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WASHINGTON — A plan by the Department of Veterans Affairs to introduce a low-interest refinancing option for veterans with VA-backed loans facing foreclosure drew ire of a House lawmaker who complained some homeowners might choose to default for lower monthly payments.
Rep. Merrick Van Orden, R-Wis., chairman of the House Committee on Veterans’ Affairs subpanel on economic opportunity, on Thursday questioned whether the new VA Servicing Purchase program — also known as VASP — will cause some homeowners to forgo paying back home loans to qualify for VA refinancing at the lower rate of 2.5% offered by the program.
The average interest rate now for a 30-year fixed mortgage is 7.24%, according to Bankrate, a consumer financial services company that surveys major lenders weekly.
“It is essential that we support the dream of home ownership for veterans who served our country,” said Van Orden, a Navy veteran who used a traditional VA home loan to buy his house. “I have used this program myself, and it is awesome.”
But he also said he has “grave reservations” that the new VASP program would result in unintended consequences that could destroy the VA home loan program.
The refinancing option is expected to be rolled out in spring, according to the VA.
Under the program, the VA would purchase the loan from the servicer to hold it in its own portfolio. Qualifying veterans would be allowed to refinance their mortgages under the VASP rate of 2.5% after falling behind on at least two mortgage payments.
“I am concerned that this program poses a moral hazard and will encourage veterans to become delinquent on their loans to let VA take over the servicing of their payments,” Van Orden said at a House hearing about the home loan program.
He said if the VA then experienced high delinquency rates under the VASP program, it could end up being responsible for thousands of home loans it serviced.
Van Orden questioned whether the VA should be in the business of servicing loans and expressed concern that the VA would force veterans out of their homes if they failed to pay down their mortgages.
Given that veterans are 50% more likely to be homeless than others, Van Orden said he could not imagine “the VA would go so far as to be kicking people out of their homes — default or no default.”
Under those circumstances, Van Orden speculated the federal government would end up owning mortgage-delinquent properties and letting the veterans stay in their homes.
“It is no longer private property. It is public property with private citizens living in public property. That was tried in the Soviet Union. I am not signing up for that,” he said.
Van Orden said the House subcommittee has received little information on how the VASP program will operate, its costs and its overall effect on the mortgage markets.
“All of this is a cause for concern,” he said. “We need answers on VASP.”
The VA announced the VASP program in November 2023 in the Federal Register that stated “VA is initiating an expanded program using existing refund provisions. Under this program, VA will exercise its statutory option to purchase the loan from the servicer and VA will hold the loan in VA’s own loan portfolio.”
VA-guaranteed loans comprise more than 10% of the mortgage market, according to the VA.
The VA worked to assist thousands of veterans during the coronavirus pandemic who fell behind on mortgage payments, said Rep. Mike Levin of California, the top Democrat on the subcommittee. He said many financial relief measures implemented during the pandemic have ended.
Levin said the VA in December 2023 paused foreclosures on VA home loans through May 31. The measure allows veterans who have defaulted on their loans to stay in their homes.
Under the foreclosure pause, the VA extended its coronavirus refund modification program that allowed the VA to purchase past due payments — along with additional principal amounts as necessary — and give veterans a second mortgage with no interest.
Lenders meanwhile are encouraged by the VA to work with delinquent homeowners to modify payments with plans that are more affordable. Last year, the VA helped more than 145,000 veterans and their families stay in their homes through various programs, the agency said.
“I understand that the VA cannot prevent every foreclosure. But I expect it to exhaust every option,” Levin said, in reference to VASP and other VA assistance programs.
VASP would provide refinancing at an interest rate lower than the current market rate, which would continue over the life span of the loan, said John Bell, executive director of the VA Home Loan Guaranty Program.
The VA estimates under a VASP Program loan — with a 2.5% fixed interest rate for 30 or 40 years — there would be an average payment reduction of 20%, in principal and interest, for homeowners.
“It is so important that we get this right,” said Levin, who urged the VA to let Congress know what additional tools it might need to assist borrowers in default and ensure that foreclosures occur only “in the most extreme circumstances.”
Bell said job loss, divorce and catastrophic illness can impact financial stability for homeowners.
The VA home loan program — established in 1944 during World War II for soldiers returning home — helps veterans, active-duty personnel, members of the reserves and National Guard, as well as their family members, buy homes, refinance loans and pay for home improvements.
VA has guaranteed more than 28 million loans, valued at nearly $4 trillion, since the program’s inception, Bell said.
One of the attractions of the VA home loan program is the offer of 100% financing without requiring a down payment. A veteran purchasing a home at $386,000 — the median rate now — could avoid a traditional 20% down payment of $77,000, he said.
In fiscal 2023, the VA received 860,000 calls from veterans seeking information and assistance with their home loans. He said 65,000 borrowers are at least 90 days late on their VA home loans.
Bell doubted homeowners would default on home loan payments, damage their credit and face foreclosure to secure a 2.5% interest rate through the VASP program.
“The VASP program is simply a more sustainable option for veterans who cannot afford other available loss mitigation options, such as repayment plans, special forbearances and traditional loan modifications,” he said.
But Van Orden disagreed.
“My focus is to ensure that veterans remain in their homes whenever possible,” he said. “But I am concerned that this program could evolve into a financial burden of billions of dollars in bailouts that fall on the shoulders of taxpayers.
Source: stripes.com
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The Federal Reserve left interest rates alone for the fourth consecutive meeting and acknowledged the progress it’s made at defeating red-hot inflation — but stopped short of indicating that rate cuts are around the corner as the economy’s strength continues to surprise.
The Federal Open Market Committee’s (FOMC) decision points to the likelihood that the Fed will not lift its key benchmark borrowing rate any higher than its current target range: 5.25-5.5 percent. That’s still, however, a level that hasn’t been seen since 2001, translating to significant gains on the prices consumers pay to borrow money. Mortgage rates, home equity lines of credit (HELOCs) and auto loans are the highest in more than a decade, Bankrate data shows.
An improving inflation picture is giving policymakers room to slow their fastest rate-hiking regime since the 1980s. The Fed officially targets a 2 percent annual rate, and prices rose 2.6 percent from a year ago as of December, according to their preferred gauge from the Department of Commerce. It marks a major improvement in a historically short period of time. Just last January, prices rose at a 5.5 percent annual rate, while inflation also peaked at 7.1 percent in June 2022.
The slowdown is also more pronounced than Fed officials expected. Last March, officials thought inflation would finish 2023 at a 3.3 percent annual rate, their projections show.
The FOMC “judges that the risks to achieving its employment and inflation goals are moving into better balance,” officials wrote in their post-meeting statement. “The committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent.”
But officials aren’t yet ready to declare “mission accomplished” in their inflation fight. Defying theory, higher interest rates and slowing inflation haven’t slammed the brakes on economic growth. In the final two quarters of 2023, the U.S. economy expanded at the fastest pace since 2021. Unemployment has remained at a historically low level below 4 percent for the longest stretch of time since the 1960s, and job openings are still more plentiful than at any point before the pandemic.
It creates a difficult conundrum for U.S. central bankers, who are expected to soon start debating the proper timing for lowering interest rates. Officials don’t just attempt to keep prices stable but also aim to achieve maximum employment in the U.S. economy. Keeping interest rates too high for too long could risk damaging Americans’ job prospects — and the more inflation slows, the more restrictive their rate benchmark becomes.
But haunted by memories of the U.S. central bank pulling back too soon and reigning more inflation in the 1970s, Fed officials don’t want to risk giving the economy more juice that could make its war on inflation more pronounced and painful.
Officials aren’t appearing to be in any rush to cut interest rates. As of December, policymakers were expecting to cut interest rates three times this year. Investors, however, think the slowdown in inflation can pave the way for a much more aggressive series of rate cuts. Investors are currently pricing in six quarter-point, or 1.5 percentage points, worth of cuts for 2024, CME Group’s FedWatch tool shows.
The Fed has a more powerful influence over consumers’ wallets than any other policymaker in Washington. Just as the Fed’s rate acts as a lever on the key interest rates throughout Americans’ financial lives, it also influences how much consumers earn on their savings accounts and certificates of deposit (CDs). The highest yields in over a decade are also slowly starting to pull back, now that it looks like the Fed is done raising interest rates.
“Inflation has come down faster than anticipated, but whether or not this can be sustained is central to the Fed’s decision about when to begin cutting interest rates,” says Greg McBride, CFA, Bankrate chief financial analyst. “The Fed is certainly pushing back on the notion of a March interest rate cut, dashing investors’ hopes again, but keeping options open and remaining non-committal as a central bank does.”
The Fed’s rate decision: What it means for you
Savers
Even if the Fed cuts interest rates this year, the wins for savers aren’t yet over. Barring a major economic catastrophe, Fed officials are unlikely to reverse course and cut borrowing costs back to near-zero. Translation: Rates will stay higher for longer, meaning historic payouts on consumers’ savings accounts are bound to remain.
Don’t be surprised, however, if yields drift lower over the coming months. On many of the products Bankrate tracks, they already have. Last October, the top-yielding 5-year CD hit 4.85 percent annual percentage yield (APY). Today, it’s paying 4.6 percent. Even high-yield savings accounts — offering consumers an APY roughly nine times higher than the national average — have edged lower to 5.35 percent from 5.4 percent.
Consumers who can afford to tie up some of their cash — or retirees who want to add another no-risk, fixed-income investment to their portfolio — aren’t gaining any ground by waiting to lock in a CD. But if you’re primarily saving for emergencies, lower rates shouldn’t deter you from shopping around for an account with the best rate.
Keeping just $1,000 in a high-yield savings account offering 5 percent APY would give you $50 in interest. Stashing away $10,000, meanwhile, can earn a saver an extra $500 in a year.
Borrowers
If you don’t have an emergency fund, it’s an exceptionally costly era to have to turn to credit cards to fund an unexpected expense. Credit card rates have been hovering at the highest levels on record since September, most recently hitting 20.74 percent, Bankrate data shows. They could retreat when the Fed begins to cut interest rates but not enough to make high-cost debt less of a headache. Even when the Fed’s benchmark was at a record low, rates were holding above 16 percent annual percentage rate (APR).
The good news for credit card borrowers: The economy avoiding a recession means issuers are unlikely to pull back on the 0-percent introductory offers on balance transfer cards. If you’re looking to chip away at credit card debt, you can currently find a card that won’t charge you any interest for as long as 21 months, helping your debt repayments go even further. Be sure to calculate the fees associated with transferring that balance to a credit card and have a debt repayment game plan. A $10,000 balance with a 21-month no-interest offer would still require that consumers dedicate about $471 a month to eliminate that debt on time before their interest charges surge again.
Consumers with fixed-rate loans locked in before the Fed began raising interest rates have been protected from the Fed’s rapid rate hikes, but you can’t always time the market. If you’re going to have to finance a big ticket purchase in the near future, be sure to compare offers from multiple lenders before locking in a loan.
To set yourself up for lenders’ best offers, bolster your credit score by paying your bills on time and utilizing less than 30 percent of your available credit.
If you borrowed money after the Fed began raising interest rates and your credit score has improved, you might be able to refinance into a lower, fixed-rate loan.
Homebuyers
It’s not as affordable to finance a home as it was in the aftermath of the coronavirus pandemic, but it’s certainly getting cheaper than it was last fall. After surging above 8 percent in October for the first time since 2000, the 30-year fixed-rate mortgage has now fallen more than a percentage point, touching 6.93 percent as of Jan. 24, Bankrate data shows.
The difference might not seem like much, but for buyers simultaneously facing the dilemma of low inventory and high prices, the pullback creates more breathing room in homeowners’ budgets. The drop in mortgage rates since last fall translates to more than $4,000 in savings a year, Bankate’s mortgage calculator shows.
More improvement could be on the horizon. McBride predicts that the 30-year fixed-rate mortgage will fall to 5.75 percent by the end of the year, according to his 2024 interest rate forecast.
Central to housing affordability, however, are low inventory and high prices. Home prices in November snapped a nine-month streak of gains in S&P CoreLogic’s Case-Shiller Home Price Index, suggesting that home price appreciation might be losing some momentum. But housing is still more expensive than it was before the pandemic, with prices up 46 percent since February 2020, S&P CoreLogic’s data also shows.
The housing market has been especially troubling for first-time buyers. The typical age of a first-time buyer hit 35, near the oldest levels on record, according to National Association of Realtors data from November.
If you’re deciding to wait out a difficult market, you can still take steps that set you up for homeownership in the future. Work on growing your income, paying down your debts, bolstering your credit score and saving for a down payment, so you’re better prepared when the time does come.
Investors
No one is happier about the prospect of lower rates than investors. The S&P 500 and the Dow Jones Industrial Average have broken six fresh record highs so far in 2024.
But investors’ hopes can be dashed in an instant. The Fed looks unlikely to cut interest rates as aggressively as investors are expecting. Meanwhile, continued good news for the U.S. economy could quickly start to make markets jittery if it threatens the U.S. central bank’s plans to reduce borrowing costs.
The long-term investor, however, shouldn’t pay attention to those fears. Stay the course with your retirement savings, and keep a diversified portfolio. The temporary pain of high rates is meant to provide the long-term gain of slow and stable inflation — a positive for economic growth and company earnings in the long run.
Fed wants ‘greater evidence’ that its raised interest rates enough to cool inflation
In a pointed admission, Fed Chair Jerome Powell said discussions at the Fed’s latest rate-setting meeting lead him to believe that it’s unlikely the Fed will cut interest rates at its next meeting in March — though whether that proves reality “remains to be seen,” he said.
Officials aren’t so worried about inflation accelerating, though they’d be prepared to raise borrowing costs again if it did, Powell said. Rather, the greater risk is that inflation stays stuck in a holding pattern above 2 percent.
Between now and the March meeting, the Fed will have two more inflation and jobs reports from the Bureau of Labor Statistics, as well as another look at its preferred gauge from the Commerce Department.
“It’s not that we’re looking for better data, but a continuation of the good data we’ve been seeing,” Powell said at the post-meeting press conference, referring to what the Fed would need to see to feel confident enough about cutting rates. You’ve had six good months, very good months, but what’s really going to shake out here when we look back?”
Will the Fed still cut rates in 2024?
Rate cuts, however, haven’t been taken off the table. Powell said that “almost” all officials think slowing inflation will clear the path for them to cut borrowing costs sometime this year.
Investors are now starting to turn to the May or June meetings as the timing for the Fed’s first rate cut, CME Group’s data shows. A month ago, investors said the odds of rate cuts beginning in March were nearly 73 percent.
One takeaway that investors appreciated: Powell said the Fed doesn’t view a resilient economy as a problem, so long as inflation continues simultaneously cooling. Powell has previously indicated that officials believe they need to see “below-trend growth” to bring inflation down. His new comments suggest the Fed would still be willing to cut rates in a strong economy — different from previous cycles, when the Fed has aggressively slashed borrowing costs to save the economy from a recession.
Stocks soared to their highest of the trading day on the statement, though they quickly erased those gains once Powell took a March cut off the table.
“We want to see strong growth; we want to see a strong labor market,” Powell said. “We’re not looking for a weaker labor market. We’re looking for inflation to continue coming down, as it has been over the past six months.”
But the job isn’t over. Healing supply chains aren’t fueling disinflation as much as they once were — and the next mile of bringing inflation back down might rest within the labor market. A fresh look at companies’ compensation costs showed that wages rose 4.3 percent from a year ago in the fourth quarter of 2023, a major slowdown from the 5.7 percent rate in the second quarter of 2022 but more robust than at any point before the pandemic. The data signals that employers’ demands for workers are still outstripping supply, and elevated wage gains could put more pressure on the stickier side of inflation: services.
Helping to prevent the booming job market from contributing to more inflation last year, 2.8 million workers entered the labor force in 2023, Labor Department data shows. An aging population calls into question just how much longer those gains can last. A separate report from the Congressional Budget Office released on Jan. 18 showed that forecasters in Washington project the population will grow just 0.6 percent a year on average between 2024 and 2034.
The Fed has risks on both sides. Just as cutting rates too soon could spur more inflation, the Fed could also put its soft landing in jeopardy if it ends up leaving borrowing costs too high for too long.
“This is transitory disinflation,” says Brent Schutte, chief investment officer at Northwestern Mutual Wealth Management, harkening back to the phrase that Fed officials initially used to describe the post-pandemic price burst. “How do you land an economy that is as big as ours, at exactly the point where supply and demand meet? They always desire a soft landing. It’s just hard to achieve one.”
Source: bankrate.com
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The city of Laguna Beach, Calif. recently offered details of its city-sponsored aging-in-place program, dubbed “Lifelong Laguna,” in a profile published by CNBC. It provides new insight into the measures cities can explore to more easily facilitate aging-in-place goals for older residents.
2021 research from AARP indicates that 77% of adults at or over the age of 50 want to stay in their homes as they get older, but the figure in Laguna Beach is much higher. There, the figure is closer to 90% according to Rickie Redman, director of Lifelong Laguna.
Originally piloted in 2017, Lifelong Laguna is a program that enlists a local area nonprofit to encourage support for aging in place.
“Lifelong Laguna is based on the Village movement, where aging in place is encouraged with community support,” the story reads. “The Laguna Beach program aims to fulfill a specific need for a city where approximately 28% of residents are age 65 and over, while local assisted living and memory care services are scarce.”
Much of the city’s older population has lived in Laguna Beach since they were in their 20s and 30s. Now in their 70s and 80s, they simply do not want to be displaced to live somewhere else, even if another area or dedicated facility could more easily attend to their needs as they age.
“They make this city unique,” Redman told CNBC, saying many of the older residents can trace their journey here to the city’s “artistic roots,” the story explained. “They’re the placeholders for the Laguna that we now know.”
The program currently serves about 200 older residents, and there is no direct cost to them for participating. It is entirely funded by grants and local fundraising efforts, according to Redman.
“Its services address a wide range of needs, including a home repair program the city operates in collaboration with Habitat for Humanity, nutrition counseling and end-of-life planning,” the story explained.
Other cities and communities have adopted similar systems, as aging-in-place preferences have increased dramatically since the onset of the COVID-19 coronavirus pandemic. Data from Genworth Financial indicates that roughly 70% of the 10,000 baby boomers who will turn 65 every day until 2030 will require long-term care at some point in their later lives, CNBC reported.
“There definitely is a mindset change, where people are saying, ‘I do want to stay put, I don’t necessarily want to move into a nursing home or into assisted care,’” said Jessica Lautz, deputy chief economist and vice president of research at the National Association of Realtors (NAR) to CNBC.
One beneficiary of the Laguna Beach program told the outlet that her needs have been attended to very promptly, from assistance with yard clean-up to the organization of end-of-life services for her recently deceased husband.
“Anything that I’ve needed, I’ve gotten help,” said Sylvia Bradshaw, an 84-year old Laguna Beach resident when describing her membership in the program.
Related
Source: housingwire.com
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Strained affordability and challenges to remote work opportunities have contributed to the lowest share of home buyers relocating in 18 months, Redfin reports.
The 23.9% share of movers between September and November, down from 24.1% a year earlier, is the first annual decline in Redfin records dating back to 2017, the brokerage said. Relocations fell for the third consecutive month and are down from a record high of 26% over the summer.
Besides lofty mortgage rates and weighty principal and interest payments, Redfin pins some of the migration slowdown on employer constraints on remote work, which enabled more home buying moves during the coronavirus pandemic. Prices have since risen in cheaper destinations like Florida and Boise, Idaho, and locales like Sacramento and Las Vegas now top the top metros homebuyers are looking to move to.
“Prices in Sacramento — the most popular destination this month — are up about 35% since before the pandemic, compared with an 8% increase in the Bay Area,” wrote Dana Anderson, data journalist at Redfin.
Los Angeles for the first time topped Redfin’s rankings of metros buyers are looking to leave, followed by San Francisco and New York. The 10 most popular migration destinations by net inflow of searchers all had lower home prices than the most common origin of buyers coming in.
The brokerage determined the coveted destinations through its data of over 2 million Redfin users who viewed homes for sale online across over 100 metros.
Homeowners are also showing less interest in leaving their city limits — while there was a 4% drop annually in searches for a new metro, there was a 3% decrease in queries within the homebuyer’s city. Despite the negative trends, migration rates are still well above pre-pandemic levels around 19%.
Source: nationalmortgagenews.com
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Identity theft is a major problem. According to the Federal Trade Commission (FTC), there were more than 650,000 victims of identity theft in 2019, making ID theft the most-reported type of FTC complaint. Chances are good that you will encounter identity theft in your lifetime. That was the case for at least 1 in 10 Americans ages 16 and older in 2016, according to the most recent data from the Bureau of Justice Statistics.
Protecting your identity and privacy should be a priority for you, and knowing what identity theft is can help you prepare. There are many different types of ID theft, which can make safeguarding your personal information even more important—and more difficult. Let’s look at some of the most common examples of identity theft and what you can do to manage the risks.
Defining Identity Theft
The term “identity theft” is used a lot, often interchangeably with “fraud.” Though many instances of identity theft are committed for fraudulent reasons, the two are slightly different. If you are a victim of identity theft, you want to catch it before it becomes fraud.
According to the National Center for Victims of Crime (NCVC), identity theft is “the knowing transfer or use, without lawful authority, of another person’s identity with the intent to commit, aid, or abet unlawful activity.” In simpler terms, ID theft is the act of stealing another person’s information, like through mail theft, phishing, card skimming, unsecure Wi-Fi or a data breach. Fraud is when a criminal illegally uses that information for their own gain.
The NCVC calls the latter “identity fraud,” which encompasses crimes like credit card fraud, medical fraud, and Social Security number theft. Identity fraud can be financially driven, but is also committed out of other motivations. Someone might try to steal your passport or driver’s license information to travel unnoticed by law enforcement, for example.
Whether an ID thief uses your credit card or medical insurance, the cost to you can be big. Javelin Research found that the 2018 out-of-pocket costs for victims of identity theft were $1.7 billion.
Different Types of Identity Fraud
As a popular saying goes, “Know your enemy.” Let’s take a closer look at identity fraud types and preventative measures you can take to prepare yourself and protect your finances.
1. Credit Cards
Credit card fraud is by far the most prevalent type of identity theft, according to FTC numbers.
You probably store your credit card information with different vendors or subscription services. If you used your card once at a retail store, they’ll still have your information on file. If a data breach occurs at one of those businesses, someone may gain access to your credit card number and begin to make fraudulent purchases.
While it may be easier to catch a fraudulent charge on a card you have, it could be harder to spot a new account in your name. In the meantime, hard inquiries and high credit utilization due to fraud could wreck your credit score.
What you can do: Requesting a chargeback might help you avoid paying for specific fraudulent transactions, but checking your credit report will show you if the problem is deeper. Sign up for ExtraCredit to keep an eye on your credit report and scores at the same time to make sure that fraudulent accounts aren’t being opened or used. You can also request your free credit report from each of the three credit reporting agencies once a year to keep close control over your identity and credit profile. If you notice anything fishy, request a freeze immediately and file a report with the FTC.
Note: Due to the COVID-19 coronavirus pandemic, you can currently review your credit reports from each of the three credit bureaus for free each week, through April 2022.
2. Loans and Leases
Somebody with your personal information might try to apply for a loan online. Fraudsters may then be able to get financing to buy a car or real estate. The FTC has also reported fraud instances related to student loans and payday loans.
Loan application fraud is a challenge to track, but the impact is someone racking up debt in your name. When creditors come calling, it won’t be the thief who has to answer the phone.
What you can do: As with credit card fraud, regularly check your credit reports to watch for red flags. If you spot something, immediately contact the responsible financial institution. You may also want to file a police report or contact the office of the attorney general for your state. If you are the victim of loan/lease fraud, consider using credit repair services to help you recover.
3. Phones and Utilities
Mobile takeover fraud is a complicated scheme, but it’s a growing problem. Basically, it involves a fraudster using your information to access your smartphone and then lock you out. In the meantime, they can use your apps, read saved documents, or scam others by impersonating you. They might also harvest your personal and financial information that you have saved. The same might happen for an electricity or water account: A criminal finds a way in and consumes services that are ultimately billed to you.
The common theme with identity theft here is that if someone has your info, they can do just about anything with it. This includes opening up utility accounts in your name, getting free electricity, gas, water, internet or cable.
What you can do: Maintain strong passwords for all the accounts you have. If you need to, use a password manager to help you keep track of all the complex log-in credentials. Never, ever make your passwords using personally identifiable information, like a pet, birthdate, or home street. Should something happen, immediately contact your service provider.
4. Tax Fraud
Come tax time, a refund is a happy surprise for some Americans. Others may get a nasty shock when they’ve learned someone has claimed their return before they even file their taxes. Tax fraud typically occurs when someone has stolen your Social Security number, which they can then manipulate to falsely file a return and claim your refund.
What you can do: Under no circumstances should you give your SSN to anybody but trusted entities like the government, your bank, or your credit card company. Be wary of scammers posing as the IRS who will call or email you demanding your SSN information. This is a surefire sign of fraud. You can also opt to file your taxes early, thereby eliminating the opportunity for thieves to file for you and claim your return.
The IRS recommends watching out for various scams. If you believe you’ve been a victim, file a report on IdentityTheft.gov, call the IRS at 1-800-908-4490, and complete and submit the identity theft Affidavit.
Taking the Next Steps to Protect Your Identity
Identity theft is a constant threat, so you’ll always need to be on your toes.
Guard It from ExtraCredit provides you with proactive alerts, dark web monitoring, account monitoring, and $1 million in ID theft insurance. Sign up today or read more articles about identity theft and fraud.
Source: credit.com
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Editor’s Note: For the latest developments regarding federal student loan debt repayment, check out our student debt guide.
Student loan debt is at an all-time high, with more students graduating with debt than ever before. Consider this: Almost 44 million borrowers have federal student loan debt and they owe, on average, $37,338. As recent graduates begin their careers, it can be overwhelming to figure out how to make monthly student loan payments.
Ignoring your payments may seem like an easy way out, but student loan default can have extreme consequences. If you’re struggling with student loan payments or are already in default, there are ways to recover. For instance, you could consolidate defaulted student loans. Or you could refinance them. This guide will help you figure out your best option.
What Is Student Loan Default?
If your student loan is in default, it means you have failed to make payments on your student loans for several months in a row. However, there are a few steps that occur before defaulting on student loans.
Federal student loans are considered delinquent once you miss a student loan payment. After 90 days of delinquency, your loan servicer can report the missed payments to the three major credit bureaus. Generally, after 270 days of nonpayment, your loan will go into default.
If you have private student loans, they can go into default even sooner. Typically, after you miss three payments or 120 days, your private student loans go into default. Different lenders have different terms when it comes to default, however, so be sure to check with yours to get the specifics.
How Common Is Defaulting on Student Loans?
Defaulting on student loans is fairly common. The latest data from EducationData.org finds that one in 10 student loan borrowers has defaulted on a loan. In fact, roughly 4 million student loans go into default every year, and about 7% of loans are in default at any given time. As of 2021, the median loan balance among delinquent and defaulted borrowers was $15,307.
What Are the Consequences of Student Loan Default?
Defaulting on your student loans can have some steep consequences. For starters, the entire balance of your student loans could become due in full.
If you default on your student loans, your lender may eventually turn your debt over to a collection agency who will usually start calling, emailing, and even texting you to try and collect on your debt. You may even have to pay collection fees on top of everything else.
If you default, you may lose eligibility for programs that could help you manage your debt, such as deferment, forbearance, or Public Service Loan Forgiveness.
Once your student loans are in default, your loan servicer or collection agency will report your default to the three major credit bureaus, which will negatively impact your credit score.
And if your servicer can’t collect the money you owe on your federal student loans, they can ask the federal government to garnish a portion of your wages or your tax refund.
💡 Quick Tip: Get flexible terms and competitive rates when you refinance your student loan with SoFi.
How Can You Recover From Student Loan Default?
If you failed to make payments on your student loans and they’ve gone into default, you don’t have to let it ruin your financial future. Here are some steps you can take to get back on track.
Loan Rehabilitation
One option for getting out of student loan default is student loan rehabilitation. To rehabilitate your loan, you work with your loan servicer and agree in writing to make nine reasonable and affordable monthly payments over a period of 10 months.
In order to rehabilitate a Direct Loan or FFEL program loan, your monthly payments must be no more than 20 days late. Your loan servicer will determine the new monthly payment, which is 15% of your discretionary income.
When you have successfully rehabilitated your loan, the default may be wiped from your credit history. Note that any late payments reported to the credit bureaus before the loan went into default will remain on your credit reports.
Private student loans are not eligible for rehabilitation.
Repaying Your Loan in Full
Another option to get out from under the shadow of student loan default is to repay your loans in full. Of course, if you had the funds to do so, you probably wouldn’t have defaulted in the first place. That said, you could look into ways to cover the balance due, such as borrowing from a family member or close friend.
Options for Private Student Loans
If you have private student loans that are in default, you can contact your lender and see what possibilities are available. Some lenders may have hardship options similar to the federal programs. As mentioned, the time it will take for your unpaid private loan to go into default depends on the lender — but the timeframe could be relatively short, even just 120 days.
However, if you’ve only recently missed a payment, you can start making payments again (and repay the missed payment) to try to prevent your loan from going into default.
Is Refinancing an Option for Defaulted Student Loans?
If your student loans are currently in default, refinancing your loans can be difficult. When you refinance your student loans, you take out a new loan with a private lender to pay off the existing loans. When you apply for a refinancing loan, lenders will use your credit score and financial history, among a few other factors, to determine if you qualify.
If your loan is already in default, your credit score has likely decreased significantly and will likely impact your ability to get approved for a new loan. If you have a family member or friend who is willing to cosign the loan, however, you may be able to refinance your student loans that way.
Another possibility for refinancing your student loans would be to rehabilitate your loans first. A lot of lenders might turn you down for having a defaulted loan on your credit history, but others might be willing to look past that and onto your education and income potential to approve you for a loan.
Can you Consolidate Defaulted Student Loans?
Another way to recover from student loan default is to consolidate your student loans in default. If you have federal loans, you can pursue defaulted student loan consolidation with the Direct Consolidation Loan program. This program allows you to combine one or more federal loans into a new consolidation loan.
To be eligible, you must either make three full, on-time, and consecutive payments on the defaulted loan or agree to make payments on an income-driven repayment plan.
Private student loans aren’t eligible for Direct Consolidation Loans. However, you can consolidate these loans with a private lender by refinancing.
Tips for Consolidating Defaulted Student Loans
Wondering how to consolidate defaulted student loans? To consolidate federal student loans, first gather all the documents you need. This includes your personal information such as your name, address, email, Social Security number, and FSA ID; financial information such as your income; and details about your loans, including amounts, account numbers, and loan servicers.
Next, go to studentaid.gov to fill out the Direct Consolidation Loan application. You’ll need your FSA ID to log in. Specify the loans you want to consolidate.
Then, choose one of the income-driven repayment plans if that’s the option you prefer. Review the plans in advance to determine which one is the best option for you.
Filling out the application typically takes less than 30 minutes.
Pros and Cons of Student Loan Consolidation
Choosing to consolidate defaulted student loans has advantages and disadvantages you’ll want to weigh before you move forward.
Advantages include:
• One loan and one monthly bill. This means there will be less for you to keep track of.
• Lower payments. When you consolidate, you can choose an income-driven repayment plan or to lengthen the term of your loan, which could lower your monthly payments. (Note: You may pay more interest over the life of the loan if you refinance with an extended term.)
• Fixed interest rate. You’ll get a fixed interest rate for the life of your loans with Direct Loan Consolidation. The new rate is a weighted average of all your federal loan rates, rounded to the nearest eighth of a percent.
• Access to forgiveness programs. With a Direct Consolidation Loan, you might be able to get access to programs you weren’t eligible for previously, such as Public Service Loan Forgiveness.
Disadvantages include:
• Longer repayment period. You could end up repaying your loans for an extra year or two, which will cost you more overall.
• Pay more in interest over the life of the loan. With consolidation, the outstanding interest on your loans is added to the principal balance, and interest may accrue on that higher balance.
• Possible loss of benefits. Consolidating loans other than Direct loans could mean giving up perks you have with those loans, such as rebates or interest rate discounts.
This comparison chart of the pros and cons of student loan consolidation can be helpful as you consider the question of should you refinance or consolidate your loans.
Pros of Student Loan Consolidation | Cons of Student Loan Consolidation |
---|---|
Simplified payments with just one bill to pay each month. | Longer repayment period means paying more overall. |
Monthly payments may be lower. | Pay more in interest over the term of the loan. |
Fixed interest rate. | Could lose benefits associated with current student loans. |
Possible access to certain forgiveness programs. |
How to Manage Student Loans Without Going Into Default
If you’re struggling to make student loan payments but haven’t yet defaulted on your loan, taking action now could help prevent financial issues in the future. Here are some options that could help you take control of your student loan debt and avoid going into default.
Take Advantage of the Temporary Grace Period
Federal student loan payments and interest accrual has been paused since March 2022 in order to alleviate some of the financial challenges created by the coronavirus pandemic. However, the latest debt ceiling bill officially ended the payment pause, requiring interest to begin accruing again on Sept. 1. and payments to resume on October 1.
The Department of Education understands that restarting student loan payments after such a long pause will put many borrowers in a difficult financial position. So to prevent struggling borrowers from facing the harsh penalties of defaulting on their loans, there will be a 12-month ramp-up period to help borrowers adjust to repayment.
During this period, which takes place from Oct. 1, 2023 to Sept. 30, 2024, federal student loan borrowers who don’t make their payments on time and in full will not be reported to the credit bureaus, have their loans placed in default, or be referred to debt collectors.
Forbearance or Deferment
If you’re unable to make payments on your student loans due to a sudden and temporary economic change, you might consider applying for student loan deferment or forbearance. Both allow you to temporarily pause your loan payments.
If your loans are in forbearance, which is granted for 12 months at a time, you will be responsible for paying accrued interest during the forbearance period. If your loans are placed in deferment, which can last up to three years, you may not be responsible for accrued interest during the deferment period, depending on the type of loan you hold.
While your loans are in deferment or forbearance, you do have the option to make interest-only payments on the loan. If you choose not to, the accrued interest on most loans will be capitalized, or added to the principal balance. You’ll then be charged interest based on the larger loan amount.
Applying for Income-Driven Repayment (IDR)
Another option to help manage your student loans is income-driven repayment. There are four income-driven repayment plans available to federal student loan borrowers. Depending on the type of plan you qualify for, your monthly payments will be anywhere from 10% to 20% of your discretionary income. (Beginning in July 2024, the new SAVE plan will adjust payments to 5% of discretionary income.)
Income-driven repayment plans also stretch out the repayment term of the loan to either 20 or 25 years, depending on the specific plan. This means that while you could pay less per month, income-driven repayment could cost you more in interest over the life of the loan. The good news is that if you have any remaining debt at the end of the term, it will be forgiven (but you may need to pay income taxes on the canceled amount).
Consolidating Your Loans
Even if you’re not in default, you can consolidate your federal loans through the Direct Loan Consolidation program. As mentioned, the new interest rate will be the weighted average of the existing loans, rounded to the nearest eighth of a percent. So you won’t lower your effective interest rate, but you’ll only have to keep track of one monthly payment.
Refinancing Your Loans
If your monthly student loan payments are difficult for you to manage, you could consider refinancing with a private lender. If you have a combination of private and federal student loans, you could refinance both types into a single, private loan.
Refinancing can give you an opportunity to qualify for a lower interest rate or lower monthly payments, and you’ll only have to worry about tracking one payment each month. You may also be able to customize your repayment term — either lengthening or shortening the term.
By lengthening the term, you could reduce your monthly payments, but you may end up spending more money in interest over the life of the loan. To see how refinancing could impact your student loans, plug your numbers into this student loan refinance calculator.
It’s important to note that if you’re thinking of taking advantage of any federal programs such as income-driven repayment or Public Service Loan Forgiveness, refinancing may not be a good idea, as you’ll lose your eligibility for these programs.
Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.
With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.
FAQ
Does consolidating student loans remove default?
No. When you consolidate your student loans, the record of the default will stay on your credit history. Another option is loan rehabilitation, which removes the default from your credit history.
Can you consolidate defaulted student loans?
Yes, you can consolidate defaulted student loans. If you have federal loans, you can consolidate them with Direct Loan Consolidation. To be eligible, you must either make three full, on-time, and consecutive payments on the defaulted loan or agree to make payments on an income-driven repayment plan. You can fill out an application at studentaid.gov. You can consolidate private student loans with a private lender.
Can you refinance student loans that are in default?
You can refinance student loans that are in default, but it may be difficult. That’s because your credit score has likely decreased, which may impact your ability to get approved for refinancing. If you have a family member or friend who is willing to cosign the loan, you may be able to refinance your student loans that way. Or, you could rehabilitate your loans first, which could help improve your odds of being approved for refinancing.
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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.
Student Loan Refinancing
If you are a federal student loan borrower you should take time now to prepare for your payments to restart, including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. (You may pay more interest over the life of the loan if you refinance with an extended term.) Please note that once you refinance federal student loans, you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans, such as the SAVE Plan, or extended repayment plans.
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.
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If you decide to file for bankruptcy, you must next decide which type of bankruptcy is right for you. Most individuals have three options, and understanding Chapter 11 vs. Chapter 13 vs. Chapter 7 is important in making the right decision.
Bankruptcy can be complex, and even a small mistake in how you file can substantially change the outcome of your case. It’s typically a good idea to consult an experienced bankruptcy lawyer before you file a bankruptcy petition. However, we’ve provided some basic answers below to the question, “What is the difference between Chapter 7, 11, and 13 when it comes to bankruptcy?”
In This Piece
Understand the Types of Bankruptcy
Bankruptcy is a way to reorganize your debts or get your debts dismissed because you’re insolvent. “Insolvent” is simply a financial state where you can’t pay your bills—usually because your debts outpace your income.
People can end up in this situation for a number of reasons. It may be that you lost your job or had reduced income—job losses due to the COVID-19 pandemic are just one example of when this can happen. In other cases, people have unplanned expenses such as medical bills that can put them over the edge financially. Bankruptcy does have some benefits, such as potentially putting a stop to wage garnishments or foreclosures.
Regardless of how you ended up in this position, it’s important not to jump immediately to bankruptcy. Consider all of your options and speak with an experienced bankruptcy attorney to understand whether bankruptcy will help you.
How Do You Know Which Bankruptcy Type is Right for You?
This is a complex personal or business finance question. Consider talking to an attorney to understand your financial and legal situation. An experienced attorney can quickly apply means tests and other information to your case to help you understand what your options are.
What Is Chapter 11 Bankruptcy?
According to the United States Courts, individuals and business entities can enter into Chapter 11 bankruptcy. Typically, this type of bankruptcy is a reorganization of a business. Through the bankruptcy, the debtor restructures and then creates and implements a plan to pay back creditors.
The plan must be approved by a Trustee appointed by the court. The Trustee is typically in charge of implementing and overseeing the plan, ensuring that the business has the income and resources to follow through with it. Once the plan is completed and confirmed, any remaining debts under the bankruptcy are discharged.
This is an extremely simple summary of how a Chapter 11 bankruptcy works. In reality, they can take years and involve numerous legal proceedings on behalf of the person or business filing as well as the Trustee and creditors.
What Is Chapter 7 Bankruptcy?
The main difference when it comes to Chapter 7 vs. Chapter 11 bankruptcy is that Chapter 7 is a liquidation plan. That means there’s no repayment plan associated with a Chapter 7 bankruptcy.
When you file Chapter 7, you typically agree to liquidate your assets to pay off as much of your debt as you can. The remaining debts that are part of your bankruptcy are dismissed.
Whether or not you can file for this type of bankruptcy is determined by income. If your income is below the median for the state you’re filing in, you can probably choose Chapter 7 bankruptcy. If your income is above the state minimum, you must pass a “means test.” A bankruptcy attorney can quickly apply these tests to help you understand whether you meet eligibility for Chapter 7.
You don’t have to give up everything you own in a Chapter 7 bankruptcy, though. You may be able to keep exempt assets, which can include certain personal belongings. You may also be able to keep your home, a car, and other items, even if you owe money on them, if you can continue to make timely payments on those debts.
Again, bankruptcy is a complex process and what you can keep and how your proceeding goes is based on a variety of factors. Consult an experienced bankruptcy attorney to find out more about your individual situation.
What Is Chapter 13 Bankruptcy?
Chapter 13 bankruptcy may sound similar to Chapter 11 because these both involve repayment plans. But when it comes to Chapter 11 vs. Chapter 13, the biggest difference is that Chapter 13 allows someone with regular income to make an adjustment to how they pay back some debts.
Chapter 13 may be an option for individuals who fail the means test for Chapter 7. Typically, Chapter 13 bankruptcy works for people who have stable income to make some payments on debts but they don’t have enough income to pay all the debts as currently structured.
The individual submits a repayment plan to the court. This plan must be approved by a bankruptcy court Trustee. The Trustee is also typically tasked with making payments under the plan, so the individual pays the Trustee. The Trustee’s office then pays various creditors.
Usually during a Chapter 13 you only pay off part of your debts. Priority and secured debts, such as taxes or auto loans, are paid in full. But unsecured, nonpriority debts, such as medical bills and credit card debt, are only partially paid. If you work through your Chapter 13 repayment plan successfully, the remaining debts are dismissed at the end of the repayment plan. That can take three to five years.
Should You File for Bankruptcy?
Only you can decide if bankruptcy is the right choice for you. In most cases, you should consider all your other options and ensure there really is no way to feasibly pay your debts as you agreed. Consider the factors below to determine which type of bankruptcy might be right for you. Then, talk to an attorney to find out more about each option.
Should You File for Chapter 7 Bankruptcy?
- What is your income? Not everyone qualifies for Chapter 7 bankruptcy. You have to pass what’s called a “means” test, and you usually don’t pass it if you make more than the median income of same-size households in your state.
- Have you filed for bankruptcy before? If it hasn’t been long enough since the last time, you may not be able to file.
- What type of debt are you dealing with? Most, but not all, debt can be discharged in a Chapter 7 bankruptcy. If you’re trying to deal with debt that isn’t dischargeable, it may not be worth filing Chapter 7.
- Do you want to keep your property? Some property may be exempt, such as your home or a car you need, but you may not be able to keep the same property in a Chapter 7 that you could keep in a Chapter 13, for example. Definitely talk to your bankruptcy lawyer about which property you want to keep and whether it’s possible.
Should You File for Chapter 13 Bankruptcy?
You’ll need to ask all the same questions you’d ask when considering Chapter 7 bankruptcy to find out if Chapter 13 is right for you. You also need to consider whether you have enough income to make some repayment toward your debt. In a Chapter 13 bankruptcy, you restructure your debts and pay some of them over 3 to 5 years before the rest are discharged.
You should also ask yourself if you have the discipline to make the monthly payments to the trustee and follow other rules set by the court. You typically can’t apply for most types of credit, including a mortgage, auto loan or significant personal loan, without getting the court’s approval if you’re in the middle of a Chapter 13 bankruptcy, for example.
Should You File for Chapter 11 Bankruptcy?
Do you have your own business and need to include business debts in your bankruptcy? You might want to consider a Chapter 11 over a Chapter 13. Chapter 11 may also be an option for individuals or couples who have too much debt to qualify for a Chapter 13. Otherwise, all the other questions above apply here, too.
The Main Differences Between the Types of Bankruptcy
To better understand the main differences between Chapter 7, 11, and 13 bankruptcy, consider the table below.
Chapter 7 | Chapter 13 | Chapter 11 | |
Type of bankruptcy | Liquidation | Reorganization | Reorganization |
Income requirements | Yes — can’t make above the median for same-size households within the state | Yes — must have enough income to make the repayment plan viable | Yes — must have enough income to make the repayment plan viable |
Can individuals file? | Yes | Yes | Yes |
Can businesses file? | No | Only sole proprietors | Yes |
How long does it take? | A few months | 3 to 5 years | 1.5 to 5 years |
Debt limitations | n/a | Combined secured and unsecured debts must be less than $2,750,000 | n/a |
Who Can File for Each Type of Bankruptcy?
In addition to income and debt requirements, each type of bankruptcy has limitations on which individuals or entities can file.
Chapter 7 | Chapter 13 | Chapter 11 |
– Individuals – Married couples |
– Individuals – Married couples – Sole proprietors |
– Individuals – Married couples – Sole proprietors – LLCs – Partnerships – Corporations |
What Happens After You File for Bankruptcy
The first thing that happens when you file for bankruptcy is that the automatic stay goes into place. This is a protection that requires creditors to cease all collection efforts until the bankruptcy process can be completed. It’s a powerful protection. For example, even if you’re in the middle of a home foreclosure, the automatic stay can stop that process so you can work through bankruptcy to keep your home.
Once the petition is filed with the court, hearings are set and all creditors included in the bankruptcy are notified. They do have the option of responding to the bankruptcy if desired. You’ll also need to attend the first hearing in your case to testify, under oath, to the truth of everything documented in your petition.
If you’re filing a Chapter 11 or Chapter 13 bankruptcy, you’ll need to file a repayment plan, get approval for it and follow through on it. Once the bankruptcy process is completed successfully, your remaining debts can be discharged.
How Does Bankruptcy Impact Your Credit?
Any type of bankruptcy can impact your credit. It’s a negative item that stays on your credit report and drop your credit score for up to 10 years, depending on which type of bankruptcy you file.
But the truth is that by the time most people get to bankruptcy, they’ve already missed numerous payments and may be in collections with one or more accounts. If this is the case, bankruptcy doesn’t usually drive your credit score much lower than it already is. And there’s a chance that you may see your credit score begin to climb again after bankruptcy as you make timely payments on debts and are better able to manage your finances.
Chapter 11, Chapter 7, or Chapter 13—these are all huge financial and legal decisions. Each comes with its own pros and cons, and it’s important to handle a bankruptcy correctly if you do decide this is the way you want to go. So, talk to a lawyer and get the information you need to make the best decision in your case.
- Chapter 7 is removed 10 years after the date the petition was filed.
- Chapter 13 is removed 7 years after the date the petition was filed.
- Chapter 11 is removed 10 years after the date the petition was filed.
Want to keep an eye on your credit report to understand when negative items fall off it as you’re working to rebuild? Consider signing up for ExtraCredit.
Options Other Than Bankruptcy
Before considering bankruptcy, research other options to help manage your debt. You might find other avenues that are less complex and not as impactful to your credit reports. They can include:
- Debt consolidation that reduces how many bills you deal with each month and may create a monthly payment situation that works better for your budget
- Debt counseling that brings in professionals who can help you negotiate with your creditors for better terms and manage your money better to make ends meet
- Selling property so you can pay off debts that are beyond your current budget
- Increasing your income with a second job or side hustles so you have more money to pay your debts
Ultimately, whether bankruptcy is right for you is a decision you must make yourself. Start with the information above to gain a brief understanding of your options, and reach out to an attorney to help you understand how these details might apply to your case.
The Impact of COVID-19 on Bankruptcies
Bankruptcies are still proceeding in the wake of the coronavirus pandemic. You may find that hearings related to cases are being handled via phone or web conferencing and not in person.
If you’re making payments on a Chapter 11 or Chapter 13 case and have been impacted financially by the pandemic, you should contact your attorney as soon as possible. They can help you understand the best next steps, which might include filing motions in your case to alter your payments temporarily.
The CARES Act also provides some modifications to how certain elements of bankruptcies are handled. It ensures federal stimulus payments aren’t considered disposable income, for example, and provides Chapter 13 debtors a path to seek modified payment plans if their income is impacted.
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Apache is functioning normally
Sure, savings accounts can be a good place to stow extra cash and build wealth. You’ll typically earn interest, helping your money grow and boosting your progress towards your financial goals.
However, unlike checking accounts, you usually can’t spend straight from a savings account. What’s more, you may find that there are limitations on the number of withdrawals or transfers you can make from out of your savings account.
If you want to avoid getting entangled with savings account rules and restrictions or triggering fees, here’s advice. Read on to learn the ins and outs of spending money from a savings account.
How Does a Savings Account Differ From a Checking Account?
You might think the main difference between a checking account and a savings account is how you view them–namely, one is for now, and one is for later. But the bank also views these two accounts very differently. Here’s a closer look at how savings accounts work vs. checking accounts.
• Savings accounts typically earn interest while checking accounts which generally earn zero or very little interest.
• Savings accounts may come with cash transfer and withdrawal limits. A federal rule called Regulation D used to limit certain types of transactions from a savings account to no more than six per month.
• In the wake of the coronavirus pandemic, the Federal Reserve lifted this rule to allow people to have easier access to their savings. Many banks, however, still enforce the six-per-month cap on savings account transactions.
• Savings accounts don’t usually come with debit cards that can be used to make purchases with money from that savings account. Only a few banks offer this service.
💡 Quick Tip: Don’t think too hard about your money. Automate your budgeting, saving, and spending with SoFi’s seamless and secure online banking app.
Can You Write a Check From a Savings Account?
Typically, you can’t write checks from a savings account. Of course, it’s always possible to transfer money from a savings account to a checking account and then write a check from there.
If you want to save money and have the ability to write a check with the money you save, you may want to consider opening up a money market account.
Money market accounts are a type of savings account that often pay a higher interest rate than traditional savings accounts and generally include check-writing and debit card privileges.
However these accounts often come with minimum monthly balances, and falling below the minimum can trigger fees. Like other savings accounts, money market accounts may limit transactions to six per month (which includes writing checks and debit card payments).
Ready for a Better Banking Experience?
Open a SoFi Checking and Savings Account and start earning up to 4.50% APY on your cash!
How to Spend (and Save) With a Savings Account
To take advantage of the interest you’re earning on your savings, and avoid triggering penalty fees or the closure of your account, you may want to keep these savings account spending tips in mind.
Keeping Track of Your Withdrawals
It can be a good idea to find out what your bank’s policy is regarding monthly transactions from savings. Many institutions are sticking with the standard limit of six “convenient transactions” per month, while some are allowing more, such as nine transactions per month.
Convenient transactions include money transfers you make online, by phone, or through bill pay. Transactions, including ATM withdrawals and those that you make in person at the bank, do not typically count towards the monthly cap.
Paying Bills From Your Checking Account
Scheduling automatic bill payments from your savings account may put you over the savings withdrawal limit. It can be a better idea to have automatic bill payments or recurring transfers come out of your checking account.
Withdrawing Money Only for Large Expenses
If you withdraw money from your savings account for everyday spending, it can reduce the amount of interest you earn, and make it harder to reach your savings goals.
It can be wiser to only touch your savings when it’s necessary to cover an emergency expense or a large purchase (ideally, one you’ve been saving up for).
Building Your Savings
A savings account can help you work towards your financial goals, such as creating an emergency fund, making a downpayment on a home, or going on a great vacation. In some cases, you may even want to have different savings accounts for different goals.
To help achieve those goals faster, you may want to set up an automatic transfer from your checking account into your savings account on the same day each month (perhaps after your paycheck gets deposited). It’s perfectly fine to start slowly. Even small monthly deposits will add up over time.
💡 Quick Tip: Want a simple way to save more everyday? When you turn on Roundups, all of your debit card purchases are automatically rounded up to the next dollar and deposited into your online savings account.
Maximizing the Interest You Earn
The higher the interest rate, the faster your savings will grow. That’s why it can be worthwhile to do some research into which institutions and which types of savings accounts are paying the highest rates.
Some options you may want to look into include: A high-interest savings account, money market account, certificate of deposit (CD), checking and savings account, or an online savings account.
The Takeaway
Savings accounts generally aren’t designed for making frequent transactions. Instead, their main purpose is to provide a safe place to store money for the medium- to long-term. This is one of the key differences between checking and savings accounts.
Savings accounts still allow you to have access to your money, of course. To avoid exceeding transaction limits, you can visit the bank in person or use the ATM to make withdrawals or initiate transfers (since these transactions typically don’t count towards transaction caps).
To make the most out of your savings account, you may also want to look for an account that pays a higher-than-average interest rate.
Open a SoFi Checking and Savings Account
Another savings option you may want to consider is opening a checking and savings account, which can combine the best features of each kind of financial vehicle.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
Better banking is here with up to 4.50% APY on SoFi Checking and Savings.
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SoFi members with direct deposit activity can earn 4.50% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.
SoFi members with Qualifying Deposits can earn 4.50% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.50% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 8/9/2023. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet..
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.
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Source: sofi.com
Apache is functioning normally
The average U.S. rate for a 30-year fixed mortgage fell to 2.99% this week, the second-lowest on record, as investors worried about the economic fallout of the COVID-19 pandemic piled into the bond markets.
The rate fell from 3.01% last week, Freddie Mac said on Thursday. The 15-year fixed-rate averaged 2.51%, also the second-lowest on record, down from last week when it was 2.54%, according to the mortgage financier.
The cheap financing costs likely will boost home sales at a time when the U.S. economy sorely needs a shot in the arm, said Freddie Mac Chief Economist Sam Khater. GDP plunged a record 32.9% in the second quarter as states grappled with the COVID-19 pandemic, the Commerce Department said in a Thursday report.
“Real estate is one of the bright spots in the economy, with strong demand and modest slowdown in home prices heading into the late summer,” Khater said. “Home sales should remain strong the next few months into the early fall.”
U.S. pending home sales increased 17% in June, the second consecutive month of double-digit gains, as the low mortgage rates spurred demand for homes, the National Association of Realtors said in a report on Wednesday.
A seasonally adjusted index measuring signed contracts was 6.3% above the year-ago level after state lockdowns caused by the COVID-19 pandemic pushed transactions into summer months, said Lawrence Yun, NAR’s chief economist.
The future of the U.S. economy depends on how well the coronavirus pandemic is controlled, the Federal Reserve’s rate-setting committee said on Wednesday. That’s not good news for a nation that leads the world in COVID-19 infections and deaths.
“The coronavirus outbreak is causing tremendous human and economic hardship,” the Fed statement said. “The path of the economy will depend significantly on the course of the virus.”
The statement came shortly after the U.S. broke the 150,000 threshold for deaths from COVID-19, as measured by Johns Hopkins University. The U.S. has about 4.2% of the world’s population and has recorded 23% of COVID-19 fatalities. The No. 2 nation for pandemic deaths is Brazil at 88,539, according to the Johns Hopkins data.
The way forward for a U.S. recovery is “extraordinarily uncertain,” Fed Chairman Jerome Powell said in a video-call press conference with reporters after the release of the statement.
Source: housingwire.com
Apache is functioning normally
In February 2020, Tenisha Tate-Austin and Paul Austin decided to erase all traces of their existence in the Northern California home the Black couple had created for themselves and their children.
They “whitewashed” their home by removing their family photographs and African art displayed around the house. They had a white friend place some of her own family photographs around the home and greet the appraiser as if she were the homeowner.
The couple wanted to see if they’d get a better home appraisal than the one they had received three weeks earlier.
The experiment worked. This time, the appraisal (by a different appraiser from the same appraisal management firm) was almost 50% higher. In three weeks, the value of their Marin City home, 11 miles north of San Francisco, had gone from $995,000 to $1,482,500.
In March, the Austins settled a fair housing lawsuit alleging race discrimination against the licensed real estate appraiser; they’d reached a settlement in October with the appraisal management company.
Sixty years after Martin Luther King Jr. delivered his most iconic speech calling for civil and economic rights and an end to racism, one of the biggest roadblocks to building wealth for Black Americans is still in place: The housing gap has widened from the time it was legal to discriminate based on race.
In 1960, eight years before the Fair Housing Act, which prohibits property owners, financial institutions and landlords from discriminating based on race, the homeownership gap between white (65%) and Black (38%) stood at 27 percentage points. In 2021, or 60 years later, that gap had grown: 73% of white households owned a home compared with Black homeownership at 44%, a difference of 29 percentage points, according to the Urban Institute.
“We missed out on a better interest rate because of the unfair appraisal we received,” Tenisha Tate-Austin said in statement through her lawyer. “Having to erase our identity to get a better appraisal was a wrenching experience. We know of other Black families who either couldn’t get a loan because of a discriminatory appraisal and therefore either lost the opportunity to buy or sell a home, or they had to sell their home because they had an unaffordable loan.”
Explore the series:MLK’s ‘I have a dream’ speech looms large 60 years later
Housing gap:‘We are a broken people’: The importance of Black homeownership and why the wealth gap is widening
King fought racist housing practices in ChicagoThough King knew housing was an important topic when he made his 1963 speech (it included the line “We cannot be satisfied as long as the Negro’s basic mobility is from a smaller ghetto to a larger one,” his focus was ending segregation in the South, said Beryl Satter, professor of history at Rutgers University in New Jersey and author of “Family Properties: Race, Real Estate, and the Exploitation of Black Urban America.”“The speech was about jobs and ending segregation of drinking fountains and restaurants, buses, trains, movie theaters and swimming pools to help pass the Civil Rights Act,” she said. Once that was accomplished, King trained his sights on housing in the North, particularly Chicago, where he focused on enforcing a pre-existing law on open housing, Satter said.The open housing laws in Chicago already forbade real estate agents from steering Black families into Black neighborhoods and dictated that housing should be made available regardless of race.“But like many such open housing laws, it was not enforced,” Satter said.In January 1966, King moved with his family into an apartment in North Lawndale on the West Side of Chicago to bring attention to the poor living conditions of Black families living without water, electricity and heat. He marched with Black and white supporters into segregated white neighborhoods to call for open housing.“And there he was met with the most violence he had ever been met with in any of his civil rights struggles. He said that the violence in Chicago made the whites in Mississippi look good,” Satter said. “He was hit with a stone while marching in Chicago, and he kept going.”Fair Housing Act became law after King’s deathFrom 1966 to 1967, Congress regularly considered a fair-housing bill, but it was ultimately defeated.“It was the first time that a Civil Rights Act had been defeated since the ’50s,” Satter said. “There was massive white resistance to any law or direct action that threatened racial segregation and housing. It was something that whites in the North fought to the death to keep.”After King was assassinated in 1968, President Lyndon Johnson pushed through the national Fair Housing Act as a memorial to King, whose name had become closely associated with the fair housing legislation.The undervaluation of homes in Black neighborhoods, decadeslong housing segregation, a systemic denial of loans or insurance in predominantly minority areas, a persistent income gap, and a historically limited ability of Black parents to leave their families an inheritance have contributed to the nation’s financial disparity, experts say.
During the housing boom of the early 2000s, Black Americans ages 45 to 75 disproportionately held subprime mortgages, loans offered at higher interest rates to borrowers characterized as having tarnished credit histories. Many of these mortgage holders lost their homes and have been unable to return to homeownership.
These trends will affect retirement prospects for Black Americans and their ability to pass down wealth to the next generation, making it not just one generation’s problems but an intergeneration disparity, experts say.
White wealth surpasses Black wealth
In 2016, white families posted the highest median family wealth at $171,000. Black families, in contrast, had a median family wealth of $17,600, according to the Federal Reserve. Homeownership has long been considered the best path to build long-term wealth, so increasing the rate of homeownership can play an important role in closing the wealth gap, experts say.
Over the past decade, the median-priced home in the United States gained $190,000 in value, making the typical homeowner 40 times wealthier than if they had remained a renter, according to a report released in April by the National Association of Realtors.
Some signs of hope emerged during the coronavirus pandemic, when mortgage rates were at historic lows.
During that time, Black homeownership rates increased by 2 percentage points, surpassing the white homeownership rate, which increased just 1 percentage point.
The historically low mortgage rates enabled high-earning, highly educated Black households to boost homeownership rates. Most high-income white households already were homeowners, which explains the smaller magnitude of growth, according to the analysis.
Black homeownership rate saw small improvements
From 2019 to 2021, the homeownership rate for Black households went from 42% to 44%; for white households it went from 72% to 73%.
After experiencing a continuous decline since the Great Recession, the Black homeownership rate finally made gains between 2019 and 2021. The reason was pent-up demand, said Jung Choi, a researcher at the Urban Institute.
“This suggests that affordability really matters,” Choi said. “Now, with the surge in interest rates, we are already seeing a sharp decline in Black homebuyers as well as younger homebuyers.”
Satter said King’s final book, 1967’s “Where Do We Go From Here: Chaos or Community?” cautions against complacency simply because there are laws on the books.
“He really understood that having a law in books was the beginning, not the end. Today we have the Fair Housing Act of 1968, and there are ongoing local, state and national laws that are supposed to stop housing discrimination,” Satter said. “I think King would have predicted that they would not be effective if there wasn’t a larger public will to enforce it and a strong political organization pushing to enforce it.”
Swapna Venugopal Ramaswamy is a housing and economy correspondent for USA TODAY. You can follow her on Twitter @SwapnaVenugopal and sign up for our Daily Money newsletter here.
Source: usatoday.com