The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.
You incur a balance transfer fee when you move an outstanding debt from one card to another. There’s usually a 3 to 5 percent charge for this procedure.
A balance transfer fee is a charge that occurs when you transfer an outstanding balance from one account to another. Balance transfer fees are based on the amount of money you’re attempting to migrate. Normally, fees are around 3 to 5 percent of your outstanding balance.
Boosting your comprehension of credit card terms and conditions, balance transfers and interest rates can help you avoid overpaying with balance transfer fees. This guide will explore these fees in detail and offer strategies to make the most of your credit cards without breaking the bank.
Key takeaways:
Balance transfer fees only apply if you have an outstanding card balance.
There’s usually a $5 or $10 minimum fee for balance transfers.
Fees can apply even if you transfer your balance to a card with zero percent interest.
Table of contents:
What is a balance transfer fee?
To help you better understand what a balance transfer fee is, we’ll break this term down:
Your balance refers to the amount of money that you’re currently borrowing from a lender.
A transfer results from asking a lender to move your balance from one account to another.
The fee kicks in as a charge for initiating that transfer—the cost of which is based on a percentage of the balance you’re transferring.
Balance transfer fees range from 3 to five percent of the amount you wish to transfer. The exact price will vary from one instance to the next, but you can find more specific information in your lender’s terms and conditions for balance transfers.
How do you avoid balance transfer fees?
Finding and using a card that doesn’t charge a fee is the most straightforward way to avoid balance transfer fees altogether. These cards may also have a 0 percent APR offer for a set amount of time, which can save you lots of money in the long run.
Another alternative to initiating a balance transfer is utilizing a debt consolidation loan. Rather than keep track of multiple accounts with varying interest rates, this option can help you consolidate credit card debt in one place. However, keep in mind that consolidation loans can have high requirements for applicants, and your accounts might be frozen while the process takes place.
Does a balance transfer hurt your credit score?
Initiating a balance transfer won’t affect your credit alone, though the result may cause your scores to fluctuate. One factor it may affect is your credit utilization, which compares your current balance against your total credit limit and makes up 30 percent of your FICO® credit score. Transferring funds to even out the balances on your credit cards can improve your credit utilization and positively affect your credit health. It’s best to aim for a credit utilization rate of less than 30 percent, if you can.
Conversely, applying for a new credit card typically triggers a hard inquiry on your credit profile, which can temporarily hurt your credit. Inquiries can stay on your credit report for up to two years, but they shouldn’t hurt your credit very much or for very long.
Lastly, the fee generated from initiating a balance transfer can take away from funds that you would’ve used to pay down a balance. Missing or being late on a payment can negatively impact your credit, as payment history makes up 35 percent of your FICO score.
Is a balance transfer fee worth paying?
Balance transfer fees are often worth it if you’re transferring money onto a card with low or no interest at all. Let’s say you currently have a card with a 30 percent APR and a balance of $1,000. If you have a 30-day billing cycle, that balance would generate $24.95 each cycle.
If you transferred that balance to a card with 0 percent APR, that balance would generate $0 each cycle for a one-time balance transfer fee of $30 to $50. In essence, balance transfer fees might be worth it if you have a balance that you’ll need to pay off over a long period.
How to find the right balance transfer credit card
The best balance transfer cards offer much more than a promotional 0 percent APR incentive. How these cards function long-term can also help you determine if they’re right for you. Below, we outline several important factors to keep in mind when shopping around for a balance transfer card.
Double-check your terms and conditions
The terms and conditions of a new credit card will outline a wealth of helpful information for you to keep in mind. You can typically find these documents digitally, or have them mailed to you. Here, you can see your card’s specific parameters for balance transfers along with your credit limit and APR.
Check if there are minimum balance transfer fees
As previously mentioned, balance transfers normally float between 3 and 5 percent of the transfer amount. However, minimum fees can kick in if you transfer a small amount of money. Normally, these minimum fees range from $10 to $15.
Look out for annual fees
Annual fees can vary for different types of credit cards. Some don’t charge anything, while others can cost hundreds of dollars. When transferring funds onto a new card, be sure that you can manage the annual fee that might come with it.
Increase your financial knowledge with Lexington Law Firm
Balance transfer fees are often inconvenient and occasionally confusing. Speaking with a financial expert can take much of the guesswork out of handling account balances, so you may want to look into this.
Additionally, Lexington Law’s services can help you review your credit report and keep an eye out for any inaccurate negative items that may be affecting your credit. You can also refer to our library of articles about credit and other financial topics for more information.
Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.
Reviewed By
Moriah Beaver
Associate Attorney
Moriah is an attorney practicing in consumer advocacy at Lexington Law.
Before joining Lexington, she represented plaintiffs in personal injury litigation, dealing with claims arising from car accidents, slip and falls, and dog bites. Moriah studied English at Brigham Young University for her undergraduate degree and went on to graduate from Brigham Young University’s J. Reuben Clark Law School. She is from Hau’ula, Hawaii, but has been a resident of Utah for over 10 years now.
The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.
Credit card companies report payments at the end of their monthly billing cycle, also known as the statement closing date.
Credit cards are great for making large purchases and racking up points or miles and useful for building and improving your credit. If you’re a credit card holder constantly tracking your credit score to see improvement, it can be helpful to know when companies report to credit bureaus.
Unfortunately, issuers don’t report to credit reporting agencies on a specific day of the month. However, we can investigate a few factors to provide a prediction of when they will report as well as when you will see your payments reflected on your credit report.
Table of contents:
When do credit card companies report to credit bureaus?
How does credit card utilization affect your credit score?
How to decrease your credit utilization risk
How often do credit reports and scores update?
When do credit card companies report to credit bureaus?
Unfortunately, there isn’t a set date for when credit card companies report to the three credit bureaus: TransUnion®, Experian® and Equifax®. However, you can estimate the time frame by considering a few factors. Credit card companies typically report payments at the end of the monthly billing cycle. This is also known as your statement closing date. You can find these dates on your monthly statement.
However, don’t expect your credit report to update on the same day. It usually takes a bit for credit reporting agencies to update the information on your credit report. Updates on your credit report will also depend on:
The number of lines of credit
Due dates for every line of credit
If the credit issuer reports to all three credit bureaus or just one or two
The frequency and speed with which the credit bureau updates reports
If you’ve just paid your statement balance or previously unpaid balances, you likely want to see that reflected on your credit report as soon as possible. Since we don’t have a set-in-stone date for when you’ll see updates on your credit report, we recommend waiting at least a month or so to see any changes. If several months pass and you don’t see any updates to your report, we recommend contacting your credit card company to confirm your payments were correctly processed.
How does credit card utilization affect your credit score?
Credit utilization is the ratio of your current outstanding credit debt to how much total available credit you have. Available credit is the maximum amount of money you can charge to your credit card. A low credit utilization is a good sign that you, the borrower, are using a small amount of your credit limit.
A large outstanding credit balance—or higher credit utilization—can negatively affect your credit. This is especially true if the credit utilization percentage is higher than 30 percent. The lower your credit utilization, the better your credit may be.
How to decrease your credit utilization
Your credit score is affected by five factors: credit utilization, credit mix, new credit, payment history and length of credit history. However, credit utilization makes up 30 percent of your score. If you’re worried about how your credit utilization impacts your credit score, there are ways to decrease your risk and potentially improve your credit.
1. Complete multiple payments
Completing smaller payments every month can help lower your credit balance. You can also set up automatic payments so your credit balance is as low as possible when your credit card company reports to the credit bureaus.
2. Ask for a higher credit limit
Increasing your credit limit can lower your credit utilization ratio, as you’ll have more credit available. This can improve your credit score as it reduces the percentage of credit used every month. However, a higher credit limit may encourage you to spend more, which could go against your goal to improve your credit. Only ask for a higher credit limit if you think you’ll stay within your current average spending amount.
3. Complete payments on time
Paying your bills by their due date is the easiest way to improve your credit. This can become harder if you have multiple credit accounts, as they won’t always have the same due dates. Keeping track of your due dates (found on the monthly statements) via credit card management apps or similar tools can help you stay on top of your bills.
If you can do so, making multiple payments on your card(s) throughout the month is the smartest move. This is because it can increase the likelihood that your credit utilization ratio is low when your credit card provider reports your data to the credit bureaus.
How often do credit reports and scores update?
While there isn’t an exact date when your credit score and report will update, it usually occurs within a 30- to 45-day timeframe. This also depends on when the credit bureaus refresh the information in your report. Remember that if you have multiple lines of credit, you’ll see your credit score constantly fluctuating based on when your creditors report to the credit reporting agencies.
How long until a new card appears on your credit report?
Just received and activated a new credit card? You’ll need to wait a bit to see your new credit card appear on your credit report. You can expect it to show up 30 to 60 days after your application was approved and your creditor opened the account. The number of days will depend on your credit card’s billing cycle.
Assess your credit with Lexington Law
Now that you have a better understanding of when companies report to credit bureaus, it’s also a good time to assess your credit score. If you receive your credit report and notice your credit score isn’t as good as it should be, don’t worry. With help from professional credit repair consultants at Lexington Law Firm, you may be able to improve your credit through our credit repair process. Get started with a free credit assessment today.
Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.
Reviewed By
Nature Lewis
Associate Attorney
Before joining Lexington Law as an Associate Attorney, Nature Lewis managed a successful practice representing tenants in Maricopa County.
Through her representation of tenants, Nature gained experience in Federal law, Family law, Probate, Consumer protection and Civil law. She received numerous accolades for her dedication to Tenant Protection in Arizona, including, John P. Frank Advocate for Justice Award in 2016, Top 50 Pro Bono Attorney of 2015, New Tenant Attorney of the Year in 2015 and Maricopa County Attorney of the Month in March 2015. Nature continued her dedication to pro bono work while volunteering at Community Legal Services’ Volunteer Lawyer’s Program and assisting victims of Domestic Violence at the local shelter. Nature is passionate about providing free knowledge to the underserved community and continues to hold free seminars about tenant rights and plans to incorporate consumer rights in her free seminars. Nature is a wife and mother of 5 children. She and her husband have been married for 24 years and enjoy traveling internationally, watching movies and promoting their indie published comic books!
Over the life of a $350,000 mortgage with a 7% interest rate, borrowers could expect to pay from $216,229 to $488,233 in total interest, depending on whether they opt for a 15-year or 30-year loan term. But the actual cost of a mortgage depends on several factors, including the interest rate, and whether you have to pay private mortgage insurance.
Besides interest, homebuyers need to account for a down payment, closing costs, and the long-term costs of taxes and insurances that are included in a $350,000 mortgage payment.
First-time homebuyers can prequalify for a SoFi mortgage loan, with as little as 3% down.
Cost of a $350,000 Mortgage
When you finance a home purchase, you have to pay back more than the borrowed amount, known as the loan principal. The total cost of taking out a $350,000 mortgage is $838,281 with a 30-year term at a 7% interest rate. This comes out to $488,233 worth of interest, assuming there aren’t any late monthly mortgage payments or pre-payments.
When you buy a home, there are usually some upfront costs you’ll have to pay, too. Mortgages often require a down payment, calculated as a percentage of home purchase price, that’s paid out of pocket to secure financing from a lender. The required amount varies by loan type and lender, but average down payments range from 3% – 20%.
Closing costs, including home inspections, appraisals, and attorney fees, represent another upfront cost for real estate transactions. They typically sum up to 3% to 6% of the loan principal, or $10,500 to $21,000 on a $350,000 mortgage.
The total down payment on $350,000 mortgages also impacts the total cost of taking out a home loan. Unless buyers put 20% or more down on a home purchase, they’ll have to pay private mortgage insurance (PMI) with their monthly mortgage payment. The annual cost of PMI is generally between 0.5% – 1.5% of the loan principal. Borrowers can get out of paying PMI with a mortgage refinance or when they reach 20% equity in their home. If this is your first time in the housing market, consider reading up on tips to qualify for a mortgage. 💡 Quick Tip: When house hunting, don’t forget to lock in your home mortgage loan rate so there are no surprises if your offer is accepted.
Monthly Payments for a $350,000 Mortgage
The monthly payment on a $350K mortgage won’t always be the same amount. You’ll need to factor in your down payment, interest rate, and loan term to estimate your $350,000 mortgage monthly payment.
With a 30-year loan term and 7% interest rate, borrowers can expect to pay around $2,328 a month. Whereas a 15-year term at the same rate would have a monthly payment of approximately $3,146. However, these estimates only account for the loan principal and interest. Monthly mortgage payments also include taxes and insurances, but these costs can differ considerably by location and based on a home’s assessed value.
There are also different types of mortgages to consider. Whether you opt for a fixed vs adjustable-rate mortgage, for instance, will affect your monthly payment.
To get a clearer idea of what your monthly payment might be with different down payments and loan terms, try using a mortgage calculator.
Recommended: Best Affordable Places to Live in the U.S.
Where to Get a $350,000 Mortgage
Homebuyers have many options in terms of lenders, including banks, credit unions, mortgage brokers, and online lenders.
The homebuying process can be stressful, so it may be tempting to go with the first mortgage offer you receive. However, shopping around and getting loan estimates from multiple lenders lets you choose the one that’s the most competitive and cost-effective.
Even a fraction of a percentage point difference on an interest rate can add up to thousands in savings over the life of a mortgage. Besides the interest rate, assess the fees, terms, and closing costs when comparing mortgage offers.
Recommended: Home Loan Help Center
What to Consider Before Applying for a $350,000 Mortgage
When taking out a mortgage, it’s important to consider the total cost of the loan. You’ll need cash on hand for a down payment and closing costs, plus sufficient income and funds to cover the monthly payment and other homeownership costs.
Before applying for a $350,000 mortgage, crunching the numbers in a housing affordability calculator can give a better understanding of how these costs will work with your finances.
It’s also helpful to see how $350,000 mortgage monthly payments are applied to the loan interest and principal over the life of the loan. The majority of the monthly mortgage payment goes toward interest rather than paying off the loan principal, as demonstrated by the amortization schedules below.
Here’s the mortgage amortization schedule for a 30-year $350,000 mortgage with a 7% interest rate — which would amount to $488,233 in interest. For comparison, we’ve also included the mortgage amortization schedule for a 15-year $350,000 mortgage with a 7% interest rate. A $350,000 mortgage payment, 15 years’ out, would add up to $216,229 in interest. When weighing a 30-year vs 15-year loan term, the shorter loan term carries a higher monthly payment but less than half the total interest over the life of the loan.
Amortization Schedule, 30-year Mortgage at 7%
Year
Beginning Balance
Total Interest Paid
Total Principal Paid
Remaining Balance
1
$350,000
$24,386
$3,555
$346,425
2
$346,425
$24,129
$3,812
$342,613
3
$342,613
$23,853
$4,088
$338,525
4
$338,525
$23,558
$4,383
$334,142
5
$334,142
$23,241
$4,700
$329,442
6
$329,442
$22,901
$5,040
$324,402
7
$324,402
$22,537
$5,404
$318,998
8
$318,998
$22,146
$5,795
$313,203
9
$313,203
$21,717
$6,214
$306,989
10
$306,989
$21,278
$6,663
$300,326
11
$300,326
$20,796
$7,145
$293,182
12
$293,182
$20,280
$7,661
$285,520
13
$285,520
$19,726
$8,215
$277,306
14
$277,306
$19,132
$8,809
$268,497
15
$268,497
$18,496
$9,446
$259,051
16
$259,051
$17,813
$10,128
$248,923
17
$248,923
$17,081
$10,861
$238,062
18
$238,062
$16,295
$11,646
$226,417
19
$226,417
$15,454
$12,488
$213,929
20
$213,929
$14,551
$13,390
$200,539
21
$200,539
$13,583
$14,358
$186,181
22
$186,181
$12,545
$15,396
$170,784
23
$170,784
$11,432
$16,509
$154,275
24
$154,275
$10,238
$17,703
$136,573
25
$136,573
$8,959
$18,982
$117,590
26
$117,590
$7,586
$20,355
$97,236
27
$97,236
$6,115
$21,826
$75,409
28
$75,409
$4,537
$23,404
$52,006
29
$52,006
$2,845
$25,096
$26,910
30
$26,910
$1,031
$26,910
$0
Amortization Schedule, 15-year Mortgage at 7%
Year
Beginning Balance
Total Interest Paid
Total Principal Paid
Remaining Balance
1
$350,000
$24,065
$13,684
$336,296
2
$336,296
$23,076
$14,673
$321,624
3
$321,624
$22,015
$15,733
$305,890
4
$305,890
$20,878
$16,871
$289,020
5
$289,020
$19,658
$18,090
$270,929
6
$270,929
$18,351
$19,398
$251,531
7
$251,531
$16,948
$20,800
$230,731
8
$230,731
$15,445
$22,304
$208,427
9
$208,427
$13,832
$23,916
$184,510
10
$184,510
$12,103
$25,645
$158,865
11
$158,865
$10,249
$27,499
$131,366
12
$131,366
$8,261
$29,487
$101,879/td>
13
$101,879
$6,130
$31,619
$70,260
14
$70,260
$3,844
$33,904
$36,355
15
$36,355
$1,393
$36,355
$0
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How to Get a $350,000 Mortgage
To qualify for a $350,000 mortgage, borrowers will need to meet the income, credit, and down payment requirements. It’s also important to have an adequate budget for long-term housing costs and other financial goals and obligations like savings and debt.
Using the 28/36 rule, a monthly mortgage payment shouldn’t be more than 28% of your monthly gross income and 36% of your total debt to be considered affordable. With a $2,328 monthly mortgage payment, you’d need a minimum gross monthly income of at least $8,300, or annual income of $96,600, to follow the 28% rule. Similarly, your total debt could not exceed $660 to keep housing and debt costs from surpassing 36%.
Home mortgage loans, with the exception of certain government-backed loans, require a minimum credit score of 620 to qualify. However, a higher credit score can help secure more competitive rates. If you qualify as a first-time homebuyer, you could get a FHA loan with a credit score of 500 or higher, though borrowers with a credit score below 580 will have to make a 10% down payment.
As mentioned above, it’s a good idea to compare lenders and loan types to find the most favorable rate and loan terms. From there, getting preapproved for a home loan is a logical next step to determine the loan amount and interest rate you qualify for. It also puts you in a better position to demonstrate you’re a serious buyer when making an offer on a property.
After putting in an offer, completing the mortgage application requires many of the same forms used for preapproval, plus an earnest money deposit. 💡 Quick Tip: Generally, the lower your debt-to-income ratio, the better loan terms you’ll be offered. One way to improve your ratio is to increase your income (hello, side hustle!). Another way is to consolidate your debt and lower your monthly debt payments.
The Takeaway
Buying a home is the largest purchase many Americans make in their lifetime. How much you’ll end up paying for a $350,000 mortgage depends on the interest rate and loan term. On a $350,000 mortgage, the monthly payment can range from $2,328 to $3,146 based on these factors.
Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% – 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It’s online, with access to one-on-one help.
SoFi Mortgages: simple, smart, and so affordable.
FAQ
How much is a $350K mortgage a month?
The cost of a $350,000 monthly mortgage payment is influenced by the loan term and interest rate. On a $350K mortgage with 7% interest, the monthly payment ranges from $2,328 to $3,146 depending on the loan term.
How much income is required for $350,000 mortgage?
Income requirements can vary by lender. But using the 28/36 rule, a borrower who isn’t burdened by lots of other debts should make $99,600 a year to afford the monthly payment on a $350,000 mortgage.
How much is a down payment on a $350,000 mortgage?
The down payment amount depends on the loan type and lender terms. FHA loans require down payments of 3.5% or 10%, while buyers could qualify for a conventional loan with as little as 3% down.
Can I afford a $350K house with a $70K salary?
It may be possible to afford a $350,000 house with a $70,000 salary, but only if you are able to make a sizable down payment to lessen the amount of money you need to borrow. Having a good credit score and minimal debt would also better your chances.
Photo credit: iStock/sturti
SoFi Loan Products SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
SoFi Mortgages Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.
*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
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.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.
The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.
There are several possible reasons why your credit score won’t go up, such as the lender hasn’t reported to the credit bureaus yet, you have fallen behind on payments, you have high credit utilization or you have a short credit history.
A good credit score can help you get approved for loans, secure low interest rates, and receive the best terms. However, improving your credit can be tricky, especially if you feel stuck at a certain number.
If you frequently check your credit score and don’t see the number change, you may wonder, “Why won’t my credit score go up?” In this post, we’re going to dive into 10 potential reasons why your credit score is stagnant and what to do about it. Read on to learn more.
Table of contents:
1. Your credit score hasn’t been updated yet
Lenders typically report to the three credit bureaus every 30 to 45 days. Therefore, it can take up to a month for your credit score to reflect new changes. If you recently paid off an account and haven’t seen a change in your score yet, there’s no need to worry.
What to do about it: If you don’t see the update reflected in your credit report after a month or two, consider contacting your lender.
2. You’ve fallen behind on payments
Payment history is a fundamental factor that affects your credit—accounting for 35 percent of your FICO® score. If a payment is over 30 days past due, your lender will report it to the credit bureaus. Even one late payment can hurt your credit significantly. Late payments also stay on your credit report for up to seven years, although their influence on your credit report declines over time.
What to do about it: Get in the habit of making consistent on-time payments.
3. You have high credit utilization
Your credit utilization, or the amount of money you owe compared to your credit limit, is another factor that influences your credit. For example, if your credit limit is $12,000 and you owe $3,000, your credit utilization rate is 40 percent.
While using your available credit isn’t necessarily bad, a high credit utilization rate can signal to lenders that you’re reliant on credit and, therefore, are a high-risk borrower.
What to do about it: Aim to keep your credit utilization under 30 percent by reducing your spending or increasing your credit limit.
4. You have a short credit history
Your length of credit history, or the amount of time your accounts have been established, accounts for 15 percent of your FICO score. A long credit history is helpful to your credit because it provides lenders with enough data to accurately determine your credit risk. Remember that while a long credit history is beneficial, FICO assures that it’s “not required for a good credit score.”
What to do about it: Be patient and keep old credit accounts open.
5. You have negative items on your credit report
Delinquent accounts, bankruptcies, charge-offs, and collection accounts are all major negative items. If you have any of these on your credit report, they may be preventing you from improving your credit.
Although negative information will eventually fall off your credit report, the amount of time that takes depends on the type of negative item. Most negative information stays on your credit report for about seven years.
What to do about it: While not guaranteed, you can try sending a pay for delete letter or request a goodwill deletion from your creditor to get the negative items removed.
6. Your credit mix isn’t diverse
Credit mix refers to the variety of credit accounts you hold. Examples of credit accounts include credit cards, mortgages, auto loans, credit cards, installment loans, and so on. Credit mix determines 10 percent of your credit score.
What to do about it: While you don’t necessarily need one of each type of credit, consider opening new accounts to diversify your credit mix.
7. You have multiple new hard inquiries
When you submit a new credit application, the creditor will perform a hard inquiry on your credit file, which can temporarily lower your score. While the impact of a hard inquiry is only around 5 points, multiple credit inquiries can add up and cause a significant drop in your credit.
If you frequently apply for new credit, the compounding hard inquiries may be preventing you from improving your score.
What to do about it: Wait at least six months between each new credit application to limit the effect of hard inquiries on your credit.
8. Your credit score is already high
Those with very good or excellent credit scores may struggle to advance their credit standing. The better your credit score, the harder it becomes to raise it because there is less room for improvement. Once your score is in the 700s or 800s, increasing it can be challenging.
What to do about it: Keep up with your good credit habits, but be aware that progress may slow as your score increases.
9. You have errors on your credit report
Errors on your credit report can damage your credit. Review your credit report at least once a year to check for inaccurate information. According to the Consumer Financial Protection Bureau, common errors include:
Identification errors
Misreported account status
Data management errors
Inaccurate balances
What to do about it: If you find an error on your credit report, file a dispute with the credit bureaus to get it corrected.
10. You’ve been a victim of identity theft or fraud
Identity theft can wreak havoc on your credit score. Scammers can open new accounts in your name, purchase items with your credit card and more. That’s why it’s important to keep an eye out for the following warning signs of identity theft:
Charges for purchases you didn’t make
Calls from debt collectors regarding accounts you didn’t open
Accounts on your credit report that you didn’t open
Loan applications getting rejected
Mail stops being delivered to, or is missing from, your mailbox
What to do about it: If you suspect you’ve been a victim of identity theft, make sure to set up fraud alerts and freeze your credit. Ready to move the needle on your credit score? At Lexington Law Firm, we’ll determine what inaccurate negative items might be hurting your credit and address them with the credit bureaus. Among our services, we offer an Identity Theft Focus Track, created specifically for individuals financially recovering from identity theft. Get started today.
Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.
Reviewed By
Paola Bergauer
Associate Attorney
Paola Bergauer was born in San Jose, California then moved with her family to Hawaii and later Arizona.
In 2012 she earned a Bachelor’s degree in both Psychology and Political Science. In 2014 she graduated from Arizona Summit Law School earning her Juris Doctor. During law school, she had the opportunity to participate in externships where she was able to assist in the representation of clients who were pleading asylum in front of Immigration Court. Paola was also a senior staff editor in her law school’s Law Review. Prior to joining Lexington Law, Paola has worked in Immigration, Criminal Defense, and Personal Injury. Paola is licensed to practice in Arizona and is an Associate Attorney in the Phoenix office.
Many or all of the products and brands we promote and feature including our ‘Partner Spotlights’ are from our partners who compensate us. However, this does not influence our editorial opinion found in articles, reviews and our ‘Best’ tables. Our opinion is our own. Read more on our methodology here.
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How to get the best mortgage rates and deals
Mortgage rates vary depending on the type of mortgage you’re looking for, your financial situation and your credit score. But when we talk about getting the best mortgage rate, it’s important to find the best rate among the mortgage deals that suit you and your circumstances.
Mortgage fees and the features you want in a mortgage should always be considered alongside the mortgage rate when making mortgage comparisons and shopping around for any mortgage deal.
If you’re in any way unsure or want help finding the best mortgage deal for you we recommend you seek mortgage advice.
Are mortgage rates going down?
Mortgage rates have mainly been rising in the past week, continuing the upward trend seen during much of February. The average rate on two-year fixed-rate mortgages increased to 5.15% in the week to 28 February, rising from 5.08% a week earlier, according to Rightmove. At the same time, the average rate on five-year fixed-rate mortgages increased to 4.80%, up from 4.72%.
Many of the big UK lenders have increased the cost of their fixed-rate mortgages in recent weeks. However, average rates remain lower than at the beginning of the year, due to the significant rate cuts seen during the mortgage rate price war in January.
Some experts are predicting that more mortgage rate rises may be on the way. This is mainly because of expectations that the Bank of England base rate may need to stay higher for longer, to get inflation down.
What are current UK mortgage rates?
The average two-year fixed-rate mortgage rate, if you have a 25% deposit or equity, increased to 4.99% over the past week, up from 4.90%, while the average rate on a similar five-year fixed-rate mortgage rose to 4.70%, from 4.61%. If you have a smaller deposit or equity of 5%, the average two-year fixed rate remained unchanged at 5.79%, while the average five-year rate increased to 5.38%, from 5.35%. All rates are according to Rightmove as at 28 February 2024.
Latest average two-year fixed-rate mortgage rates
Loan to value (LTV)
21 February 2024
28 February 2024
Week-on-week change
⇩ ⇧
60% LTV
4.50%
4.62%
+0.12%
⇧
75% LTV
4.90%
4.99%
+0.09%
⇧
85% LTV
5.08%
5.14%
+0.06%
⇧
90% LTV
5.31%
5.38%
+0.07%
⇧
95% LTV
5.79%
5.79%
No change
⇔
Latest average five-year fixed-rate mortgage rates
Loan to value (LTV)
21 February 2024
28 February 2024
Week-on-week change
⇩ ⇧
60% LTV
4.19%
4.30%
+0.11%
⇧
75% LTV
4.61%
4.70%
+0.09%
⇧
85% LTV
4.67%
4.73%
+0.06%
⇧
90% LTV
4.86%
4.93%
+0.07%
⇧
95% LTV
5.35%
5.38%
+0.03%
⇧
Data sourced from Rightmove/Podium. Correct as at 28 February 2024.
Average rates are based on 95% of the mortgage market and products with a fee of around £999.
What mortgage do I need?
If you’re looking for a mortgage, you’ll usually fall into one of the following categories of mortgage borrower.
If you’ve never owned a home before, you’ll usually need a first-time buyer mortgage. Knowing that you’re just starting out, the deposit requirements on most first-time buyer mortgages are generally small. You should also be able to find mortgage deals where upfront fees are kept to a minimum. However, mortgage rates for first-time buyers tend to be higher than if you’re already on the property ladder. This is because you’re likely to require a larger loan relative to the value of your property – so borrow at a higher loan-to-value (LTV) – making you a riskier proposition in the eyes of lenders. As it’s your first mortgage, lenders also have less to go on when trying to assess your reliability as a mortgage borrower.
If you already have a mortgage but want to switch to a new one, you are looking to remortgage. You may want to remortgage because your current fixed-rate or discounted term is at an end and you don’t want to move on to your lender’s standard variable rate (SVR), which may be higher. Other reasons you may remortgage include to raise funds to pay for home improvements, or because falling interest rates or a rise in the value of your home means remortgaging could save you money. If you’ve built equity in your property since taking out your current mortgage, it may be possible to borrow at a lower LTV for your new mortgage – and the lower your LTV, the lower mortgage rates tend to be.
If you already have a mortgage but are moving home, you may be able to take your current mortgage with you – this is called porting. Alternatively, you may want to arrange a new mortgage altogether, either with your current lender or a different one. Whichever option you’re considering, it’s important to weigh up the costs of either porting or exiting your existing deal, along with any potential fees you may need to pay on a new mortgage deal.
If you’re buying a property to rent out to tenants, you’ll be looking for a buy-to-let mortgage. You’ll normally need a larger deposit for a buy-to-let mortgage than you would for a residential mortgage, and buy-to-let mortgage rates tend to be higher too. Lenders will also want to see that the rental income you expect to receive will more than cover your monthly repayments.
How mortgage rates work
Mortgage rates are the interest rate you pay to a lender on the mortgage balance you have outstanding. The lower your mortgage rate, the lower your monthly mortgage repayments tend to be, and vice versa.
Different types of mortgage
The type of mortgage you take out can affect the mortgage rate you pay, and whether it may change going forward.
Fixed-rate mortgage
A fixed-rate mortgage guarantees that your mortgage rate, and therefore your monthly repayments, won’t change during the set fixed-rate period that you choose.
This can help with budgeting and means you are protected against a rise in mortgage costs if interest rates begin to increase. However, you’ll miss out if interest rates start to fall while you are locked into a fixed-rate mortgage.
Variable rate mortgages
With a variable rate mortgage, your mortgage rate has the potential to rise and fall and take your monthly repayments with it. This may work to your advantage if interest rates decrease, but means you’ll pay more if rates increase. Variable rate mortgages can take the form of:
a tracker mortgage, where the mortgage rate you pay is typically set at a specific margin above the Bank of England base rate, and will automatically change in line with movements in the base rate.
a standard variable rate, or SVR, which is a rate set by your lender that you’ll automatically move on to once an initial rate period, such as that on a fixed-rate mortgage, comes to an end. SVRs tend to be higher than the mortgage rates on other mortgages, which is why many people look to remortgage to a new deal when a fixed-rate mortgage ends.
a discount mortgage, where the rate you pay tracks a lender’s SVR at a discounted rate for a fixed period.
Offset mortgages
With an offset mortgage, your savings are ‘offset’ against your mortgage amount to reduce the interest you pay. You can still access your savings, but won’t receive interest on them. Offset mortgages are available on either a fixed or variable rate basis.
Interest-only mortgages
An interest-only mortgage allows you to make repayments that cover the interest you’re charged each month but won’t pay off any of your original mortgage loan amount. This helps to keep monthly repayments low but also requires that you have a repayment strategy in place to pay off the full loan amount when your mortgage term ends. Interest-only mortgages can be arranged on either a fixed or variable rate.
» MORE: Should I get an interest-only or repayment mortgage?
How rate changes could affect your mortgage payments
Depending on the type of mortgage you have, changes in mortgage rates have the potential to affect monthly mortgage repayments in different ways.
Fixed-rate mortgage
If you’re within your fixed-rate period, your monthly repayments will remain the same until that ends, regardless of what is happening to interest rates generally. It is only once the fixed term expires that your repayments could change, either because you’ve moved on to your lender’s SVR, which is usually higher, or because you’ve remortgaged to a new deal, potentially at a different rate.
Tracker mortgage
With a tracker mortgage, your monthly repayments usually fall if the base rate falls, but get more expensive if it rises. The change will usually reflect the full change in the base rate and happen automatically, but may not if you have a collar or a cap on your rate. A collar rate is one below which the rate you pay cannot fall, while a capped rate is one that your mortgage rate cannot go above.
Standard variable rate mortgage
With a standard variable rate mortgage, your mortgage payments could change each month, rising or falling depending on the rate. SVRs aren’t tied to the base rate in the same way as a tracker mortgage, as lenders decide whether to change their SVR and by how much. However, it is usually a strong influence that SVRs tend to follow, either partially or in full.
» MORE: How are fixed and variable rate mortgages different?
Mortgage Calculators
Playing around with mortgage calculators is always time well-spent. Get an estimate of how much your monthly mortgage repayments may be at different loan amounts, mortgage rates and terms using our mortgage repayment calculator. Or use our mortgage interest calculator to get an idea of how your monthly repayments might change if mortgage rates rise or fall.
Can I get a mortgage?
Mortgage lenders have rules about who they’ll lend to and must be certain you can afford the mortgage you want. Your finances and circumstances are taken into account when working this out.
The minimum age to apply for a mortgage is usually 18 years old (or 21 for a buy-to-let mortgage), while there may also be a maximum age you can be when your mortgage term is due to end – this varies from lender to lender. You’ll usually need to have been a UK resident for at least three years and have the right to live and work in the UK to get a mortgage.
Checks will be made on your finances to give lenders reassurance you can afford the mortgage repayments. You’ll need to provide proof of your earnings and bank statements so lenders can see how much you spend. Any debts you have will be considered too. If your outgoings each month are considered too high relative to your monthly pay, you may find it more difficult to get approved for a mortgage.
Lenders will also run a credit check to try and work out if you’re someone they can trust to repay what you owe. If you have a good track record when it comes to managing your finances, and a good credit score as a result, it may improve your chances of being offered a mortgage.
If you work for yourself, it’s possible to get a mortgage if you are self-employed. If you receive benefits, it can be possible to get a mortgage on benefits.
Mortgages for bad credit
It may be possible to get a mortgage if you have bad credit, but you’ll likely need to pay a higher mortgage interest rate to do so. Having a bad credit score suggests to lenders that you’ve experienced problems meeting your debt obligations in the past. To counter the risk of problems occurring again, lenders will charge you higher interest rates accordingly. You’re likely to need to source a specialist lender if you have a poor credit score or a broker that can source you an appropriate lender.
What mortgage can I afford?
Getting an agreement or decision in principle from a mortgage lender will give you an idea of how much you may be allowed to borrow before you properly apply. This can usually be done without affecting your credit score, although it’s not a definite promise from the lender that you will be offered a mortgage.
You’ll also get a good idea of how much mortgage you can afford to pay each month, and how much you would be comfortable spending on the property, by looking at your bank statements. What is your income – and your partner’s if it’s a joint mortgage – and what are your regular outgoings? What can you cut back on and what are non-negotiable expenses? And consider how much you would be able to put down as a house deposit. It may be possible to get a mortgage on a low income but much will depend on your wider circumstances.
» MORE: How much can I borrow for a mortgage?
Joint mortgages
Joint mortgages come with the same rates as those you’ll find on a single person mortgage. However, if you get a mortgage jointly with someone else, you may be able to access lower mortgage rates than if you applied on your own. This is because a combined deposit may mean you can borrow at a lower LTV where rates tend to be lower. Some lenders may also consider having two borrowers liable for repaying a mortgage as less risky than only one.
The importance of loan to value
Your loan-to-value (LTV) ratio is how much you want to borrow through a mortgage shown as a percentage of the value of your property. So if you’re buying a home worth £100,000 and have a £10,000 deposit, the mortgage amount you need is £90,000. This means you need a 90% LTV mortgage.
The LTV you’re borrowing at can affect the interest rate you’re charged. Mortgage rates are usually lower at the lowest LTVs when you have a larger deposit.
What other mortgage costs, fees and charges should you be aware of?
It’s important to take into account the other costs you’re likely to face when buying a home, and not just focus on the mortgage rate alone. These may include:
Stamp duty
Stamp duty is a tax you may have to pay to the government when buying property or land. At the time of publication, if you’re buying a residential home in England or Northern Ireland, stamp duty only becomes payable on properties worth over £250,000. Different thresholds and rates apply in Scotland and Wales, and if you’re buying a second home. You may qualify for first-time buyer stamp duty relief if you’re buying your first home.
» MORE: Stamp duty calculator
Mortgage deposit
Your mortgage deposit is the amount of money you have available to put down upfront when buying a property – the rest of the purchase price is then covered using a mortgage. Even a small deposit may need to be several thousands of pounds, though if you have a larger deposit this can potentially help you to access lower mortgage rate deals.
Mortgage fees
Among the charges and fees which are directly related to mortgages, and the process of taking one out, you may need to pay:
Sometimes also referred to as the completion or product fee, this is a charge paid to the lender for setting up the mortgage. It may be possible to add this on to your mortgage loan although increasing your debt will mean you will be charged interest on this extra amount, which will increase your mortgage costs overall.
This is essentially a charge made to reserve a mortgage while your application is being considered, though it may also be included in the arrangement fee. It’s usually non-refundable, meaning you won’t get it back if your application is turned down.
This pays for the checks that lenders need to make on the property you want to buy so that they can assess whether its value is in line with the mortgage amount you want to borrow. Some lenders offer free house valuations as part of their mortgage deals.
You may want to arrange a house survey so that you can check on the condition of the property and the extent of any repairs that may be needed. A survey should be conducted for your own reassurance, whereas a valuation is for the benefit of the lender and may not go into much detail, depending on the type requested by the lender.
Conveyancing fees cover the legal fees that are incurred when buying or selling a home, including the cost of search fees for your solicitor to check whether there are any potential problems you should be aware of, and land registry fees to register the property in your name.
Some lenders apply this charge if you have a small deposit and are borrowing at a higher LTV. Lenders use the funds to buy insurance that protects them against the risk your property is worth less than your mortgage balance should you fail to meet your repayments and they need to take possession of your home.
If you get advice or go through a broker when arranging your mortgage, you may need to pay a fee for their help and time. If there isn’t a fee, it’s likely they’ll receive commission from the lender you take the mortgage out with instead, which is not added to your costs.
These are fees you may have to pay if you want to pay some or all of your mortgage off within a deal period. Early repayment charges are usually a percentage of the amount you’re paying off early and tend to be higher the earlier you are into a mortgage deal.
Government schemes to help you buy a home
There are several government initiatives and schemes designed to help you buy a home or get a mortgage.
95% Mortgage Guarantee Scheme
The mortgage guarantee scheme aims to persuade mortgage lenders to make 95% LTV mortgages available to first-time buyers with a 5% deposit. It is currently due to finish at the end of June 2025.
Shared Ownership
The Shared Ownership scheme in England allows you to buy a share in a property rather than all of it and pay rent on the rest. Similar schemes are available in Scotland, Wales and Northern Ireland.
Help to Buy
The Help to Buy equity loan scheme, designed to help buyers with a smaller deposit, is still available in Wales, but not in England, Scotland and Northern Ireland.
Forces Help to Buy
The Forces Help to Buy Scheme offers eligible members of the Armed Forces an interest-free loan to help buy a home. The loan is repayable over 10 years.
First Homes Scheme
Eligible first-time buyers in England may be able to get a 30% to 50% discount on the market value of certain properties through the First Homes scheme.
Right to Buy
Under this scheme, eligible council tenants in England have the right to buy the property they live in at a discount of up to 70% of its market value. The exact discount depends on the length of time you’ve been a tenant and is subject to certain limits. Similar schemes are available in Wales, Scotland and Northern Ireland, while there is also a Right to Acquire scheme for housing association tenants.
Lifetime ISAs
To help you save for a deposit, a Lifetime ISA will see the government add a 25% bonus of up to £1,000 per year to the amount you put aside in the ISA.
How to apply for a mortgage
You may be able to apply for a mortgage directly with a bank, building society or lender, or you may need or prefer to apply through a mortgage broker. You’ll need to provide identification documents and proof of address, such as your passport, driving license or utility bills.
Lenders will also want to see proof of income and evidence of where your deposit is coming from, including recent bank statements and payslips. It will save time if you have these documents ready before you apply.
» MORE: Best mortgage lenders
Would you like mortgage advice?
Taking out a mortgage is one of the biggest financial decisions you’ll ever make so it’s important to get it right. Getting mortgage advice can help you find a mortgage that is suitable to you and your circumstances. It also has the potential to save you money.
If you think you need mortgage advice, we’ve partnered with online mortgage broker London & Country Mortgages Ltd (L&C) who can offer you fee-free advice.
Key mortgage terms explained
Loan to value (LTV)
Your loan-to-value ratio is the amount you wish to borrow through a mortgage expressed as a percentage of the value of the property you’re buying.
Initial interest rate
This is the interest rate you’ll pay when you’re still within the initial fixed-rate period of a mortgage deal.
Initial interest rate period
This is the period of time your initial interest rate will last, before your lender switches you over to its SVR.
Annual Percentage Rate of Charge (APRC)
The APRC is a single percentage figure designed to help you compare the annual cost of different mortgage deals.
Annual overpayment allowance (AOA)
This is the amount a lender will let you overpay on your mortgage each year without being charged a fee.
Early Repayment Charge (ERC)
This is a charge you may need to pay if you want to pay off some or all of your mortgage earlier than you agreed with your lender.
Mortgage term
A mortgage term is the full period of time over which the mortgage contract is taken out for – it should not be confused with the deal term. At the end of the term you will have paid off the full debt or all of the interest depending on what type of mortgage you took.
The current average rate on a five-year fixed-rate mortgage for a 10% deposit or equity is 4.93%, up from 4.86% a week earlier. For an equivalent two-year fixed-rate mortgage, the average rate of 5.38% has increased from 5.31%. If you have a 40% deposit/equity, the average five-year fixed rate is 4.30%, up from 4.19% a week earlier, while the average two-year fixed rate is 4.62%, rising from 4.50%. All rates are according to Rightmove as at 28 February 2024.
A mortgage rate is the interest rate a lender charges on the mortgage amount that you borrow. Mortgage interest rates may be fixed, guaranteeing that they will remain the same for a certain length of time, or variable, meaning it may fluctuate.
Mortgage providers regularly review the mortgage rates that they offer to take into account the costs involved with funding its lending activities, their latest priorities in terms of target borrowers, and wider conditions in the market. As a result, when searching for a new mortgage, it’s always a good idea to consider various lenders and take the time to compare different mortgages. Crucially, you need to bear in mind that a deal offering the best mortgage rate may not necessarily be the one that is most suitable for you. The mortgage rate is important, but at the same time, you need to consider other factors, such as the charges and fees attached to a mortgage, the type of mortgage that you need, and the mortgage term that you want.
While mortgage rates have been rising in recent weeks, many commentators still expect to see mortgage rates fall across 2024 as a whole.
The next move in the Bank of England base rate, which currently sits at 5.25%, is widely forecast to be down. But with inflation remaining unchanged in January, and wage growth easing by less than expected, some experts predict the first rate cut may not be made until September. Towards the end of 2023, some believed the rate could begin falling in March.
The uncertainty makes it even more difficult than usual to predict what may happen to mortgage rates next.
The interest rate is the percentage of a loan amount that a lender charges for borrowing money, whereas the APRC, or annual percentage rate of charge, is a calculation expressed as a percentage that takes into account both the interest rate and associated costs of a mortgage across its lifetime. The aim of the APRC is to help borrowers make meaningful comparisons between mortgage deals.
Taking the time to compare mortgage rates and deals, making sure your credit score is in good shape, saving for a larger deposit and paying off existing debts can all help improve your chances of getting a good mortgage deal.
When looking for a mortgage it is vital that you compare mortgage lenders and the rates and deals on offer. Taking the time to carry out a mortgage comparison can improve your chances of finding the best mortgage for your circumstances.
A mortgage is a loan you take out to help you buy a property you don’t have the money to pay for up front. You may be a first-time buyer, remortgaging, securing a buy to let, or moving to your next home. The amount you need to borrow will depend on the purchase price of the property, and how much you can put down as a deposit or already hold in equity in your current property. The mortgage is secured against the property, which means your home is at risk if you don’t meet the repayments.
With a capital repayment mortgage, your monthly repayments pay off your interest and some of your original loan amount each month, so that everything should be paid off by the time you reach the end of your mortgage term. The alternative to a repayment mortgage is an interest-only mortgage, where you will repay only the interest each month before needing to pay off your original loan amount in its entirety at the end of the mortgage term.
A mortgage term is the period of time you agree with a lender over which you intend to entirely pay off your mortgage and interest. A typical mortgage term in the UK is usually considered to be 25 years, but you may opt for a shorter period or a longer one, if allowed. Some lenders offer mortgage terms of up to 40 years. If you have a longer term, your monthly repayments will be lower, but you’ll pay more interest overall.
The cost of your mortgage will depend on many factors, including how much you borrow, the size of your deposit, the length of your mortgage term, the mortgage rate you’re paying, and whether you can afford to make overpayments. Your mortgage lender must provide you with the full cost of the mortgage before you apply.
» MORE: How much could your mortgage cost you?
Besides making sure your monthly repayments are affordable, there are many other costs associated with arranging a mortgage. These may include arrangement, survey, valuation and mortgage broker fees.
If you’ve previously owned a home and the property you’re buying is worth more than £250,000, stamp duty will be payable as well; if you’re a first-time buyer, stamp duty only becomes payable on properties worth over £425,000.
To get a mortgage as a first-time buyer you’ll usually need at least a 5% deposit and a regular income. Most lenders offer first-time buyer mortgages aimed primarily at those with smaller deposits. First-time buyers may also be able to secure a mortgage with the help of close relatives through a guarantor mortgage.
Some lenders offer buy-to-let mortgages that can be arranged on a property you want to rent out to a tenant, rather than live in yourself. You’ll usually need a larger deposit for a buy-to-let mortgage than for a residential mortgage, and interest rates are often higher. You may also need to already own your own home or have a residential mortgage on another property.
It may be possible to get a mortgage with bad credit but you’ll probably have fewer mortgage deals to choose from and need to pay higher mortgage rates.
You may want to consider remortgaging if your initial fixed-rate period is close to ending and you want to avoid moving on to your lender’s SVR. Choosing to remortgage has the potential to save you money if you find the right mortgage deal.
» MORE: How remortgaging works
It’s always important to think about your plans, particularly when it comes to choosing the type of mortgage that will suit you best. For instance, if you plan to move in perhaps two years, choosing a five-year fixed-rate mortgage may mean you have to pay early repayment charges if you need to get a new mortgage.
Getting an agreement in principle, or AIP, from a lender will give you an idea of how much you may be able to borrow for your mortgage without needing to formally apply. Getting an AIP usually involves a soft credit check, which shouldn’t affect your credit score. However, having an AIP does not guarantee that a lender will offer you a mortgage. An agreement in principle is also sometimes referred to as a decision in principle or a mortgage promise.
Yes, some providers offer halal or Islamic mortgages in the UK. These are compliant with Sharia law and allow people to borrow but not pay interest.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a loan or any other debt secured on it.
Information on this page is a guide. It does not constitute advice, recommendation or suitability to your needs or financial circumstances. Seek qualified mortgage advice before proceeding with a mortgage product.
NerdWallet strives to keep its information accurate and up to date. This information may be different than what you see when you visit a financial institution, service provider or specific product’s site. All financial products and services are presented without warranty. When evaluating products, please review the financial institution’s Terms and Conditions.
Editor’s Note: Parts of this story were auto-populated using data from Curinos, a mortgage research firm that collects data from more than 250 lenders. For more details on how we compile daily mortgage data, check out our methodology here.
Mortgage rates remain above 7%, according to data from Curinos analyzed by MarketWatch Guides. The 30-year fixed-rate mortgage is 7.35% today, down-0.12 percentage points from last week.
With mortgage rates above 7% and home prices showing no signs of dropping, home affordability has continued to decline, according to the Mortgage Bankers Association (MBA). An MBA report published last week showed that the median monthly payment for new home purchases in the U.S. increased to $2,134 in January – up 4% from the month before.
Prospective home buyers may see rates drop more substantially this year, however. The Federal Reserve board previously indicated that it expects three rate cuts throughout 2024 and their next meeting is scheduled for March 19-20.
Here are today’s average mortgage rates:
30-year fixed mortgage rate: 7.35%
15-year fixed mortgage rate: 6.70%
5/6 ARM mortgage rate: 6.99%
Jumbo mortgage rate: 7.17%
Current Mortgage Rates
Product
Rate
Last Week
Change
30-Year Fixed Rate
7.35%
7.47%
-0.12
15-Year Fixed Rate
6.70%
6.72%
-0.02
5/6 ARM
6.99%
7.02%
-0.03
7/6 ARM
7.22%
7.24%
-0.02
10/6 ARM
7.32%
7.32%
0.00
30-Year Fixed Rate Jumbo
7.17%
7.23%
-0.06
30-Year Fixed Rate FHA
7.17%
7.21%
-0.04
30-Year Fixed Rate VA
7.15%
7.23%
-0.08
Disclaimer: The rates above are based on data from Curinos, LLC. All rate data is accurate as of Tuesday, March 05, 2024. Actual rates may vary.
>> View historical mortgage rate trends
Mortgage Rates for Home Purchase
30-year fixed-rate mortgages are down, -0.12
The average 30-year fixed-mortgage rate is 7.35%. Since the same time last week, the rate is down, changing -0.12 percentage points.
At the current average rate, you’ll pay $688.97 per month in principal and interest for every $100,000 you borrow. You’re paying less compared to last week when the average rate was 7.47%.
15-year fixed-rate mortgages are down, -0.02
The average rate you’ll pay for a 15-year fixed-mortgage is 6.70%, a decrease of-0.02 percentage points compared to last week.
Monthly payments on a 15-year fixed-mortgage at a rate of 6.70% will cost approximately $882.14 per $100,000 borrowed. With the rate of 6.72% last week, you would’ve paid $883.25 per month.
5/6 adjustable-rate mortgages are down, -0.03
The average rate on a 5/6 adjustable rate mortgage is 6.99%, a decrease of-0.03 percentage points over the last seven days.
Adjustable-rate mortgages, commonly referred to as ARMs, are mortgages with a fixed interest rate for a set period of time followed by a rate that adjusts on a regular basis. With a 5/6 ARM, the rate is fixed for the first 5 years and then adjusts every six months over the next 25 years.
Monthly payments on a 5/6 ARM at a rate of 6.99% will cost approximately $664.63 per $100,000 borrowed over the first 5 years of the loan.
Jumbo loan interest rates are down, -0.06
The average jumbo mortgage rate today is 7.17%, a decrease of-0.06 percentage points over the past week.
Jumbo loans are mortgages that exceed loan limits set by the Federal Housing Finance Agency (FHFA) and funding criteria of Freddie Mac and Fannie Mae. This generally means that the amount of money borrowed is higher than $726,200.
Product
Monthly P&I per $100,000
Last Week
Change
30-Year Fixed Rate
$688.97
$697.16
-$8.19
15-Year Fixed Rate
$882.14
$883.25
-$1.11
5/6 ARM
$664.63
$666.65
-$2.02
7/6 ARM
$680.14
$681.50
-$1.36
10/6 ARM
$686.93
$686.93
$0.00
30-Year Fixed Rate Jumbo
$676.76
$680.82
-$4.06
30-Year Fixed Rate FHA
$676.76
$679.47
-$2.71
30-Year Fixed Rate VA
$675.41
$680.82
-$5.41
Note: Monthly payments on adjustable-rate mortgages are shown for the first five, seven and 10 years of the loan, respectively.
Factors That Affect Your Mortgage Rate
Mortgage rates change frequently based on the economic environment. Inflation, the federal funds rate, housing market conditions and other factors all play into how rates move from week-to-week and month-to-month.
But outside of macroeconomic trends, several other factors specific to the borrower will affect the mortgage interest rate. They include:
Financial situation: Mortgage lenders use past financial decisions of borrowers as a way to evaluate the risk of loaning money.
Loan amount and structure: The amount of money that bank or mortgage lender loans and its structure (including both the term and whether its a fixed-rate or adjustable-rate).
Location: Mortgage rates vary by where you are buying a home. Areas with more lenders, and thus more competition, may have lower rates. Foreclosure laws can also impact a lender’s risk, affecting rates.
Whether borrowers are first-time homebuyers: Oftentimes first-time homebuyer programs will offer new homeowners lower rates.
Lenders: Banks, credit unions and online lenders all may offer slightly different rates depending on their internal determination.
How To Shop for the Best Mortgage Rate
Comparison shopping for a mortgage can be overwhelming, but it’s shown to be worth the effort. Homeowners may be able to save between $600 and $1,200 annually by shopping around for the best rate, researchers found in a recent study by Freddie Mac. That’s why we put together steps on how to shop for the best mortgage rate.
1. Check credit scores and credit reports
A borrower’s credit situation will likely determine the type of mortgage they can pursue, as well as their rate. Conventional loans are typically only offered to borrowers with a credit score of 620 or higher, while FHA loans may be the best option for borrowers with a FICO score between 500 and 619. Additionally, individuals with higher credit scores are more likely to be offered a lower mortgage interest rate.
Mortgage lenders often review scores from the three major credit bureaus: Equifax, Experian and TransUnion. By viewing your scores ahead of lenders considering you for a loan, you can check for errors and even work to improve your score by paying down balances and limiting new credit cards and loans.
2. Know the options
There are four standard mortgage programs: conventional, FHA, VA and USDA. To get the best mortgage rate and increase your odds of approval, it’s important for potential borrowers to do their research and apply for the mortgage program that best fits their financial situation.
The table below describes each program, highlighting minimum credit score and down payment requirements.
Though conventional mortgages are most common, borrowers will also need to consider their repayment plan and term. Rates can be either fixed or adjustable and terms can range from 10 to 30 years, though most homeowners opt for a 15- or 30-year mortgage.
3. Compare quotes across multiple lenders
Shopping around for a mortgage goes beyond comparing rates online. We recommend reaching out to lenders directly to see the “real” rate as figures listed online may not be representative of a borrower’s particular situation. While most experts recommend getting quotes from three to five lenders, there is no limit on the number of mortgage companies you can apply with. In many cases, lenders will allow borrowers to prequalify for a mortgage and receive a tentative loan offer with no impact to their credit score.
After gathering your loan documents – including proof of income, assets and credit – borrowers may also apply for pre-approval. Pre-approval will let them know where they stand with lenders and may also improve negotiating power with home sellers.
4. Review loan estimates
To fully understand which lender is offering the cheapest loan overall, take a look at the loan estimate provided by each lender. A loan estimate will list not only the mortgage rate, but also a borrower’s annual percentage rate (APR), which includes the interest rate and other lender fees such as closing costs and discount points.
By comparing loan estimates across lenders, borrowers can see the full breakdown of their possible costs. One lender may offer lower interest rates, but higher fees and vice versa. Looking at the loan’s APR can give you a good apples-to-apples comparison between lenders that takes into account both rates and fees.
5. Consider negotiating with lenders on rates
Mortgage lenders want to do business. This means that borrowers may use competing offers as leverage to adjust fees and interest rates. Many lenders may not lower their offered rate by much, but even a few basis points may save borrowers more than they might think in the long run. For instance, the difference between 6.8% and 7.0% on a 30-year, fixed-rate $100,000 mortgage is roughly $5,000 over the life of the loan.
Expert Forecasts for Mortgage Rates
Mortgage rates have cooled significantly over the past several months. After the 30-year fixed-rate mortgage hit 8% last October, it ended 2023 closer to 7%. In fact, the average for Q4 2023 was 7.3%.
Analysts with Fannie Mae and the Mortgage Bankers Association (MBA) both project that rates will fall going into 2024 and throughout next year.
Fannie Mae economists expect rates to drop more quickly, falling below 6% by Q4 2024. Meanwhile, the MBA’s forecast for Q4 2024 is 6.1% and 5.9% for Q1 2025.
More Mortgage Resources
Methodology
Every weekday, MarketWatch Guides provides readers with the latest rates on 11 different types of mortgages. Data for these daily averages comes from Curinos, LLC, a leading provider of mortgage research that collects data from more than 250 lenders. For more details on how we compile daily mortgage data, check out our comprehensive methodology here. Editor’s Note: Before making significant financial decisions, consider reviewing your options with someone you trust, such as a financial adviser, credit counselor or financial professional, since every person’s situation and needs are different.
Inside: Discover the secrets to earning $200k a year. Learn to choose industries, negotiate salaries, and balance life with high-income careers.
Achieving a $200,000 annual income is a financial milestone that many aspire to reach, but not everyone knows how to realistically attain.
Whether you’re starting from scratch or looking to elevate your current earnings, the blueprint to a $200K income is within your grasp. It all begins with a strategic approach that leverages both a steady job and an entrepreneurial spirit.
Achieving a $200k salary is not just about luxury—it’s about stability and security. With rising living costs, including student loans, mortgages, and everyday expenses, earning a high income is increasingly vital to maintaining a comfortable lifestyle.
By combining the stability of a well-paying career with the dynamism of a side hustle, you can fast-track your way to this lofty goal.
In this comprehensive guide, we dive deep into a method that suits everyone to make $200000 this year.
You’ll learn how to harness your passions, manage your time and expenses, and create a foolproof plan that caters to your strengths and circumstances.
How to Make 200k a Year
Achieving this level of annual income is a significant financial goal that necessitates a well-devised strategy combining steady employment with entrepreneurial endeavors.
This is possible for anyone to do. You have been making 10k a month for a while now and want to make the leap.
You just must be steadfast in pursuing your goals.
#1 – Identify high-income skills and industries
The first step toward making $200k a year is to recognize the skills and industries that command such salaries. Technology and finance are prime examples where hard work and expertise can lead to impressive earnings right out of college.
Specialized skills in software development, cybersecurity, data analysis, and AI are highly sought after. Additionally, roles in investment banking, private equity, and hedge funds are lucrative but come with intense competition and long hours.
Identifying these prospects involves understanding market needs, so be prepared to continually adapt to the latest industry trends. I cannot stress how important these high income skills are for your income.
Top Skills: Software Development, Cybersecurity, Data Analysis, Artificial Intelligence, Financial Analysis
Top Industries: Tech, Finance, Consulting, Healthcare, Legal
#2 – Degrees and Courses That Could Lead to 200K Jobs
If you’re seeking a high-paying career, focusing your education in specific areas is crucial. Advanced degrees, such as a doctoral degree in medicine, law, business administration (MBA), or specialized engineering can pave the way to high-paying roles.
For those with a penchant for academia, pursuing specialized courses that lead to becoming a medical lawyer, dentist, neurologist, psychiatrist, or gynecologist can be extremely rewarding. However, keep in mind that these paths generally require significant time and financial investment in education before reaping the financial rewards.
However, there are plenty of low-stress jobs that pay well without a degree.
Recommended Degrees: Medicine, Law, Engineering, Business Administration (MBA)
Embarking on entrepreneurship is a thrilling yet challenging path to reach unlimited annual income.
To start a business that prospers, it’s essential to identify a market need and create a clear business plan. Whether you’re selling a physical product, offering a service, or thriving in the digital market through online marketing, e-commerce, or app development, dedication, and strategic growth are paramount.
Investing both time and capital wisely, and adapting to market feedback can help you scale your business to meet and exceed your financial goals.
Investment Tip: Consider start-up costs carefully, and plan for lean operation.
Growth Strategy: Focus on customer satisfaction, scaling smartly, and marketing effectively.
#4 – Advance in your current career
Climbing the corporate ladder within your existing professional environment is a viable route to a higher salary.
To do this, focus on excelling in your current role, continuously improve your skills, and demonstrate the value you add to the company. Seek out leadership roles, ask for challenging projects, and take on responsibilities that align with the company’s revenue-generating activities.
Remember, promotions often come with significant pay raises, and it’s essential to communicate your career goals with your employer to align your trajectory with the available opportunities. Just watch the number of working hours you put in.
Key Strategies: Exceed performance expectations, take initiative, and pursue leadership roles.
Professional Development: Continued education, certifications, and networking are critical for advancement.
#5 – Invest in real estate for passive income
Real estate investment remains a cornerstone strategy for building wealth.
Focusing on location is key; properties in high-demand markets can yield substantial returns through rental income and appreciation. Paying with cash rather than financing can lead to better deals and avoid interest payments, as debt can eat into profits.
Moreover, platforms like Fundrise allow investors to start with as little as $10, which could be a smart move if you’re seeking a hands-off investment with a diverse real estate portfolio.
Investment Insight: Cash purchases may provide better deals, reducing financial risk.
Real Estate Tip: Choose high-demand locations for better rental income and property appreciation.
#6 – Maximize income through stocks or other investments
Investing in the stock market through individual stocks, mutual funds, or exchange-traded funds (ETFs) is another way to potentially earn $200k a year. Dividends from some of these investments can also serve as a consistent income stream.
Consider focusing on industries poised for growth or stable dividend-paying stocks, as these can offer a balance between growth potential and income reliability.
Additionally, alternative investments such as cryptocurrencies or option contracts can offer high returns, but come with high volatility. Always conduct thorough research or consult with a financial advisor before making significant investment decisions.
Learn how to invest in stocks for beginners.
Investment Strategy: Diversify your portfolio, focus on growth sectors, and consider enhancing your investment knowledge.
Cautionary Note: Be aware of market risks and do not invest more than you can afford to lose.
#7 – Gain Relevant Experience in High-Demand Fields
To command a $200k paycheck, it’s essential to gain experience in fields where the demand for your skills exceeds the supply.
Industries such as technology, healthcare, and specialized consulting are in constant need of experienced professionals. Work on projects that showcase your expertise and build a robust professional portfolio.
You can also consider a side hustle like freelancing or consulting to gain a broad range of experiences that can make you an attractive candidate for high-level positions.
Experience Building: Take on varied projects, freelance, or consult in your niche.
Portfolio Enhancement: Document your successes and gather testimonials or recommendations.
#8 – Continuous Learning and Adaptability to Stay Ahead
In the dynamic job market, staying complacent can mean getting left behind. Cultivating a habit of lifelong learning and adaptability is crucial. Did you know you are an appreciating asset?
This may involve updating your skill set to keep pace with technological advancements, attaining new certifications, or attending industry conferences and workshops. Remember that cross-skills, like project management or business analytics, are also valuable and can complement your primary expertise.
Embrace change and be willing to pivot when necessary to maintain your competitive edge and earning potential.
Professional Development: Seek out further education and certifications.
Adaptability: Stay open to industry shifts and be ready to pivot your skills accordingly.
Careers That Make 200K a Year is Common
In certain careers, a $200K annual salary is not an exception but rather a common expectation.
Positions in healthcare such as surgeons, specialists, and anesthesiologists often offer salaries exceeding this amount. Moreover, top-level executives, experienced lawyers, and investment bankers are typically in the higher income bracket due to the high stakes and demands of their industry. In tech, senior software engineers and IT executives with strong track records in hot markets like Silicon Valley can command these salaries, too.
Success in these careers requires a combination of advanced education, considerable experience, and sometimes, the right location.
Within these industries, focus on roles that are crucial to core operations, innovation, or revenue generation.
For tech, this might involve AI, machine learning, and cybersecurity. In finance, investment strategists and financial advisors are in demand. In healthcare, specialized practitioners command higher salaries whereas, in the legal field, corporate lawyers and litigators typically earn more.
Just to note… taxes will take a substantial amount out of your paycheck. So, you want to aim for $200k as net income.
Factor #2 – Climbing the Ladder: From Mid-Level to Top-Tier Positions
Transitioning from a mid-level position to top-tier status demands a proactive career strategy. Aim for roles that impact the company’s bottom line, such as project management or strategic planning, which often lead to executive positions.
Make sure to seek mentors who can offer guidance, and build a reputation for reliability and innovation. Networking within your industry can uncover hidden opportunities and give you a competitive edge.
Strategic Positioning: Focus on profit-impacting roles and responsibilities.
Career Growth: Network, seek mentorship, and demonstrate leadership capabilities.
Always aim to bring value to your organization, as this will be your leverage when seeking promotions and negotiating salary increments.
Factor #3 – Negotiation Tactics for a High Paying Salary
Securing a salary of $200k often hinges on your ability to negotiate effectively.
Begin the negotiation process by researching the standard salary for your position in your industry and region. Articulate your value by enumerating your accomplishments, experiences, and the results you can deliver.
Prioritize non-salary benefits that may be equivalent to a higher income, such as bonuses, commission, stock options, or flexible work arrangements. When discussing figures, aim higher to give room for negotiation.
Research: Know industry salary benchmarks.
Value Proposition: Clearly communicate your potential contribution.
Remember, negotiation is a dialogue, so listen carefully, be respectful, and maintain a professional demeanor throughout the process.
Factor #4 – Building Professional Relationships That Open Opportunities
Fostering robust professional relationships is key to unlocking high-paying roles, as connections can lead to opportunities that aren’t publicly advertised.
Networking is an art. It goes beyond just asking the question, “What do you do for a living?“
Actively engage with peers at industry events, be genuinely interested in others, and offer help before you ask for it. Maintain a positive online presence on platforms like LinkedIn, where you can connect with like-minded professionals and hiring managers.
Networking: Engage in industry events and platforms like LinkedIn.
Relationship Management: Nurture connections and seek meaningful interactions.
Don’t forget to nurture existing relationships – a recommendation from a trusted colleague can provide a significant edge in landing a coveted position.
Factor #5 – Cities and Regions with the Best High-Paying Job Markets
If you’re eyeing a lucrative salary, it’s strategic to consider the geographic landscape of high-paying jobs.
Major economic hubs like New York City, San Francisco, and Boston have dense concentrations of Fortune 500 companies and start-ups that offer competitive salaries, especially in finance and tech. However, these cities come with higher costs of living.
Comparatively, cities like Austin, Seattle, and Denver have burgeoning tech and business sectors with a more balanced cost of living.
Economic Hubs: New York City, San Francisco, Boston.
Balance Seekers: Austin, Seattle, Denver.
Consider looking for cities that have a vibrant job market in your industry, but a reasonable cost of living to maximize your income-to-expense ratio.
Factor #6 – Remote Work: A Gateway Being Global
The rise of remote work has opened a world of possibilities for professionals seeking higher salaries. You can work in a low cost of living country and still get a good income and save the rest.
With remote positions, you’re not limited by location and can work for companies with higher pay scales in stronger economies, practicing geographic arbitrage to your advantage. Sectors like tech, marketing, and design are ripe with remote opportunities that pay well.
Geographic Arbitrage: Tap into stronger economies and work remotely.
Global Accessibility: Utilize online platforms to access high-income roles worldwide.
To capitalize on this, enhance your digital presence, showcase your skills online, and engage with global job platforms. Also, consider the time zones and cultural work patterns of employers to ensure a smooth collaboration.
FAQs About Securing a 200K Job
A salary of $200k is relatively rare, with only a small percentage of U.S. households earning at this level.
According to recent statistics, 11.9% of U.S. households had an annual income over $200,000.1
However, this figure can vary significantly by industry, location, and level of experience.
This is 100% possible with the rise of technology and the internet.
To do this, you must focus on industries that value skills and experience over formal education.
Professions like real estate brokering, high-level sales, business entrepreneurship, or becoming a skilled tradesperson. You just need strong persistence.
The likely answer is typically one needs a grad degree or extensive experience in high-paying fields like medicine, law, engineering, or business.
However, specialized certifications, proven expertise, exceptional skills, or entrepreneurship can also be your ticket to this income level without traditional qualifications.
What Jobs Pay 200k a Year Interest You?
Now that you’re equipped with knowledge about reaching a $200k salary, consider which roles resonate with your skills and passions.
Maybe you’re intrigued by the challenge of a tech startup, or the idea of saving lives as a healthcare specialist is what drives you. Perhaps the strategic element of financial planning appeals to your analytical side, or the autonomy of forging your path as an entrepreneur is a calling.
Remember, selecting a profession that not only offers financial rewards but also aligns with your interests and values is crucial for long-term satisfaction and success. High tech degrees are highly sought after right now.
The great part about making this amount of money is you can increase your savings rate, but that doesn’t mean you should leave beyond your means.
There are plenty of avenues that will have you making over six figures quickly.
Source
Statistic. “Percentage distribution of household income in the United States in 2022.” https://www.statista.com/statistics/203183/percentage-distribution-of-household-income-in-the-us/. Accessed February 28, 2024.
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Ever dream of leaving your job to pursue a project you’ve always been passionate about, like starting your own business? Or going back to school without taking out student loans? What about the option to retire at age 50 instead of 65 without having to worry about money?
Any of these opportunities could happen if you’re able to achieve financial freedom — having the money and resources to afford the lifestyle you want.
Intrigued by the idea of being financially free? Read on to find out what financial freedom means and how it works, plus 12 ways to help make it a reality.
What Is Financial Freedom?
Financial freedom is being in a financial position that allows you to afford the lifestyle you want. It’s typically achieved by having enough income, savings, or investments so you can live comfortably without the constant stress of having to earn a certain amount of money.
For instance, you might attain financial freedom by saving and investing in such a way that allows you to build wealth, or by growing your income so you’re able to save more for the future. Eventually, you may become financially independent and live off your savings and investments.
There are a number of different ways to work toward financial freedom so that you can stop living paycheck-to-paycheck, get out of debt, save and invest, and prepare for retirement. 💡 Quick Tip: Did you know that opening a brokerage account typically doesn’t come with any setup costs? Often, the only requirement to open a brokerage account — aside from providing personal details — is making an initial deposit.
12 Ways to Help You Reach Financial Freedom
The following strategies can help start you on the path to financial freedom.
1. Determine Your Needs
A good first step toward financial freedom is figuring out what kind of lifestyle you want to have once you reach financial independence, and how much it will cost you to sustain it. Think about what will make you happy in your post-work life and then create a budget to help you get there.
As a bonus, living on — and sticking to — a budget now will allow you to meet your current expenses, pay your bills, and save for the future.
2. Reduce Debt
Debt can make it very hard, if not impossible, to become financially free. Debt not only reduces your overall net worth by the amount you’ve got in loans or lines of outstanding credit, but it increases your monthly expenses.
To pay off debt, you may want to focus on the avalanche method, which prioritizes the payment of high-interest debt like credit cards.
You might also try to see if you can get a lower interest rate on some of your debts. For instance, with credit card debt, it may be possible to lower your interest rate by calling your credit card company and negotiating better terms.
And be sure to pay all your other bills on time, including loan payments, to avoid going into even more debt.
3. Set Up an Emergency Fund
Having an emergency fund in place to cover at least three to six months’ worth of expenses when something unexpected happens can help prevent you from taking on more debt.
With an emergency fund, if you lose your job, or your car breaks down and needs expensive repairs, you’ll have the funds on hand to cover it, rather than having to put it on your credit card. That emergency cushion is a type of financial freedom in itself.
4. Seek Higher Wages
If you’re not earning enough to cover your bills, you aren’t going to be able to save enough to retire early and pursue your passions. For many people, figuring out how to make more money in order to increase savings is another crucial step in the journey toward financial freedom.
There are different ways to increase your income. First, think about ways to get paid more for the job that you’re already doing.
For instance, ask for a raise at work, or have a conversation with your manager about establishing a path toward a higher salary. Earning more now can help you save more for your future needs.
5. Consider a Side Gig
Another way to increase your earnings is to take on a side hustle outside of your full-time job. For instance, you could do pet-sitting or tutoring on evenings and weekends to generate supplemental income. You could then save or invest the extra money.
6. Explore New Income Streams
You can get creative and brainstorm opportunities to create new sources of income. One idea: Any property you own, including real estate, cars, and tools, might potentially serve as money-making assets. You may sell these items, or explore opportunities to rent them out.
7. Open a High-Yield Savings Account
A savings account gives you a designated place to put your money so that it can grow as you keep adding to it. And a high-yield savings account typically allows you to earn a lot more in interest than a traditional savings account. As of February 2024, some high-yield savings accounts offered annual percentage yields (APYs) of 4.5% compared to the 0.46% APY of traditional savings accounts.
You can even automate your savings by having your paychecks directly deposited into your account. That makes it even easier to save.
8. Make Contributions to Your 401(k)
At work, contribute to your 401(k) if such a plan is offered. Contribute the maximum amount to this tax-deferred retirement account if you can — in 2024, that’s $23,000, or $30,500 if you’re age 50 or older — to help build a nest egg.
If you can’t max out your 401(k), contribute at least enough to get matching funds (if applicable) from your employer. This is essentially “free” or extra money that will go toward your retirement. 💡 Quick Tip: Want to lower your taxable income? Start saving for retirement with a traditional IRA. The money you save each year is tax deductible (and you don’t owe any taxes until you withdraw the funds, usually in retirement).
9. Consider Other Investments
After contributing to your workplace retirement plan, you may want to consider opening another retirement account, such as an IRA, or an investment account like a brokerage account. You might choose to explore different investment asset classes, such as mutual funds, stocks, bonds, or exchange-traded funds.
When you invest, the power of compounding returns may help you grow your money over time. But be aware that there is risk involved with investing.
Although the stock market has generally experienced a high historical rate of return, stocks are notoriously volatile. If you’re thinking about investing, be sure to learn about the stock market first, and do research to find what kind of investments might work best for you.
It’s also extremely important to determine your risk tolerance to help settle on an investment strategy and asset type you’re comfortable with. For instance, you may be more comfortable investing in mutual funds rather than individual stocks.
10. Stay Up to Date on Financial Issues
Practicing “financial literacy,” which means being knowledgeable about financial topics, can help you manage your money. Keep tabs on financial news and changes in the tax laws or requirements that might pertain to you. Reassess your investment portfolio at regular intervals to make sure it continues to be in line with your goals and priorities. And go over your budget and expenses frequently to check that they accurately reflect your current situation.
11. Reduce Your Expenses
Maximize your savings by minimizing your costs. Analyze what you spend monthly and look for things to trim or cut. Bring lunch from home instead of buying it out during the work week. Cancel the gym membership you’re not using. Eat out less frequently. These things won’t impact your quality of life, and they will help you save more.
12. Live Within Your Means
And finally, avoid lifestyle creep: Don’t buy expensive things you don’t need. A luxury car or fancy vacation may sound appealing, but these “wants” can set back your savings goals and lead to new debt if you have to finance them. Borrowing money makes sense when it advances your goals, but if it doesn’t, skip it and save your money instead.
The Takeaway
Financial freedom can allow you to live the kind of life you’ve always wanted without the stress of having to earn a certain amount of money. To help achieve financial freedom, follow strategies like making a budget, paying your bills on time, paying down debt, living within your means, and contributing to your 401(k).
Saving and investing your money are other ways to potentially help build wealth over time. Do your research to find the best types of accounts and investments for your current situation and future aspirations.
Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).
Invest with as little as $5 with a SoFi Active Investing account.
FAQ
How can I get financial freedom before 30?
Achieving financial freedom before age 30 is an ambitious goal that will require discipline and careful planning. To pursue it, you may want to follow strategies of the FIRE (Financial Independence Retire Early) movement. This approach entails setting a budget, living below your means in order to save a significant portion of your money, and establishing multiple streams of income, such as having a second job in addition to your primary job.
What is the most important first step towards achieving financial freedom?
The most important first step to achieving financial freedom is to figure out what kind of lifestyle you want to have and how much money you will need to sustain it. Once you know what your goals are, you can create a budget to help reach them.
What’s the difference between financial freedom and financial independence?
Financial freedom is being able to live the kind of lifestyle you want without financial strain or stress. Financial independence is having enough income, savings, or investments, to cover your needs without having to rely on a job or paycheck.
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Do you find yourself dreaming about what you would do if you were a millionaire? Maybe you fantasize about retiring early and traveling the world. Or perhaps what excites you is the thought of being able to donate to causes you care about.
But, you might be wondering, how to become a millionaire? You may suspect the only way you’ll ever be that rich is if you win the lottery.
Fortunately, the road to wealth isn’t that narrow — there are many ways to become a millionaire. For instance, some individuals retire with over a million dollars in savings because they made good financial decisions.
Others may have started businesses that brought them success, advanced their careers so that they made enough to save seven figures, or made smart investments.
Read on to learn more about how to become a millionaire, and strategies that could help get you there.
Introduction to the Millionaire Mindset and Goals
You may have a certain image of a millionaire in your mind. Maybe it’s a jetsetter or a celebrity. But many millionaires are not born into wealthy families or individuals who suddenly struck it rich. In fact, many millionaires are people who work for a living every day. In general, what tends to set them apart is that they have a millionaire mindset. They are smart and disciplined when it comes to their money. And they stay focused on their financial goals.
Defining What it Means to be a Millionaire
The true definition of a millionaire is someone with a net worth of at least $1 million. That means that their assets, minus any debt, is $1 million or more.
So, if you have $500,000 in savings and investments, plus a house that’s worth at least $500,000, are you a millionaire? Yes, if you own the house outright and don’t have a lot of debt such as car loans, student loans, or credit cards to pay off. But if you still owe money on your house and you’ve got a fair amount of debt to repay, you probably aren’t a millionaire. At least, not yet.
To do the math for your situation, total up your assets. Then subtract your debts from that amount. This will show you how close you are to reaching millionaire status, and possibly give you a sense of what you might have to do to get there.
Following these eight strategies can help when it comes to how to become a millionaire. 💡 Quick Tip: Did you know that opening a brokerage account typically doesn’t come with any setup costs? Often, the only requirement to open a brokerage account — aside from providing personal details — is making an initial deposit.
Step 1: Stay Away From Debt
As we just saw in the example above, one thing that could be holding you back from becoming a millionaire is debt — especially if that debt is “bad debt,” a term often used for high-interest debt. Eliminating your debt is key because it’s difficult to build wealth if you’re paying a significant portion of your income toward interest.
Paying off debt could help free up money to invest and build wealth. One way to repay debt is to use the debt avalanche method. With this technique, you pay off your debts with the highest interest rates first and then focus on debts with the next highest interest rates (while still making minimum payments on all of your debt, of course).
Eliminating debt isn’t just about paying off existing debt, though, it’s also about avoiding the chances of going into debt in the future. Part of a debt payoff strategy could involve spending less so that you don’t need to rely on credit. You can also set a strict budget and pay with cash whenever possible.
In addition, you may want to create an emergency fund by setting aside a certain amount of money every month. That way, if you have a financial setback, you don’t have to go into credit card debt.
Step 2: Invest Early and Consistently
Investing successfully doesn’t happen overnight. It takes time. That’s why you need to start early. There are a few rules to know that could help you improve your chances of becoming a millionaire.
Benefits of Compounding Returns
First, compounding returns can make all the difference. They can help your money grow, as long as the returns are reinvested.
Here’s how they work: Compounding returns depend on how much an investment gains or loses over time, which is known as the rate of return. The longer your money is invested, the more compounding it can do. That’s why some individuals start saving aggressively when they’re young.
Saving $100,000 by the time you’re 30 might not be possible for everyone, but the more you save early on, the greater impact it could have on your net worth.
And here’s the thing: Even if you’re in your 30s, 40s, or 50s now, it’s never too late to start saving. The important thing is that you start, period. And that you keep saving.
There are other investing strategies that could help as you work on how to become a millionaire. For instance, you could reduce the amount you spend on investment fees. High investment fees can have a big impact on your returns, so you might want to look into low-fee investments.
Also, you should make sure that you invest in a way that’s right for you throughout your life. That may mean investing more aggressively when you’re younger and gradually becoming more conservative in your investments as you get older and closer to retirement.
Step 3: Make Saving a Priority
Your savings is the amount of money you have left after paying taxes and spending money.
Many Americans aren’t saving enough to become a millionaire — in October 2023, the average personal savings rate was 3.8%, according to the Bureau of Economic Analysis. You’ll likely need to save more than three times that amount to become a millionaire.
Effective Saving Strategies for Long-term Wealth
To save for your goals, start by investing in your company’s 401(k). Max out your 401(k) if you can. At the very least, invest at least enough to earn the employer match, if there is one. That way your employer is contributing to your savings.
In addition, consider opening a traditional IRA or a Roth IRA and contribute as much as possible — up to the limit set by the IRS. These IRAs are tax-advantaged, so they’ll help with your tax bill, too.
And investigate other savings options as well. For instance, you could open a high-yield savings account rather than a regular savings account for a higher return.
Step 4: Increase Your Income
You can’t join the ranks of millionaires if you’re not bringing in more money than you need for your basic necessities. The more money you make, the more you can save and invest.
Tips for Boosting Earnings and Maximizing Income
Some ways to boost your income include asking for a raise or looking for a new higher-paying job. You could also go back to school to earn an advanced degree that could lead to a position with a higher income. Your current employer might even help you cover the cost; check with your HR department.
Another one of the ways to earn extra money is to take on a side hustle. You could tutor students on evenings or weekends, do freelance writing, or dog sit. And those are just some of the options to consider.
Step 5: Cut Unnecessary Expenses
Getting control of your spending is critical to building wealth. That doesn’t mean you have to cut back on everything that gives you pleasure, but you could consider the happiness return on investment you get from the money that you spend. How big of an apartment or home do you truly need to be content? What kind of car do you need? Do you have to buy lunch out every day or could you bring your own lunch from home?
Identifying and Eliminating Non-Essential Spending
You could find ways to cut back on the things that don’t matter so much, but not skimping to the point that you miss out on things you love. For example, maybe you need your gym sessions (and there are plenty of low-cost gyms out there), but you can do without a $5 latte every morning.
Also, you could focus on cutting back on big expenses instead of those that won’t have a huge impact on your budget. For example, dining out only once a month, adjusting your thermostat higher or lower depending on the season, or finding a less expensive, smaller home could help you save a significant amount of money over time. 💡 Quick Tip: Distributing your money across a range of assets — also known as diversification — can be beneficial for long-term investors. When you put your eggs in many baskets, it may be beneficial if a single asset class goes down.
Step 6: Keep Your Financial Goals in Focus
To become a millionaire, you’ll need to stay laser-focused on your financial goals. When everyone else around you is spending money, going on fancy vacations, and buying expensive cars, remind yourself what’s truly important to you. Keep your spending in check, continue to save and invest, and avoid taking on debt.
It takes discipline. But instead of thinking about the stuff you don’t have, appreciate all the good things in your life, like your family and friends. Remember that you’re saving for your future. You’ll be able to enjoy yourself then if you have the money you need to live comfortably and happily.
Think of it this way: You’re making yourself and your financial security the priority. Make that your mantra.
Step 7: Consult with Investment Professionals
Investing can be complicated because there are so many options to choose from. If you need help figuring out what investments are right for you, consider working with a qualified financial advisor.
Leveraging Advice for Wealth Building
A good financial advisor could help you select the right investments and the best investing strategies for your situation. They can also help you plan and budget to reach your goals. But be sure to be an active participant in the process. Ask questions, be involved. Why are they suggesting a specific investment? And if you don’t feel comfortable with something, say so.
Finally, be sure to check your investment performance regularly. Know what you are investing in, how much, and why.
Recommended: How to Find the Best Investment Advisor For You
Step 8: Repeat and Refine Your Financial Plan
The final step to becoming a millionaire is to stay committed to your goal and your plan. Keep saving and investing your money. Stay out of debt. Let time and the power of compounding returns kick in. Be patient.
But also, don’t be afraid to refine or change your plan if need be. For instance, as you get closer to retirement, you will likely want to choose safer, less aggressive investments. You can keep saving and growing money throughout different ages and stages, but your method for doing so can evolve to make sense for where you are in your life.
Additional Tips for Wealth Building
In addition to all of the strategies above, there are a few other techniques that may help you reach millionaire status.
Lifestyle Considerations and Spending Habits
As you work your way up the ladder and earn more money throughout your career, you may be tempted to increase your lifestyle spending, too. After all, you have more money now, so you may feel the urge to spend it.
But here’s the thing: Giving in to these temptations can be a slippery slope. It might start with a bigger house in a nice neighborhood, and then grow to taking extravagant vacations and driving a luxury car. Before you know it, you could be spending way more than you’re saving.
Try to avoid lifestyle splurging if you want to be a millionaire. Instead, take the extra money and save and invest it. That way, you’ll be able to reach your goal even faster.
The Takeaway
Becoming a millionaire is possible if you take the right approach. It involves saving and investing your money, spending wisely, and avoiding debt. You need to be disciplined and focused, and it won’t always be easy. But staying committed to your goals can reward you with financial security and success.
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After I wrote a simple primer on Roth conversions a couple weeks ago, several readers reached out asking for more details. A few specific snippets of those questions include:
I see many articles like this about lowering your tax bracket when doing Roth conversions. But, what about the amount of money that can be made by not doing Roth conversions and letting the taxable [sic: qualified, or not taxable] money grow in an account like an IRA or 401K? Is that math too hard to explain?
Sure your RMDs will be higher and you will be taxed more, but how much more money will you make by letting that tax deferred money grow? You could assume a rate of return at 6% for the illustration.
Kelly M., Question 1
A wise man once said “never pay a tax before you have to.” Back around 2015 I had the owner of an income tax service try to convince me to convert all my traditional IRA money to Roth. He said tax rates were going to go up and he was converting all of his own personal traditional IRAs. Fast forward to 2017 and Congress actually ended up lowering tax rates. I wonder what he thought about his conversions after that.
Anonymous, Question 2
Even with my spouse still working, I don’t think we’ll hit the IRMAA limits while I do Roth conversions before I take Medicare. But, could Roth conversions now help me avoid the IRMAA thresholds when I’m taking RMDs in the future? Or, is it worth doing Roth conversions to avoid the IRMAA thresholds? I’d be interested in an article like that.
Anonymous, Question 3
To summarize those three questions:
Does the math of Roth conversions really work?
But since we don’t know future tax rates, how can we confidently convert assets today?
What about IRMAA (the income-related monthly adjustment amount), which is an additional Medicare surcharge on high-earners?
Let’s address these questions one at a time.
Does the Math of Roth Conversions Really Work?
Roth conversions involve many moving pieces, as you’ll see in this simple Roth conversion spreadsheet.
Reminder: you can make a copy of the spreadsheet via File >> Make a Copy
There are terrific financial planning software packages that take care of this math. I wanted to present 95% of the good stuff in a free format that you all can look at. Hence, Google Sheets.
Nuanced Tax Interactions
Especially important is the interaction between normal income (via Traditional account withdrawals), capital gains, and Social Security. These taxes interplay in nuanced ways. A simple example:
Let’s say a Single retiree’s annual income is:
$5000 in interest income
$5000 in long-term capital gains
$30,000 in Social Security benefits.
If you plug that into a 1040 tax return, you’ll find that:
None of that Social Security income is taxable.
All of the interest and capital gains are enveloped by the Standard deduction
Resulting in zero taxable income and a $0.00 Federal tax bill.
But if we copied Scenario A and added in $30,000 in Traditional IRA distributions, what happens? I think we all expect that the $30,000 distribution itself must have a taxable component, but you might not know that:
The IRA distribution affects Social Security taxability. Now, $22,350 of the Social Security income becomes taxable. That’s right. Simply by distributing IRA assets, you’ve now increased how much Social Security you pay taxes on.
The Standard deduction still helps, but there’s now a remainder of $48,500 in Federal taxable income.
Resulting in a $5584 Federal tax bill.
It’s not the end of the world. Taxes happen. They pay for our public shared interests.
But part of tax planning is understanding ahead of time what your future tax bills will look like. It’s important to understand how taxes interact. And this is just a simple example!
Measuring Roth Conversion Benefits
Going back to this spreadsheet, you’ll three tabs full of retirement withdrawal math. The Assumptions tab contains important information on our hypothetical retiree’s starting point (e.g. $2.9M in investable assets), their annual spending ($100K), their future assumed growth (5% per year, after adjusting for inflation), and other important numbers.
Note – this math takes place in “the convenient world” where inflation is removed from the math.
Then three tabs are presented with different Roth conversion scenarios, described below:
“Baseline Calculations“
This tab shows a retiree not focused on any conversions
They want to leave to their children both Roth assets (if possible) and taxable assets (on a stepped-up cost basis).
Therefore, they attempt to fund as much of their retirement using Traditional assets as possible
“No Trad Withdrawals”
This tab shows a “worst case” scenario, to help bookend the analysis. This retiree is not pulling any funds from their Traditional accounts (unless necessary). Thus, we’d expect them to have large RMDs and large RMD-related tax bills.
“Reasonable Conversions”
This tab shows a “reasonable” Roth conversion timeline, electing to convert $1.7 million throughout their retirement, while funding their lifestyle using a mix of Traditional, Roth, and taxable assets along the way.
By no means is this “optimized.” But it’s reasonable, and better than the first two scenarios, as we’ll see below.
Pros, Cons, and Results
The three scenarios end up similar in multiple ways.
Our retiree never has an issue funding their annual lifestyle. This is of utmost importance.
Our retiree reaches age 90 (“death”) with roughly $5M in each scenario.
But there are important differences (as we’d suspect).
The Baseline scenario ends with $5.00M. Of that, 27% is Traditional, 35% is Roth, and 34% is Taxable. They’ve paid an effective Federal tax rate of 20.7% throughout retirement.
The No Traditional Withdrawal scenario ends with $5.20M. Of that, 63% is Tradtional, 0% is Roth, 37% is Taxable. They’ve paid an effective Federal tax rate of 18.8% throughout retirement.
The Reasonable Conversions scenario ends with $5.17M. 18% is Traditional, 68% is Roth, and 14% is Taxable. They’ve paid an effective Federal tax rate of 13.9% throughout retirement.
The Same, But Different
These three scenarios share many similarities. All three result in successful retirements. But there are important differences.
Our Roth converter paid far fewer taxes and, ultimately, left a majority of their tax dollars to their heirs via Roth vehicles, and thus tax-free.
The No Trad Withdrawal retiree paid 28% effective tax rates in their final years (only going further up in the future) and left 63% of their assets in Traditional accounts with a large asterisk on them.***
***TAXES DUE IN THE FUTURE*** …unless you’re leaving the Traditional IRA assets to, for example, a non-profit charity. But if you’re leaving the Traditional IRA to your kids, they’ll owe taxes when they withdraw the funds.
Long story short: Roth conversions work to your benefit when executed intelligently.
Should You Worry About Leaving Behind Traditional Assets?!
I don’t want to freak you out. Your heirs will appreciate you leaving behind a 401(k) or Traditional IRA for them.
But it’s worth understanding that they’ll owe taxes on that money (usually). Let’s dive into an example with simple math: a $1 million Traditional IRA left to one person (e.g. your child).
That person will most likely set up an Inherited Traditional IRAand (via new-ish rules in the SECURE Act) will have to empty that account by the end of the 10th year after your death. The withdrawals can be raised and lowered during those 10 years. Much like with Roth conversions, it makes sense to take larger withdrawals during otherwise low-income years and vice versa.
But if the beneficiary is in the middle of their career, a series of 10 equal withdrawals makes sense. Some rough math suggests ~$135,000 per year is a reasonable withdrawal amount (based on account growth over the 10 years).
That withdrawal is taxed as income for the beneficiary. If they’re already earning $100,000 per year of normal income, then taxes will consume ~$41,000 of their annual $135,000 withdrawal. State taxes might take another bite.
Again – I don’t want anyone to cry over the prospect of inheriting $94,000 annually for 10 years. Where can I sign up?! But it’s also worth understanding that 30% of this inheritance is going to Federal taxes.
“Never Pay a Tax Before You Have To”
What about Question #2 from the beginning of the article? A reader wrote in and suggested one should “never pay a tax before you have to.”
While pithy, it’s false.
If you can reasonably front-load low tax rates to prevent later high tax rates, the math supports you. What we’ve covered so far today is clear evidence of that.
Now, in the reader’s defense: I’d rather delay taxes if thedollar amounts are exactly the same. That’s one argument behind the tax-loss harvesting craze: I’d rather pay $100 in taxes in the future than $100 in taxes today.
But Roth conversions work differently. Done well, Roth conversions allow you to pay a 22% tax on $50,000 today to prevent a 37% tax on $100,000 in the future. It’s apples-and-oranges compared to the tax-loss example.
And perhaps the bigger lesson: there are few universal rules in personal finance. The pithy rule that works in one scenario (“never pay a tax before you have to”) might fail miserably in another scenario. Let the math guide you.
What About IRMAA?
Irma used to only be a name you’d give to the great-grandmother character in your 11th-grade B-minus fiction story.
No longer! Today, IRMAA has been given new life (which, I bet, was covered by Medicare!)
IRMAA (Income-Related Monthly Adjustment Amount) is a Medicare premium surcharge imposed on higher-income beneficiaries in addition to their standard Medicare Part B and Part D premiums. The amount of IRMAA is determined based on an individual’s modified adjusted gross income (MAGI) and can result in higher healthcare costs for those with higher incomes.
In plain English: high-earners pay more for Medicare.
Question #3 today asked if Roth conversions can be used to avoid IRMAA premiums. The answer is: yes.
But first, how painful are these IRMAA surcharges in the first place?!
Important note: you’ll see below that the 2023 IRMAA brackets are based on 2021 modified adjusted gross income (MAGI). That same 2-year delay holds for future years. Your 2024 Roth conversions (or lack thereof) will be important in determining IRMAA in 2026
If a married couple’s MAGI in 2021 was $225,000, they’d end up paying $231 per month (or, more accurately, $462 per month for the couple) as opposed to $330 for the couple if they earned less than $194,000. That’s a difference of $132 per month or $1584 for the year.
I’m of two minds here. Because:
Yes, I believe in frugality. A penny saved is a penny earned. Why pay $1584 extra if you don’t have to?
But if you’re earning $200,000in retirement, do you also need to stress over a $1500 annual line item?
Personally, I’ll be stoked if my retirement MAGI is $200,000. It’ll be a sign that my financial life turned out unbelievably well. I won’t mind the IRMAA.
The people most likely to suffer IRMAA are also best positioned to deal with it.
Will IRMAA Get You?
The 2-year delay in IRMAA math means you might get IRMAA’d early on in retirement.
Imagine retiring at the end of 2023. The peak of your career! You and your spouse earned a combined $300,000 and now you’re settling down to mind your knitting. Like all U.S. citizens, you sign up for Medicare just before you turn 65.
Come 2025, Uncle Sam and Aunt IRMAA are going to look back at your 2023 income and surcharge you.
But the good news, most likely, is that your 2024 income is quite low in comparison and IRMAA will drop off in 2026.
Can Roth Conversions Help?
Remember: RMDs are forced and count as income, and that has the potential of “forcing” IRMAA on retirees as they age.
So to answer our terrific reader question: yes, Roth conversions can help here. You can use Roth conversions to shift the realization of income from high years to low years, preventing or mitigating IRMAA in the process.
But once more, make sure the juice is worth the squeeze.
If a 75-year-old has a $200,000 RMD that kills them on IRMAA, ask yourself: where does a $200,000 RMD come from? Answer: it’s coming from an IRA of over $5 million. Should someone with $5 million be losing sleep over IRMAA? I don’t think so.
That’s A Lot of Numbers…
A long and math-heavy article. I hope this helped you out! We covered:
Roth conversions can be objectively helpful, decreasing taxes in retirement and shifting large portions of portfolios from Traditional accounts (with potential taxes for heirs) into Roth accounts (no taxes for heirs)
Taxes in retirement are nuanced and interconnected. In today’s example, realizing extra income (via IRA distributions) also triggered extra Social Security taxes.
It’s not bad to leave behind Traditional assets to heirs. They’re getting a wonderful gift from you. But there will be taxes, which should be planned for.
There are many scenarios where it makes sense to pay taxes before you “have” to.
IRMAA is a negative reality for many retirees, but the people most likely to suffer IRMAA are also best positioned to deal with it.
Roth conversions can be used to mitigate IRMAA over the long run.
As always, thanks for reading!
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-Jesse
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