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Apache is functioning normally

June 8, 2023 by Brett Tams

If you’re saving for retirement, a broad market index portfolio is typically a good option. Investing in a target date fund or S&P 500 index fund, for instance, are low-cost ways to gain broad market exposure. However, newly published research indicates there may be a significantly more lucrative way to handle your nest egg.

A financial advisor can help find the right mix of investments for your retirement portfolio. Find a fiduciary advisor today.

An analysis from Dimensional Fund Advisors suggests retirement savers can do better than following the standard advice to use index funds, for instance, to get a balanced portfolio. Portfolios built with a focus on size, value and profitability premiums can generate more assets and better longevity than broad market portfolios, according to the DFA research. In fact, a DFA researcher calculated that a portfolio that emphasizes these premiums would leave a hypothetical investor with at least 20% more money by age 65, even if market returns were less than the historical average.

“These results are encouraging. A portfolio that incorporates controlled, moderate premium exposure can strike a balance between higher expected returns than the market and the cost of slightly higher volatility and moderate tracking error,” DFA’s Mathieu Pellerin wrote in his paper “How Targeting the Size, Value, and Profitability Premiums Can Improve Retirement Outcomes.”

“As a result, targeting these long-term drivers of stock returns is likely to increase assets at the beginning of retirement.”

What Are Size, Value and Profitability Premiums?

As part of its research, DFA compared the simulated performance of a broad market index portfolio – represented by the Center for Research in Security Prices (CRSP) 1-10 index – against that of the Dimensional US Adjusted Market 1 Index.

The DFA index comprises 14% fewer stocks than the CRSP index and places a greater emphasis on size, value and profitability premiums. Here’s how the firm defines each:

Size premium: The tendency of small-cap stocks to outperform large-cap stocks
Value premium: The tendency of undervalued stocks – those with low price-to-book-value ratios – to outperform
Profitability premium: The tendency of companies with relatively high operating profits to outperform those with lower profitability

As a result, the DFA index is more heavily weighted in small-cap and value stocks, as well as companies with higher profits.

Premiums Produce Better Retirement Outcomes

To test the long-term viability of its premium-based portfolio, DFA ran an extensive set of simulations and compared the results against the CRSP market index.

First, Pellerin calculated 40 years’ worth of hypothetical returns for each portfolio, assuming an investor starts saving at age 25 and retires at age 65. Both portfolios are part of a glide path that starts with a 100% equity allocation and beings to transition toward bonds at age 45. By age 65, the investor’s asset allocation eventually reaches a 50/50 split between stocks and bonds.

Then, he calculated how both portfolios would fare during the investor’s decumulation phase. To do this, DFA applied the 4% rule. This rule of thumb stipulates that a retiree with a balanced portfolio can withdraw 4% of their assets in their first year of retirement and adjust withdrawals in subsequent years for inflation, and have enough money for 30 years.

DFA tested the portfolios using both historical returns (8.1% per year) and more conservative returns (5% per year).

When applying the historical rate of return, the portfolio that targets premiums would be worth 22% more than the broad market portfolio by the time the hypothetical investor reaches age 65. In the lower growth environment, the DFA portfolios would still deliver 20% more median assets than its counterpart, according to the research.

The hypothetical investor would also have a lesser chance of running out of money with the DFA portfolio. Using historical returns, the premium-focused portfolio failed just 2.5% of the time over a 30-year retirement. That’s nearly half as many times as the market portfolio, which posted a 4.7% failure rate.

That spread grew even larger when Pellerin ran the simulations with more conservative return expectations. Over the course of a 30-year retirement, the DFA portfolio ran out of money in just 12.9% of simulations when annual returns averaged just 5%, while the market portfolio failed 19.9% of the time.

Bottom Line

Investing in index funds or target date funds that track the broad market can be an effective way to save for retirement, but Dimensional Fund Advisors found that targeting stocks with size, value and profitability premiums can produce better retirement outcomes. When comparing a broad market index to one that focuses on these factors, the latter produced at least 20% more median assets and had lower failure rates.

Retirement Planning Tips

How much will you have in savings by the time you retire? SmartAsset’s retirement calculator can help you estimate how much money you could expect to have by retirement age and how much you’ll potentially need to support your lifestyle.
Retirement planning can be complicated, but a financial advisor can help you through the process. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

Photo credit: ©iStock.com/Tinpixels, ©iStock.com/PeopleImages, ©iStock.com/adamkaz

Patrick Villanova, CEPF®
Patrick Villanova is a writer for SmartAsset, covering a variety of personal finance topics, including retirement and investing. Before joining SmartAsset, Patrick worked as an editor at The Jersey Journal. His work has also appeared on NJ.com and in The Star-Ledger. Patrick is a graduate of the University of New Hampshire, where he studied English and developed his love of writing. In his free time, he enjoys hiking, trying out new recipes in the kitchen and watching his beloved New York sports teams. A New Jersey native, he currently lives in Jersey City.

Source: smartasset.com

Apache is functioning normally

June 8, 2023 by Brett Tams

Lately, there’s been a lot of talk about buying now and refinancing later, once mortgage rates drop.

Of course, that’s if mortgage rates do indeed fall at some point in the near-future.

There’s no guarantee they will, but if inflation does settle down, we could see a return to more reasonable interest rates before long.

And that would support the marry the house, date the rate supporters, who believe it’s better to buy now while rates are high.

After all, if rates drop again, competition to buy a home could heat up fast.

Enter the Navy Federal No-Refi Rate Drop

While there’s logic to buying now and refinancing later, it still involves a pesky mortgage refinance.

And even if rates are lower, there are downsides to refinancing. For one, it’s time-consuming and paperwork-intensive.

There are also closing costs involved, stress, and of course you need to qualify for the thing. That’s never a guarantee if your situation changes. Or if home prices fall, etc.

To alleviate some of this concern, select lenders have been offering to waive fees on subsequent refinances if you use them for a home purchase loan.

But this still requires the borrower to go through the entire home loan process a second time. Not fun.

That’s where Navy Federal Credit Union’s “No-Refi Rate Drop” comes in. They’ve taken both the big cost and hassle out of it.

As the name implies, you can refinance your high-interest rate mortgage into a lower-rate mortgage without refinancing.

That way you can take advantage of lower mortgage rates without all the hoops and hurdles, and the closing costs.

And it seems super easy, with apparently only one document to sign.

How It Works

If you buy a home and use Navy Federal to get your mortgage, keep an eye out for lower mortgage rates.

After six consecutive monthly payments, you can take advantage of their No-Refi Rate Drop if they fall by at least 0.25% versus your existing rate.

For example, if your current interest rate is 7%, and rates fall to 6.75%, you could take advantage.

Aside from needing to make six payments, you also must be current on your loan with no more than one 30-day late payment within six months of the rate drop request.

Additionally, your loan must be a Homebuyers Choice, Military Choice, or 15- or 30-year jumbo fixed-rate loan.

Note that cash-out refinances are not eligible for the no-refi rate-drop option, nor are adjustable-rate mortgages.

Assuming you fit that criteria, and rates drops enough, all you have to do is call them to start the process. If eligible, they’ll send you a single document to sign within five business days.

Simply return that signed form and a $250 payment and your new lower rate will take effect within 30-60 days.

They say you’re guaranteed to get the mortgage rate that is offered on the day you call in, similar to a traditional mortgage rate lock.

So it doesn’t matter if rates increase while they process your application.

What’s more, you’re able to lower your rate multiple times during the loan term as long as you are eligible and pay the $250 fee each time.

Another perk is your loan term will stay the same. So if you make the request two years into a 30-year loan term, you’ll still have 28 years remaining.

It won’t increase the loan term like a standard refinance could.

Is the No-Refi Rate Drop a Good Deal?

As always with promotions like these, you have to use the company now for the promise of future, potential savings.

In other words, you won’t get to take advantage of No-Refi Rate Drop if you don’t use Navy Federal initially.

That means you need to compare loan rates and fees with Navy Federal versus other options.

If you plan to use them regardless, it’s an added perk that may or may not come to fruition.

If you’re deciding between them and other lenders, you need to consider if this potential benefit tips in their favor.

Of course, mortgage rates may not fall in the future, there’s no guarantee that they will.

But if they do, the mere $250 fee to lower your rate 0.25% or more sounds like a pretty good value.

Not just from a monetary standpoint, but the time savings as well.

Read more: Can you lower your mortgage rate without refinancing?

Source: thetruthaboutmortgage.com

Apache is functioning normally

June 8, 2023 by Brett Tams

KrowdFit is a digital wellness engagement platform that makes it possible to earn cash-back rewards when you use its app to track activities like steps, sleep and meals. The company also offers the $0-annual-fee KrowdFit Wellness Rewards Mastercard, which can help improve your financial fitness when you spend on self-care.

Cardholders can earn an impressive and uncapped 4% cash back on an expansive list of eligible “health, wellness, medical and lifestyle partners” — including Walmart and Target — in addition to 2% back on grocery purchases and 1% back everywhere else. Better yet, those rewards are issued instantly, so you won’t have to wait until the end of your billing cycle to redeem them.

According to a KrowdFit representative, you’ll need a FICO score above 650 to qualify for the card, which comes with a virtual card number for immediate use upon approval.

Here are five things to know about the KrowdFit credit card.

1. Earn outsized cash back on wellness purchases and more

The KrowdFit Card offers 2% cash back at grocery stores (excluding membership stores like Costco) and 1% cash back on all other purchases. While those rates are unspectacular, the card stands out thanks to the breadth of categories that qualify for its stellar 4% rate. Some of those categories include:

Food: Restaurants, specialty markets and “miscellaneous” food stores.
Fitness: Sporting goods stores, bicycle shops, membership clubs and dance studios.
Health care: Medical and dental providers, health insurance and drugstores.
Wellness: Massage parlors, spa services, and health and beauty shops.
Clothing: Family clothing stores, sports apparel and shoe stores.
Outdoor activities: Public and private golf courses, country clubs, and sporting and recreational camps.
Transportation: Including boat, motorcycle and snowmobile dealers.
Discount stores: Including Walmart, Target and others.

As of this writing, more than 30 merchant category codes (MCC) qualify for 4% cash back — a massive number for a no-annual-fee card that doesn’t require active management, such as tracking a bonus calendar or opting into bonus categories.

Also, if you make a purchase that you think should qualify for bonus cash back and it doesn’t, you can request to have the MCC code added to KrowdFit’s list.

2. Get one year of KrowdFit Premium and extra cash giveaway entries

Like many apps, KrowdFit has two versions: a free one with advertisements, and a premium one without the ads that promises a few additional perks. Cardholders will receive a one-year complimentary membership to KrowdFit Premium, normally $1.99 per month.

To incentivize healthy living and activity, KrowdFit offers cash giveaways that are paid out Monday, Wednesday and Friday of every week, in addition to a $5,000 physical activity cash giveaway on the first day of every month. The more you use the app to track things like sleep, diet and activity, the more entries you get.

3. See your credit line and interest rate before the hard pull

When you apply for a credit card, the issuer will typically conduct a hard inquiry to determine your creditworthiness. That inquiry can often lead to a temporary decrease in your credit scores, even though it’s generally conducted before you know what credit limit and interest rate you’re being offered.

But the KrowdFit card lets you see whether you’ll be approved — including the credit limit and interest rate — before you receive a hard pull. That way you know exactly what you’re being offered and whether it’s worth the impact to your credit scores. A hard pull is conducted only after you accept the offer.

Who doesn’t want to be rewarded?

Create a NerdWallet account for personalized recommendations, and find the card that rewards you the most for your spending.

4. Receive an instant virtual card number

Once you accept the credit line and interest rate provided through the preapproval process, you’ll immediately receive a virtual card number. This number gives you instant access to your credit line and can be added to your virtual wallet or used online for purchases.

Once you receive the physical card in the mail, simply replace your virtual card number with the number on the front of your card.

5. There’s no sign-up bonus

The ongoing rewards structure for the KrowdFit card is solid, but the card lacks something other no-annual fee cards offer — a sign-up bonus. Whether you’re looking for cash back or travel miles, a sign-up bonus is the easiest way to pile up rewards.

The Wells Fargo Autograph℠ Card card has a $0 annual fee and offers the following sign-up bonus: Earn 20,000 bonus points when you spend $1,000 in purchases in the first 3 months – that’s a $200 cash redemption value. You’ll also earn 3 points per $1 spent on travel, dining, gas, public transportation, streaming services and phone plans.

Or there’s the Chase Freedom Flex℠, which also has a $0 annual fee and features the following sign-up bonus: Earn a $200 Bonus after you spend $500 on purchases in your first 3 months from account opening. In addition, you’ll earn 5% cash back on up to $1,500 in combined purchases in bonus categories you activate each quarter; 5% back on travel purchased through the Chase Ultimate Rewards portal; and 3% back on dining and drugstore purchases. All other nonbonus-category purchases earn 1% back.

Source: nerdwallet.com

Apache is functioning normally

June 8, 2023 by Brett Tams

By Contributing Author 5 Comments – The content of this website often contains affiliate links and I may be compensated if you buy through those links (at no cost to you!). Learn more about how we make money. Last edited August 28, 2017.

One day the stock market is down 300 points, the next it’s up 300; it’s a hard time to invest in the stock market isn’t?

It’s like seeing a swarm of sharks in the water and trying to convince yourself it’s OK to jump in.

I totally understand because I feel the exact same way. When you have the government threatening to change the rules of the game, it’s difficult to remain confident in the time tested approach of wealth accumulation through investing. That’s why, outside of my retirement investments, I haven’t invested a single dollar in the stock market. I’m not equipped to fight off sharks. 🙂

So what have I done with our savings? Well, our emergency fund is laddered into twelve year-long CDs. Outside of our emergency fund, we’ve been in lockdown mode, much to the chagrin of the economy, and have been putting into ultra-safe, principal-protected “investments.” If you’re looking for something that’s 100% safe, defined as being backed by the full faith and credit of the United States Government, here are a few options:

High Yield Savings Accounts

I’m sure you’re all familiar with online banks and their savings account offerings. The yields aren’t as good as they once were, most are in the 2-3% APY range, but they are all FDIC insured. Some may be in a more perilous financial situation than others but when you are FDIC insured, your assets are protected up to $250,000 or more, depending on your account type. 2-3% may not seem like a lot, but it’s greater than zero and you have no risk of losing your principal! How can these banks offer yields that are much higher than their brick and mortar counter parts? A leaner operation. They don’t run branches, they don’t hire tellers or branch managers, they don’t mail out statements, and they can outsource their call centers. All these cost cutting measures mean you get a higher interest rate.

Reward Checking Accounts

Reward checking accounts are a special type of checking account that give high yields as long as you satisfy certain conditions. Today, the best reward checking rates are around 5% if you satisfy the conditions, less than 1% if you fail to meet them. The conditions are usually not difficult to achieve. The first common requirement is to have 10+ debit transactions a month. The second requirement is to have at least one direct deposit, such as a paycheck. A third, less common, requirement is that the customer must log into their online account a specified number of times a month. They are able to pay such high yields because they earn transaction fees off the debit transactions.

Certificates of Deposit

If you want to do better, you’ll have to take a look at a certificates of deposit. They are less flexible than a savings account but require less work than a reward checking account. The best CD rates for 12- or 18- month CDs is just under 4% and the highest short-term CD rate is under 2.50% APY. They’re not incredible rates but they are guaranteed, unlike checking and savings accounts. When the CD matures, you get your funds back. The funds are locked in but if you need your money before maturity, you can get it after paying a small penalty.

Treasury Securities & Bonds

This is often called “public debt,” because the government borrows money through the sale of Treasury Securities and Bonds. The Treasury products come in two types, securities which you can buy and sell on the secondary market; and bonds, which you can only buy and sell to the Treasury through Treasury Direct. You’ll have to do some research yourself on the current rates, because they change from week to week, but this debt is backed by the full faith and Credit of the United States Government. In addition to that high level of safety, many have special tax considerations that may make them more appealing than a CD, depending on what your tax bracket is.

If you’re looking for safety, I think you cannot go wrong with one of these four options. They may not have the most attractive of yields but you’ll be hard pressed to find an alternative that is as safe and so easy to get in and out of.

This is an article from Jim over at WalletHacks.com. Jim runs a tight ship over there and if you’re looking for some good sound financial advice, his site is a great place to go.

Source: biblemoneymatters.com

Apache is functioning normally

June 8, 2023 by Brett Tams

Back in the day, if you wanted a loan to pay off your car or credit cards, you’d go to a bank or a credit union, sit down with a loan officer, and wait for them to tell you yes or no as they “crunched the numbers.”

But now peer-to-peer (P2P) lending has come onto the market, offering loans to borrowers directly from individuals — and usually carrying more favorable terms for those without a great credit profile. Borrowers can access up to $50,000 (or more) from lenders, with fixed term repayment scheduled and reasonable interest rates. Investors can also become lenders on P2P platforms, earning interest collected on loans as a passive form of investment income.

Let’s break down some of the best peer-to-peer lending sites for both borrowers and investors, so you can determine which option is best for you.

What’s Ahead:

Overview of the best peer-to-peer lending sites

Best for those with high credit scores: Prosper
Best for crypto-backed loans: BlockFi
Best for young people: Upstart
Best for a payday loan alternative: SoLo Funds
Best for small businesses: FundingCircle
Best for first-time borrowers: Kiva

Prosper: Best for those with high credit scores

Prosper 210

APR: 6.99% to 35.99%
Term: 2 to 5 years

Prosper is the OG peer-to-peer lender in the market. It was founded in 2005 as the very first peer-to-peer lending marketplace in the U.S. According to their website, they’ve coordinated over $22 billion in loans.

Borrowing with Prosper

If you’re a borrower, you can get personal loans up to $50,000 with a fixed rate and a fixed term from two to five years in length. Your monthly payment is fixed for the duration of the loan. There are no prepayment penalties, either, so if you can pay it off early, you won’t be penalized.

You can get an instant look at what your rate would be and, once approved, the money gets deposited directly into your bank account.

Investing with Prosper

As an investor, you have many options on loans to choose from. There are seven different “risk” categories that you can select from, each with their own estimated return and level of risk. Here’s a look at the risk levels and the estimated potential loss, according to Prosper:

AA – 0.00 – 1.99%
A – 2.00 – 3.99%
B – 4.00 – 5.99%
C – 6.00 – 8.99%
D – 9.00 – 11.99%
E – 12.00 – 14.99%
HR (High Risk) – ≥ 15.00%

As you can see, the lower the letter, the greater the risk of default, hence a higher estimated potential loss. With just a $25 minimum investment, you can spread your risk out across all seven categories to provide your portfolio some balance.

The borrowers that you’re lending to are also above U.S. averages regarding their FICO score and average annual income.

Learn more about Prosper or read our full review.

BlockFi: Best for crypto-backed loans

APR: 4.5% – 9.75%
Term: 12 months

BlockFi is a popular crypto lending platform that offers crypto-backed loans to borrowers and pays out interest to lenders. BlockFi offers instant loans and requires no credit checks for borrowers. All loans are collateralized, meaning borrowers will need to lock in their crypto to borrow against it.

Borrowing with BlockFi

If you’re a borrower, you can get a crypto loan for up to 50% of the value of your crypto, with rates ranging from 4.5% to 9.75% APR, depending on the amount of collateral. Payments are made monthly and are fixed for the duration of the loan.

Interest rates are determined by the amount of collateral deposited and the loan-to-value (LTV) of the overall loan. There is a 2% origination fee on all loans.

Loan rate – 9.75% (50% LTV)
Loan rate – 7.9% (35% LTV)
Loan rate – 4.5% (20% LTV)

Bitcoin (BTC), Ether (ETH), Paxos Gold (PAXG), or Litecoin (LTC) can be used as collateral for the loan, and can be liquidated if the LTV goes above the original LTV of the loan.

Investing with BlockFi

BlockFi offers interest accounts for users who deposit crypto. The funds are used for crypto lending, and interest is paid out in the native crypto deposited. Interest rates vary by cryptocurrency, and range from 0.10% APY up to 7.50% APY. Stablecoins (such as USDC) pay out the highest rates.

Crypto interest accounts are not available to U.S. investors, as BlockFi was sued by the SEC for violating securities laws.

Read our full review.

BlockFi Bankruptcy Notice -On November 10, 2022, BlockFi announced that it had to suspend withdrawals from its platform due to the FTX liquidity crisis. As a result, consumers should not be using the BlockFi platform. As of November 28, 2022, BlockFi officially declared bankruptcy.

Upstart: Best for young people

Upstart 210

APR: 5.6% – 35.99%
Term: 3 or 5 years

Upstart is an innovative peer-to-peer lending company that was founded by three ex-Google employees. In addition to being a P2P lending platform, they’ve also created intuitive software for banks and financial institutions.

What’s unique about Upstart is the way they determine risk. Where most creditors will look at a lender’s FICO score, Upstart has created a system that uses AI/ML (artificial intelligence/machine learning) to assess the risk of a borrower. This has led to significantly lower loss rates than some of its peer companies. Combine that with an excellent TrustPilot rating, and this company is certainly making waves in the P2P marketplace.

Borrowing with Upstart

Borrowers can get loans from $1,000 up to $50,000 with rates as low as 5.6%. Terms are either three or five years, but there’s no prepayment penalty.

Using their AI/ML technology, Upstart looks at not only your FICO score and years of credit history, but also factors in your education, area of study, and job history before determining your creditworthiness. Their site claims that their borrowers save an estimated 43% compared to other credit card rates.

Investing with Upstart

Investing with Upstart is also pretty intuitive. Unlike other P2P platforms, you can set up a self-directed IRA using the investments from peer-to-peer lending. This is a unique feature that many investors should be attracted to.

Like other platforms, you can set up automated investing by choosing a specific strategy and automatically depositing funds.

Upstart claims to have tripled their growth in the last three years due heavily to their proprietary underwriting model, so it might be worth a shot to consider this option.

Learn more about Upstart or read our Upstart review.

SoLo Funds: Best for a payday loan alternative

APR: 0% (tipping optional)
Term: Up to 35 days

SoLo Funds is a peer-to-peer platform that functions as a short-term lender, similar to payday loans. With term lengths only lasting for up to 35 days, loans must be paid back in a narrow timeframe. But instead of charging fees, borrowers can leave an optional tip instead.

SoLo Funds is an affordable option for clients who are in a pinch and need an advance on payday, but there are hefty fees if loans are not paid back within 35 days. Users will need to pay a 10% penalty plus a third-party transaction fee if late.

Borrowing with SoLo Funds

Borrowers can take out loans up to $575 for a maximum of 35 days. Loans do not charge fees, but allow borrowers to select an optional tip amount to lenders.

Loan applications only take a few minutes, and while most loans post within a few days, some may be instantly approved, offering same-day funding with money transferred to borrowers within a few hours.

Loans must be paid back in full within 35 days, or there is a 10% penalty plus other transaction fees. There is no option to roll the loan over.

Investing with SoLo Funds

Lending is fairly straightforward, with a simple sign-up process and no pre-qualifications needed. Since the loans are smaller amounts (up to $575), there are no minimums required for lending.

SoLo Funds has a marketplace of loan requests from borrowers, with details specified on each. Each loan request shows the amount needed plus the tip given by the borrower for the loan. Each borrower also has a SoLo Score, on a scale from 40 to 99, with higher scores showing more “worthiness” for paying back a loan. Loans can go into default, and if needed, to collections through a third party. There is a risk of total loss with SoLo Funds investing, though the platform does offer insurance against loss for a fee.

Learn more about SoLo Funds.

FundingCircle: Best for small businesses

Best Peer-To-Peer Lending Sites For Borrowers And Investors REWRITE - FundingCircle

APR: 11.29% to 30.12%
Term: 6 months to 7 years

FundingCircle is a small business peer-to-peer platform. The company was founded with the goal of helping small business owners reach their dreams by providing them the funds necessary to grow.

So far, they’ve helped 130,000 small businesses across the world through investment funds by 71,000 investors across the globe. FundingCircle is different in that it focuses on more substantial dollar amounts for companies that are ready for massive growth. They also have an excellent TrustPilot rating.

Borrowing with FundingCircle

As a borrower, the minimum loan is $25,000 and can go all the way up to $500,000. Rates come as low as 5.99%, and terms can be anywhere from six months to seven years. There are no prepayment penalties, and you can use the funds however you deem necessary — as long as they are for your business.

You will pay an origination fee, but unlike other small business loans, funding is much quicker (you can be fully funded as quickly as 1 business day).

Investing with FundingCircle

As an investor, you’ll need to shell out a minimum of $25,000. If that didn’t knock you out of the race, then read on.

According to FundingCircle, you’ll “Invest in American small businesses (not start-ups) that have established operating history, cash flow, and a strategic plan for growth.” While the risk is still there, you’re funding established businesses looking for extra growth.

You can manage your investments and pick individual loans or set up an automated strategy, similar to Betterment, where you’ll set your investment criteria and get a portfolio designed for you.

Learn more about FundingCircle.

Kiva: Best for first-time borrowers

Best Peer-To-Peer Lending Sites For Borrowers And Investors REWRITE - Kiva

APR: 0%
Term: Up to 3 years

If you want to do some good in the world, you’ll find an entirely different experience in P2P with Kiva. Kiva is a San Francisco-based non-profit that helps people across the world fund their businesses at no interest. They were founded in 2005 with a “mission to connect people through lending to alleviate poverty.”

Borrowing with Kiva

If you’d like to borrow money to grow your business, you can get up to $15,000 with no interest. That’s right, no interest. After making an application and getting pre-qualified, you’ll have the option to invite friends and family to lend to you.

During that same time, you can take your loan public by making your loan visible to over 1.6 million people across the world. Like Kickstarter, you’ll tell a story about yourself and your business, and why you need the money. People can then contribute to your cause until your loan is 100% funded. After that, you can use the funds for business purposes and work on repaying your loan with terms up to three years.

Investing with Kiva

As a lender, you can choose to lend money to people in a variety of categories, including loans for single parents, people in conflict zones, or businesses that focus on food or health. Kiva has various filters set up so you can narrow down exactly the type of person and business you want to lend your money to. You can lend as little as $25, and remember, you won’t get anything but satisfaction in return — there’s no interest.

You can pick from a variety of loans and add them to your “basket,” then check out with one simple process. You’ll then receive payments over time, based on the repayment schedule chosen by the borrower and their ability to repay. The money will go right back into your Kiva account so you can use it again or withdraw it. There are risks to lending, of course, but Kiva claims to have a 96% repayment rate for their loans. Just remember, you’re not doing this as an investment, you’re doing it to help out another person.

Learn more about Kiva.

What is peer-to-peer lending?

As the name suggests, peer-to-peer lending involves private individuals making loans to other individuals. The system runs contrary to the traditional model of banks and credit unions providing financial services because it cuts out the middleman.

While peer-to-peer lending had a surge in users over the past decade, in the past few years, some P2P lending companies have shuttered their services, including StreetShares, Peerform, and LendingClub.

How does peer-to-peer lending work?

Peer-to-peer lending shares many similarities with traditional lending:

You fill out an application with your financial and personal information, including the loan’s size, tax returns, and government-issued identification.
The lender will review your application before posting it on the site for investors.
Investors get to play the part of a loan officer, reviewing a list of applications and deciding where they might want to contribute.
The platform will indicate how risky the loan is and the potential return on investment.
Funding takes anywhere from one day up to two weeks.

Is peer-to-peer lending safe?

No one would say that peer-to-peer lending is 100% safe. No form of investing is. Many of the best peer-to-peer lending sites vet borrowers and investors to mitigate risk. The review process helps eliminate untrustworthy candidates, so borrowers can receive their loan and investors can earn interest.

Read more: Should you invest in peer-to-peer loans?

Pros & cons of P2P lending for investors

Pros

An attractive alternative to more traditional investments — You can round out your portfolio that might exclusively include stocks, bonds, and mutual funds. Some platforms merge private and public equities, so you can make all your investments in one place.
Most lending platforms let you select multiple loans at once — The variation enables you to reduce your risk exposure while potentially earning higher yields than a CD or savings account.
Feel good about your contribution — With sites like Kiva, you know that your money is going toward a humanitarian purpose.

Cons

Risk of default — When you lend money to individuals, you risk them defaulting. Peer-to-peer lending sites don’t come with FDIC insurance like a CD or savings account.
P2P loans lack the liquidity of stocks or bonds — Most loans are for three to five years, so you would have to wait until then to withdraw money.
Inequality — Some platforms, such as Funding Circle, only give access to accredited investors, so not everyone has equal access to lending opportunities.

Pros & cons of P2P lending for borrowers

Pros

You can circumvent the traditional bureaucracy of brick-and-mortar banks — Instead of waiting in line and negotiating with a loan officer, you have access to a fast, online experience. Because online platforms don’t have to worry about physical overhead, many can give borrowers competitive interest rates.
P2P loans typically aren’t as strict as banks or credit unions — The lax approach makes it easier to secure a loan if you have fair or poor credit history.
Often no prepayment penalties — You don’t have to worry about prepayment penalties in many cases.

Cons

Borrowers face more hurdles if they have a low credit score — Interest rates can go as high as 36% for those with lower scores, while some platforms don’t offer financial services to anyone with a credit score below 630.
Possibly high fees — Some sites have origination fees of 6%.
Impersonal — If you want the old-fashioned face-to-face borrowing experience, peer-to-peer lending isn’t for you. You don’t have a chance to sit down with your lender and hash out terms.
Loan caps around $50,000 — If you need more money, you’ll likely have to go to a bank or credit union.

Summary

Peer-to-peer lending is a great option for borrowers with less-than-stellar credit who want access to capital with reasonable terms and rates. P2P lending is ideal for small businesses and individuals who are looking for a personal loan that does not require mountains of paperwork, and that is funded quickly (usually within a few days).

But not all P2P lending platforms operate the same, and some can charge high origination fees and interest rates. Others require high minimum loan amounts to borrow as well, making them less accessible to some borrowers.

Investors can earn decent returns with P2P lending, but there is also the risk of default and the mess of going through collections agencies occasionally. Finding a solid platform with detailed risk mitigation strategies (such as borrower scores), and insurance against default can help alleviate these concerns, but it may eat into your profits.

While peer-to-peer lending is not seeing the massive growth of a few years ago, it is still a solid option for borrowers and investors alike.

Apache is functioning normally

June 8, 2023 by Brett Tams

If you have a mortgage, you may be unknowingly participating in a mortgage-backed security (MBS). That is, your humble home loan may be part of a pool of mortgages that has been packaged and sold to income-oriented investors on the secondary market.

Being part of an MBS won’t change much (if anything) about how you repay your home loan, but it’s helpful to understand how these investment products work and how they impact the mortgage and housing industries.

Key takeaways

A mortgage-backed security is an investment product that consists of thousands of individual mortgages.
Investors can purchase MBSs on the secondary market from the banks that issued the loans.
When MBS prices fall, residential mortgage rates tend to rise – and vice versa.

What is a mortgage-backed security?

A mortgage-backed security (MBS) is a type of financial asset, somewhat like a bond (or a bond fund). It’s created out of a portfolio, or collection, of residential mortgages.

When a company or government issues a traditional bond, they are essentially borrowing money from investors (the people buying the bond). As with any loan, interest payments are made and then principal is paid back at maturity. However, with a mortgage-backed security, interest payments to investors come from the thousands of mortgages that underlie the bond — specifically, the repayments in interest and principal the mortgage-holders make each month.

Mortgage-backed securities offer key benefits to the players in the mortgage market, including banks, investors and even mortgage borrowers themselves. However, investing in an MBS has pros and cons.

How do mortgage-backed securities work?

While we all grew up with the idea that banks make loans and then hold those loans until they mature, the reality is that there’s a high chance that your lender is selling the loan into what’s known as the secondary mortgage market. Here, aggregators buy and sell mortgages, finding the right kind of mortgages for the security they want to create and sell on to investors. This is the most common reason a borrower’s mortgage loan servicer changes after securing a mortgage loan.

Mortgage-backed securities consist of a group of mortgages that have been organized and securitized to pay out interest like a bond. MBSs are created by companies called aggregators, including government-sponsored entities such as Fannie Mae or Freddie Mac. They buy loans from lenders, including big banks, and structure them into a mortgage-backed security.

Think of a mortgage-backed security like a giant pie with thousands of mortgages thrown into it. The creators of the MBS may cut this pie into potentially millions of slices — each perhaps with a little piece of each mortgage — to give investors the kind of return and risk they demand. Mortgage-backed securities typically pay out to investors on a monthly basis, like the mortgages underlying them.

Types of mortgage-backed securities

Mortgage-backed securities may have many features depending on what the market demands. The creators of MBSs think of their pool of mortgages as streams of cash flow that might run for 10, 15 or 30 years — the typical length of mortgages. But the bond’s underlying loans may be refinanced, and investors are repaid their principal and lose the cash flow over time.

By thinking of the characteristics of the mortgage as a stream of risks and cash flows, the aggregators can create bonds that have certain levels of risks or other characteristics. These securities can be based on both home mortgages (residential mortgage-backed securities) or on loans to businesses on commercial property (commercial mortgage-backed securities).

There are different types of mortgage-backed securities based on their structure and complexity:

Pass-through securities: In this type of mortgage-backed security, a trust holds many mortgages and allocates mortgage payments to its various investors depending on what share of the securities they own. This structure is relatively straightforward.
Collateralized mortgage obligation (CMO): This type of MBS is a legal structure backed by the mortgages it owns, but it has a twist. From a given pool of mortgages, a CMO can create different classes of securities that have different risks and returns (like different size slices, if we use our pie metaphor again). For example, it can create a “safer” class of bonds that are paid before other classes of bonds. The last and riskiest class is paid out only if all the other classes receive their payments.
Stripped mortgage-backed securities (SMBS): This kind of security basically splits the mortgage payment into two parts, the principal repayment and the interest payment. Investors can then buy either the security paying the principal (which pays out less at the start but grows) or the one paying interest (which pays out more but declines over time). These structures allow investors to invest in mortgage-backed securities with certain risks and rewards. For example, an investor could buy a relatively safe slice of a CMO and have a high chance of being repaid, but at the cost of a lower overall return.

How do mortgage-backed securities affect mortgage rates?

The cost of mortgage-backed securities has a direct impact on residential mortgage rates. This is because mortgage companies lose money when they issue loans while the market is down.

When the prices of mortgage-backed securities drop, mortgage providers generally increase interest rates. Conversely, mortgage providers lower interest rates when the price of MBSs goes up.

So, what causes mortgage-backed securities to rise or fall? Everything from stock market gains to higher energy prices and even unemployment numbers have the ability to influence the prices. A variety of factors that affect the course of mortgage-backed securities, and lenders are constantly monitoring it.

Mortgage-backed securities and the housing market

Why do mortgage-backed securities make sense for the players in the mortgage industry? Mortgage-backed securities actually make the industry more efficient, meaning it’s cheaper for each party to access the market and get its benefits:

Lenders: By selling their mortgages, lenders save on maintenance costs, and receive money they can then loan out to other borrowers, allowing them to more efficiently use their capital. They often require borrowers to meet conforming loan standards so that they can sell mortgages to aggregators. They can also sell the loans they might not want to keep, while retaining those they prefer.
Aggregators: Aggregators package mortgages into MBSs and earn fees for doing so. They may give mortgage-backed securities features that appeal to certain investors. A steady supply of conforming loans allows aggregators to structure MBSs cheaply.
Borrowers: Because aggregators demand so many conforming loans, they increase the supply of these loans and push down mortgage rates. So, borrowers may be able to enjoy greater access to capital and lower mortgage rates than they otherwise would.

Of course, easier access to financing is beneficial for the housing construction industry: Developers can build and sell more houses to consumers who are able to borrow more cheaply.

Investors like mortgage-backed securities, too, because these bonds may offer certain kinds of risk exposure that the investors, mainly big institutional players, want to have. Even the banks themselves may invest in MBSs, diversifying their portfolios.

While the lender may sell the loan, it may also retain the right to service the mortgage, meaning it earns a small fee for collecting the monthly payment and generally managing the account. So, you may continue to pay your lender each month for your mortgage, but the real owner of your mortgage may be the investors who hold the mortgage-backed security containing your loan.

Pros and cons of investing in MBSs

No investment is without risk. MBS have their advantages and disadvantages.

For instance, mortgage-backed securities typically pay out to investors on a monthly basis, like the mortgages behind the securities. But, unlike a typical bond where you receive interest payments over the bond’s life and then receive your principal when it matures, an MBS may often pay both principal and interest over the life of the security, so there won’t be a lump-sum payment at the end of the MBS’ life.

Here are some of the other advantages and disadvantages of investing in MBSs.

Pros

Pay a fixed interest rate
Typically have higher yields than U.S. Treasuries
Less correlated to stocks than other higher-yielding fixed income securities, such as corporate bonds

Cons

If a borrower defaults on their mortgage, the investor will ultimately lose money
The borrower may refinance or pay down their loan faster than expected, which can have a negative impact on returns
Higher interest rate risk because the cost of MBSs can drop as soon as interest rates increase

History of mortgage-backed securities

The first modern-day mortgage-backed security was issued in 1970 by the Government National Mortgage Association, better known as Ginnie Mae. These mortgage-backed securities were actually backed by the U.S. government and were enticing because of their guaranteed income stream.

Ginnie Mae began providing mortgage-backed securities in an effort to bring in extra funds, which were then used to purchase more home loans and expand affordable housing. Shortly after, government-sponsored enterprises Fannie Mae and Freddie Mac also began offering their version of MBSs.

The first private MBS was not issued until 1977, when Lew Ranieri of the now-defunct investment group Salomon Brothers developed the first residential MBS that was backed by mortgage providers, rather than a federal agency. Ranieri’s MBSs were offered in 5- and 10-year bonds, which was attractive to investors who could see returns more quickly.

Over the years, mortgage-backed securities have evolved and grown significantly. As of May 2023, financial institutions have issued $493.9 billion in mortgage-backed securities.

Mortgage-backed securities today

While mortgage-backed securities were notoriously at the center of the global financial crisis in 2008 and 2009, they continue to be an important part of the economy today because they serve real needs and provide tangible benefits to players across the mortgage and housing industries.

Not only does securitization of mortgages provide increased liquidity for investors, lenders and borrowers, it also offers a way to support the housing market, which is one of the largest engines of economic growth in the U.S. A strong housing market often bolsters a strong economy and helps employ many workers.

Mortgage Market

Bankrate insights

As of 2021, 65% of total home mortgage debt was securitized into mortgage-backed securities.

Bottom line on mortgage backed securities

While you might not deal with a mortgage-backed security in your daily life, your mortgage may be part of one. And if so, it’s a cog in the machinery that keeps the financial system running and helps borrowers access capital more cheaply. It can be useful to understand that the MBS market ultimately has a powerful influence over qualifications for mortgages, resulting in who gets a loan — and for how much.

Source: finance.yahoo.com

Apache is functioning normally

June 8, 2023 by Brett Tams

The unofficial start of summer is finally upon us, and not a moment too soon! School is (almost) out, the sun is high, and surf and sand are calling. Thoughts of your own little beach house might be very much on your mind, especially right now. But then reality intrudes: Who can afford that? Well, you could be surprised.

We found five ideal seaside dwellings that are remarkably well priced—all below a million dollars.

And one of the great things about most of these houses is that you can try before you buy. Most are available for short-term rental, and some come fully furnished.

Of course, this means that these well-appointed and perfectly located beachfront homes generate income, which can help with your house payments.

You can almost smell the salt air and hear the waves as you browse our list. Dive in!

Price: $949,000
Yachats rocks: Directly overlooking the beach on the dramatic Oregon coast, this newly renovated, four-bedroom, three-bath home has everything you need for a stylish escape for a weekend, or for decades to come.

Located on a bluff above the ocean, the home features a short path to the beach. It’s about 1.5 hours from Corvallis and three hours from Portland.

Expansive windows and decks with built-in seating allow you sweeping vistas of the ocean. You can also take in the views from one of two primary suites. Everything feels freshly new and nautical inside this 2,034-square-foot seaside home.

Price: $750,000
Cozy in Carrabelle: What appears to be a quaint seaside cottage on stilts is actually a decent-size domain with three bedrooms and three baths. The acre lot comes with three outbuildings and covered parking for your car, boat, or RV.

You might never want to leave this retreat, with its beautiful tongue-and-groove ceilings and wood floors. Standout features include a loft bedroom, three sunrooms, and remarkable views of the private beach and Saint George Sound.

It’s located in the town of Carrabelle, which prides itself on being “Florida Panhandle’s Gateway to the Gulf” and is known for its off-shore fishing and sugar-white sand.

Price: $999,000
Spend nights in Rodanthe: Remember that Nicolas Sparks novel made into an iconic rom-com starring Diane Lane and Richard Gere, called “Nights in Rodanthe”? In this traditional-style, shingled beach house, you can write your own romance.

Or you could let others create some seaside drama, as this six-bedroom, 4.5-bath, 2,924-square-foot home has a heart-racing rental history—$124,000 so far, with $85,000 already on the books for 2023. Hatteras Island on the famous Outer Banks is a well-documented vacation paradise.

You and your guests will enjoy taking long walks on the beach, just steps outside the door, and sunrise views from the east-facing windows and decks. There are also plenty of places to snuggle—including a great room and several seating areas.

Price: $750,000
Delightful on Dauphin Island: This beach house supports itself, not just literally on the stilts that keep it above the high tides, but also financially with its vacation rental income ($125,000 as of 2022).

The four-bedroom, three-bath house sits on a sandy spit of Dauphin Island, which stretches from the Mississippi Sound to the Gulf of Mexico. It’s a short walk across the sand from one body of water to the other.

This cottage is rustic chic on the outside and resort luxe on the inside. It features a comfortable main suite, a marble island and breakfast bar in the kitchen, and all-new bathrooms. It comes with all the furnishings, accessories, and artwork, so it’s totally turnkey.

Price: $579,000
Best beach buy: South of Tallahassee on the Gulf of Mexico sits this three-bedroom, two-bath abode with direct access to the ocean and a terrific spot for fishing.

The elevated home comes with an outdoor shower and a sink below, so you can catch, clean, and cook without making a mess in the indoor kitchen.

The screened porch off the great room features remarkable views. Inside, there are vaulted ceilings and low-maintenance tile flooring. This is also a well-established vacation rental property, and all the furniture is included in the very reasonable asking price.

Source: realtor.com

Apache is functioning normally

June 8, 2023 by Brett Tams

If you have a savings account, how much interest does it earn? Probably not enough. And if you don’t have a savings account, why not?

A savings account isn’t meant to make you rich. It’s a safe, if not very sexy, way to plan for your future and protect your money. But things get more interesting when you choose a high-yield savings account instead of a traditional savings account. A traditional account will pay pennies on your balance, but a high-yield savings account can help you earn extra money you’ll actually notice.

But how do you choose a savings account when there are so many out there? We did the research for you. These are the top high-yield savings accounts with the best interest rates, features, and benefits.

What’s Ahead:

Best high-yield savings accounts

The Ally Online Savings Account is our top pick for the best high-yield savings account overall because it consistently offers a competitive interest rate and includes features to help you save. For beginners, the Discover Online Savings Account might be a better option thanks to its simple platform and above-average support. The CIT Savings Account is our second runner-up because it has the highest APY of the bunch but does come with a minimum deposit requirement.

We also considered the Axos Bank High-Yield Savings Account, High-Yield Chime® Savings Account, Capital One 360 Performance Savings Account, and Marcus Online Savings Account for our list. Even though these didn’t make our top three, they’re all good choices well worth checking out.

Best overall: Ally Online Savings Account

Pros

No fees
No minimums
Boosters to help you save faster

Cons

No branch locations

Features

Minimum balance: $0
Minimum deposit: $0
APY: 2.50%
Monthly fee: $0

The Ally Online Savings Account is the best high-yield savings account overall offering a generous interest rate and tons of free features to help you save. And speaking of free, this account really is. There are no monthly maintenance fees, overdraft fees, or transfer fees to deplete your earnings.

This high-yield savings account supports you to save by giving you the option to create buckets for different goals and use boosters to save faster. The boosters are:

Recurring Transfers – schedules automatic transfers from a linked account
Round Ups – rounds up your Ally debit card purchases to the nearest dollar and sends the extra to your savings
Surprise Savings – points out money in your checking account that isn’t being used for anything and moves it to your savings

This account is easy to open. There are no minimum balance requirements to earn interest and you can fund it with as little as $0.01. While Ally technically uses balance tiers (<$5,000, $5000 – $24,999.99, and >$25,000), all positive balances currently earn the same rate.

For help with any issues you might have, Ally offers 24/7 live customer support via chat or phone.

Learn more about the Ally Online Savings Account or read our full review.

Best for beginners: Discover Online Savings Account

Pros

No fees
No minimums
Instant transfers between Discover accounts

Cons

Very few branch locations
No advanced savings features like buckets or round-ups

Features

Minimum balance: $0
Minimum deposit: $0
APY: 4.00%
Monthly fee: $0

The Discover Online Savings Account gets pretty much everything right, from the competitive interest rate to the lack of account fees. We love this high-yield savings account for beginners because it’s easy to use and doesn’t have minimums.

There is no minimum deposit to open or minimum balance required to earn interest or avoid having your account shut down, making this the perfect option for you even if you only have a few bucks to put away right now. You can even open an account with nothing and come back later to fund it.

Although this is a pretty basic account with few bells and whistles, there’s no monthly maintenance fee to worry about and you’ll earn interest on any balance. Plus, the Discover mobile app is notoriously solid, and ditto for customer service.

Interest is compounded daily and credited monthly into your account. If you have a Discover checking account and debit card, you can easily transfer money between this and your savings account. You can also schedule automatic recurring transfers to put your saving on autopilot.

Discover does have some branch locations, but they’re really limited, so you might not have the option to manage your account in person. This account also lacks features to help organize and simplify your saving such as buckets and round-ups.

Learn more about the Discover Online Savings Account or read our full review.

Best for long-term saving: CIT Savings Connect Account

Pros

No fees
No minimum balance

Cons

Minimum deposit required
No branch locations

Features

Minimum balance: $0
Minimum deposit: $100
APY: 4.50%
Monthly fee: $0

For high-interest saving, the CIT Savings Connect Account is an excellent choice. This is a newer account with a really competitive APY of 4.50%. There are no minimum balance requirements to earn this rate and you only need to deposit $100 to open. Plus, there are no monthly fees. See details here.

CIT Bank also reimburses up to $30 in third-party ATM fees per statement period and supports free mobile check deposits and external transfers.

The CIT Savings Connect account currently pays the same interest rate on all balance tiers, so you don’t have to worry about maintaining a certain balance or making regular deposits to avoid fees and earn more (although automating your saving is never a bad idea).

This basic account would be a good fit for most people, especially those looking for a fee-free option with no balance requirements. It has one of the best rates and is one of the most straightforward to open and use, so it could make a great primary or secondary savings bucket. Choose the CIT Savings Connect account if getting the best interest rate is your top priority.

CIT Bank offers a number of other savings products including stand-out money market accounts and CDs, so keep this bank in mind if you have a few different savings goals and want to make sure you’re getting the highest rates.

Learn more about the CIT Savings Connect account.

CIT Bank. Member FDIC.

CIT Savings Builder Account

And if you’re looking for another option from this online bank, you can do worse than the CIT Savings Builder Account. This high-yield savings account offers an interest rate of up to 1.00% with a low minimum initial deposit requirement of $100. There is no minimum balance required to keep your account, but your balance will determine your interest rate. See details here.

The CIT Savings Builder Account uses a tiered rate structure with a loophole. The balance tiers and interest rates are:

<$25,000 – 0.40% APY
<$25,000 – 1.00% APY if you make a monthly deposit of $100 or more
>$25,000 – 1.00% APY

If you can’t afford to put away more than $25,000, no worries. Just schedule an automatic transfer of at least $100 from a linked bank account to get yourself into the higher tier. This can also help you make saving a priority.

Because of the tiered interest rate structure, this high-yield savings account is ideal for people who plan to keep high balances and/or make regular contributions to their savings.

Learn more about the CIT Savings Builder Account or read our full review.

CIT Bank. Member FDIC.

Great alternatives

These accounts didn’t make our top three, but they still have a lot to offer, especially if you’re looking for an online savings account.

Axos Bank High-Yield Savings Account

Features

Minimum balance: $0
Minimum deposit: $250
APY: Up to 0.61%
Monthly fees: None

An Axos Bank High-Yield Savings Account is the right high-yield savings account for anyone looking to keep a low balance. There is a minimum deposit requirement of $250 to open an account, but any amount you save will earn interest. Axos uses a tiered rate structure but actually pays the highest rates on the lowest balances. You’ll earn 0.61% as long as your account stays below $24,999.99.

Each account comes with a free ATM card upon request for easy withdrawals. Plus, you can earn a referral bonus of $20 for every friend who opens an Essential Checking account using your unique link.

Open an Axos savings account or read our full review.

High-Yield Chime® Savings Account

Features

Minimum balance: $0
Minimum deposit: $0
APY: 2.00%⁷
Monthly fees: None²

The High-Yield Chime Savings Account is a great online savings account that does your saving for you. With the Round Up Transfer and Save When I Get Paid features, you can completely forget about your saving and still make progress toward your goals. Round Ups will send the spare change from your purchases right to your savings^ and Save When I Get Paid lets you transfer up to 10% of each direct deposit of $500 or more to your savings account ¹. A Chime Checking Account is required to be eligible for a Savings Account.

This account charges no maintenance fees and has no minimum deposit or balance requirements. Check out Chime checking if you like the idea of saving and banking in one place with a platform that’s easy to use*.

Read our full review.

* Chime is a financial technology company, not a bank. Banking services provided by The Bancorp Bank, N.A. or Stride Bank, N.A., Members FDIC.
^ Round Ups automatically round up debit card purchases to the nearest dollar and transfer the round up from your Chime Checking Account to your savings account.
¹ Save When I Get Paid automatically transfers 10% of your direct deposits of $500 or more from your Checking Account into your savings account.
² There’s no fee for the Chime Savings Account. Cash withdrawal and Third-party fees may apply to Chime Checking Accounts. You must have a Chime Checking Account to open a Chime Savings Account.
⁷ The Annual Percentage Yield (“APY”) for the Chime Savings Account is variable and may change at any time. The disclosed APY is effective as of November 17, 2022. No minimum balance required. Must have $0.01 in savings to earn interest.

Capital One 360 Performance Savings Account

Features

Minimum balance: $0
Minimum deposit: $0
APY: 3.00%
Monthly fees: None

Opening a Capital One 360 Performance Savings account might be the way to go if you’re looking to automate your saving with a familiar consumer bank. This account pays the same interest rate of 3.00% on all balances and doesn’t cost anything to open. To stay on track with your saving, you can schedule recurring transfers from a Capital One or external account.

If you already have an account with Capital One, you’ll be able to make quick transfers from the app. Finally, there are Capital One branches and ATMs all over the country if you like the option of banking in person.

Open a Capital One savings account or read our full review.

Marcus Online Savings Account

Features

Minimum balance: $0
Minimum deposit: $0
APY: 2.50%
Monthly fees: None

Marcus by Goldman Sachs is an online-only bank owned by investment company Goldman Sachs. A Marcus Online Savings Account is ideal for people who want control over their savings and like to strategize different ways to grow their money. This account offers a variety of tools and extensive research to help you make informed decisions with your savings and track your progress. You can even see exactly how much interest you’ve earned from the app.

You’ll earn 2.50% regardless of your balance and there’s no minimum deposit.

Open a Marcus savings account or read our full review.

What is a high-yield savings account?

A high-yield savings account offers a higher yield than traditional savings accounts. How much higher completely depends on the market and the institution, but may be as much as ten or fifteen times the average. You might also hear the term high-interest savings account used — this is the same thing.

Right now, the national average interest rate on a savings account is 0.37%, according to the Federal Deposit Insurance Corporation or FDIC. The FDIC determines rate caps each month using the average interest rates for savings accounts, checking accounts, money market accounts, and certificates of deposit across all banks and credit unions.

How savings account interest works

There are two different ways interest can work with high-yield accounts. The first is to earn a variable interest rate and the second is to earn a tiered interest rate.

A high-yield savings account with a variable rate will pay the same interest rate on any balance. A savings account that uses a tiered interest structure will determine your rate based on your average balance and pay you according to which balance tier you fall into.

With a tiered interest rate, you often earn more interest the higher your balance is. This is to incentivize people to keep more money in their accounts. With a variable interest rate, it doesn’t matter what your balance is as long as you meet the minimum balance requirements (if there are any).

To make things a little more confusing, sometimes a bank or credit union will use a tiered interest rate structure but make the interest rate the same for every balance tier. All interest rates for online savings accounts are subject to change at any time.

Before you apply for an account, find out what rate you’ll qualify for with your balance and activity. Don’t get tricked into opening a high-yield savings account for the great interest rate unless you know you’ll actually earn that rate.

For example, a bank may advertise a high-yield savings account with an interest rate of 3.00% APY, but this rate only applies to balances over $15,000. The difference between the highest and lowest interest rates can be significant, so make sure you don’t get stuck with a lousy rate.

Read more: How to get the best savings account interest rate

What is the annual percentage yield (APY)?

Annual percentage yield is the rate of return you will earn calculated as a percentage of your savings account balance. You’ve probably noticed that the APY on an account is very slightly different from the interest rate. This is because the interest rate only shows simple interest.

The annual percentage yield or APY shows how much interest you can earn each year if you don’t take any of your money out. We like to look at the annual percentage yield rather than just the interest rate because it factors in compounding interest.

To estimate how much you can earn on a high-interest savings account, multiply the APY by your balance to see how much your account will grow if you don’t touch it.

When is interest calculated?

Interest may be calculated daily, weekly, or monthly for a savings account. This is how often your balance is used to determine how much interest you’ve earned.

This frequency can affect your earnings, and daily calculation is the best-case scenario. This is because the more frequently interest is calculated, the higher your balance will be each time it happens thanks to the interest you’ve already been paid. Interest you earn on interest is referred to as compound interest.

For example, a $1,000 balance earning a 1% interest rate pays you $10 in simple interest over a year. If interest is calculated daily, that $10 becomes $10.05 a year.

Read more: Savings interest calculator

Is interest taxed?

Yes, the interest you earn from your savings account will be taxed alongside your income, no matter how much money you bring in.

How to open a high-yield savings account

The basic process for opening a savings account is pretty much the same anywhere you go.

First, you’re going to provide some personal details including your basic contact information. Once your account has been approved, you’ll choose a funding option. Your options might be:

ACH transfer
Wire transfer
Direct deposit
Check deposit (paper or mobile)
Cash deposit

You need to meet minimum opening deposit requirements for your account when funding. Some banks will let you open a savings account without making a deposit right away. Just make sure you know the rules for your chosen account.

If you already have an account with the bank or credit union you’ve chosen, you can link this with your new savings account either before or after funding. This will allow for easy transfers in the future.

How to use a high-yield savings account

There’s a difference between just having a high-yield savings account and using it for all its worth. Here are some ways to make the most of high-interest savings.

Emergency fund

A high-yield savings account is the perfect place to keep your emergency fund. We recommend you have one savings account where you keep at least six months of your monthly living expenses, completely separate from the rest of your cash. You can take the money out if you get sick, lose your income, or face a large unexpected expense, and your balance will grow until then.

Short-term saving

A high-interest savings account is also a great place to save for short-term goals when you don’t want to put your money on the line with higher-risk investments. These accounts are safe and liquid, so your money is there when you’re ready for it and earning interest when you’re not.

For example, if you’re saving money to buy a new car or for your wedding in the next couple of years, you may be able to get a higher rate of return by investing in a mutual fund or other securities. But in such a short period of time, you may lose money. Investments are best for savings goals more than a few years away. For shorter-term goals, savings accounts are safer.

No matter what you’re saving for, a good rule of thumb is to save as often as possible and think about it as little as possible. If you rely on yourself to remember or feel like putting away money to save, you might have more trouble meeting your goals and start feeling frustrated when you don’t see your balance go up. Instead, take advantage of features that do the work for you. To save automatically, you can:

Set recurring transfers
Split your paycheck
Use booster features like roundups

Read more: The best place for short-term savings

What is the withdrawal limit for savings accounts?

Most savings accounts limit the number of withdrawals you’re allowed to make. This started with Federal Regulation D.

Federal Regulation D was a rule that limited the number of withdrawals or transfers that could be made from a savings account to six per month. This included withdrawals made in person, by phone, online, or through any other type of electronic transfer. If you made more than six transfers or withdrawals in a month, your bank might have charged you an excessive withdrawal fee or closed your account.

In April 2020, Regulation D was suspended, but many banks still choose to restrict transactions and enforce the same penalties.

What to look for in a high-yield savings account

There are certain standout features that can immediately make or break a high-yield savings account.

Here are the main things to pay attention to when shopping for a savings account.

Minimum balance requirements

How much do you realistically plan to save? This is the first question you should ask yourself before signing up for an account. Many savings accounts have minimum balance requirements, and you won’t be doing yourself any favors if you open an account and can’t meet these.

If your account does have balance requirements, you must meet them in order to:

Avoid monthly maintenance fees
Earn interest
Keep your account

Your balance at the end of each day is used to determine if you’re meeting requirements. If you’re not, you might be penalized.

Not all high-yield savings accounts have minimum balance requirements. Especially for online savings accounts, it’s becoming more common to not have any.

Read more: How much money should you save each month?

Minimum deposit requirements

Some banks may require you to make a certain minimum deposit when signing up for your account. Failure to do so may disqualify you from opening an account or result in a fee.

A minimum deposit requirement could be anywhere from $5 to $500. Sometimes minimum deposit and minimum balance requirements are the same, and sometimes not. It’s not uncommon for a bank to have a minimum deposit requirement but no minimum balance requirement or vice versa.

Many high-yield online savings accounts have very low or no minimum deposit requirements.

Interest and APY

You’re naturally going to gravitate toward accounts with the highest interest rates, right? That’s free money that you don’t have to work for. But be sure to pay attention to the requirements to earn interest too, not just the annual percentage yield.

For example, if a bank requires you to maintain a balance you can’t maintain to earn interest, it’s probably not the right bank for you. For your first savings account, you might prefer a variable interest rate over a tiered interest rate so you don’t have to worry about if your balance is high enough to earn interest.

Some banks also reserve their best interest rates for preferred customers. This might mean you need to have another account such as a checking account or loan to qualify for the highest APY, and that might be more trouble than it’s worth.

Monthly fees

Some banks still charge monthly maintenance fees on savings accounts, but many don’t. When your goal is to earn money on your savings, monthly fees you get charged just for having an account can really get in the way.

While you should generally look for accounts that don’t charge fees, you might make an exception if a bank offers a waiver. For example, the fee may be waived if you maintain a certain minimum balance in your account for each statement cycle or make a recurring transfer from another account.

If you feel like you can easily meet the requirements to waive a fee and an account is otherwise a perfect fit, go for it.

Cash access

Most people try to ignore the money in their high-yield savings account when they can to take advantage of compound interest.

But life happens, and sometimes you need to dip into your savings. When that happens, you should have convenient access to your money. You might be able to make a withdrawal via:

ACH transfer
Cash withdrawal
ATM withdrawal

Most savings accounts give you the option to make a transfer from your savings to a linked checking account. This checking account can either be with the same bank or another one entirely. If with the same bank, transfers may be instant.

Some banks also offer ATM cards with high-yield savings accounts, though you may incur a fee for ATM transactions. You can also make cash withdrawals at branch locations.

Any transfers or withdrawals you make will count toward your monthly transaction limit.

Mobile apps

Almost every bank out there offers a mobile app today, but some are far better than others. As you’re researching the features of an account, always look into the app too.

Saving from your phone only works when an app does what it’s supposed to, so functionality and convenience are important. You should be able to easily access your savings account, initiate transfers, and see your balance at any time. Those are the basics. You might also want an app that will let you make mobile check deposits, create savings goals, and chat with customer support when there’s an issue.

As a rule, online banks and larger institutions tend to have the best mobile apps. But while you might be looking for an app that’s simple and straightforward to use, someone else might prefer a robust app with educational resources, features, and a variety of notifications. Check out some customer reviews to see what real users have to say about their experiences.

Sign-up bonus

Many banks and credit unions offer sign-up bonuses when you open a high-yield savings account. These offers change all the time and can be quite enticing. For example, bonuses up to $200 are not uncommon. But while sign-up bonuses are nice, they’re not more important than interest rates, fees, and minimums.

Also, be aware that sign-up bonuses come with restrictions. Typically, you’ll need to maintain a certain minimum balance for a set amount of time to qualify. This may be six months or even longer. If your account balance drops below the minimum requirement at any time during the first six months, you may forfeit the bonus. Many bonuses also come with direct deposit requirements.

If you do qualify, you probably won’t get the bonus right away and may have to wait several weeks. All this to say that sign-up bonuses aren’t a good option for getting quick cash. Consider these after all of the other features we’ve outlined.

Are high-yield savings accounts safe?

Your money can’t get a lot safer than it is when it’s in a savings account.

Almost all savings accounts with banks are protected by the Federal Deposit Insurance Corporation (FDIC) and insured for up to $250,000 per depositor. This insurance coverage protects your money in the event that your bank loses money and is unable to repay its deposits. Almost all savings accounts with credit unions are protected by the National Credit Union Administration (NCUA) for up to $250,000 per depositor. This provides the same protections.

If a bank or credit union is not FDIC- or NCUA-insured, you may qualify for private deposit insurance.

Benefits of online savings accounts

High-yield savings accounts and online savings accounts are often one and the same. Here are some of the top benefits you can expect from an online savings account.

Higher interest

A traditional savings account with your bank or credit union might seem like the best choice, but you can do a lot better. Compared to traditional accounts, online savings accounts tend to offer much better interest rates, plus benefits like fewer fees, extra savings features, and the convenience of opening and managing your account completely online (or from your phone).

Online savings accounts can pay higher interest rates because digital accounts are cheaper to operate, lowering a bank’s costs and passing on the savings to you in the form of better interest.

Fewer fees

Online savings accounts almost always have lower fees than traditional savings accounts for the same reasons they can offer better rates. Many charge no monthly fees at all.

Avoiding monthly fees like maintenance fees, low balance fees, and inactivity fees can save you serious money in the long run. Plus, let you actually keep the interest you’ve earned.

Convenience

Online savings accounts are much more convenient to open and use. You can open your account online and fund it by just transferring the money from another account. Usually, all of this takes less than five minutes.

An online account lets you make deposits, transfer money, pay bills, and see your account activity at any time without the need for a phone call or visit to the bank. You can even view your account statements and track your progress. If you’re not a fan of brick-and-mortar branches, an online savings account either with a fully-digital bank or a hybrid bank could be perfect for you.

Perks and benefits

Online savings accounts tend to come with a lot of great, free features. Automatic transfers into your savings account from your checking account, mobile check deposit, and account alerts are just a few common ones.

Some online savings accounts go above and beyond this. They might offer savings support like boosters and automated tools, help you create a saving strategy with resources and insights, or the option to organize your savings into separate buckets or categories.

Read more: Best online savings accounts

Disadvantages of savings accounts

Although a great tool for saving for your future and protecting your finances, savings accounts in general do have limitations. Let’s talk about some of those here.

Limited withdrawals

One of the main disadvantages of high-yield savings accounts is limited cash access. A lot of this has to do with withdrawal restrictions.

Remember, you’re often restricted to just six transactions per statement period with a savings account. This is a limit that was originally set by the federal government that many accounts still stick to. You shouldn’t use your savings account as a secondary spending account because when you hit that limit, you risk losing the account. This is why savings accounts should be for money you don’t immediately need.

If you’re looking for a place to set aside some extra money you do plan to dip into regularly, consider a high-yield checking account instead of a savings account. While the rates for high-yield checking accounts aren’t usually as good as the rates for high-yield savings accounts, you’ll have more flexibility to spend your money.

Read more: Best high-yield checking accounts compared

Rates can change at any time

Another downside to savings accounts is that the interest rates are always variable. This means the rate you earn on your balance can change at any time, and it definitely will as the market fluctuates. It’s important to remember that you’re not locked into the annual percentage yield you sign up for when you open a high-yield savings account.

And if the rate does change, your bank doesn’t have to give you any sort of warning. Although competitive high-yield savings accounts will, for the most part, stay competitive and continue offering the highest yields compared to other accounts, there’s no telling how much you’ll earn in dividends a year from now.

You should choose a high interest rate but know that it can change and don’t rely on the dividends for income.

Security risks

With any type of financial account, there are going to be certain safety concerns. While these are really minimal with an insured savings account, you can take steps to maximize your personal security.

If an account offers multi-factor authentication, set it up (it’s free anyway). If you have the option to enroll in fraud protection, do it. Set up account alerts to notify you about suspicious activity and check your balance often to make sure everything looks good.

FDIC and NCUA protection will keep you safe from losing all of your money if your bank goes bankrupt, but it’s your responsibility to make sure your account is as safe as it can be from hackers.

Read more: How to make online banking more secure

Are high-yield savings accounts worth it?

The answer to this question is probably, but it really depends on what kind of account you choose. We’ll say it again, we always prefer an online savings account with no minimums and no fees. Even if you can’t yet afford to set much money aside, you can start earning a small amount of interest on your balance and setting those good savings habits with free accounts.

But if you open a savings account that charges monthly maintenance fees, overdraft fees, low balance fees, etc., you’re going to have to work harder to make the account worth it. Keep in mind that all of these fees can eat into and even exceed your interest earnings, causing you to lose money in the long run.

So basically, as long as you don’t make the mistake of choosing the wrong account and letting it drain your earnings, you have nothing to lose.

High-yield savings accounts vs. money market accounts (MMAs)

Which is the better option for your money right now: a high-yield savings account or a money market account?

A money market account or MMA is a special type of savings account. They typically have higher balance requirements to earn interest but may offer better interest rates than high-yield savings accounts. Usually, MMAs pay tiered variable interest rates so the more you save, the more you earn.

MMAs often come with higher fees, higher deposit requirements, and higher balance requirements than savings accounts. While they can earn more depending on the interest rate environment, right now the best rates are really comparable between high-yield savings accounts and MMAs.

Savings accounts and money market accounts have the same transaction limit of six per statement period.

Read more: 9 best money market accounts

High-yield savings accounts vs. certificates of deposit (CDs)

A certificate of deposit or CD is a type of deposit account that usually offers a fixed interest rate for a fixed term. This means that the amount of money you earn on your deposits is guaranteed for the length of the CD term.

CD terms can range from as little as one month to as much as 10 or even 20 years. During the term of the CD, you agree not to withdraw any of the money you’ve deposited. If you do need to access your money before the end of the term, you’ll pay an early withdrawal penalty fee.

Early withdrawal fees are equal to the interest you earn for a set number of days or months. For example, you may pay three months’ interest for taking money out of a one-year CD early.

Because of early withdrawal fees, you risk losing your interest in a CD, so you should only deposit money you’re absolutely certain you won’t need until the term is up.

Stick with a savings account until you have an emergency fund built up before you consider a CD. CDs can be better vehicles for long-term saving but they should not replace your emergency savings account.

Read more: Best CD rates of 2023

Source: moneyunder30.com

Apache is functioning normally

June 8, 2023 by Brett Tams

Editor’s Note: Since the writing of this article, President Biden signed the debt ceiling bill on June 4, canceling the federal student loan payment pause as of Aug 30, or “60 days after June 30.” Later this month, the Supreme Court will decide whether the Biden-Harris Administration’s Student Debt Relief Program can proceed. Loan payments are expected to resume in October.

Student loans are a significant issue in the United States, where consumers have more than $1.7 trillion in total student loan debt. In 2021, the average federal student loan debt per borrower was just over $37,000. And 20 years after students enter college, half of borrowers still owe $20,000 in student loans.

Broken down by degree levels, the debt increases. Graduate students who receive a degree leave school with an average of nearly $70,000 in debt. Law students are saddled with an average of $180,000; and medical students owe $250,000 on average for total student loan debt.

With so many borrowers and so much debt, it begs the question, “Should all student loan debt be forgiven?”

Who’s in Favor?

By a 2-to-1 margin, voters do support at least some student loans being forgiven, according to a poll from Politico and Morning Consult. And 53% of voters from the same poll support Biden’s extension of student loan payments through August.

Proponents of canceling student loan debt point out that the government is partially responsible for this debt crisis. Because many states slashed higher education funding after the 2008 recession, tuition at both public and private colleges has gone up steeply, and many students have been forced to take out even more in loans.

Unfortunately, the increase in student loan balances hasn’t gone hand in hand with a bump in post-college salary. The result is a national situation where borrowers owe increasingly more in student loans but don’t have the paycheck to aggressively tackle their balances.

Although the government has created income-driven repayment options that seek to keep monthly student loan payments affordable, signing up isn’t without its downsides.

Since these income-driven plans often lengthen loan terms, borrowers may pay significantly more interest on their loans over time. Also, any forgiven balance at the end of their loan term is typically treated as taxable income.

Why Forgiving Student Loan Debt a Isn’t a Slam-Dunk

There are several reasons why forgiving student loan debt may not be a straightforward positive. The first is that, according to U.S. tax laws, debt that’s forgiven is a taxable event. Under income-driven student loan repayment plans, for instance, if you make consistent, on-time payments for the life of the loan (20 or 25 years, depending on when you borrowed), any balance remaining at the end of your loan term is forgiven — but whatever’s forgiven is considered taxable income.

The second issue pundits raise with this plan is that it’s being sold as a stimulus: If the government forgives people’s student loan debt, they’ll put money back into the economy, the thinking goes. But forgiving debt isn’t the same as handing people a check.

And finally, the federal government so far isn’t planning to forgive student loans that borrowers hold with private lenders, which average over $54,000 per borrower.

Alternative Options to Canceling Student Loan Debt

Instead of targeting only student loan borrowers who qualify for relief, the government could provide a stimulus check to all Americans, and Americans could decide for themselves how to use it.

If someone has $10,000 in outstanding student loans, for example, they might prefer to use a check to put a down payment on a house or pay off high-interest credit card debt.

Then there’s the higher education system itself. Canceling or forgiving student loan debt may provide only temporary relief as long as tuition levels continue to rise. As it stands, future generations will be saddled with just as much, if not more, student debt than Americans currently have today.

Tackling Your Student Loan Debt

There’s no telling when or if some form of more long-term relief might appear for student loan borrowers. If you’re struggling under the weight of your student debt, there are strategies that might help:

• Alternative payment plans: Federal student loans come with a variety of repayment options, one of which might suit your situation.

• Direction of overpayments: If you make extra payments on your student loans, you may instruct your servicer to apply them to your principal, rather than the next month’s payment plus interest. This will help pay off your loans faster.

• “Found” money: If you receive a work bonus or tax refund, applying it to your student loans can help reduce your balance faster.

• Refinancing: Refinancing student loans (private and/or federal) into one new loan with a private lender could lower your monthly payment and interest rate, and make it easier to manage payments. Just know that refinancing federal student loans with a private lender means losing access to federal repayment and forgiveness programs.

Recommended: Can Refinanced Student Loans Still Be Forgiven?

The Takeaway

There is no quick fix for student loan debt, which will take further discussion from stakeholders on all sides.

If you are struggling with your own student loan debt, there are options to consider. You can apply for an income-driven repayment plan, apply for student loan deferment or forbearance on your federal student loans, or refinance your loans with a private lender. Keep in mind, though, that refinancing disqualifies you from federal benefits you may otherwise be eligible for.

If you do decide to refinance, consider SoFi. SoFi has a quick online application process, competitive rates, and no origination fees or prepayment penalties.

See if you prequalify with SoFi in just two minutes.

SoFi Student Loan Refinance
If you are looking to refinance federal student loans, please be aware that the White House has announced up to $20,000 of student loan forgiveness for Pell Grant recipients and $10,000 for qualifying borrowers whose student loans are federally held. Additionally, the federal student loan payment pause and interest holiday has been extended beyond December 31, 2022. Please carefully consider these changes before refinancing federally held loans with SoFi, since the amount or portion of your federal student debt that you refinance will no longer qualify for the federal loan payment suspension, interest waiver, or any other current or future benefits applicable to federal loans. If you qualify for federal student loan forgiveness and still wish to refinance, leave unrefinanced the amount you expect to be forgiven to receive your federal benefit.

CLICK HERE for more information.

Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
SOSL0523028

Source: sofi.com

Apache is functioning normally

June 7, 2023 by Brett Tams

Loyalty? Not in the mortgage business. That is, if you actually want to save money on your home loan.

A few years back, an HSBC survey revealed that 52% of U.S. homeowners “switched providers” (sorry, they’re British) when obtaining subsequent mortgages.

This was mainly driven (53%) by the desire to get a better deal, aka a lower mortgage rate with fewer closing costs.

That survey also found that 46% of consumers investigated a mortgage switcheroo, again either to save money or to lock in a new low rate due to rising interest rates.

Other reasons homeowners decided to go with another mortgage company were because they moved and purchased a new property.

Or due to their current mortgage deal was expiring. I think they mean an adjustable-rate mortgage resetting.

Is It Bad to Switch Mortgage Lenders?

mortgage retention

A new report from Black Knight claims that loan servicers retained just 18% of the estimated 2.8 million homeowners who refinanced a mortgage in the fourth quarter of 2020, the lowest share on record.

Interestingly, those who refinanced to improve their rate and/or term were retained at a higher rate (23%) versus those pulling cash out as part of the transaction (11%).

This could be due to cash out refinances being harder to come by lately, and thus offered by fewer lenders. Or it just feeling more complex to the homeowner.

But here’s the biggie – among higher-credit quality rate and term refinances, borrowers who switched mortgage lenders received more than an eighth of a percent lower rate than those who refinanced and remained with their current lender/servicer.

In other words, you might get a lower mortgage rate if you switch mortgage lenders, instead of remaining loyal.

So is it bad to switch mortgage lenders? Not if you want to save money! Of course, your old lender might not feel the same way.

Mortgages Are Mostly a Commodity

Home loans aren’t all that different from one another
This is why lenders are increasingly coming up with unique ways to sell you one
The vast majority are 30-year fixed products whose only difference might be the interest rate or fees involved
And the majority just follow the underwriting guidelines of Fannie Mae, Freddie Mac, or HUD

It’s really no surprise that a lot of consumers don’t stay with their original mortgage lenders and/or loan servicers.

Aside from some existing lenders sometimes talking borrowers out of a refinance, the product is mostly the same no matter where you get it.

That makes customer retention difficult, especially when other lenders are aggressively marketing to homeowners.

These days, the majority of home loans are backed by the agency guidelines of Fannie Mae, Freddie Mac, or the government via FHA loans and VA loans. I think it’s something like 90% of mortgages.

This means mortgage loans are pretty homogeneous, despite what channel they’re originated in, or which institution provides the financing.

You could get the same exact home loan from a local credit union, a big bank, an online mortgage banker, or a mortgage broker.

And who really cares where you get your mortgage as long as the company is competent enough to close the thing, and honest in terms of rate and fees?

It’s not like you’re going to walk around and brag about your cool mortgage from X bank after the fact. It’s certainly not a status symbol, or a conspicuous transaction.

I’m pretty sure I’ve never had a conversation about someone’s branded mortgage before.

And I doubt an “influencer” is going to post about theirs on Instagram. Well, I take that back, they might…because someone paid them.

Mortgage Advertising Is Following the Insurance Model

Like mortgages, most forms of insurance are similarly boring and unoriginal
But that doesn’t stop mega insurers like Geico from advertising to you 24/7
Other insurers create catchy new names for run-of-the-mill coverage that isn’t really unique
Mortgage lenders are beginning to do that too in a bid to separate themselves from the crowd

This is exactly why insurance companies use celebrity endorsements and smart marketing gimmicks to get you to switch, or conversely, to stick around.

Car insurance isn’t cool or exciting and never will be, nor are mortgages, as much as I want them to be.

Ultimately, we’re all being sold the same thing, it’s just that some companies try to differentiate themselves by slapping clever names onto their products.

For example, Quicken Loan’s Rocket Mortgage is about reinventing the mortgage process, not the mortgage itself.

You’re still probably going to get a 30-year fixed home loan or some other ordinary mortgage that you would get anywhere else.

It’s just the way you get it that might change. Instead of meeting face-to-face with a banker, you might upload documents on your smartphone and authorize the release of documents electronically.

This could make the experience a lot easier and more pleasant, but it doesn’t mean you’re necessarily getting anything different.

Because everyone is basically offering their customers same thing, it comes down to price, customer service, and now perhaps clever marketing.

The one exception is portfolio home loan programs, which are actually unique to the mortgage lender providing them. These are loans kept on the originating bank’s books that contain distinct underwriting guidelines.

We’re starting to see more of them, though most lenders remain fairly cautious with the mortgage crisis still a not-too-distant memory, despite taking place a decade ago.

For example, a lot of the zero down mortgages you see are unique to the companies offering them, the latest one I came across from Ideal Credit Union.

And some of the so-called fintech disruptors like SoFi Mortgage are actually providing unique offerings like a 5/1 ARM with an interest-only option and jumbo loans as high as $3 million with just 10% down.

Be Careful Not to Pay More for the Same Exact Mortgage

While it’s important to use a mortgage lender you can trust
Such as one that can actually close your home loan competently without major delays
It doesn’t really matter what “brand” the mortgage it is after it funds
And there’s a good chance it’ll be resold to a different company shortly after closing anyway

Those exceptions aside, many of us have very similar mortgages that are only unique in terms of where they originated from.

As noted, most of today’s mortgages are conforming loans, meaning they meet the guidelines of Fannie and Freddie. Or they’re simply backed by the government via the FHA, VA, or USDA.

And just about all of them are 30-year fixed-rate loans that function exactly the same.

That’s why you have to ask yourself – if the company isn’t offering anything different, why pay more?

Might as well bargain shop and find the best mortgage rate with the lowest closing costs, instead of simply going with a household name because of a funny commercial.

At the end of the day, as long as they get you to the finish line, you’ll probably never think about your mortgage company again. Just make sure they’re reputable first…

Chances are your mortgage will be sold off in a matter of months anyway, so the company you get it from likely won’t even service it.

In fact, your final correspondence might be a notice of your home loan changing hands…

(photo: lamdogjunkie)

Source: thetruthaboutmortgage.com

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