How Rising Inflation Affects Mortgage Interest Rates

While the inflation rate doesn’t directly impact mortgage rates, the two tend to move in tandem. Rising inflation can shrink purchasing power as prices of goods and services increase. Higher prices can then influence the Federal Reserve’s interest rate policy, affecting the cost of borrowing for lending products like mortgages.

Homebuyers looking for a home loan and homeowners who want to refinance a mortgage need to know that mortgage rates may rise as inflation increases. Therefore, understanding the difference between the inflation rate, interest rates, and what affects mortgage rates matters for all home finance consumers.

Inflation Rate vs Interest Rates

Inflation is a general increase in the overall price of goods and services over time.

The Federal Reserve, the central bank of the United States, tracks inflation rates and inflation trends using several key metrics, including the Consumer Price Index (CPI), to determine how to direct monetary policy. A target inflation rate of 2% is considered ideal for maintaining a stable economic environment over the long run.

When inflation is on the rise and the economy is in danger of overheating, the Federal Reserve may raise interest rates to cool things down.

Interest rates reflect the cost of using someone else’s money. Lenders charge interest to borrowers who take out loans and lines of credit as a premium for the right to use the lender’s money.

Higher rates can make borrowing more expensive while also providing more interest to savers. People borrowing less and saving more can have a cooling effect on the economy.

When the economy is slowing down too much, on the other hand, the Fed can lower interest rates to encourage borrowing and spending.

Recommended: Federal Reserve Interest Rates, Explained

What Affects Mortgage Rates?

Inflation rates don’t have a direct impact on mortgage rates. But there can be indirect effects because of how inflation influences the economy and the Federal Reserve’s monetary policy decisions. Again, this relationship between inflation and mortgage rates is related to how the Federal Reserve adjusts interest rates to cool off or jump-start the economy.

The Federal Reserve does not set mortgage rates, however. Instead, the central bank sets the federal funds rate target, the interest rate that banks lend money to one another overnight. As the Fed increases this short-term interest rate, it often pushes up long-term interest rates for U.S. Treasuries. Fixed-rate mortgages are tied to the 10-year U.S. Treasury Note yield, which are government-issued bonds that mature in a decade. When the 10-year Treasury yield increases, the 30-year mortgage rate tends to do the same.

Recommended: Understanding the Different Types of Mortgage Loans

So in terms of what affects mortgage rates, movement in the 10-year Treasury yield is the short answer. Higher yields can mean higher rates, while lower yields can lead to lower rates. But overall, inflation rates, interest rates, and the economic environment can work together to sway mortgage rates at any given time.

A simple way to see the relationship between inflation rates and mortgage rates is to look at how they’ve trended historically . If you track the average 30-year mortgage rate and the annual inflation rate since 1971, you’ll see that they often move in tandem.

They don’t always move perfectly in sync, but it’s typical to see rising mortgage rates paired with rising inflation rates.

Inflation Trends for 2022 and Beyond

In March 2022, the U.S. inflation rate hit 8.5%, as measured by the Consumer Price Index. This increase represents the largest 12-month increase since 1981 and moving well beyond the Federal Reserve’s 2% target inflation rate.

While prices for consumer goods and services were up across the board, the most significant increases were in the energy, shelter, and food categories.

Rising inflation rates in 2022 are thought to be driven by a combination of things, including:

•   Increased demand for goods and services

•   Shortages in the supply of goods and services

•   Higher commodity prices due to geopolitical conflicts

The coronavirus pandemic saw many people cut back on spending in 2020, leading to a surplus of savings. In addition to government stimulus, these savings created a pent-up demand for purchases once the economy got back on track. However, the supply chains have not been able to catch up to demand.

Supply chain disruptions and worker shortages are making it difficult for companies to meet consumer needs. This has resulted in rapidly rising inflation to levels not seen in decades.

In March 2022, the Fed started to raise interest rates to tame inflation and will likely continue to raise interest rates throughout the year. Many analysts believe that inflation is peaking and will steadily decline throughout 2022. However, there is still a lot of uncertainty surrounding the economy that makes forecasting price trends difficult.

Recommended: 7 Factors that Cause Inflation

Is Now a Good Time for a Mortgage or Refi?

There’s a link between inflation rates and mortgage rates. But what does all of this mean for homebuyers or homeowners?

Rising inflation and higher interest rates have caused mortgage rates to spike at the fastest pace in decades, though mortgage rates are still near historic lows. As the Fed continues to pursue interest rate hikes, it could lead to even higher mortgage rates. It simply means that if you’re interested in buying a home, it could make sense to do so sooner rather than later.

Buying a home now could help you lock in a better deal on a loan and get a reasonable mortgage rate, especially as home values increase.

The higher home values go, the more important a low-interest rate becomes, as the rate can directly affect how much home you can afford.

The same is true if you already own a home and are considering refinancing an existing mortgage. However, when refinancing a mortgage, the math gets a bit trickier. You might need to determine your break-even point — when the money you save on interest payments matches what you spend on closing costs for a refinanced mortgage (a refi).

To find the break-even point on a refi, divide the total loan costs by the monthly savings. If refinancing fees total $3,000 and you’ll save $250 a month, that’s 3,000 divided by 250, or 12. That means it’ll take 12 months to recoup the cost of refinancing.

If you refinance to a shorter-term mortgage, your savings can multiply beyond the break-even point.

If your current mortgage rate is above refinancing rates, it could make sense to shop around for refinancing options.

Keep in mind, of course, that the actual rate you pay for a purchase loan or refinance loan can also depend on things like your credit score, income, and debt-to-income ratio.

Recommended: How to Refinance Your Mortgage — Step-By-Step Guide

The Takeaway

Inflation appears to be here to stay, at least for the near term. Buying a home or refinancing when mortgage rates are lower could add up to a substantial cost difference over the life of your loan. From a savings perspective, it’s essential to understand what affects mortgage rates and the relationship between the inflation rate and interest rates.

SoFi offers fixed-rate mortgages and mortgage refinancing. Now might be a good time to find the best loan for your needs and budget.

It’s easy to check your rate with SoFi.


SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC), and by SoFi Lending Corp. NMLS #1121636 , a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law (License # 6054612) and by other states. For additional product-specific legal and licensing information, see SoFi.com/legal.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

Photo credit: iStock/Max Zolotukhin
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Source: sofi.com

Why You Might Not Want to Get Too Excited (or Nervous) About a Housing Crash

As mortgage rates continue their ascent toward 6%, more and more folks are talking housing market crash.

But high interest rates aren’t really a catalyst for a crash, especially if the high rates aren’t really high.

Emphasis on “real,” as in inflation-adjusted. Everything has gone up in price, and wages should also be rising.

This means a higher mortgage rate isn’t even a roadblock, or really as bad as it seems.

And because rates remain historically low, once you factor inflation, they could still be seen as a screaming deal.

High Mortgage Rates Don’t Crash Housing Markets

I’ve said it countless times, and I’ll repeat it again. Higher mortgage rates don’t automatically lower home prices. Or lower them at all.

If one goes up, the other doesn’t go down. And vice versa. It’s possible both can move in tandem, or opposite one another, based on many other factors.

So those who have been watching 30-year fixed mortgage rates absolutely surge from below 3% to nearly 6% must be beside themselves.

How could home prices not fall, or at the very least, not continue to rise? This makes no sense.

Why would home buyers continue to pay such outrageous prices now that interest rates aren’t at record lows?

Part of the answer is they want/need shelter, so they’re willing to pay “top dollar” for it.

Another reason is it’s still not that expensive once you factor in inflation and growing wages for these home buyers.

The other key factor continues to be a supply/demand imbalance, with way too little inventory available to satisfy demand.

Oh, and there are lots of buyers paying all-cash for their home purchase, which has nothing to do with mortgage rates.

All of these things have kept the housing market humming through spring, seemingly defying the expectations of housing bears and naysayers.

Don’t Compare Today’s Housing Market to the One Preceding the Great Recession

There’s a saying that history doesn’t repeat itself, but it rhymes. The origins of that quote or similar are hard to determine.

But the general idea is that we use the past to predict what will happen in the future. And we use a similar event for direction.

When it comes to the housing market, anyone who is skeptical of right now is looking back to the Great Recession.

Specifically, the housing market from around 2006 to 2008. Unfortunately, that’s a very extreme comparison, hence its name.

The Great Recession took place between 2007 and 2009, while the Great Depression occurred between 1929 and 1939.

These were both severe economic downturns, and as such, were spaced well apart from one another.

This means the chance of another event of that magnitude anytime soon is pretty low.

Still, we’ve enjoyed many fruitful years lately, so a recession or downturn of some kind is certainly in the cards.

The question is how bad will it be this time around?

Should We Look at the Late 1970s and Early 1980s for Future Guidance?

year over year mortgage rate change

Instead of comparing today’s housing market to the one that preceded the Great Recession, we might want to look back a bit further.

The housing market in 2006 was fueled by an abundance of stated income and no-doc adjustable-rate mortgages, tons of cash out mortgages, and zero down mortgages.

None of that is present today, though relatively harmless hybrid ARMs like the 5/1 ARM are beginning to make more of an appearance.

Now if we go back a lot further in history, we might find a better example for our history “rhyme.”

I’m talking about the late 1970s and early 1980s, when inflation was super high and mortgage rates spiked.

The old timers love talking about how high mortgage rates were back then. They scoff at your 6% mortgage rate today.

And they have good reason to scoff – the 30-year fixed climbed as high as 18.45% in October 1981, per Freddie Mac data.

Just a few years earlier, it was as low as 9.01%, so mortgage rates literally doubled. And did so at very high levels.

While our mortgage rates are still ridiculously low by comparison, they’ve nearly doubled as well in just a matter of months.

Additionally, demographics are very favorable for home buying, with 45 million Americans hitting the first-time home buyer age of 34 between 2017 and 2027.

This is similar to what was happening back then, as Bill McBride of Calculated Risk points out.

As you can see from his chart above, there’s been a very similar year-over-year change in mortgage rates on a percentage change basis.

The one big difference between then and now might be inventory. I say might because he doesn’t have the data, nor do I.

But we know housing inventory is at record lows today, so chances are today’s housing market is even more insulated than the late 70s/early 80s market.

So what will happen to home prices? Will we finally get our big, overdue crash?

Real Home Prices May Fall, But Nominal Prices May Not

real house prices

Okay, so it might be better to compare today’s housing market with the one seen in the late 70s/early 80s.

That makes sense given the inflation and interest rate environment, though remember history doesn’t repeat itself, it merely rhymes.

This provides us with clues as to what happens next, but nothing definitive.

McBride’s take, based on analyzing that time period, calls for a decline in both housing starts and new home sales.

We may also see an increase in housing inventory, though as mentioned, it’s currently at record low levels.

Here’s the kicker – nominal home prices might not even go down during the next “housing bust.”

By nominal, I mean prices that aren’t adjusted for inflation. So that overpriced $500,000 home might be worth $550,000 in a couple years.

That’s pretty wild when you look at how much home prices have already risen.

However, real home prices (those adjusted for inflation) may decline, as they did from 1979 (when they peaked) until 1982.

Back then, they fell 11% in real terms, but nominal prices “increased slightly” due to inflation.

In other words, you may want to temper your expectations with regard to a massive housing market crash.

Yes, home prices are “crazy high,” but so is the price of everything else.

And millions of Americans are enjoying very low, fixed housing payments that are only getting cheaper as prices and interest rates rise.

So a flood of distressed sales and foreclosures likely isn’t in the cards as it was a decade ago.

For those of you waiting on the sidelines looking for a fire sale, it may not happen.

And those who simply want to buy a home may also not see any major relief.

This isn’t to say you should panic-buy a house, but waiting for some big price cut might not be a great strategy either.

Source: thetruthaboutmortgage.com

Are Mortgage Rates Heading to 6%?

Welp, despite my calls for a reversal, or a correction of sorts, mortgage rates keep climbing higher.

The trend is decidedly not anyone’s friend when it comes to low interest rates.

And it’s clear that the current environment is up, up, up, even if conventional data and news tells it should be down, even just a little bit.

What I’m getting at here is it doesn’t seem to matter what’s happening, or what’s being said. Rates are simply going up and not down.

Does this mean a 6% 30-year fixed mortgage rate is just a matter of time?

We Are Trapped in a Rising Rate Environment Right Now

At the moment, mortgage rates are trending higher, no question about it.

When you get into a trending environment like this, there’s not much you can do to reverse it.

Even if stocks fall, and bonds should rise, they don’t. And even if the Fed comes out with a softer-than-expected stance, it’s still not enough to move the dial lower.

Ultimately, banks and mortgage lenders are uber-cautious right now, and that means either holding firm or simply increasing rates.

No one wants to get caught out by offering too low of a mortgage rate, only to see rates climb even higher the next day or week.

As such, they’re all being very defensive when it comes to pricing, erring on the side of higher as opposed to lower.

The latest evidence of this came right after the Fed announcement regarding its 50-basis point increase to the target federal funds rate.

This was widely expected, and some even thought a 75-basis point increase was possible.

Additionally, they provided details of their balance sheet normalization, which is the shedding of the billions in mortgage-backed securities (MBS) they currently hold.

That too was a relatively dovish announcement, revealing that they’d reinvest less of the proceeds from principal payments, as opposed to outright selling MBS.

This “good news” led to a big stock market surge and price improvements from mortgage lenders.

But it was short-lived, with the stock market bounce turning negative the next day. And rates also resumed their upward climb.

Why? Because everyone seems concerned with the longer view of rising inflation, and simply doesn’t care if we get some small wins along the way.

Patience Is a Virtue Until We Get Through This Ugly Stretch

Mortgage rates seem to ride on momentum, whether it’s up or down. Over the past many years, they were on a major downward trajectory.

Both the 30-year fixed and 15-year fixed hit all-time record lows and kept defying expectations year after year.

The Fed mostly engineered that via Quantitative Easing (QE), which it is now reversing via normalization.

So it makes perfect sense for mortgage rates to rise. But similar to how low they went, they now appear to be overshooting the mark higher.

The 30-year fixed is currently pricing around 5.625%, which is nearly double, yes double, the ~3% rate you could receive in late 2021.

That seems a bit extreme to me, and would call for some kind of correction, despite the Fed’s new, aggressive anti-inflation stance.

But as noted, mortgage rates get stuck in a pattern and that’s higher highs, as opposed to ebbs and flows.

There’s been no relief, and it might get worse before it gets better. Chances are we will see 30-year fixed mortgage rates hit 6% before they return to 5%.

It just feels inevitable, whether fair or not. If it happens, it’d be the first time since May 2008.

Those who are buying a home will need to be patient, or look into alternatives, such as the 5/1 ARM or 7/1 ARM, which are both providing reasonable discounts now.

I still believe mortgage rates will improve in the somewhat near-future, whether that’s later this year or in 2023.

However, I am also coming to terms with the fact that the higher mortgage rate train simply can’t be stopped right now.

This was evidenced by the Fed’s recent announcements, meaning it would take something truly out of the ordinary to stop the carnage.

Still, I am holding out hope for a return to more rational rates in the next 12 months.

As such, one strategy could be to go with an adjustable-rate mortgage until the dust settles, then refinance it to a 30-year fixed if you want that stability long-term.

Source: thetruthaboutmortgage.com

Does the Fed Control Mortgage Rates?

Mortgage Q&A: “Does the Fed control mortgage rates?”

With all the recent hubbub concerning mortgage rates, and the Fed, you might be wondering how it all works.

Does the Federal Reserve decide what the interest rate on your 30-year fixed mortgage is going to be?

Or is it dictated by the open market, similar to other products and services, which are supply/demand driven.

Before getting into the details, we can start by saying the Fed doesn’t directly set mortgage rates for consumers. But it’s a little more complicated than that.

The Federal Reserve Plays a Role in the Direction of Mortgage Rates

As noted, the Federal Reserve doesn’t set mortgage rates. They don’t say, “Hey, the housing market is too hot, we’re increasing your rates.” Or vice versa.

This isn’t why the 30-year fixed started 2022 at around 3.25%, and is now closer to 5.5%.

However, the Fed does get together eight times per year to discuss the state of economy and what might need to be done to satisfy their “dual mandate.”

That so-called “dual mandate” sets out to accomplish two goals: price stability and maximum sustainable employment.

Those are the only things the Federal Reserve cares about. What happens as a result of achieving those goals is indirect at best.

For example, if they determine that prices are rising too fast, they’ll increase the overnight lending rate, known as the federal funds rate.

This is the interest rate financial institutions charge one another when lending excess reserves.

When the Fed raises this target interest rate, commercial banks increase their rates as well.

So things do happen when the Fed speaks, but it’s not always clear and obvious, or what you might expect.

What Does the Fed Decision Mean for Mortgage Rates?

The Fed Open Market Committee (FOMC) is holding its closed-door, two-day meeting beginning today.

While we won’t know all the details until the meeting concludes and they release their statement, it’s widely expected that they’ll raise the fed funds rate another .50%.

This would be the second such increase since 2018, thereby increasing the federal funds rate to a target range of .75% to 1%.

If and when this happens, which is basically a sure thing, banks will begin charging each other more when they need to borrow from one another.

And commercial banks will increase the prime rate by the same amount, from its current rate of 3.50% to 4%.

As a result, anything tied to prime (such as credit cards and HELOCs) will go up by that amount.

However, and this is the biggie, mortgage rates will not increase by .50% if the Fed increases its borrowing rate by .50%.

In other words, if the 30-year fixed is currently priced at 5.5%, it’s not going to automatically increase to 6% when the Fed releases its statement tomorrow.

Simply put, the Fed doesn’t set mortgage rates. But as noted, what they do can have an impact.

In fact, mortgage rates have already been creeping higher ahead of the Fed meeting because everyone thinks they know what the Fed is going to say.

Because of that, the hope is any impact post-statement will be muted or even potentially good news for mortgage rates.

Why? Because details might already be “baked in,” similar to how bad news sometimes causes individual stocks or the overall market to rise.

The Fed Has Mattered More to Mortgage Rates Lately Because of Quantitative Easing (QE)

While the Fed does play a part in which direction mortgage rates go, they’ve held a more active role lately than during most times in history.

It all has to do with their mortgage-backed security (MBS) buying spree that took place over the past near-decade, known as Quantitative Easing (QE).

In short, they purchased billions in MBS as a means to lower mortgage rates. A big buyer increases demand, thereby increasing the price and lowering the yield (aka interest rate).

The main focus of the Fed’s meeting tomorrow, at least with regard to mortgage rates, is the end of QE, which is known as “Policy Normalization,” or Quantitative Tightening (QT).

This is the process of shrinking their balance sheet by allowing these MBS to runoff (instead of reinvesting proceeds) or even be sold.

Since the Fed mentioned this concept in early 2022, mortgage rates have been on a tear, nearly doubling from their sub-3% levels.

Mortgage lenders will be keeping a close eye on what the Fed has to say about this process, in terms of how quickly they plan to “normalize.”

And how they’ll go about it, e.g. by simply not reinvesting MBS proceeds, or by outright selling them.

They won’t really bat an eye regarding the increase in the fed funds rate, as that has already been telegraphed for a while, and is already baked in.

So when the Fed increases its rate by 50 basis points tomorrow (.50%), don’t say the Fed raised mortgage rates. Or that 30-year fixed mortgage rates are now 6%.

It could technically happen, but not because the Fed did it. Only because the market reacted to the statement in a negative way, by increasing rates.

The opposite could also happen if the Fed takes a softer-than-expected stance to their balance sheet normalization.

Mortgage rates could actually fall after the Fed releases its statement, even though the Fed raised rates.

(photo: Rafael Saldaña)

Source: thetruthaboutmortgage.com

Invest in I Bonds And Earn 9.62% Risk-Free

Freaking out over inflation?

If you want a nearly risk-free way to grow your cash, Uncle Sam has an attractive offer for you.

The U.S. government announced a new eye-popping 9.62% interest rate for Series I savings bonds now through October 2022 — the highest interest rate ever for these investments.

Series I bonds — also known as inflation bonds or I bonds — are the only inflation-protected security sold by the Treasury Department.

With inflation at a 40-year high, there’s literally never been a better time to buy I bonds.

At 9.62%, I bonds are not only outpacing inflation, they’re earning more than the stock market so far this year — and even more than bitcoin. (The stock market is down 13.8% in 2022 and bitcoin is down 18.5%).

At 9.62%, these bonds offer a rate about 13 times higher than what you’d currently earn from high-yield savings accounts.

And since I bonds are backed by the full faith and credit of the U.S. government, your risk of losing money is basically zero. (Historically, the U.S. government has never defaulted on bonds.)

But before you rush to buy I bonds, there are a few things you need to know.

What Are I Bonds and How Do They Work?

I bonds are issued by the U.S. government and they can be purchased at TreasuryDirect.gov.

The interest rate on I bonds adjusts twice a year (in May and November) based on changes in the Consumer Price Index.

I bond rates actually combine two different figures:

  • A semiannual (twice a year) inflation rate that fluctuates based on changes in the Consumer Price Index.
  • A fixed rate of return, which remains the same throughout the life of the bond. (It’s currently at 0%.)

In April 2022, inflation increased 8.5% year-over-year, the biggest surge in more than 40 years. As inflation keeps rising, so does the variable rate on I bonds:

  • May 2021:  3.34%
  • November 2021: 7.12%
  • May 2022: 9.62%

While new buyers will enjoy 9.62% on these bonds for now, that rate can change after six months. It goes up or down, depending on national inflation.

Pro Tip

Check out this chart from the U.S. Treasury to see how I bond rates have changed over time. 

On November 1, 2022, The Treasury will calculate a new variable rate. If inflation continues to heat up, you could get more interest on your I bonds. If it cools off, your variable rate declines.

But you won’t lose money if the interest rate goes down — you just won’t earn as much. (The I bond inflation rate in May 2015, for example, was just 0.24%.)

New I bond buyers will miss out on the fixed rate enjoyed by purchasers in years past. That’s because the current fixed rate for I bonds is 0% — where it’s been since May 2020.

Since this half of the bond rate is locked in, your 0% fixed rate won’t increase over time. Instead, all the money you make from an I bond purchased today will be interest earned from the inflation-based semiannual rate.

Must-Know Facts About I Bonds

While I bonds are virtually risk-free, they still come with rules and restrictions.

First, these are 30-year bonds. Your cash isn’t locked up for three decades but you absolutely can’t access your money for at least 12 months. The government won’t allow you to cash out an I bond any sooner.

After a year, you can cash it in, but you’ll lose three months worth of interest if you cash out less than five years after purchase.

I Bond Fast Facts

  • I bonds are sold at face value (no fees, sales tax, etc.)
  • They earn interest monthly that is compounded twice a year.
  • The bond matures (stops earning interest) after 30 years.
  • You have to wait at least one year to cash in I bonds.
  • You’ll lose three months of interest payments if you cash in a bond you’ve owned for less than five years.
  • Minimum investment is $25.
  • Maximum digital I bond investment is $10,000 per person, per year.
  • The value of your I bond will never drop below what you paid for it.
  • It’s exempt from state and municipal taxes.
Pro Tip

You can also buy up to $5,000 in paper I bonds per year. The only way to get paper bonds is at tax time with your federal refund. 

Speaking of taxes, you can choose to either pay federal income tax on the bond each year or defer tax on the interest until the bond is redeemed.

You may be able to forgo paying federal tax altogether by using the bonds for higher education costs. Your adjusted gross income needs to be under $83,200 for a single filer in 2021 to qualify for this education tax perk, or $124,800 for couples.

How to Purchase I Bonds

The fastest and easiest way to purchase I bonds is on the TreasuryDirect website. It’s a free and secure platform where you can view all your account information, including pending transactions.

You can also give I bonds as a gift.

Another option is buying I bonds at tax time with your refund. You can buy I bonds in increments of $50 this way. You don’t need to put your entire refund in bonds — you can earmark just part of it.

FYI: You can’t resell I bonds and you must cash them out directly with the U.S. government. Also, only U.S. citizens, residents and employees can purchase these bonds.

The Treasury also offers a payroll savings option, which lets you purchase electronic savings bonds with money deducted from your paycheck.

Who Are I Bonds Right For?

There are a few ways investors can benefit from purchasing I bonds at the current 9.62% rate.

Scenarios When It Makes Sense to Buy I Bonds

  • You’re worried about inflation and stock market fluctuations.
  • You want to diversify your stock-heavy portfolio with a safe investment.
  • You’re nearing retirement and are shifting your portfolio toward bonds.
  • You want to save money for a child’s future college expenses.
  • You’re saving up for a big purchase that’s at least a year away, and want to earn a little interest on your cash in the meantime.

Because I bonds can’t be cashed in for a year, it’s important to keep enough money in your cash emergency fund to cover immediate expenses.

I bonds won’t make you rich. But for everyday Americans, these investments offer a safe way to grow your cash and hedge against inflation.

Rachel Christian is a Certified Educator in Personal Finance and a senior writer for The Penny Hoarder. 

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Source: thepennyhoarder.com

Guide to Extending Student Loan Repayment Terms

Did you know that you may be able to draw out student loan repayment for 20 or 30 years? That means lower monthly payments (cool!) but more total interest paid (less cool).

But if your payments are a strain, consolidating and refinancing student loans are two ways to stretch out repayment terms and tame those monthly bills.

Federal student loans may be consolidated into one. Both federal and private student loans can be refinanced into one new loan, preferably with a lower rate. A guide of student loan refinancing could be a helpful read.

How Long Are Student Loan Repayment Terms Usually?

Federal student loan borrowers are placed on the standard repayment plan of 10 years unless they choose a different plan. They enjoy a six-month grace period after graduating, leaving school, or dropping below half-time enrollment before repayment begins.

You won’t see a standard repayment plan for private student loans, but the general repayment term for private student loans is also ​10 years.

In the case of both private and federal student loans, you may be able to extend your student loan payments.

For example, if you have federal student loans, you can explore the following options:

•   Graduated repayment plan: You’d start with lower payments, and payments would increase every two years for up to 10 years, or up to 30 years for Direct Consolidation Loans. Consolidation combines all of your current federal student loans into one, with a weighted average of the loan interest rates, and often extends your repayment time frame.

•   Extended repayment plan: With this plan, you can repay loans for up to 25 years, though you must have $30,000 or more in Direct or Federal Family Education Loan Program loans.

•   Income-driven repayment plan: The four income-based repayment plans allow you to make payments based on your income, particularly if your income is low compared with your loan payments. You can become eligible for forgiveness of any remaining loan balance after 20 or 25 years of qualifying payments or as few as 10 years if you work in public service.

Private student loans and federal student loans may be refinanced by a private lender to a long term.

What Are the Pros and Cons of Extending Repayment Terms?

Let’s take a look at three pros and three cons of extending your student loan repayment terms:

Pros Cons
Allows for lower monthly payments You’ll pay more total interest
Gives you more flexibility Takes more time to pay off loans
Frees up cash for other things May have to pay a higher interest rate

Lower monthly payments can give you more flexibility and free up your money to go toward other things. However, you could pay considerably more interest over time. You’ll also spend more time paying off your loans.

Here’s an example of what extending student loan repayment can look like, using a student loan calculator:

Let’s say you have $50,000 of federal student loan debt at 6.28% on a standard repayment plan. Your estimated monthly payments are $562.16, the total amount you’ll pay in interest will be $17,459, and your total repayment amount will be $67,459.

•   Term: 10 years

•   Monthly payments: $562

•   Total interest amount: $17,459

•   Total repayment amount: $67,459

Now let’s say you choose to refinance. Refinancing means a private lender pays off your student loans with a new loan with a new interest rate and/or term. In this case, let’s say you opt to refinance to a 20-year term and qualify for a 5% rate. Your estimated monthly payments would be $329.98. You’d pay $29,195 in total interest, and the total repayment would be $79,195 over the course of 20 years.

•   Term: 20 years

•   Monthly payments: $330

•   Total interest amount: $29,195

•   Total repayment amount: $79,195

In this example, doubling the term but reducing the interest rate results in lower monthly payments — a relief for many borrowers — but a higher total repayment sum.

Can you achieve a 25- or 30-year student loan refinance with private lenders? Yes. It’s called consecutive refinances.

How Long Can You Extend Your Student Loans For?

You can extend your federal student loan repayment to 30 years on a graduated repayment plan if you consolidate your loans.

Most private lenders limit refinancing to a 20-year loan term, but borrowers who are serial refinancers may go beyond that.

Consecutive Refinances

You can refinance private or federal student loans as often as you’d like, as long as you qualify, for no cost. Doing so can benefit you when you find a lower rate on your student loans, but be aware of the total picture:

Pros Cons
May save money every time you refinance Will lose access to federal programs like loan forgiveness, income-driven repayment, and generous forbearance and deferment if federal student loans are refinanced
May allow for a lower interest rate and lower monthly payments
No fees are required (such as origination fees or prepayment penalties)

How do you know when to refinance student debt? If you find a lower interest rate, you could save money over the life of the new loan.

You can use a student loan refinancing calculation tool to estimate monthly savings and total savings over the life of the loan.

Refinancing Your Student Loans to a 30-Year Term

You cannot directly refinance your student loans into a 30-year term because almost all refinance lenders offer a maximum of 15 or 20 years. But you could take advantage of consecutive refinances to draw out payments for 30 years.

Or you could opt for consolidation of federal student loans for up to 30 years.

Consecutive Refinance Approach

Since there’s no limit on the number of times you can refinance your federal and private student loans, as long as you qualify or have a solid cosigner, you can refinance as many times as you need to in order to lengthen your loan term.

Direct Consolidation Approach

If you have multiple federal student loans, you can consolidate them into a Direct Consolidation Loan with a term up to 30 years. Because the loan remains a government loan, you would keep federal student loan benefits.

You’d apply on the Federal Student Aid website or print and mail a paper application form.

Other Ways to Reduce Your Monthly Student Loan Payments

One of the best ways to reduce your monthly student loan payments is to talk with your loan servicer to determine your options.

Some student loan servicers shave a little off your interest rate if you make automatic payments.

More employers are considering offering help with student loan payments as an employee perk.

And through 2025, employers can contribute up to $5,250 per worker annually in student loan help without raising the employee’s gross taxable income.

Ready to Refinance Your Student Loans?

Is a 30-year student loan refinance a thing? It can be, for serial refinancers. Then there’s the 30-year federal student loan consolidation option. The point of a long term is to shrink monthly payments.

SoFi refinances both federal and private student loans. Find out if one new loan with a new rate and term could help, again paying heed to the fact that refinancing federal student loans will remove access to federal programs like income-driven repayment plans.

It might be the right time right now to refinance student loans with SoFi.


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SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC), and by SoFi Lending Corp. NMLS #1121636 , a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law (License # 6054612) and by other states. For additional product-specific legal and licensing information, see SoFi.com/legal.

SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL SEPTEMBER 1, 2022 DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

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.

Photo credit: iStock/blackCAT
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Source: sofi.com

5 Popular Investing Trends of 2022

Heading into 2022, many investors had a brighter outlook on the U.S. economy and financial markets. Both staged impressive rebounds in 2021 after Covid-19 quarantine measures triggered wild volatility. Vaccine breakthroughs and stimulus checks further stoked optimism that the finances of many businesses and individuals were on the mend.

However, rising inflation, higher interest rates, and geopolitical conflict have been several headwinds getting in the way of continued economic and financial market growth in 2022. Year-to-date, the benchmark S&P 500 Index is down about 7% through April 20, 2022, after rising nearly 27% in 2021.

Nonetheless, there are opportunities in some areas of the financial markets for investors looking beyond Covid-19. Here’s a look at five popular investment trends for 2022.

1. Looking Beyond Covid-19

Some of the success stories in the stock market in 2020 and 2021 were companies that benefited from coronavirus-related stay-at-home measures, like entertainment streaming businesses, video conferencing services, and at-home workout companies. But many companies in these sectors are losing their luster as the country reopens; investors are looking for other opportunities as the world returns to normal.

Investors have wagered that airline, cruise line, travel website operators, and other transportation stocks will benefit now that most Covid-19 restrictions are in the rearview mirror. While these sectors, like the rest of the economy, may be hindered by rising interest rates and inflation, many investors still see them poised to grow because of pent-up demand.

2. ESG Investing Movement

Financial advisors often tell clients to take their emotions out of investing. However, a new breed of ethically-minded investors has become increasingly interested in putting their money where their values are in recent years.

This strategy is known as environmental, social, and governance (ESG) investing. A Bloomberg study estimated that ESG investments may hit $41 trillion globally by the end of this year and $50 trillion by 2025, a third of global assets under management.

In early 2022, the Russian invasion of Ukraine set off global protests and pronouncements against the unprovoked conflict. Many American companies followed by pulling their business operations out of Russia and issuing statements on their commitment to Ukrainian democracy. This development is just one example of companies looking beyond the bottom line in their business decisions. Moreover, shareholder advocacy groups are applying pressure on some companies to back their pledges with transparency on diversity, equity, and inclusion issues.

3. Web 3.0

Bitcoin and other cryptocurrencies were among the most discussed investments in 2021, with wild swings in prices as investors put money into these digital assets. The prices of crypto assets cooled off in the early portion of 2022, but they are still in the front of the minds of a lot of investors.

Because of the success and attention paid to crypto over the past several years, investors are looking to put money into related investments: companies involved in what is known as Web 3.0, or the next phase of the internet. Web 3.0 companies include those involved with blockchain technology, decentralized finance (DeFi), the metaverse, and artificial intelligence.

4. Commodities Markets

After years of muted returns, commodity prices rebounded in 2021. Investors wagered that recovering economies would lead to more construction, energy usage, and food consumption. Tight supplies also boosted these markets.

Moving into 2022, the attention paid to the commodities market has only intensified, especially with the geopolitical turmoil in Ukraine and Russia affecting critical commodities like oil, natural gas, and wheat. Prices of these key commodities have spiked as the Russian-Ukrainian conflict constrains supplies.

Rising prices of agriculture, lumber, and industrial and precious metals have sparked a debate about whether commodities are going through a new supercycle. A supercycle is a sustained period, usually about a decade, where commodities trade above long-term price trends.

Recommended: Commodities Trading Guide for Beginners

Give your money a chance to grow.

Trade stocks, ETFs, and crypto – or start an IRA.

5. Hot Housing Market

The housing market will continue to be an area of focus for investors, policymakers, and potential homebuyers in 2022. During 2020 and 2021, rock-bottom mortgage rates, a shortage of housing supply, and homebuyers looking to purchase larger houses to accommodate working from home led to houses selling quickly and at high prices. Additionally, investors and real estate investment trusts (REITs) bought an increasing share of homes on the market.

During the first quarter of 2022, mortgage rates are rising at a record pace, with the average 30-year mortgage nearing 5% for the first time since 2018. Analysts are looking to see if rising mortgage rates will cool the hot housing market or if buyers will continue to purchase homes.

Recommended: Pros & Cons of Investing in REITs

The Takeaway

Putting hard-earned dollars into any investment — whether it’s trendy or traditional — can be daunting. Investors should be aware that, while momentum can feed investment fads for long periods, some market trends can become vulnerable because of frothy valuations and turn on a dime.

However, if investors still want to try their hand at choosing popular investment trends themselves, SoFi’s Active Investing platform makes it easy by making it easy to track their picks of stocks, ETFs and fractional shares. Investors can also make trades without incurring management fees from SoFi Invest®.

Open an Active Investing account with SoFi today.


SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).

2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.

3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.

For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
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Source: sofi.com

Assumable Mortgages: A Little Known Tool You Can Use Now That Interest Rates Have Surged Higher

Everyone knows mortgage rates are no longer super cheap. The popular 30-year fixed was in the 2% range just last year and today is closer to 5.5%.

And it’s possible mortgage rates could move higher before they move lower, though they could be close to peaking.

For existing homeowners, this has created a strange dynamic where they are effectively “locked-in” by their low rates.

In other words, they have less incentive to move out if they need to buy again and subject themselves to a higher interest rate on their next home purchase.

But if their mortgage is “assumable,” they could use it as a leverage to sell their home for more money.

How an Assumable Mortgage Works

assumable mortgage

  • Assumable mortgages can be transferred from one borrower to the next
  • A homeowner can sell their property and transfer their home loan to the buyer
  • A possible selling point if mortgage rates are much higher today than they were in the recent past
  • Could also be beneficial if trying to qualify a buyer via the lower interest rate

An “assumable mortgage” allows a home buyer to take on the home seller’s existing mortgage.

This includes the remaining loan balance, mortgage term, and mortgage rate, as opposed to getting their own brand new loan.

The main purpose of assuming the seller’s loan is to obtain an interest rate below the prevailing market rate.

So if mortgage rates increase rapidly in a short period of time, it could be in the best interest of the buyer to see if they can assume the seller’s mortgage.

A recent report from Black Knight revealed that something like 25% of all outstanding first-lien mortgages have an interest rate below 3%!

So clearly there’s opportunity here now that interest rates are 5%+ and potentially rising.

Example of how an assumable mortgage can save you money:

30-year fixed mortgage rate in 2021: 2.75%
30-year fixed mortgage rate in 2023: 6%+

If a seller obtained an assumable mortgage at 2021’s low rates, at say 2.75% on a 30-year fixed mortgage, they could transfer it to a buyer in the future.

This would make sense if mortgage rates increased significantly between the time they received their home loan and when it came time to sell.

The scenario above isn’t all that far-fetched, and in fact mortgage rates could rise even higher over the next several years.

And you better believe a future buyer would be more than happy to take the 2.75% interest rate versus a 6% rate.

On a $200,000 loan, we’re talking about a monthly payment of $816.48 versus $1,199.10, not factoring in the lower loan balance at the time of assumption.

They could also potentially avoid some of the settlement costs associated with taking out a fresh home loan.

Of course, if rates remain relatively flat or go down, the assumable mortgage won’t make much sense. This was the case for many years until just lately.

Additionally, not all mortgages are assumable, so this strategy doesn’t work for everyone.

What Types of Mortgages Are Assumable?

  • Government-backed loans including FHA, VA, and USDA loans are all assumable
  • But restrictions may apply depending on when they were originated
  • Most conventional loans are NOT assumable, including those backed by Fannie Mae and Freddie Mac
  • This means a good chunk of the mortgages that exist cannot be assumed

These days, most conventional mortgages are not assumable.

However, both FHA loans and VA loans are assumable. And so are USDA loans. Basically all government home loans are assumable.

Before December 1, 1986, FHA loans generally had no restrictions on their assumability, meaning there weren’t any underwriting hoops to jump through.

And some FHA loans originated between 1986 and 1989 are also freely assumable, thanks to Congressional action that determined certain language was unenforceable.

But let’s be honest, most of those old loans are probably either paid off, refinanced, or have very small remaining balances, so no one in their right mind would want to assume them.

FHA loans closed on or after December 15, 1989 need to be underwritten if assumed, just as they would if they were new loans.

In other words, underwriters will need to review a potential borrower’s income and credit to determine their eligibility.

Additionally, it should be noted that investors are not able to assume newer FHA loans, only owner-occupants. So the property should be your primary residence.

VA loans are also assumable, and require lender approval if closed after March 1, 1988, but understand that there are some complicated issues that revolve around VA eligibility.

For example, if the borrower who assumes your VA loan defaults, you may not be eligible for a new VA loan until the loss is repaid in full.

Is an Assumable Mortgage Worth the Trouble?

  • Most assumable mortgages still need to be fully underwritten
  • This means considering your income, assets, and credit to gain approval
  • And even then it might not be worth it, nor will it be feasible to assume one in many cases
  • If the outstanding loan amount is too small it may be insufficient to cover the purchase price

As you can see, while they have the potential to be a big money-saver, assumable mortgages aren’t entirely cut and dry.

First and foremost, be sure to get a liability release to ensure you aren’t accountable if the borrower who takes over your mortgage defaults in the future.

You won’t want to be on the hook if anything goes wrong, nor have to explain to every future creditor what that “other loan” is on your credit report.

Additionally, understand that an assumable mortgage will likely only cover a portion of the subsequent sales price.

Because the mortgage balance will be somewhat paid off when assumed, and the property value will likely have increased, you’ll either need to come in with a large down payment or take out a second mortgage when assuming a mortgage.

If you need a second mortgage, you should do the math to ensure it’s a better deal with the blended rate factored in versus a brand new first mortgage.

If You’re a Seller, Mention It, If Buying a Home, Ask If It’s Assumable

The assumable mortgage hasn’t been on anyone’s radar over the past couple decades because mortgage rates kept creeping lower and lower.

But now that they’re surging higher and higher, you’ll likely hear more about them. Just know the many pitfalls and drawbacks involved.

If you’re a homeowner with an assumable mortgage, you could use it as a tool to sell your home more quickly and/or for more money.

Or perhaps help a home buyer qualify for a mortgage who otherwise might not at current market rates.

If you’re a prospective home buyer, it’s worth asking if the home seller’s loan is assumable. It could save you some money if the spread between their rate and current rates is wide.

Lastly, for those thinking they can make money by taking out a mortgage that can later be assumed, it’s probably not advisable to obtain one just in the hopes of using it as a selling tool in the future.

Sure, the buyer may be interested in assuming your mortgage, but they may not be. If you already have an FHA loan, sweet, it may come in handy when rates rise and you decide to sell your home.

But paying costly mortgage insurance premiums on an FHA loan just for its potential assumption value is a fairly big bet to make if you can get a conventional loan for a lot cheaper.

Long story short, don’t assume someone will assume your loan, but don’t overlook it either.

(photo: Andrew Filer)

Source: thetruthaboutmortgage.com