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You’ve put in an offer on your dream home and the seller has accepted. But before you get too carried away with celebrating, you may want to take some time to consider a mortgage rate lock.

A mortgage rate lock is a guarantee from a mortgage lender that the interest rate they’re offering you won’t change for an agreed period (typically from 30 to 60 days). This can prevent your lender from increasing your mortgage’s rate (due to changing market conditions) during the application and approval process. Depending on what’s going on with mortgage rates, a lock might save thousands of dollars over the life of your loan.

Below, CNBC Select breaks down how a mortgage rate lock works and what to consider before asking for one.

When should you lock in an interest rate?

Ideally, you want to lock in the rate when overall rates are low. But no one can predict the exact movements of mortgage rates — not even industry analysts possess that kind of crystal ball.

For that reason, it’s best to avoid the guesswork and lock in the mortgage rate after you’ve shopped around for a mortgage lender and compared the rates offered to you. Your rate has a huge effect on your monthly payments, as well as how much you’ll pay in interest over the life of the loan. It’s a good idea to compare offers from at least three lenders to ensure you’re getting the best deal.

CNBC Select recommends SoFi if you’re looking to save money through discounts and other lender incentives, Rocket Mortgage if your credit score is on the lower side and Ally Bank if you want to avoid lender fees.

SoFi

  • Annual Percentage Rate (APR)

    Apply online for personalized rates; fixed-rate and adjustable-rate mortgages included

  • Types of loans

    Conventional loans, jumbo loans, HELOCs

  • Terms

    10 – 30 years

  • Credit needed

  • Minimum down payment

Terms apply.

Rocket Mortgage

  • Annual Percentage Rate (APR)

    Apply online for personalized rates

  • Types of loans

    Conventional loans, FHA loans, VA loans and Jumbo loans

  • Terms

    8 – 29 years, including 15-year and 30-year terms

  • Credit needed

    Typically requires a 620 credit score but will consider applicants with a 580 credit score as long as other eligibility criteria are met

  • Minimum down payment

    3.5% if moving forward with an FHA loan

Terms apply.

How a mortgage rate lock works

Mortgage rates move constantly. Many interconnected factors contribute to these movements, including changes in the Federal Reserve’s target rate, the overall state of the economy, conditions and trends in the housing market and the 10-year Treasury bond yield, to name a few. A mortgage rate lock is designed to protect the mortgage interest rate your lender offers you from the influence of these market forces. If you’re taking advantage of a mortgage rate buydown, you’ll also be locking in the cost of any discount points.

Usually, you can lock in your mortgage rate for 30 to 60 days. Certain loans, such as construction loans, may have longer lock periods to allow enough time to close. During this time, even if mortgage rates go up, the rate your lender has given you won’t change.

But what if the rates go down? Unfortunately, you may miss out on potential savings — unless your lock comes with a “float-down” option. This feature allows you to take advantage of a lower rate when it’s available, but you typically can only use it once and it usually comes at a fee. If your lock doesn’t have this feature, you may be out of luck. At the same time, the lock’s purpose isn’t to guarantee the best rate but to protect you from an increase in loan costs. And most of the time, that’s well worth the price.

A mortgage rate lock isn’t free. Even when there’s no official fee listed on your closing costs breakdown, the lender will factor it into the rate you’re receiving. Typically, you can expect to pay somewhere between 0.25% and 0.50% of your loan to lock in your rate. If you need to extend the lock period, you might have to pay an additional fee for that too — usually, 0.375% of the loan amount.

How to lock in a mortgage rate

To lock in a mortgage rate, you need the address of the property you’re interested in purchasing. Some lenders may allow you to lock in the rate once you’re preapproved, while others might require that the seller first accepts your offer.

Rate lock policies vary by lender, but usually, a loan advisor will offer you one once your application is approved and ready to go to underwriting. If they don’t, ask about the rate lock and how much it will cost you.

Can you change mortgage lenders after locking in your rate?

A mortgage lock doesn’t tie you to a lender. However, if you switch lenders, you’ll have to start the process again. This may result in closing delays that will force you to pay fees to the seller, or your deal might fall through altogether. Even if that worst-case scenario doesn’t occur, you may still need to pay expenses such as appraisal and credit check fees again. For that reason, it’s best to shop for a lender before you’re too far ahead in the process.

Your interest rate can still change after a mortgage rate lock

A mortgage rate lock protects your interest rate, but it’s not absolute. Certain situations may void your rate lock.

Your mortgage rate lock is tied to a specific property address. If your purchase contract is canceled, so is your lock. Once you find a new home, you’ll need to get a new rate.

Further, all the conditions of your mortgage contract, including your locked rate, are contingent on your financial profile staying unchanged. For example, if your credit score drops or you add to your debt, your lender will reevaluate your eligibility, which can affect what interest rate they’ll offer you. Because of this, avoid opening new credit lines or racking up balances on your credit cards until you close — otherwise, you might put your home purchase in jeopardy. Likewise, your interest rate may change if the appraised value of the property changes from the time you initially locked your rate.

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Bottom line

Mortgage rates often fluctuate, but a rate lock can protect the rate your lender has quoted you from such fluctuations. While you may need to pay for it and it doesn’t guarantee the lowest rate, it provides the peace of mind that comes with knowing the cost of your mortgage won’t increase before you close.

Catch up on CNBC Select’s in-depth coverage of credit cards, banking and money, and follow us on TikTok, Facebook, Instagram and Twitter to stay up to date.

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.

Source: cnbc.com

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Chelsea Dehner

  • Published Oct 8, 2019
    – [Updated Apr 26, 2021]
  • 1 min read

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  • The views expressed on this blog are those of the bloggers, and not necessarily those of Intuit. Third-party blogger may have received compensation for their time and services. Click here to read full disclosure on third-party bloggers. This blog does not provide legal, financial, accounting or tax advice. The content on this blog is “as is” and carries no warranties. Intuit does not warrant or guarantee the accuracy, reliability, and completeness of the content on this blog. After 20 days, comments are closed on posts. Intuit may, but has no obligation to, monitor comments. Comments that include profanity or abusive language will not be posted. Click here to read full Terms of Service.

    • When we think of things that will save the environment we think of taking the bus to work or buying local food — both expensive actions. Yet going green doesn’t have to cost you a ton of time or money. In fact, many of the eco-smart habits also help you save money by reducing excess and getting more use out of old things.

    We all know the phrase: Reduce, Reuse, Recycle. However straightforward it may sound, it can still be hard to incorporate environmentally friendly actions into your everyday. Becoming familiar with the sustainability of every company and brand you support can be time-consuming and difficult. It can be confusing to determine which kinds of plastic can be recycled and which can’t.

    Thankfully, there’s technology out there that can make helping the environment a bit easier — all while saving money. There’s apps that help us monitor our energy and water usage to help us make smarter choices, and apps that make it easy to upcycle old clothes and electronics.

    Check out the infographic below for a full list:

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    Interested in a 40-Year Fixed Mortgage?

    • If you need even more time to pay off your mortgage
    • Or need to get the monthly payment down to boost affordability
    • A 40-year fixed mortgage could be one alternative to consider
    • But they’re harder to come by these days and aren’t well-suited for everyone

    Every now and then, I take a look at a specific mortgage product to determine if it could be a good fit for a prospective (or existing) homeowner.

    Today, we’ll discuss a formerly popular home loan option, the “40-year mortgage.” It was all the rage during the prior housing boom in the early 2000s.

    But also partially to blame for the housing crisis that took place shortly after.

    Still, with mortgage rates now double what they were to start the year, they could make a resurgence.

    What Is a 40-Year Mortgage?

    A 40-year mortgage is a home loan with a loan term that lasts for 40 years. This is 10 years longer than the typical 30-year loan term attached to most mortgages.

    You may already be thinking, “40 years? I thought mortgages had terms of 30 years?” Is this a mistake?

    Well, you’d be mostly right. The majority of mortgages issued today do have terms of 30 years. It’s certainly the most common loan term out there.

    In fact, aside from 30-year fixed mortgages, which clearly last for 30 years, as the name implies, most adjustable-rate mortgages also have terms of 30 years, despite lacking any reference to 30 years in their title.

    So that 5/1 ARM or 7/1 ARM you’ve got your eye on still has a 30-year term, meaning it’s fixed for the first five or seven years.

    It then becomes adjustable for the remaining 25 or 23 years, respectively. This is one reason why consumers have a great amount of difficulty understanding mortgages.

    Only the 15-year mortgage and 10-year fixed come with different loan terms, 15 and 10 years respectively.

    Why Go With a 40-Year Mortgage Term?

    • It’s an extra 10 years over the typical 30-year loan term
    • Offered as a means to lower monthly mortgage payments
    • This can make the home loan more affordable or allow money to allocated elsewhere
    • But it will also lead to a lot more interest paid over the longer term (and a slower payoff)

    Okay, so we know the 40-year mortgage bucks the trend, and adds 10 years on to the standard mortgage term. But why?

    What’s the point of paying a mortgage for an extra decade? That sounds like a literal lifetime commitment. Especially since 30 years is already way too long.

    Well, the longer a mortgage amortizes (is paid off), the lower the monthly mortgage payment.

    Essentially, payments are stretched out over a longer period of time. Instead of 360 months, you’re looking at 480 months.

    Let’s look at an example of a 40-year fixed mortgage:

    Loan amount: $300,000
    30-year fixed: $1,703.37 @5.5%
    40-year fixed: $1,598.66 @5.75%

    As you can see, the monthly mortgage payment on the 40-year mortgage is roughly $105 less each month thanks to that longer period of time to pay it off.

    That extra cash could be used to pay off student loans, credit cards, personal loans, and other higher-APR debt you may have.

    Or it could be allocated toward a different investment or retirement account. It could also make a real estate purchase slightly more affordable.

    The bad news is you’ll pay much more interest over the life of the loan, and it’ll take a very long time to build a meaningful amount of home equity.

    If you use a mortgage calculator, make sure it’s set at 480 months. And pay close attention to how much interest is paid versus a loan with a term of 360 months. It’ll be an eye-opener.

    In the example above, it’s about $150,000 more in interest for the 40-year mortgage, assuming it’s held until maturity.

    40-Year Mortgage Rates Are Slightly Higher

    • Expect 40-year mortgage rates to be slightly higher than interest rates on 30-year fixed mortgages
    • How much higher will depend on the lender in question and your unique loan scenario
    • You essentially pay a premium to lock in an interest rate for an additional 10 years
    • And the slower payoff means you must pay a higher rate of interest to the bank/lender

    You may have also noticed that the mortgage rate on the 40-year mortgage in my example is 0.25% higher than the interest rate on the 30-year fixed. There’s a reason for that.

    Simply put, you pay a premium for a longer amortization period. This is the opposite of a 15-year fixed, where you receive a discount for paying your mortgage off faster.

    After all, a bank or lender is willing to give you a fixed rate for four decades, so they’re going to want a slight premium in exchange for all that uncertainty.

    In other words, expect 40-year mortgage rates to be slightly more expensive. It might only be .125% higher than the 30-year, but could definitely range from bank to bank. The bigger problem is finding a lender that offers the product to begin with.

    That being said, the short-term savings can increase how much house a buyer can afford, and also make qualifying easier (or even feasible) if a borrower’s debt-to-income ratio is too high for a 30-year mortgage. That’s assuming the lender qualifies the borrower at the 40-year loan payment…

    This is essentially why a borrower would go with the 40-year fixed – to buy more house or make their home loan more “affordable.”

    More aggressive borrowers could even invest that $105 each month in a high-yielding retirement account and essentially try to beat the relatively low interest rate on their mortgage.

    Nowadays, a 40-year mortgage term may even be part of a loan modification program to make payments more affordable for a struggling borrower.

    When combined with an interest rate cut on their current mortgage, the combo can help a borrower stay put in their home for the long haul.

    The Downsides of a 40-Year Mortgage

    • Loan is paid much back slower (harder to build equity)
    • Most of the mortgage payment consists of interest
    • May not be much cheaper than a 30-year fixed when all is said and done
    • And they’re not easy to find these days but that could change if rates remain elevated

    While the benefits of a 40-year mortgage sound good, a borrower who chooses to go with a such a loan is paying a premium to do so.

    As mentioned, they are higher-rate home loans, so that cuts into the payment “discount” afforded by a 40-year mortgage.

    And while the monthly mortgage payment might be lower, the total interest paid over the full loan term will be much higher, which makes one question whether $100 or so in monthly savings is worth it.

    On smaller mortgages, the payment different will be even more negligible. It may also be difficult to find a 40-year mortgage, since not all lenders offer them.

    In fact, the Qualified Mortgage rule outlawed loan terms longer than 30 years, so 40-year mortgages aren’t even QM-compliant.

    That means you’ll probably need to go with a specialty mortgage lender or portfolio lender if you want one.

    Additionally, a longer amortization period means you’ll build home equity a lot slower, which could prove to be an issue if you need to sell your home or refinance in the future and your loan-to-value ratio is still sky-high. This could be the case if you come in with a low down payment.

    Some Benefits to a 40-Year Mortgage

    • Could be a good short-term solution if you need monthly payment relief
    • Or if you don’t plan on staying in the property for very long
    • Those who wish to use their money elsewhere might be attracted to the program
    • But keep in mind that you pay for the privilege of a longer term via a higher interest rate

    One could argue that most homeowners don’t stick with their mortgage full term anyway, let alone for 10 years, so why pay more each month? Or worry that it’ll take forever to pay it off?

    A 40-year mortgage could also serve as a good alternative to an interest-only home loan, the latter of which won’t build any equity, and could eventually land a homeowner in an underwater position.

    These mortgage types are also safer than an ARM (assuming it’s a 40-year fixed rate), which can adjust higher once the fixed period comes to an end.

    So you won’t have to contend with any interest rate adjustments, which could make it easier to sleep at night, especially if you’re a first-time home buyer.

    As always, do plenty of homework (and math using a mortgage calculator) and consult with a loan officer or mortgage broker to determine what’s best for you and your unique situation.

    Tip: You may come across a “40 due in 30” as well, which is essentially a 30-year balloon mortgage that amortizes like it has a 40-year term.

    That keeps monthly payments low, but the balance due at 30-year mark. Again, most of these probably aren’t kept full term, so it might be moot.

    Is a 40-Year Mortgage a Good Idea?

    Some say you should only buy a house if you can afford a 15-year mortgage. So if we’re talking a 40-year mortgage, which is 10 years beyond the standard 30-year fixed, it might be a red flag.

    It may reveal that you aren’t qualified for the mortgage in question, at least from a traditional, more conservative standpoint.

    Of course, there are exceptions to every rule, and it depends why a homeowner would seek out this type of financing.

    They might want to deploy their cash in other places where its yield is higher than the rate on a 40-year mortgage.

    At the same time, for the typical home buyer, a 40-year loan probably isn’t the best idea because so much more interest is paid throughout the loan term.

    And it takes a significant amount of time to pay off the loan. But every situation is unique.

    Are 40-Year Mortgages Available?

    One last thing. As noted above, you might have difficulty finding a 40-year mortgage because not many lenders offer them.

    So they might not even be available to begin with, which stops the debate in its tracks. Before you spend too much time thinking about getting one, maybe see if anyone offers them.

    The reason they’re scarce is mostly because the Consumer Financial Protection Bureau (CFPB) outlawed loan terms beyond 30 years on most residential home loans.

    You can still get one, but it won’t be considered a Qualified Mortgage (QM). And only big banks and niche non-QM lenders offer such products, typically at a premium.

    So even if you find one, the pricing might not be great given the lack of competition. At the end of the day, you might be better off with a more traditional loan program instead.

    (photo: Derek Swanson)

    Source: thetruthaboutmortgage.com

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    Man, this card looks amazing! 4x cash back, $100 in annual hotel credit, and…

    Oh, wait – there’s a $95 annual fee. 

    Bummer. 

    Well, hang on – maybe it’s still worth it? How can you tell? Will the perks and benefits justify the fee? Or is a no-fee card always the way to go?

    To find out, let’s investigate paid rewards cards – why some cost $95 and others cost $695 (yeah…I know) – what you get for your money, and how much you really need to spend for a paid card to make sense. 

    What’s Ahead:

    What are annual fee credit cards? 

    Source: fizkes/Shutterstock.com

    As the name implies, annual fee credit cards are rewards cards that typically cost anywhere from $50 to $695 a year to use. 

    Why do credit card issuers charge annual fees for some cards and not others? 

    Credit card issuers typically charge an annual fee to help cover the costs of the perks included with the card. Despite the gobs of money these banks and card issuers make, even they can’t afford to offer every single cardholder free lounge access and $300 in travel credit each year. 

    Annual fee credit cards usually include some combination of the following over no-fee cards:

    • Higher cash back.
    • Higher redemption bonuses (e.g. points are worth 1.5x when redeemed for travel).
    • Better welcome bonuses ($500 versus $200).
    • Statement credits (e.g. $300 annual hotel credit).
    • Perks and bonuses (VIP lounge access, 24/7 travel concierge, etc.).

    Why are some fees so low ($35-$95) while others are insanely high ($695)? 

    A $500 card will typically include more statement credits than a $100 card. 

    Let’s look at two, seemingly identical travel cards: 

    • The Chase Sapphire Preferred® Card costs $95 a year, offers 60,000 bonus points after you spend $4,000 on purchases in the first 3 months from account opening. That’s $750 when you redeem through Chase Ultimate Rewards®., up to 5x points back on travel-related expenses, and more.
    • The Chase Sapphire Reserve® Card costs an eye-watering $550 per year, offers a 60,000 bonus points after you spend $4,000 on purchases in the first 3 months from account opening. That’s $900 toward travel when you redeem through Chase Ultimate Rewards®., and up to 10x points back on travel-related expenses, and more.

    Sure, the fancy-schmancy Chase Sapphire Reserve® Card has more cash back (10x) and a higher redemption bonus within Chase Ultimate Rewards® (1.5x vs. 1.25x) than its sibling, but neither of those justifies a $455 price difference.

    That is, until you consider the former’s annual cash bonuses. The Chase Sapphire Reserve® Card includes the following credits:

    • $300 Annual Travel Credit.
    • $100 Global Entry or TSA PreCheck® Fee Credit (every four years).
    • Complimentary enrollment in Priority Pass™ Select (aka VIP airport lounge access).

    So even though the Chase Sapphire Reserve® Card costs more than a new mountain bike, it starts to make a little more sense if you plan to use all of the included credits. $550 – $300 – $100 = $150, which is just $55 more than the Chase Sapphire Preferred® Card. 

    In short, most cards with fees over $100 should come with ample bonus credits to offset the fees. 

    Can you ever get an annual fee waived? 

    It may surprise you to hear that yes, even credit card annual fees are negotiable. You may not always negotiate successfully, but you can always try. 

    Here are some tips for getting your card’s annual fee waived. 

    Negotiate with your existing card company

    If you already have a no-fee card and are considering upgrading to one of your card issuer’s paid annual cards, ring them up and just ask nicely. They may be willing to waive your annual fee for the first year.

    Ask them to price-match with another card

    Let’s say the annual fee credit card you really want costs $295 for the year, and you notice that it offers similar benefits to a competing no-fee or low-fee card. Call the card issuer and ask if they’d be willing to price match with the lower fee card – or better yet, waive the fee entirely. 

    Chat with the retention department

    If you already have an annual fee credit card and are trying to get your fee waived or reduced, and the agent on the phone isn’t playing ball, you can always ask to just cancel the card. 

    At that point, one of two things will happen:

    1. You’ll be routed to the retention department, which is much more likely to bend to your requests.
    2. The agent on the phone will proceed to cancel your card.

    If you don’t want to cancel your card, you may then have to suffer a moment of awkwardness when you tell the agent “actually, NVM” – so keep that in mind if you don’t like having your bluffs called!

    When is it maybe worth paying a credit card annual fee? 

    Source: Victor Josan/Shutterstock.com

    You’ll earn more cash back than with a no-fee card – accounting for your annual fee

    Let’s say you’re considering a card that charges a $95 annual fee but offers 3x cash back. 

    Your first inclination may be to calculate how much you need to spend to offset your fee with cash back. So that’s:

    $95 / 0.03 = $3,167

    You easily spend that much in a year, so it seems like a good deal.

    But hang on – remember, you’re not just trying to offset your fee – you’re trying to earn more than you would with a no-fee card. 

    By the time you’ve spent $3,167 with a no-fee card with 1.5x cash back, you’ve already earned:

    $3,167 x 0.015 = $47.50

    Not until you spend twice that – $6,333 – does the annual fee credit card “catch up” to the no-fee card and start earning you more. 

    In short, keep in mind that once your cash back covers your fee, you still have a lot more spending ahead of you to catch up to a garden variety 1.5x card. 

    The card offers a steep welcome bonus to cover its fees

    Thankfully, many annual fee credit cards have big, juicy welcome bonuses to cover their annual fees – oftentimes for several years over. 

    Take, for example, the American Express® Gold Card. Sure, it charges a $250 credit card fee – but it also has a welcome bonus of 60,000 Membership Rewards® Points worth between 0.6 and 2 cents a pop when applied to travel through certain partners. 

    You’ll get a statement credit for things you’re already paying for

    The first time I saw the credit card fee for The Platinum Card® by Amex, I could hardly believe it. $695 a year? Who’s falling for this? 

    But then, the little Amex fairy told me to keep reading, and amazingly, The Platinum Card® started to make sense. 

    In addition to up to a 100k welcome bonus and up to 10x Membership Rewards® Points on select purchases, The Platinum Card® offers:

    • $200 Hotel Credit.
    • $200 Airline Fee Credit.
    • $200 Uber Cash.
    • $240 Digital Entertainment Credit.
    • $100 Global Entry or $85 TSA PreCheck®.
    • And more.

    Before talking points and perks, the statement credits alone account for $940 worth of bonus cash back. 

    If you’re already spending $940 within those areas, then The Platinum Card®’s $695 annual fee doesn’t just make sense – it’s a discount. 

    The card has perks and bonuses that make your life easier

    In most cases, a credit card’s perks alone probably aren’t worth paying an annual fee – but if you’re seeking a tiebreaker between a fee card and a no-fee card, they may just tip the scales. 

    Annual fee credit card perks often include:

    • Travel insurance.
    • Lounge access.
    • 24/7 travel concierge assistance.
    • And more.

    For example, among other things, the Delta SkyMiles Gold American Express Card always gives you Main Cabin 1 Priority Boarding, so you can stash your stuff and just relax sooner on every flight. That perk alone may not be worth $250 a year, but anything that lowers your stress is worth something!

    When is it not worth paying a credit card annual fee? 

    You won’t earn enough cash back to cover the fee

    Remember, most no-fee cards these days offer 1.5x cash back. The Citi® Double Cash Card actually offers 2x cash back (plus a host of other benefits). 

    For that reason, it’s becoming harder for annual fee credit cards to compete with their pro bono brethren. The annual fee card likely won’t justify itself on cash back rewards points alone, unless you spend a lot. 

    You’ll need to also consider the perks and bonuses attached. 

    The perks and bonuses aren’t worth the annual fee

    The Luxury Card™ Mastercard® Black Card™ is a textbook example of a paid card that just isn’t worth anywhere near its annual fee. Its chief bonus – a $100 airline credit – doesn’t come close to covering the outrageous $495 sticker price. 

    Keep in mind, too, that the perks, bonuses, and statement credit provided by an annual fee rewards card are only worth cash if you use them. I myself have forgotten to use my statement credit in the past, which is just leaving money on the table.

    Your credit score isn’t high enough

    This one’s simple – if your credit score is below 690, you may not even qualify for an annual fee rewards card in the first place. 

    But wait a second – if you’re trying to pay for a credit card, why would the credit card company stop you from giving them money? 

    Annual fee rewards cards are designed to attract big spenders – specifically, big spenders who have a track record of paying their bills on time. That’s why credit card companies require a higher credit score for paid cards – around 690, compared to 660 for a regular, no-fee rewards card (though numbers vary by card issuer). 

    If you’d like to learn more about your credit score, check out How Credit Works: Understand The Credit History Reporting System. And if you’re trying to bump your numbers so you can successfully apply for a fancy paid card, we can help you there, too – check out How To Improve Your Credit Score, Step By Step. 

    You need 0% APR on purchases or balance transfers

    You should know that annual fee rewards cards rarely, if ever, offer 0% APR incentives. 

    Again, that’s because these cards are designed to attract big spenders – not big savers or debt consolidators. In fact, most annual fee credit cards hammer you with the industry’s maximum APR right out the gate – usually around 29.99% – meaning there’s zero forgiveness for missing a payment. 

    If you think you might need some help with old debt, new debt, or simply may miss a payment in the next year or so, you should absolutely stay away from a paid rewards card. Instead, consider our list of the Best 0% APR Credit Cards and Best Balance Transfer Cards. 

    The card fits the lifestyle you want – not the one you have

    Don’t make the same goober mistake I did!

    From 2013 to 2015 I had a certain travel rewards card for work that commanded a $95 annual fee. And boy, was it worth it – my company required us to put all travel and dining charges on our own card (to be reimbursed later), so I was racking up the points. 

    Then, when I left my job in 2015… I decided to keep my card a little longer, assuming I’d keep traveling. 

    Instead, I settled in, wrote my book, and forgot to cancel my card. Basically, $95 down the drain.

    Once I realized my mistake, I learned a valuable lesson in money management: 

    Pick the credit card that fits the lifestyle you have – not the one you think you’ll have.

    Questions to ask yourself before paying a credit card’s annual fee

    Source: alexialex/Shutterstock.com

    To consolidate the two previous sections, here’s a “gut check” questionnaire to see if a paid card is right for you:

    • Is my credit score high enough to apply for this card? Or do I need to bump my numbers?
    • Do I need 0% APR on purchases or a balance transfer? If so, a paid card typically doesn’t offer these and isn’t a fit – I should check out the top-ranked 0% APR cards for new purchases or balance transfers instead.
    • Why am I considering this card? Does it fit my existing spending habits? Or will it encourage me to spend more when I should be saving?
    • Will the welcome bonus offset its annual fee? Are the points worth a penny each, or less? And will I spend enough to trigger the welcome bonus in time (e.g. $4,000 in 3 months)?
    • Is it really better than a no-fee card? Now that no-fee cards offer up to 2% cash back on all purchases, is this paid card really worth it?
    • What is the combined statement credit worth? And will I even use it?
    • Will I really use this card for longer than a year? Or should I set a calendar note in 11 months to cancel it before paying the fee again?

    When in doubt, stick with a no-fee rewards card. Like Mazdas and Toyotas, they truly are catching up to their “luxury” counterparts in terms of value and benefits for way less money. 

    For a list of the top-ranked no-fee rewards cards, check out Best No Annual Fee Credit Cards – Don’t Pay A Dime To Get Another Credit Card. 

    Tips for getting the most out of your no-fee card

    They say that before you spend $35,000 on a shiny new car, you should spend $35 washing and waxing your old car first. Oftentimes, a good spit-shine is all you need to appreciate the car you already have. 

    Similarly, if you’re considering upgrading from a no-fee card to a paid card, try spending a little time with your no-fee card first. 

    • Maximize your cash back rewards – Does your card offer rotating 5x cash back rewards categories like the Chase Freedom Flex℠? If so, be sure to both activate and maximize those rewards.
    • See what hidden perks your card has – Even no-fee cards offer a surprising amount of perks these days. Capital One VentureOne Rewards, for example, offers a free Auto Rental Collision Damage Waiver, free Travel Accident Insurance, automatic Extended Warranty Protection, and even lounge access – all for $0.
    • Consider another no-fee card first – If you still feel that your no-fee card isn’t meeting all of your needs or maximizing your cash back, consider another no-fee card before you invest in a paid card. As illustrated above, the Capital One VentureOne Rewards Credit Card is an excellent travel card with no fee that you can use specifically for booking flights and hotels without worrying about covering your annual fee.

    Summary

    So, should you pay for a rewards credit card?

    Probably not. No-fee cards are just so generous with cash back and perks these days that most paid cards just aren’t worth it unless you’re spending gobs of money. 

    But if that’s you, do the math – calculate how much you’ll spend on a no-fee card and its equivalent paid card, and determine how much money you’ll save and cash back you’ll earn. If a paid card truly pays you back in spades, it might be worth it. 

    But for most of us, a no-fee rewards card will make us plenty happy.

    For Capital One products listed on this page, some of the above benefits are provided by Visa® or Mastercard® and may vary by product. See the respective Guide to Benefits for details, as terms and exclusions apply.

    Read more:

    Source: moneyunder30.com

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    Our rating

    United Gateway℠ Credit Card

    • Sign-Up Bonus: Earn 20,000 bonus miles after you spend $1,000 on purchases in the first 3 months your account is open.
    • 2x miles: United Airlines purchases. 
    • 2x miles: Gas stations.
    • 2x miles: Local transit and commuting.
    • 1x miles: All other purchases
    • Redeem For: Award flights on United and its partners.
    • Annual Fee: $0
    • Credit Needed: Good or better

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    The information related to the United Gateway Credit Card has been collected by Money Crashers and has not been reviewed or provided by the issuer of this card.

    Earning frequent flyer miles from your credit card usually requires paying for a premium product, and there aren’t too many airline credit cards that have no annual fee. 

    The United Gateway Credit Card is one of those rare airline cards that has no annual fee. But as you might expect, it comes with fewer benefits than its more expensive competitors. That may or may not be a dealbreaker for you — read on to find out.

    What Is the United Gateway Credit Card?

    The United Gateway Card is offered by Chase as a way to earn United Airlines MileagePlus frequent flier miles, with no annual fee. 

    You start out with a modest sign-up bonus: Earn 20,000 bonus miles after you spend $1,000 on purchases in the first 3 months your account is open.

    From there, you earn 2x miles on United purchases, at gas stations and on local transit and commuting expenses. Those expenses include rideshare services, taxicabs, train tickets, tolls, and mass transit. As with most cards, you only earn one mile per dollar spent on other transactions. 

    Beyond the rewards program, the United Gateway Card has few benefits, but they can be valuable. 

    First, you receive additional access to award seats at the lowest, “Saver” level, an important benefit reserved for United MileagePlus cardholders and United customers with elite status. You also receive 25% back on food, beverages, and Wi-Fi on board United-operated flights. And you get up to $1,500 in trip cancellation and trip interruption coverage, an auto rental collision damage waiver policy, extended warranties on select items, and purchase protection coverage on select purchases.

    There’s no annual fee for this card and no foreign transaction fees. This makes it a great choice for international travel. Finally, you enjoy a 0% intro APR for 12 months on new purchases after account opening.

    What Sets the United Gateway Credit Card Apart?

    The United Gateway Credit Card is different not just because it has no annual fee, but also because it provides a few significant benefits and multiple opportunities to earn bonus miles. 

    • Double miles. You earn 2x miles on United purchases, at gas stations, and on local transit and commuting expenses.
    • Travel insurance protections. These include rental car insurance, trip cancellation and interruption coverage. 
    • Purchase protections. These include theft and damage coverage and extended warranty protection. 
    • Low fees. This card has no annual fee and no foreign transaction fees. 
    • Introductory financing. You enjoy a 0% intro APR for 12 months on purchases, though not balance transfers. 

    Key Features of the United Gateway Credit Card

    The most important features of this card are low fees, bonus miles and cardholder benefits. 

    Sign-Up Bonus

    Earn 20,000 bonus miles after you spend $1,000 on purchases in the first 3 months your account is open.

    Earning Rewards

    This card offers plenty of opportunities to earn bonus miles:

    • 2x miles for United purchases
    • 2x miles at gas stations 
    • 2x miles  on local transit and commuting expenses 
    • 1x mile on all other eligible purchases.

    “Local transit and commuting expenses” covers a wide range of purchases, including: 

    • Rideshare services
    • Taxicabs
    • Train tickets
    • Tolls
    • Mass transit

    Redeeming Rewards

    You can redeem your accumulated miles for award flights operated by United and its partners. 

    Exactly how much value you get from them is a moving target. That’s because United no longer publishes an award chart and has been known to change how much it charges for particular flights without notifying anyone. But in general, you need 80,000 to 100,000 miles for a one-way, business class ticket to Europe. You can get by with about half that if you travel in economy. 

    0% Intro APR Promotion

    This card offers 12 months of 0% APR introductory financing on new purchases. After that, variable regular APR applies.

    Important Fees

    There’s no annual fee for this card and no foreign transaction fees imposed on charges processed outside of the United States. 

    Credit Required

    This card requires good or better credit to qualify. If your FICO score is much below 700, then you’ll likely have trouble being approved. 

    Advantages

    This card’s advantages are designed for occasional United flyers rather than frequent travelers who care about high-end perks. 

    • Expanded access to the United Saver award level. This is a key benefit that allows you to get much more from your miles when you redeem for award flights. 
    • No annual fee an foreign transaction fees. This card’s biggest claim to fame is that it has neither of these fees. 
    • Good bonus categories. There’s a lot of ways to earn double miles with this card. That isn’t what you’d normally expect from a no-fee card. 
    • Good travel insurance and purchase protection benefits. Many credit card issuers aren’t offering benefits any more, so this is especially nice to see. 
    • MileagePlus partners and policies. You can redeem your United miles for flights on its numerous Star Alliance and non-alliance partners. United also eliminated change and cancellation fees on awards, so you’re free to book a ticket when you find a good deal and cancel it later if it doesn’t work out. 
    • 0% APR introductory financing on purchases.  Very few airline cards come with 0% intro APR financing, so this counts as a win for those planning big purchases (including vacations) soon after account opening. 

    Disadvantages

    This card lacks many of the features that you might expect from a rewards card. 

    • United devalues its miles. United eliminated its award charts several years ago, which means that it can always charge more miles for awards whenever it feels like it. For example, United recently started charging up to 50% more miles for many of its award flights to Europe without any prior notice. Unfortunately, you can’t count on the price you see now being available when it comes time to redeem your miles. 
    • No free checked bags. Pretty much all airline credit cards with an annual fee offer a free checked bag, but not this one. 
    • Low sign-up bonus. Most airline credit cards with an annual fee offer at least 50,000 miles as a sign-up bonus. The Gateway Card’s bonus is worth less than half that amount.

    How the United Gateway Credit Card Stacks Up

    The closest competitor to the United Gateway Card is the American Airlines AAdvantage MileUp Card from Citi. See how they compare before you apply for either.

    United Gateway Credit Card American Airlines AAdvantage® MileUp® Mastercard®
    Annual Fee $0 $0
    Sign-Up Bonus 20,000 miles 10,000 miles
    Rewards Rate Up to 2x miles Up to 2x miles
    0% Intro APR 12 months on purchases None
    Foreign Transaction Fee None 3%
    Credit Needed Good or better Good or better

    Final Word

    The United Gateway Card is a basic airline credit card, but it still manages to give you more than you would expect from a stripped down version of the more premium cards. It does this by offering expanded award availability, decent travel insurance and purchase protection and many opportunities to earn bonus points. And if you can take advantage of the 0% APR offer, then it’s really worth considering. 

    At the same time, you’ll get a less valuable sign-up bonus and no free checked bags. Both of those are perks you should reasonably expect from any airline credit card with an annual fee. 

    What you’re left with is a card that’s well suited for someone who flies United a few times a year. But if you find yourself flying the friendly skies more often than that, then you should look into the United Explorer, Quest, or Club Cards, all of which have annual fees. 

    The Verdict

    Our rating

    United Gateway℠ Credit Card

    The United Gateway Card is a frequent flyer credit card with no annual fee and fewer perks than more expensive airline cards. However, it does have a few strong bonus categories, and some valuable cardmember benefits. That makes it a competitive card for occasional travelers.

    Editorial Note:
    The editorial content on this page is not provided by any bank, credit card issuer, airline, or hotel chain, and has not been reviewed, approved, or otherwise endorsed by any of these entities. Opinions expressed here are the author’s alone, not those of the bank, credit card issuer, airline, or hotel chain, and have not been reviewed, approved, or otherwise endorsed by any of these entities.

    Jason has been writing about personal finance, travel, and other topics on blogs across the Internet. When he is not writing, he has a career in information technology and is also a commercially rated pilot. Jason lives in Colorado with his wife and young daughter where he enjoys parenting, cycling, and other extreme sports.

    Source: moneycrashers.com

    Apache is functioning normally

     If you’re looking for a free checking account, you have multiple options in both traditional and online banks. With more than 4,100 banks in the U.S., according to the FDIC, the choices can be downright overwhelming.

    It can help if you get clear on what you want in a checking account, narrow down your options, and then read reviews like the one below to find the best free checking account to meet all your needs.

    12 Best Free Checking Accounts

    When you’re ready to open a new checking account, consider the no fee checking accounts on this list. We’ve evaluated the fees, minimum deposit requirements, annual percentage yield APY on those that earn interest, and more.

    Most of the best checking accounts offer features like overdraft protection, mobile banking and the ability to get paid up to two days early with your direct deposit. But financial institutions that let you earn interest on your checking balance or deliver cash back also gained our favor.

    1. Chime Checking

    Chime boasts truly fee-free checking and a host of advantages for those seeking an online-only banking solution. The bank has no monthly service fees, no overdraft fees, no transaction fees, and no minimum daily balance fees. If you lose your debit card, you don’t even have to pay to replace it!

    Chime has a few features that can help you manage cash flow. First, if you sign up for direct deposit you can receive your paycheck up to two days earlier than you might with a conventional bank.

    Second, Chime’s SpotMe program covers overdrafts up to $200 (depending on your qualifications). To take advantage, you must have a monthly direct deposit of at least $200. If your debit card purchase exceeds your overdraft limit, it will be declined, so you won’t ever pay overdraft fees.

    Your Chime debit card is linked to a nationwide network of 60,000+ fee-free ATMs. The only fee you might pay is if you withdraw money from an out-of-network ATM or use your debit card to withdraw funds from your account during an over-the-counter debit card purchase.

    Chime is an online financial services company, not a bank. It provides $250,000 worth of FDIC insurance per account holder, per account, through Stride Bank and The Bancorp Bank, both members FDIC.

    Unlike some neobanks, Chime offers multiple means to reach their customer service representatives. You can reach out on live chat through the app or website 24/7/365.

    Best for: Free Overdraft Coverage

    Minimum Deposit: None

    Monthly Fee: None

    2. Bank of America Advantage Plus Banking®

    Bank of America offers three Advantage checking accounts:

    • SafeBalance
    • Advantage Plus
    • Advantage Relationship

    All three allow you to waive the monthly maintenance fee in a few different ways. Preferred Rewards members, who hold at least $20,000 in a Bank of America account or Merrill investment account enjoy free checking from Bank of America.

    Otherwise, to waive the fee for your Advantage Plus checking account, you’ll need a qualifying direct deposit of $250 or more per month, or maintain a $1,500 minimum daily balance.

    If you don’t qualify to have fees waived, your Bank of America Advantage Plus account will cost a reasonable $12 per month.

    As the “middle-of-the-road” account which would fit the needs of the average customer, we chose Advantage Plus as the best free checking account from the big bank. It is also the most popular of the three.

    You’ll want to be aware that your BOA account may have additional fees, including an overdraft fee of $10 for each item paid. You can avoid this fee by linking another eligible Bank of America account to your Advantage Plus checking account to cover overdraft transactions with no transfer fees.

    Other Bank of America fees include a $15 replacement fee for a lost debit card, an international transaction fee equal to 3% of the transaction in U.S. dollars, and ATM fees of $2.50 for using an out-of-network ATM. With roughly 16,000 ATMs, nationwide, however, it should be easy to avoid out-of-network ATM fees.

    Bank of America offers some features you won’t find at other banks. For instance, you’ll gain access to “Erica,” Bank of America’s virtual financial assistant to easily manage your accounts.

    You can also enroll in Bank of America’s Keep The Change program, which allows you to round up debit card purchases and have the extra money deposited into your BOA savings account or your child’s linked BOA account.

    Keep the Change is an easy way to sneak some extra savings into your budget. Preferred Rewards members can earn more than 5% interest on money in their linked Bank of American Advantage Savings account.

    Best for: Preferred Rewards members

    Minimum Deposit to Open: $100

    Monthly Fee: $0 or $12

    3. Quontic High Interest Checking

    While it doesn’t compare to Wealthfront’s 4.55% APY for a Cash Account, Quontic offers what qualifies as a high interest checking account with a 1.10% APY.

    Be aware that to earn that rate, you’ll need to make at least 10 qualifying debit card purchases of $10 or more in each statement cycle. Otherwise, your money will earn just 0.01% APY.

    Quontic’s free checking account with no monthly maintenance fees, no overdraft fees, and no minimum account balance is straightforward, FDIC insured, and socially responsible. The online bank is one of fewer than 3% of all banks designated as a Community Development Financial Institution.

    That means Quontic uses your money with fiscal responsibility for social good, depositing it into accounts to help serve lower income families, under-served demographics and small business owners obtain affordable mortgages.

    But opening an account with Quontic doesn’t just help others. Account holders enjoy a host of benefits. You’ll gain access to online bill pay and a “roundup program” to shuffle extra “change” from your debit card purchases into your linked high yield Quontic savings account with a 4.25% APY.

    You’ll also get a Quontic Pay Ring, a wearable that replaces your debit card for point-of-sale purchases.

    Enjoy access to 90,000+ fee free ATMs through the AllPoint, MoneyPass, or SUM program ATMs, as well as Citibank ATMs nationwide. You’ll find these ATMs at popular stores like Target, Speedway, Walgreens, CVS, Kroger, Safeway, Winn Dixie, and Circle K.

    In addition to its High Interest Checking Account, Quontic offers a Bitcoin Rewards checking, which rewards you in cryptocurrency for debit card purchases, and a Cash Rewards checking account, which pays 1% cash back on all eligible debit card purchases.

    Both accounts offer the same features as the High Interest checking account, except you’ll receive rewards instead of interest on your checking balance.

    For a higher APY, you can open a Quontic Savings account with no monthly service fee and a high 4.25% APY.

    Best for: Socially conscious banking

    Minimum Balance to Open: $100

    Monthly Fee: None

    4. Wealthfront Cash Account

    Like Chime, Wealthfront is not a bank. But some would argue that, with no monthly maintenance fee, FDIC insurance of up to $5 million through partner banks, and a high 4.55% annual percentage yield APY on the Wealthfront Cash Account, it’s even better.

    Your Wealthfront Cash Account offers many of the same features as a traditional or an online bank. You’ll receive a free debit card and can withdraw cash with no ATM fees at a network of 19,000 ATMs nationwide.

    Most consumers will choose the Individual Cash Account, with features such as early direct deposit, online bill pay, mobile check deposit through the app, and fraud protection. Wealthfront also offers a joint account, with up to $10 million FDIC insurance, and a Trust Cash account.

    Best of all, Wealthfront charges no overdraft fees, no transfer fees from external accounts, and no fees if your account dips below a minimum balance. It requires just $1 to open an account.

    If you are interested in retail investing, Wealthfront makes it easy with virtually instant transfers between your Wealthfront Cash Account and linked Wealthfront Investment accounts.

    As you build your portfolio, you can take advantage of Wealthfront’s vast array of financial services, including automated investing, stock investments with zero commissions, and tax loss harvesting services.   

    As your Wealthfront investment portfolio grows, you can borrow up to 30% of your portfolio’s value at an interest rate as low as 7.40% APR.

    For consumers looking for a one-stop shop for investments, fee-free checking, and savings with a high annual percentage yield, Wealthfront represents a solid choice in online financial service companies or neobanks.

    Best for: High Annual Percentage Yield APY

    Minimum Deposit to Open: $1

    Monthly Fee: None

    5. Capital One 360

    A Capital One 360 checking account combines the security and convenience of one of the nation’s largest banks with no monthly maintenance fees and no minimum opening deposits.

    Account holders also earn 0.10% APY on all checking account balances in their Capital One 360 account.

    You can open your account online or in a branch. If you want in-person assistance, you can visit a Capital One branch or Capital One Café for help.

    Capital One 360 gives you access to your money through more than 70,000 fee free ATMs in the Allpoint, MoneyPass or Capital One networks.  

    Capital One 360 has no overdraft fees, but you can decide how you want the bank to handle transactions that exceed your account balance.

    You can set it up so that a transaction that would cause an overdraft is declined. Or you can transfer funds from a linked savings or money market account to cover an overdraft.

    Alternatively, Capital One may accept certain transactions that put your account into overdraft. You’ll need to deposit money to cover the overdraft or additional transactions will be declined.

    Capital One offers direct deposit up to two days sooner than many banks.

    Capital One’s robust mobile app allows for bill payments online, mobile check deposits, and Zelle person-to-person transfers. If you want to add cash to your account, you can do it in person at a CVS store. If you have other Capital One accounts or credit cards, you can manage them all through one login.

    Your Capital One 360 account has no foreign transaction fees, but keep in mind there may be fees for using out-of-network ATMs, cashier’s checks, outgoing wire transfers, or paper checkbooks.

    Best for: Capital One Credit Card customers

    Minimum Balance to Open: None

    Monthly Fee: None

    6. Consumers Credit Union

    The only credit union on our list of the best free checking accounts, this checking account is open to virtually all U.S. residents over the age of 18.

    You’ll just need to pay a one-time, $5 membership fee to the Consumers Cooperative Association. Consumers Credit Union even reimburses this fee after you open your free checking account. Children as young as age 12 can join as the second member on a joint account.

    Your Consumers Credit Union Rewards checking account offers many of the same benefits as top rated online banks with no monthly fees and no fees of any kind.

    You will even be reimbursed for fees incurred while using out-of-network ATMs. CCU has a network of 30,000+ ATMs nationwide.

    Enjoy early direct deposit, mobile banking, and even the ability to write unlimited checks with no fees. Plus, you’ll earn up to 5% APY on your balance, depending on certain actions you take. Here’s how the tiered checking account interest works for balances up to $10,000:

    • Earn 3% APY if you make at least 12 debit card purchases a month and have direct deposits, mobile check deposits, or ACH credits of at least $500 each month
    • Earn 4% APY if you meet the above requirements plus spend $500 or more on your CCU Visa credit card each month
    • Earn 5% APY if you meet the requirements to earn 3% plus make $1,000 or more in purchases on your CCU Visa card monthly

    Balances of $10,000.01 to $25,000 earn 0.20% APY and balances over $25,000 earn 0.10% APY.

    If you don’t meet the requirements in a given month, you will still have free checking and free online bill payments and you will receive a 0.01% APY on all checking account balances. You also won’t qualify for ATM fee reimbursement.

    You can reach Consumers Credit Union customer service online, by phone, or at CCU branches across Illinois. You can also bank at shared branches across the U.S. that are part of the CU Service Center Network, a co-op of credit unions.  

    Best for: Those who prefer to bank at a credit union

    Minimum Balance to Open: $5

    Monthly Fees: None

    7. Ally Bank Interest Checking

    Ally is not just a robust fin-tech; it is a nationally chartered bank with $196 billion in assets and 11 million customers. The bank offers an interest earning checking account with no monthly fee and no overdraft fees, high-yield savings, money market account and CDs. Plus, it provides investment services, loans, and credit cards.

    The Ally Bank free checking account lets you earn interest of 0.25% annual percentage yield APY on all balances.

    You’ll pay no monthly service fees, no overdraft fees, and no ATM fees at more than 43,000 Allpoint ATMs nationwide. Ally also reimburses you up to $10 on out-of-network fees charged at other ATMs.

    Your Ally checking account makes money management easy. You can put money in specific “spending” buckets allocated for different purchases. This can help you track your spending and stick to your budget. You can also get paid up to two days early with direct deposit.

    Many of the best free checking accounts offer overdraft protection. Ally offers two choices to help you avoid overdraft fees. With the Overdraft Transfer Service, you can link your Ally Bank online savings or money market account to your Interest Checking account.

    Ally will automatically transfer funds to your checking account to cover your purchase. If you make more than six withdrawals in a statement period, you may be charged “excessive transaction fees,” but Ally Bank reimburses those fees.

    The CoverDraft service will cover purchases up to $100 as long as you have deposited at least $100 into your Interest checking account in the past 30 days. You can extend that coverage up to $250 if you receive a qualifying direct deposit of at least $250 for two months in a row.

    You’ll need a direct deposit every 45 days to maintain your expanded coverage. You will have 14 days to bring your balance out of the negative.

    Best for: Online only banking

    Minimum Balance to Open: None

    Monthly Fee: None

    8. Axos Bank Rewards Checking

    Axos Bank offers three different checking accounts with no monthly maintenance fee.

    The Essential Checking online account has no overdraft fees, no monthly account fees, and unlimited reimbursement for out-of-network ATM use within the U.S.

    The Rewards Checking has all the benefits of the Essential checking account and adds up to 3.30% APY in interest on qualifying balances.

    Now until June 30, 2023, you can earn a sign-up bonus of $100 when you open an Axos Bank Rewards checking account and receive direct deposits totaling $1,500 or more each month for the first three months your account is open.

    The Axos Bank Rewards checking account has complicated requirements to qualify for the highest annual percentage yield. Here’s how it works:

    Direct deposits of $1,500 per month or more earn 0.40% APY

    Once you fulfill that requirement, you’ll need 10 point-of-sale signature transactions with your debit card (minimum $3 purchase) or enrollment in account aggregation/personal finance manager account to earn an additional 0.30% APY.

    • Maintain an average daily balance of $2,500 in an Axos self-directed trading invest account to earn 1%
    • Maintain an average daily balance of $2500 in an Axos Managed Portfolio Invest account to earn another 1%
    • Make a monthly payment to an open Axos Bank consumer loan from your Rewards checking account to earn up to 0.60%

    Together, this results in a 3.30% APY.

     A Cashback Checking account offers the same benefits as the other checking accounts, except instead of earning interest you will receive 1% cash back on eligible debit card purchases.

    Keep in mind that to earn the full 1% cash back, you’ll need to maintain an average daily balance of $1,500 in your checking account. If the balance falls below $1,500, you’ll earn .50% for that month.

    Best for: Sign-up bonus

    Minimum opening balance: $50

    Monthly fee: None

    9. SoFi Checking and Savings

    Another excellent option in online banking, SoFi offers a wide range of financial services, including investments and loans. The bank provides a combination Checking and Savings account with a high yield APY of 4.20% for balances in your savings or Vault, and 1.20% APY on checking balances.

    You will need to set up direct deposit to qualify for the high interest rates and other benefits, such as 2-Day Early Paycheck and no-fee overdraft coverage. But there is no minimum balance required.

    Right now, the bank is offering new customers who open a free account up to $250 in cash. To receive your bonus, simply open your account and set up direct deposit. Deposits of $1,000 to $4,999.99 qualify for $50 cash back, while a deposit greater than $5,000 will net you $250.  

    There are no account fees when you bank with SoFi. Account holders with qualifying direct deposits receive fee-free overdraft protection for up to $50 per purchase.

    You can even keep the money in your SoFi online savings to collect the high annual percentage yield APY of 4.20% and the bank will automatically transfer funds to checking to cover certain purchases. It will not, however, transfer money from Vaults, which are designed to help you reach specific savings goals.

    Your SoFi debit card gives you access to your money for free at more than 55,000 ATMs in the AllPoint network. Plus, when you use your debit card for point-of-sale transactions at many local businesses, you can earn 15% cash back.

    SoFi is a nationally chartered back with FDIC coverage. Thanks to a partnership with other banks, SoFi’s FDIC insurance exceeds the $250,000 maximum.

    Your deposits are insured up to $2 million per account holder, per account, with SoFi. That makes SoFi an excellent choice in online banking for those with high savings, money market, or CD balances.

    Best for: Money management and saving

    Minimum Opening Balance: None

    Monthly Service Fees: None

    10. Varo Bank

    Varo Bank has the distinction of being the first financial technology company to become a nationally chartered, online only bank. While most of the banks on our list of best free checking accounts have important features in common, Varo has a few perks that are harder to find in a free account.

    First, your Varo debit card offers up to 6% cash back at select online retailers and brick-and-mortar stores. Each time your cashback balance reaches $5, you’ll see the funds deposited directly into your Varo bank account.

    When you open a Varo checking account, it pays to open Varo savings at the same time. You’ll gain access to features like “Save Your Change,” which allows you to round up debit card purchases and put the difference in savings.

    You can also use Save Your Pay, which deposits a portion of every paycheck you receive via ACH transfer directly into savings. You can set up these features in the mobile app.

    Varo also offers a cash advance feature called “Varo Advance,” which allows you to borrow up to $250 and pay it back within 30 days.

    You’ll pay nothing for advances less than $20, but there are fees up to $15 associated with borrowing larger amounts. As with many other banks, Varo also lets you get paid via direct deposit up to two days early.

    Varo makes it easy to deposit cash into your account by purchasing a Green Dot MoneyPak at stores like Walmart, CVS, Rite Aid, Walgreens, 7-11, Dollar General, and others. You can also deposit cash at the register in any of these stores. You might pay a fee of up to $4.95 for this service.

    Varo has no minimum balance requirements, no overdraft fee, no monthly fee, no foreign transaction fees, and fee-free access to 55,000+ ATMs in the Allpoint network.

    If you use an out-of-network ATM, you will be charged a $3 fee by Varo, plus any charges incurred from the other bank. If you withdraw money using your Varo debit card at the point-of-sale in a store, you’ll pay $2.50 for the convenience.

    You can reach Varo customer support via chat on the app every day from 8 AM to 4:30 PM, Mountain Time, except on Thanksgiving, Christmas, and New Year’s Day.

    Varo phone support is also available Monday through Friday during the same hours for help logging into your account, filing a dispute if you suspect fraudulent charges, or to receive help adding your Varo card to a digital wallet.

     Best for: Cashback debit

    Minimum Opening Balance: None

    Monthly Fee: None

    11. Discover Cashback Debit

    In the world of finance, Discover is best known for offering a straightforward cashback rewards credit card. Discover’s free online checking account also offers cash back rewards of 1% for up to $3,000 worth of debit card purchases monthly.

    That could equal up to $30 in free money every month. You can even choose to have that Cashback Bonus deposited directly into your Discover Online savings account, where it can earn up to 3.90% APY.

    Discover has no fees for anything. This includes overdraft protection through your linked Discover savings, no insufficient funds fee, no fee for official bank checks, no fee to receive expedited delivery of a new debit card, and no fees for paper checks. The only service that incurs a fee is an outgoing wire transfer. That will cost $30.

    You can use your Discover debit with no fees at any of 60,000+ ATMs nationwide. Like many other financial institutions on this list, Discover allows you to receive ACH deposits from your employer up to two days early through the Discover “Early Pay” program.

    Unlike many other online only banks, Discover offers 24/7 U.S.-based customer service by phone at 800-347-7000. If you prefer the convenience and cost savings of an online only bank account but want access to 24/7 phone service, Discover Bank could be the best choice for you.

     Best for: 24/7 customer service by phone

    Minimum Opening Balance: None

    Monthly Fee: None

    12. Chase Total Checking®

    JPMorgan Chase & Co. is not just one of the “big four” banks in the U.S. It is the biggest bank in the U.S. and the world’s largest financial institution based on market cap. For that reason, many people choose Chase Bank for its convenience and 4,700 branches nationwide.

    Chase Total Checking is the bank’s most popular checking account, requiring no minimum opening deposit, and a low monthly fee of $12 that’s fairly easy to waive. To waive the fee, you’ll need to do one of the following each month:

    • Have at least $500 in direct deposits
    • Maintain a beginning daily balance of $1,500 or more
    • Maintain an average beginning day balance of $5,000 or more in any combination of your Chase checking account plus other qualifying accounts  

    Chase offers overdraft protection in the form of its Overdraft Assist program. You won’t pay an overdraft fee if you’re overdrawn by $50 or less at the end of the business day.

    If you are overdrawn by more than $50 but bring the account current or bring your overdraft to $50 or less by the next business day, you also won’t pay any fees.

    Chase offers access to Zelle for person-to-person payments and has an intuitive and user-friendly app for online and mobile banking.

    You can also take advantage of Chase Autosave features to automatically have a portion of deposits transferred into your Chase savings account, or set up automatic transfers on a schedule, such as weekly or monthly.

    Set savings goals and have money deposited into specific buckets or transfer funds into your general savings account to build your emergency savings. You can even pause automatic savings if your checking account drops below an amount you set.

    Chase Premier Plus Checking offers even more benefits, including free money orders and cashier’s checks, ATM fee reimbursement for out-of-network ATMs four times per statement cycle, and free checks.

    Your Chase Premier Plus Checking account earns a 0.01% APY on all account balances, which is the same as a Chase Savings account.

    You can avoid the fees on your Chase Premier Plus Checking account if you have an average beginning day balance of $15,000 in any combination of Chase checking, savings, and other deposit accounts.

    Another option is if you have a linked qualifying Chase mortgage enrolled in automatic payments, or if you are a member of the U.S. military or a veteran.

    When you are a Chase checking customer, you can refer friends to open a Chase account and receive a $50 bonus, up to $500 per year. Like most financial institutions on this list, Chase has a robust and easy to use mobile app.

    Best for: 4,700 branches nationwide

    Minimum Opening Balance: None

    Monthly Fee: $12.95 (for Chase Total Checking) or free if you meet requirements

    Methodology: How We Select the Best Free Checking Accounts

    We evaluated multiple factors to find the best free checking accounts for consumers across the U.S. Whether you have large monthly direct deposits or have been “unbanked” until now, you’ll find the best free checking accounts for any need or any budget here.

    ATM network or generous ATM-fee reimbursement program

    You shouldn’t have to pay extra money to access your money. After all, that’s the opposite of a “free checking account,” isn’t it? You want to find a bank with a large, fee-free ATM network to conveniently withdraw cash or make deposits. If the bank reimburses out of network ATM fees, that’s a bonus.

    Nationwide availability (Physical locations or mobile access)

    If you’re looking for a traditional bank, you want to make sure it has branches near you. Otherwise, an online bank might be the best choice. For this list of free checking accounts, we eliminated credit unions that don’t serve customers nationwide or have strict membership requirements.

    Credit unions are often a solid choice for banking, and often have low fees and high interest rates. For instance, Navy Federal Credit Union is a highly ranked financial institution backed by the National Credit Union Administration. But it’s only open to members of any branch of the U.S. Armed Forces, U.S. veterans, their families, and Department of Defense personnel.

    We tailored this list around banks with national appeal, with means they serve customers nationwide, with no residency requirements or specific occupational requirements. The one outstanding credit union on the list, Consumers Credit Union, is open to virtually anyone in the U.S. over the age of 18.

    No Monthly Maintenance Fee

    When most people think of a free checking account, they think of one with no monthly maintenance fees. You’ll see a few banks with monthly maintenance fees on this list because the benefits outweigh the fees. But any monthly service fees are easy to waive by meeting direct deposit or minimum balance requirements.

    Low Minimum Deposit and Balance Requirements

    Truly free checking accounts should be accessible to most consumers. That means having low or no minimum deposit or minimum balance requirements.

    No or Low Foreign Transaction Fees

    If you travel abroad or make international transactions, you don’t want to pay fees. This may not be important to everyone, but foreign transaction fees may be a point to consider.

    No Account Closure Fee

    This was a deal-breaker for us. If you choose to close your account, you should be allowed to do so with no account closure fee. All the banks on this list make it as easy to close your checking account as it is to open it.

    No Overdraft Fees

    Likewise, if you accidentally spend more money than you have in your account, you shouldn’t be punished. Sometimes we forget that an automatic payment cleared or sometimes, you just need a helping hand to make it to your next paycheck. We gave preference to account with no overdraft fees, overdraft protection, or generous overdraft forgiveness.

    Benefits such as high APY, cash-back rewards, or other additional perks

    From cash back debit cards to interest bearing checking accounts, generous perks can make it easy to choose one fee-free checking account over another. Other nice-to-have features include:

    • The ability to pay bills online
    • Early direct deposit
    • Mobile check deposit

    These account features make it easy to manage your money. We evaluated all these aspects when compiling our list of the best free checking accounts.

    Customer Service

    Whether you opt for a neobank or a traditional bank with brick-and-mortar branches, you want fast and responsive customer service. We took branch hours or phone hours into consideration, as well as a responsive chat or email for those who prefer automated service without speaking directly to a person.

    Other Products and Services

    Many people want to use the bank that holds their primary checking account as a one-stop shop for all their financial needs. They don’t want to download another mobile app, remember another password, or keep their money in different places.

    For this reason, we considered the availability of high yield savings or money market accounts, CDs and other financial services when choosing the top free checking accounts. Chase, Capital One, and a few others got bonus points from us for the ability to link a child’s account to teach money management at a young age.

    How to Choose the Best Free Checking Account

    Before you choose a free account, decide what features are most important to you. Do you want a bank with brick-and-mortar branches or are you comfortable banking online only? If you choose an online financial institution, find out if there is a way to deposit cash, since some only allow mobile deposits and ACH transfers from other accounts.

    Most of the checking accounts on this list offer similar features, including an easy to use mobile app, no monthly fees, direct deposit capabilities, and overdraft protection. Some have no minimum deposit to open the account, which is convenient since you can set up the account and then fund it within a few days or when you receive your next paycheck.

    If you’re looking for interest bearing checking accounts, you’ll find a few on this list. Others provide debit rewards, which isn’t a common feature in a free deposit account. These benefits can help put extra cash in your pocket to help you reach your financial goals.

    Determine if you want a linked savings. If so, do you want the capability to transfer funds into multiple savings buckets to help with budgeting?

    All the banks on this list are FDIC insured for up to $250,000 per account holder for each type of deposit account. CCU is insured for the same amount by the National Credit Union Administration. That means your money is safe, which is important in today’s climate of economic uncertainty.

    Ultimately, your checking account becomes a hub for your financial life. Whether you’re opening your first account or thinking about switching banks to get free checking and more perks, this list provides a good place to start your search.

    Free Checking Account FAQs

    See what people are asking about the best free checking accounts.

    What are monthly maintenance fees?

    Monthly maintenance fees are service charges imposed by a bank simply for holding an account. The free checking accounts on this list have fee free checking or it is easy to waive the monthly maintenance fee by having monthly direct deposits or meeting minimum balance requirements.

    Do free checking accounts have any fees?

    When people think of fee-free checking, they often think of an account with no monthly maintenance fees. However, some free checking accounts may have a monthly fee that can be easily waived with a monthly direct deposit or by meeting minimum balance requirements within a statement cycle.

    So-called free checking accounts may have over fees besides the monthly fee. Read the fine print closely to find truly free checking accounts.

    What fees do I need to watch out for?

    Some banks who advertise free checking accounts may forego a monthly maintenance fee, but charge overdraft fees, ATM fees, withdrawal fees (typically only for savings or money market accounts), fees for paper checks, fees for paper statements, foreign transaction fees, and wire transfer fees. If you lose your debit card, you might have to pay a fee to have it replaced, as well as covering mailing costs.

    Can I open a free checking account without a deposit?

    Some banks allow you to open a checking account with no minimum deposit required. Of course, if there are any perks, benefits, or sign-up bonuses, you’ll want to fund the account to earn interest or take advantage of special offers.

    How do banks make money on free checking accounts?

    Banks might make some money from monthly maintenance fees and other customer service charges. But the bulk of their revenue comes from the interest rate they earn on your money when they invest it in other securities, as well as interest collected on loans they make.

    Banks don’t necessarily keep the money you deposit in your account. They hold cash withdraws to allow customers to withdraw their money. But they also invest the money and earn revenue on those funds.

    They may also earn money on loan services, financial advisory services, investment services with fees, and other services they provide to customers.

    These other revenue streams allow banks to offer free checking accounts without losing money.

    What’s the difference between a checking and a savings account?

    A checking account is where you keep cash for everyday spending. Typically, you can make debit card purchases and withdraw funds from an ATM easily, without fees. Most checking accounts don’t pay interest on your deposits, but some do.

    A savings account, on the other hand, holds money you are saving either for a specific events – such as vacation or large purchase – or for an emergency. Financial experts recommend keeping as much as three to six months of living expenses in an easy-to-access savings account.

    Savings accounts pay interest ranging from .01% annual percentage yield APY up to 4% or 5% APY. Be aware that some savings accounts charge fees for monthly withdrawals exceeding a limit of six per month.

    Source: crediful.com

    Apache is functioning normally

    Originally founded as Social Finance in 2011 to help borrowers manage student loan debt, SoFi started offering mortgages in 2014. Today, the company has funded more than $50 billion in loans, which include everything from wedding loans to auto loan refinancing. The company offers a wide range of services including investing, credit cards and checking accounts for more than 4 million members. Those interested in and eligible for a mortgage can prequalify online in less than two minutes. The lender typically issues conditional approvals in one to two business days, with closings on purchases currently averaging 30 days.

    Breakdown of SoFi overall score

    • Affordability: As an online lender, SoFi’s mortgage rates are very competitive. Notably, you’ll pay a flat lender fee instead of a percentage-based fee. Depending on the price of your home, this might mean you save some money.
    • Availability: SoFi lends to borrowers in the majority of states in the U.S. It has limited mortgage options, however, and requires a higher down payment (unless you’re a first-time homebuyer).
    • Borrower experience: SoFi is a membership-driven company that does business primarily online, so you can expect convenience when working with this lender. You’ll need to become a member to take full advantage of some of its perks, however.

    Affordability: 5/5

    SoFi updates its 10-year, 15-year, 20-year and 30-year APRs daily on its website. All publicly advertised rates assume you’re making a 20 percent down payment, however. To get loan offers tailored to your situation, you’ll need to provide some contact information and other details via an online form.

    SoFi charges a $1,495 administration fee, according to a company spokesperson, but SoFi members get $500 off this cost. (Membership is free.)

    Note: You can lock in your rate with SoFi for 90 days at the time you’re preapproved. However, if you don’t enter into a purchase agreement by day 60 of the 90-day window, you’ll be subject to a $250 fee. This’ll be refunded at closing. On the plus side, if you do sign a purchase agreement by day 30 of the 90-day period, you’ll get a 0.125 percent further discount on your rate.

    Availability: 5/5

    While SoFi is licensed to lend mortgages in most states, it only offers conforming and non-conforming (jumbo) conventional loans; it doesn’t offer government-backed products like FHA loans. To qualify, you’ll need a credit score of at least 620 and a debt-to-income (DTI) ratio of no more than 50 percent. If you’re an eligible first-time homebuyer, you can get a conventional loan for as little as 3 percent down. If it’s not your first home, however, you’ll need to put down 5 percent, at minimum.

    Borrower experience: 4.7/5

    SoFi has been providing mortgages since 2014, originating more than $6 billion in loan volume on that front to date. While the company isn’t accredited by the Better Business Bureau, it does have an A+ rating from the organization, along with “Great” reviews from Trustpilot.

    SoFi is a digitally-focused company, and its mobile app is in the top 100 finance apps in the Apple App Store. You can complete the entire application for a mortgage online; there’s also a Home Loan Help Center with calculators, insights into local housing markets and other information to help with the home-buying process. If you need help with your loan at any point, you can call 833-408-7634 Monday through Friday from 8 a.m. to 8 p.m. CT, or Saturday, 10 a.m. to 2 p.m. CT.

    Refinancing with SoFi

    You can refinance your current mortgage with SoFi. With a traditional refinance, you only need to have 5 percent equity in the home. For a cash-out refinance, you’ll need at least 20 percent equity.

    The company also offers student loan cash-out refinances, which allow you to pay off your student debt and refinance your mortgage at the same time. You’ll need to do the math to determine if that move would actually save you money in the long run. Existing SoFi members can save $500 on refinancing costs.

    Alternatives to SoFi

    Methodology

    Bankrate’s expert editorial team collects lender information through a variety of methods. We contact lenders directly, and we also turn to regulatory filings and to assessments by third parties. Our research takes into account three main factors – affordability, availability and borrower experience.

    Bankrate’s reporters and editors have decades of experience covering the mortgage industry. They’re skilled at gathering information through interviews and by scouring regulatory filings. Bankrate evaluates more than 85 lenders for factors relating to affordability, availability and customer experience, assigning each a Bankrate Score out of five stars. Here’s how we assess each of the categories:

    • Affordability. Loan cost is a deciding factor for many borrowers. We look at two metrics: 1) a lender’s lowest advertised annual percentage rate (APR) based on Bankrate’s sample scenario, which assumes a 740 or higher credit score and a 20 percent down payment, among other factors and 2) established-customer discounts or incentive pricing, when applicable.
    • Availability. Another factor is how quickly your loan application will be approved, and how many loan programs the lender offers. So we evaluate approval and closing timelines and diversity of loan products.
    • Customer experience. Finally, we delve into what it’s like to deal with the lender as a consumer. We look at the lender’s application process and availability of customer service support. We also consider the results of J.D. Power’s 2022 Mortgage Origination Satisfaction Survey.

    Bankrate’s editorial team confirms the accuracy of data at the time of publication. Our team is dedicated to maintaining the timeliness of information – the mortgage industry is changing constantly, so we regularly revisit these reviews to update them.

    Bankrate’s methodology page spells out our rating process in greater detail.

    Source: thesimpledollar.com

    Apache is functioning normally

    A variety of significant mortgage rates trended upward over the last seven days. The average interest rates for both 15-year fixed and 30-year fixed mortgages both saw an increase. For variable rates, the 5/1 adjustable-rate mortgage also notched higher.

    On the heels of cooling inflation, the Federal Reserve announced on May 3 a 25-basis-point increase to its benchmark short-term interest rate. The Fed’s May meeting marks what could be the last increase we see for the time being. The central bank has signaled that it may soon be time to pause on rate hikes. Depending on incoming inflation data, the next step would be to hold rates where they are for an extended period of time in order to bring inflation down to its 2% target.

    As long as inflation continues to trend downward, experts say a pause in rate hikes from the Fed could bring some stability to today’s volatile mortgage rate market.

    Mortgages hit a 20-year high in late 2022, but now the macroeconomic environment is changing again. Rates dipped significantly in January before climbing back up in February. Throughout March and April, rates fluctuated in the 6% range.

    “Ultimately, more certainty about the Fed’s actions will help to smooth out some of the volatility we have seen with mortgage rates,” says Odeta Kushi, deputy chief economist at First American Financial Corporation.

    While rates don’t directly track changes to the federal funds rate, they do respond to inflation. Overall, inflation remains high but has been slowly but consistently falling every month since it peaked in June 2022.

    After raising rates dramatically in 2022, the Fed opted for smaller, 25-basis-point rate increases in its first three meetings of 2023. The decision to hike by 0.25% on May 3 suggests that inflation is cooling and the central bank may soon be able to pause its rate hiking regime. While the central bank is unlikely to cut rates any time soon, positive signaling from the Fed and cooling inflation may ease some of the upward pressure on mortgage rates.

    “If inflation keeps coming down, that will be the biggest driver, outside of the Fed, that’s really going to help bring rates down to a better level and improve affordability for home buyers,” says Scott Haymore, head of capital markets and mortgage pricing at TD Bank.

    However, mortgage rates remain well above where they were a year ago. Fewer buyers are willing to jump into the housing market, driving demand down and causing home prices in some regions to ease, but that’s only part of the home affordability equation.

    “Even though home prices in many parts of the country have fallen since the start of the year, high rates make buying prohibitively expensive for many,” says Jacob Channel, senior economist at loan marketplace LendingTree. It’s still difficult for many buyers, particularly those looking for their first home, to afford a monthly payment.

    What does this mean for homebuyers this year? Mortgage rates are likely to decrease slightly in 2023, although they’re highly unlikely to return to the rock-bottom levels of 2020 and 2021. However, rate volatility may continue for some time. “Expect mortgage rates to yo-yo up and down in the first half of the year, at least until there is a consensus about when the Fed will conclude raising interest rates,” says Greg McBride, CFA and chief financial analyst at Bankrate. (Like CNET Money, Bankrate is owned by Red Ventures.) McBride expects rates to fall more consistently as the year progresses. “Thirty-year fixed mortgage rates will end the year near 5.25%,” he predicts.

    Rather than worrying about market mortgage rates, homebuyers should focus on what they can control: getting the best rate they can for their situation.

    “The most important thing is that they find the right home. The second most important thing is obviously to find the most efficient way to finance it,” says Melissa Cohn, regional vice president of William Raveis Mortgage.

    Take steps to improve your credit score and save for a down payment to increase your odds of qualifying for the lowest rate available. Also, be sure to compare the rates and fees from multiple lenders to get the best deal. Looking at the annual percentage rate, or APR, will show you the total cost of borrowing and help you compare apples to apples.

    30-year fixed-rate mortgages

    The 30-year fixed-mortgage rate average is 7.04%, which is an increase of 15 basis points from seven days ago. (A basis point is equivalent to 0.01%.) Thirty-year fixed mortgages are the most common loan term. A 30-year fixed rate mortgage will usually have a smaller monthly payment than a 15-year one — but usually a higher interest rate. Although you’ll pay more interest over time — you’re paying off your loan over a longer timeframe — if you’re looking for a lower monthly payment, a 30-year fixed mortgage may be a good option.

    15-year fixed-rate mortgages

    The average rate for a 15-year, fixed mortgage is 6.42%, which is an increase of 18 basis points compared to a week ago. Compared to a 30-year fixed mortgage, a 15-year fixed mortgage with the same loan value and interest rate will have a larger monthly payment. But a 15-year loan will usually be the better deal, as long as you can afford the monthly payments. You’ll usually get a lower interest rate, and you’ll pay less interest in total because you’re paying off your mortgage much quicker.

    5/1 adjustable-rate mortgages

    A 5/1 adjustable-rate mortgage has an average rate of 5.87%, an uptick of 8 basis points from seven days ago. You’ll usually get a lower interest rate (compared to a 30-year fixed mortgage) with a 5/1 adjustable-rate mortgage in the first five years of the mortgage. However, you may end up paying more after that time, depending on the terms of your loan and how the rate adjusts with the market rate. Because of this, an adjustable-rate mortgage could be a good option if you plan to sell or refinance your house before the rate changes. Otherwise, changes in the market mean your interest rate may be much higher once the rate adjusts.

    Mortgage rate trends

    Mortgage rates were historically low throughout most of 2020 and 2021 but increased steadily throughout 2022. Now, mortgage rates are roughly twice what they were a year ago, pushed up by persistently high inflation. That high inflation prompted the Fed to raise its target federal funds rate seven times in 2022. By raising rates, the Fed makes it more expensive to borrow money and more appealing to keep money in savings, suppressing demand for goods and services.

    Mortgage interest rates don’t move in lockstep with the Fed’s actions in the same way that, say, rates for a home equity line of credit do. But they do respond to inflation. As a result, cooling inflation data and positive signals from the Fed will influence mortgage rate movement more than the most recent 25-basis-point rate hike.

    We use data collected by Bankrate to track changes in these daily rates. This table summarizes the average rates offered by lenders nationwide:

    Current average mortgage interest rates

    Loan type Interest rate A week ago Change
    30-year fixed rate 7.04% 6.89% +0.15
    15-year fixed rate 6.42% 6.24% +0.18
    30-year jumbo mortgage rate 7.09% 6.93% +0.16
    30-year mortgage refinance rate 7.12% 7.03% +0.09

    Rates as of May 22, 2023.

    How to find personalized mortgage rates

    You can get a personalized mortgage rate by reaching out to your local mortgage broker or using an online calculator. Make sure to consider your current financial situation and your goals when looking for a mortgage.

    Things that affect the mortgage rate you might get include: your credit score, down payment, loan-to-value ratio and your debt-to-income ratio. Having a higher credit score, a larger down payment, a low DTI, a low LTV or any combination of those factors can help you get a lower interest rate.

    Apart from the mortgage interest rate, factors including closing costs, fees, discount points and taxes might also affect the cost of your house. Be sure to speak with multiple lenders — such as local and national banks, credit unions and online lenders — and comparison-shop to find the best loan for you.

    What is a good loan term?

    One important thing to consider when choosing a mortgage is the loan term, or payment schedule. The loan terms most commonly offered are 15 years and 30 years, although you can also find 10-, 20- and 40-year mortgages. Mortgages are further divided into fixed-rate and adjustable-rate mortgages. The interest rates in a fixed-rate mortgage are stable for the duration of the loan. Unlike a fixed-rate mortgage, the interest rates for an adjustable-rate mortgage are only set for a certain amount of time (commonly five, seven or 10 years). After that, the rate changes annually based on the market rate.

    When deciding between a fixed-rate and adjustable-rate mortgage, you should consider how long you plan to stay in your home. Fixed-rate mortgages might be a better fit for people who plan on staying in a home for a while. Fixed-rate mortgages offer more stability over time in comparison to adjustable-rate mortgages, but adjustable-rate mortgages might offer lower interest rates upfront. If you aren’t planning to keep your new house for more than three to 10 years, though, an adjustable-rate mortgage may give you a better deal. There is no best loan term as an overarching rule; it all depends on your goals and your current financial situation. Make sure to do your research and understand your own priorities when choosing a mortgage.

    Source: cnet.com

    Apache is functioning normally

    Today we’re going to talk about the “home equity loan,” which is quickly becoming all the rage with mortgage rates so much higher.

    In short, many homeowners have first mortgages with fixed interest rates in the 2-3% range.

    Now that a typical 30-year fixed is closer to 6%, these homeowners don’t want to refinance and lose that rate in the process.

    But if they still want to access their valuable (and plentiful) home equity, they can do so via a second mortgage.

    Two popular options are the home equity line of credit (HELOC) and the home equity loan, the latter of which features a fixed interest rate and the ability to pull out a lump sum of cash from your home.

    What Is a Home Equity Loan?

    A home equity loan allows you to borrow against the value of your property to access needed cash.

    That cash can then be used to pay for things such as home improvements, to pay off other higher-interest loans, fund a down payment for another home purchase, pay for college tuition, and more.

    Ultimately, you can use the proceeds for anything you wish. The home equity loan simply allows you to tap into your accrued home equity without selling the underlying property.

    Of course, like a first mortgage, you must pay back the loan via monthly payments until it is paid in full, refinanced, or the property sold.

    Similarly, you can obtain a home equity loan from a bank, credit union, or direct mortgage lender.

    The application process is comparable, in that you must provide income, employment, and asset documentation, but it’s typically faster and less paperwork intensive.

    Additionally, your credit report will be pulled to determine your credit scores and overall creditworthiness.

    Home Equity Loan Example

    Property Value $650,000 First Mortgage Home Equity Loan Cash Out Refinance
    Interest Rate 3.25% 6.75% 5.75%
    Loan Amount $450,000 $70,000 $520,000
    Monthly Payment $1,958.43 $532.25 $3,034.58
    Total Cost $2,490.68 $3,034.58

    Home equity loans are typically second mortgages, taken out by an existing homeowner who already has a first mortgage.

    This allows the borrower to access additional funds while maintaining the favorable terms of their first mortgage (and continue to pay it off on schedule).

    Imagine a homeowner owns a property valued at $650,000 and has an existing home loan with an outstanding balance of $450,000. Their interest rate is 3.25% on a 30-year fixed.

    Obviously they don’t want to lose that low, low rate, so they turn to a home equity product instead.

    They would have $200,000 in home equity, though not all of it is necessarily available to tap into.

    Most home equity loan lenders will limit how much you can borrow to 80% or 90% of your home’s value.

    That means a maximum loan amount of $135,000 if maxed out at 90%.

    But we’ll pretend you take out just $70,000, or 80% of your property’s appraised value.

    Assuming the loan term is 20 years and the interest rate is 6.75%, you’d have a monthly payment of $532.25.

    The loan would amortize like a traditional mortgage, with equal monthly payments until maturity.

    Each payment would consist of a principal and interest amount, which would change as the loan was paid off.

    You would make this payment each month alongside your first mortgage payment, but would now have an additional $70,000 in your bank account.

    When we add the first mortgage payment of $1,958.43 we get a total monthly of $2,490.68, well below a potential cash out refinance monthly of $3,034.58.

    Because the existing first mortgage has such a low rate, it makes sense to open a second mortgage with a slightly higher rate.

    Do Home Equity Loans Have Fixed Rates?

    A true home equity loan should feature a fixed interest rate. In other words, the rate shouldn’t change for the entire loan term.

    This differs from a HELOC, which features a variable interest rate that changes whenever the prime rate moves up or down.

    To that end, a home equity loan provides safety and stability, similar to a 30-year fixed mortgage.

    However, home equity loans have higher interest rates to compensate for that lack of an adjustment.

    Simply put, HELOC interest rates will be lower than comparable home equity loan interest rates because they may adjust higher.

    You effectively pay a premium for a locked-in interest rate on a home equity loan. How much higher depends on the lender in question and your individual loan attributes.

    Home Equity Loan Rates

    Similar to mortgage rates, home equity loan rates can and will vary by lender. So it’s imperative to shop around as you would a first mortgage.

    Additionally, rates will be strongly dictated by the attributes of your loan. For example, a higher combined loan-to-value (CLTV) coupled with a lower credit score will equate to a higher rate.

    Conversely, a borrower with excellent credit (760+ FICO) who only borrows up to 80% or less of their home’s value may qualify for a much lower rate.

    Also keep in mind that interest rates will be higher on second homes and investment properties. And maximum CLTVs will likely be lower as well.

    All that being said, at the moment home equity loan rates may range from as low as 5% to as high as 12% or more.

    As a rule of thumb, you should expect a rate 1-2%+ higher than a comparable 30-year fixed given the increased risk of a second mortgage.

    But this spread can shrink or widen depending on market conditions.

    Do Home Equity Loans Require a Down Payment?

    Now let’s discuss some home equity loan requirements.

    While no down payment is required on a home equity loan, since you already own the property, a required amount of home equity is necessary to get approved.

    After all, the home equity loan relies upon your property as collateral, and if you don’t have any equity, there’s nothing to lend against.

    In other words, you need to have a certain percentage of home equity available to get a home equity loan.

    Typically, this is at least 20% of your property’s appraised value to allow for an additional loan against the property.

    For example, if you own a home valued at $500,000, you’ll want to have at least $100,000 available.

    This would mean an existing first mortgage with a balance of $400,000 or less to allow for more borrowing capacity.

    Assuming the home equity loan only allowed for a CLTV of 80%, you’d need even more equity.

    For example, a $350,000 existing first mortgage that would allow you to borrow an additional $50,000 via the home equity loan.

    Do Home Equity Loans Require an Appraisal?

    While it will depend on the company, an appraisal isn’t always required for a home equity loan.

    The same is even true of first mortgages these days thanks to advancements in technology.

    This may save you some money and make the home equity loan process significantly faster.

    However, the bank or lender will still need to determine the value of the property to ensure it is a sound lending decision.

    Whether you pay for an appraisal, or are paid a visit by a human appraiser, are entirely different questions.

    Either way, understand that the company offering the home equity loan will base the loan amount and APR on some kind of appraised value.

    This allows them to determine a LTV or CLTV for which to base pricing adjustments, interest rates, maximum loan amount, and so on.

    Do Home Equity Loans Have Closing Costs?

    As with the appraisal question, it may depend on the company offering the home equity loan.

    Some charge origination fees and other closing costs, while others do not charge any fees.

    For example, Discover Home Loans says it doesn’t charge appraisal fees or origination fees.

    However, it’s important to look at the big picture, aka the interest rate, to determine what the best deal is.

    Similar to a first mortgage, closing costs may not be charged, but the interest rate could be higher as a result.

    You would then need to weigh the upfront cost versus monthly interest expense to determine what’s the better deal.

    Also note that some lenders may ask that you reimburse them for any waived closing costs if you pay off your home equity loan within 36 months.

    This is sort of like a prepayment penalty, though there may be a cap and certain states are exempt.

    Just something to keep in mind if you pay off your loan ahead of schedule.

    Some home equity loans may have a nominal annual fee, such as $50 per year. And if your loan amount is quite large, title insurance could even be required.

    Minimum Credit Score for a Home Equity Loan

    Chances are you’ll need at least a 620 FICO score to get approved for a home equity loan these days.

    Some lenders may even require a higher credit score, such as a 660 FICO score, in order to get approved.

    Also note that your borrowing capacity may be limited by your credit score.

    For example, if you have a 620 FICO score, you might only be able to borrow up to 80% of your home’s value.

    Meanwhile, a borrower with a 660 FICO might have access to up to 90% of their home’s value.

    Additionally, the interest rate will also be dictated by your credit score.

    Like a first mortgage, the higher your score, the lower the interest rate. And vice versa.

    Do Home Equity Loans Affect Your Credit?

    Yes, like a first mortgage, the home equity loan will appear on your credit report.

    This includes when the loan was taken out, the outstanding loan balance, and the monthly payment.

    Your payment history on the loan will also be tracked over time, which can help or hurt you.

    Obviously, if you miss a payment (generally by more than 30 days) it can negatively impact your credit score.

    Because it’s a home loan, the impact can be quite severe.

    Conversely, if you exhibit a lengthy history of on-time payments, it can bolster your credit scores over time.

    How to Get a Home Equity Loan

    Similar to a mortgage, many banks and independent mortgage lenders offer home equity loans.

    However, they aren’t as readily available as first mortgages, so you’ll need to dig a little deeper.

    Simply put, just about all mortgage companies offer 30-year fixed mortgages, but only a handful offer home equity loans.

    Chase and Wells Fargo, two of the biggest mortgage lenders out there, don’t offer them at the moment.

    That could change as they become more popular, but chances are they’ll be a bit harder to come by.

    Additionally, because the terms of home equity loans can vary quite a bit, it’s important to speak to several different companies during your search.

    For example, some lenders may only offer home equity loans with loan terms as long as 20 years, or with a minimum credit score of 660. Or their loan amounts might be too small for your needs.

    The Rocket Mortgage home equity loan recently launched, but requires a median qualifying FICO score of 680 or higher.

    Others come with unique options. The PNC home equity loan allows borrowers to switch between a fixed and variable rate. In that sense, it works as a home equity loan and a HELOC in one loan.

    Because this type of product can be a lot more diverse than a standard 30-year fixed, shopping around is probably a good idea.

    Rates can also range quite a bit from lender to lender, so put in the time to speak with a local credit union, bank, online lenders, and even mortgage brokers.

    Home Equity Loan Advantages

    • Fixed interest rate
    • Flexible loan terms (5 – 20 years)
    • Can borrow large amounts
    • Little or no closing costs
    • Fast approvals and fundings
    • Potential tax write-off
    • Doesn’t disrupt your first mortgage (e.g. a low rate)

    Home Equity Loan Disadvantages

    • Entire loan amount must be borrowed upfront
    • You pay interest on the full lump sum
    • No additional draws permitted
    • Interest rates higher than HELOCs and first mortgages
    • Have to manage multiple loans
    • May have annual fee
    • Potential early closure fees

    Are Home Equity Loans a Good Idea?

    As seen in my example above, a home equity loan could be a great idea versus a cash out refinance.

    But that assumes you need additional cash and your existing first mortgage features a super low interest rate that is fixed.

    This might not always be the case, and it will also depend on the rate you receive on the home equity loan.

    Additionally, there might be other options to consider instead of a HEL, such as a HELOC or even a 0% APR credit card.

    In the past, I’ve made the argument that a credit card could be used to pay for home renovations.

    At the end of the day, a home equity loan is still a loan, and likely an additional loan taken out on top of whatever you’re already paying.

    So you need to consider if you really need more cash and if tapping your home equity is the way to go.

    Read more: Cash Out vs. HELOC vs. Home Equity Loan

    Source: thetruthaboutmortgage.com

    Apache is functioning normally

    With the housing market so competitive, and properties often going above asking, getting a mortgage can be a little more stressful.

    One major component of the mortgage approval process is determining the collateral value of the subject property, otherwise known as the appraised value.

    A bank or lender generally won’t approve you for a home loan without getting an independent appraisal first, at your expense.

    Simply put, they want to know that the property you’re buying or refinancing is actually worth what you or the seller think it’s worth.

    Even if you’re a stellar borrower with an excellent credit score and tons of money in the bank, a valuation issue can sink your loan approval.

    While this typically isn’t a problem, it can muddy the waters if the appraisal happens to come in low.

    The good news is we’re in a rising real estate market, with home prices experiencing their best annual gains in decades. They’re also at new record highs.

    This means even a bid over asking could easily come in at value when the appraisal is conducted.

    But what if it doesn’t? Often, the home buyer would need to make some adjustments to their financing to “make it work.”

    The most common tactic is to put more money down to keep the loan-to-value (LTV) ratio at its original level.

    Unfortunately, this isn’t always an option if a buyer is light on cash, and home sellers (or at least their listing agents) know this.

    This is why they favor cash buyers over those who need a home loan to get the job done, and may balk if you request an appraisal contingency.

    Introducing the Better Appraisal Guarantee

    • Keep all your locked-in loan terms (interest rate, APR, cash to close, etc.) regardless of the appraised value
    • Must be a conforming purchase loan on a primary residence with a loan amount below $822,375 and a minimum 10% down payment
    • Buyer must use a Better Real Estate agent or partner agent and get their mortgage from Better
    • May also qualify for up to 1% of the purchase price in lender credits to offset closing costs

    To level the playing field somewhat, Better Mortgage has launched their “Better Appraisal Guarantee.”

    In short, they’ll honor the monthly payment, mortgage rate, APR, and cash to close reflected on your valid locked Loan Estimate (LE), regardless of what happens with your appraisal.

    For example, if you offer $600,000 for a house and put down 10%, and the value comes back at $550,000, Better Mortgage will still honor your locked mortgage rate and all the details behind it.

    In this scenario, the LTV would actually rise from 90% to about 98%, which would generally require you to bring in more money at closing.

    If you didn’t, either the loan wouldn’t get approved or at minimum you’d now need to pay private mortgage insurance (PMI) and the mortgage rate would theoretically be higher to compensate for greater risk.

    Aside from these buy-side advantages, the seller would also benefit because you wouldn’t need to retool your mortgage. And as such, could close without delay and no concessions on their end.

    In a sense, this would align it somewhat with the certainty of a cash offer (minus the rest of the mortgage loan process), which could also give you an edge in a bidding war.

    This is similar to other products out there like HomeLight Cash Offer and BoardRE (now known as Accept.inc).

    The caveat is that this new feature is for Better Mortgage customers who also use a Better Real Estate Agent or a Better Real Estate Partner Agent.

    Like other companies, Better is trying to control more of the home buying process than just the mortgage piece via their “Better Real Estate” division.

    To sweeten the deal, Better is also offering up to 1% of the home sales price in lender credits if you use Better Mortgage and a Better real estate agent.

    In order to qualify, it has to be a conforming purchase loan with an amount less than $822,375, with a down payment of at least 10% on a primary residence.

    To sum things up, if you don’t already have a real estate agent and like Better as a mortgage lender, this could be a pretty exceptional value-add.

    Of course, always put in the time to shop around with other lenders and real estate agents to ensure it’s the right fit.

    Read more: Get Up to $6,000 in Amex Statement Credits If You Use Better Mortgage

    Source: thetruthaboutmortgage.com