basis point fee, which went into effect on September 1st, 2020, applies to all new refinance loans backed by Fannie Mae and Freddie Mac.
While it’s not a .50% increase in mortgage rate, the fee does get passed along to consumers in the form of either higher closing costs or a slightly higher mortgage rate, perhaps an .125% increase all told.
Either way, it wasn’t well received at the time, and still isn’t today, and this announcement is a somewhat bittersweet one, as it only applies to a certain subset of the population.
Still, the FHFA believes families who are eligible for this new refinance initiative could see monthly savings between $100 and $250 on average.
Who Is Eligible for Adverse Market Fee Waiver and Appraisal Credit?
Applies to homeowners with incomes at or below 80% of the area median income and loan amounts at/below $300,000
Must result in savings of at least $50 in monthly mortgage payment, and at least a 50-basis point reduction in interest rate
Must currently hold an agency-backed mortgage (Fannie Mae or Freddie Mac)
Property must be a 1-unit single-family that is owner-occupied
Borrower must be current on their mortgage (no missed payments in past 6 months, 1 allowed in past 12 months)
Max LTV is 97%, max DTI is 65%, and minimum FICO score is 620
Perhaps the biggest eligibility factor is the borrower’s income must be at or below 80% of the area median income.
This new refinance program specifically targets what the FHFA refers to as low-income families, which director Mark Calabria said didn’t take advantage of the record low mortgage rates.
Apparently more than two million of these homeowners did not bother refinancing, even though it would have been advantageous to do so (and still is).
He noted that this new refinance option was designed to help eligible borrowers who have not already refinanced save somewhere between $1,200 and $3,000 annually on their mortgage payments.
That’s actually a requirement as well – the borrower must save at least $50 per month in mortgage payment, and their mortgage rate must be at least .50% lower.
For example, if your current mortgage rate is 4%, you’ll need a rate of at least 3.5% to qualify.
Additionally, you must currently have a home loan backed by either Fannie Mae or Freddie Mac, and your property must be owner-occupied and no more than one unit.
I assume condos/townhomes work as well, as long as it’s your primary residence.
The adverse market fee is waived as long as your income is at/below 80% of the area median AND your loan balance is at/below $300,000.
If your loan amount happens to be higher, my understanding is you can still get the $500 appraisal credit.
You’ve also got to be current on your mortgage, meaning no missed payments in past six months, and up to one missed payment in past 12 months.
Lastly, there is a maximum loan-to-value ratio of 97%, a max debt-to-income ratio of 65%, and a minimum FICO score is 620.
Most borrowers should have no issue with those requirements as they are extremely liberal.
Is This New Refinance Option a Good Deal for Homeowners?
It’s an excellent deal for those who haven’t refinanced their mortgages yet
You get a slightly lower mortgage rate and/or reduced closing costs
And with mortgage rates already super cheap it could be a double-win to save you some money
Even though who don’t qualify for this new program should check to see if a refinance could be worthwhile
As Calabria said, many higher-income homeowners probably already refinanced, or are currently refinancing their mortgages to take advantage of the low rates on offer.
Meanwhile, lots of lower income borrowers haven’t for one reason or another, perhaps because they’re not aware of the potential savings or had a bad experience with a mortgage lender in the past.
Whatever the reason, those who haven’t yet and meet the income requirement can take advantage of a refinance without the pesky adverse market fee.
That means they could get a mortgage rate maybe .125% lower than other borrowers who aren’t eligible for this program.
Additionally, they’ll get a $500 home appraisal credit from the lender, assuming the transaction doesn’t already qualify for an appraisal waiver.
Either way, eligible homeowners won’t have to pay for the appraisal, which is another plus to save on the refinance itself via lower closing costs.
It’s actually a great deal for those who haven’t refinanced yet because you might wind up with an even lower mortgage rate and reduced closing costs.
And because your new mortgage payment must be at least $50 cheaper per month, there’s less likelihood of it being a meaningless refinance.
All in all, this is good news for the so-called low-income homeowners who’ve yet to refinance, but bittersweet for everyone else.
Still, mortgage rates remain very attractive for everyone, so even if you have to pay the adverse market fee (and the appraisal fee), it could be well worth your while.
The FHFA said the new refinance option will be available to eligible borrowers beginning this summer, though it’s unclear exactly what date that is as of now.
San Francisco-based bank and mortgage lender Wells Fargo reportedly hired 5,000 employees to handle its ever-increasing mortgage workload, according to Bloomberg.
Wells Fargo CFO Howard Atkins said in an interview that the bank increased staff over the past couple of months to process its record haul of mortgage applications, which made it the top mortgage lender over Bank of America/Countrywide.
The company originated $101 billion in first mortgages during the first quarter, more than double the $50 billion in the fourth quarter and nearly half the $230 billion for all of 2008.
The correspondent/wholesale channel contributed $49 billion to that, practically double the levels seen in earlier quarters; home equity lines and loans, however, totaled just $1 billion.
All those applications led to the best mortgage origination quarter since 2003, contributing to the company’s record $3.05 billion net income in the first quarter.
But what happens once mortgage rates rise and refinance dries up, pushing volume back to more historical levels?
Sure it’s great that the bank took on thousands looking for work, but it seems to be only temporary employment.
And it’s wonderful that they’re upping their fulfillment areas, but what about staff in the company’s loss mitigation department?
“We remain focused on proactively identifying problem credits, moving them to nonperforming status and recording the loss content in a timely manner,” said Chief Credit Officer Mike Loughlin in a release.
“We’ve increased and will continue to increase staffing in our workout and collection organizations to ensure these troubled borrowers receive the attention and help they need.”
I doubt they’ve hired many employees in their workout and collection units, as they seem pretty focused on bringing in all those new mortgages with the low mortgage rates.
Shares of Wells Fargo were up $1.24, or 6.59%, to $20.05 in midday trading on Wall Street.
(photo: jasontester)
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.
