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A universal life insurance policy can accumulate cash value in addition to providing a death benefit. There are two basic types of universal life insurance policies you should know about. With indexed universal life insurance, the cash value can increase based on the performance of a market index. With variable universal life insurance, on the other hand, a policyholder directly invests the cash value into securities.

A financial advisor can help you determine how life insurance fits into your financial plan.

Universal Life Basics

Universal life insurance is a kind of permanent life insurance. Permanent life insurance differs from the other main variety of life insurance, term life insurance, in that permanent life insurance does not expire and part of the premium is used to build up cash value in a subaccount. Term life insurance generally costs less and is for a limited number of years but provides only a death benefit, without any cash value feature.

There are two major varieties of permanent life insurance, including whole life insurance as well as universal life insurance. With both types the cash balance in the subaccount can increase, but with whole life the growth is based on a fixed interest rate while with universal life the growth rate can vary.

Whole life premiums are also fixed. A universal life policyholder can opt to pay a lower premium during a period when cash flow is tighter, or pay more to build cash value. These policies also may also include other features, including long-term care coverage and other living benefits.

Favorable tax treatment is an important characteristic of permanent life policies. The death benefit is free of income taxes. Funds in the cash value subaccount also grow tax-free, and policyholders can withdraw funds or take loans against the cash value while still alive without owing taxes on the proceeds.

Indexed Universal Life

Indexed universal life is one of the sub-types of universal life. With an indexed universal life policy, the cash value can grow based on the performance of a stock market index. This allows for a potentially higher return than a whole life policy with a fixed return.

Indexed universal life policies typically have participation rates describing the return’s relationship to the index. A 60% return rate means the cash value will earn 60% of the return posted by the tracked index. If the index returns 10%, in this case, the subaccount will earn 60% of 10% or 6%.

However, these policies also often have caps on the maximum return. In the previous example, if the policy had a cap of 5%, the subaccount would earn 5% instead of 6%.

In addition, indexed universal life policies often have floor rates describing the minimum return the return will post. A floor of 1% means the policy will return 1% even if the index posts a negative return.

Pros of indexed universal life include the ability to get a death benefit along with tax-free growth and distributions. Policyholders can also contribute unlimited amounts and use the money at any time, which are useful advantages compared to retirement accounts such as IRAs.

Cons of indexed universal life include caps on returns along with sales, administrative and other fees which are typically higher than other investment options such as exchange-traded funds. Also, withdrawals from the cash value subaccount may become taxable if the policy is surrendered or lapses.

Variable Universal Life

Another type of universal life insurance is variable universal life. It shares many of the features of indexed universal life, including tax treatment and the ability to pay flexible premiums and accumulate cash value in a subaccount. The primary difference is how funds in the subaccount are handled.

Instead of tracking an index, the cash value in a variable universal life policy subaccount can be invested directly in securities, such as stocks and bonds. Variable universal life policies do not have participation rates, cap rates or floor rates as indexed universal life does.

The return on a variable universal life policy cash value will reflect the actual performance of the securities, without any limits up or down. This means it is possible to get a higher return than with an indexed universal life policy but also to get a lower return as well as to lose money.

Pros of variable universal life policies include the possibility of a higher return while still getting favorable tax treatment and a death benefit. Cons include the possibility of a lower return or actual loss. Variable universal life policies also typically have higher fees than indexed universal life due to the added costs of managing the investments.

IUL v. VUL: Which One Is Better?

As outlined above, there are positives and negatives for both products. Which one is best for you will largely depend on what you want to get out of your life insurance policy.

Indexed universal life can be a good choice for someone who wants a death benefit as well as flexibility in paying premiums and the prospect of a somewhat better return on the cash value than is offered by a whole life policy. Indexed universal life buyers tend to be more risk-averse than variable universal life policyholders, who are willing to take the chance of higher returns in exchange for the possibility of a loss.

The Bottom Line

Indexed universal life and variable universal life are two types of permanent life insurance that let policyholders pay varying premiums and accumulate cash value. Indexed universal life cash value can grow based on the performance of a stock index. Variable universal life cash value can be invested directly into securities. Indexed universal life typically limits both gains and losses, while variable universal life offers the opportunity for higher gains as well as losses.

Life Insurance Tips

  • Life insurance can be an important part of a financial plan. A financial advisor can help you select which type of life insurance works best for your situation. SmartAsset’s free tool matches you with up to three vetted financial advisors in 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.
  • SmartAsset’s investment calculator shows you how much your investment will be worth over time assuming a constant rate of return and regular contributions.

Photo credit: ©iStock/Rockaa, ©iStock/AlexanderFord, ©iStock/Rockaa

Mark Henricks
Mark Henricks has reported on personal finance, investing, retirement, entrepreneurship and other topics for more than 30 years. His freelance byline has appeared on CNBC.com and in The Wall Street Journal, The New York Times, The Washington Post, Kiplinger’s Personal Finance and other leading publications. Mark has written books including, “Not Just A Living: The Complete Guide to Creating a Business That Gives You A Life.” His favorite reporting is the kind that helps ordinary people increase their personal wealth and life satisfaction. A graduate of the University of Texas journalism program, he lives in Austin, Texas. In his spare time he enjoys reading, volunteering, performing in an acoustic music duo, whitewater kayaking, wilderness backpacking and competing in triathlons.

Source: smartasset.com

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March 21, 2022
by Zach Festini

Last week brought big news and significant mortgage rate increases. Let’s cover the Fed’s announcement and more in this week’s Mortgage Monday update!

Rates Update

For the week ending March 17, Freddie Mac reported significant mortgage rate increases following the Federal Reserve’s meeting on Wednesday. For the first time since 2018, the Fed announced that interest rates will be rising by 0.25 percentage points – meaning mortgage rates will also rise – and that future increases will come over the rest of this year with each proceeding Fed meeting.

According to Freddie’s weekly rate survey, this announcement caused some mortgage rates to jump to their highest levels since May 2019. The average 30-year fixed-rate mortgage is well beyond four percent now, which should be a red flag to any borrowers considering a home purchase. We’ve said before that in the current market, it would be best to buy a home sooner than later; the Fed’s announcement last week has only confirmed this sentiment.

To get started, contact a Total Mortgage loan officer or apply now!

Older, but Still Important News

Let’s cover some older industry news that has affected buyers since the start of this year.

  • At the start of February, the Federal Housing Finance Agency (FHFA) lifted its restrictions on borrowers with self-employment income. These were originally put in place in response to the pandemic but have since been removed, offering borrowers greater opportunities in an already competitive market. The same credit and income requirements may apply, but home financing is now generally more accessible for the self-employed.
  • Coming soon: The Federal Housing Finance Agency (FHFA) announced upcoming fee increases (effective April 1, 2022) for certain Fannie Mae and Freddie Mac home loans. These increases will ultimately depend on each product’s loan-to-value ratio. “High-balance” loans qualify as any that go above the conforming baseline limit introduced on January 1.

To learn more about any of these recent developments, contact your Total Mortgage loan officer today.

In Closing

As expected, the Federal Reserve’s announcement of higher rates was last week’s biggest news and will continue to affect the market through the rest of the year. Our prediction: mortgage applications will likely increase with a correlating decline in refinances. Borrowers will want to lock in a rate now before the Fed inevitably raises them again, reducing affordability as they combat inflation. At the same time, refinancing will become less feasible as lower-rate options begin to disappear and give way for a true purchase market this spring.

If you’re on the fence about pursuing a home purchase, contact us or apply now! Experts have been predicting a return to pre-pandemic markets for some time and last week was a major step in that direction. Prospective buyers will need to be proactive to be successful – but for now, stay tuned for our next update and enjoy the rest of your week.

Filed Under: Uncategorized

Source: totalmortgage.com

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Webinars and Training, Construction Tracking, MERS Certification, 100% Financing, HELOC Products; Jumbo, DSCR Program News

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Webinars and Training, Construction Tracking, MERS Certification, 100% Financing, HELOC Products; Jumbo, DSCR Program News

By:
Rob Chrisman

2 Hours, 59 Min ago

The United States has about 336 million people. Did you know that 1/3 of them live within a 500-mile radius of Nashville? This is a cool site for anyone putting together a sales presentation for a real estate agent or a borrower. Speaking of geography, Wyoming has 23 counties, not 58 as the Commentary mentioned yesterday, further proof that this is, and always will be, produced by human hands! (Thank you to everyone who corrected me on that.) While we’re on selling, from a sales perspective, some LOs advocate adding value by subtracting complexity for clients. They are asking themselves, “How do I add value? How am I any different?” They are looking at their sales pitch, comparing bringing up pain (minimizing pain through minimizing paperwork) versus bringing up pleasure (“You’ll save time by working with me.”) And most are doing what they say they’re going to do: If you tell a potential client you’re going to call in two days, call in two days. Simple. Now go get ‘em! (Today’s podcast can be found here and this week’s is sponsored by Lenders One, one of the largest mortgage co-ops in the country with a diverse mix of 250+ member companies and providers of an end-to-end solution independent mortgage professionals trust to drive profitability and growth. Listen to an interview with Lenders One’s Justin Demola on the member benefits of joining a national alliance of independent mortgage banks, banks, and credit unions.)

Lender and Broker Products, Software, and Services

Ever feel like you can’t keep up with the latest tech trends? Having trouble separating hype from reality? Black Knight’s Dana Federspiel, SVP of servicing technologies and product innovation, knows these struggles and is helping lenders, servicers and mortgage industry professionals navigate the future. Dana is participating in a panel discussion during the USFNdustry Forum in Charlotte, North Carolina on the emerging trends in technology to help make more sound business decisions to support your business. Special focus will be given to artificial intelligence, machine learning, robotic process automation and more. Panelists will also evaluate options within the cloud computing universe that are becoming increasingly prevalent and affordable. If you need help cutting through buzz words to identify what really matters so you can remain successful both today and in the future, contact Black Knight.

As lenders adapt to volatile mortgage rates, many are stopping to reconsider their servicing strategy. Do inconsistent mortgage origination volumes have you questioning what makes more sense: retaining servicing or selling servicing released? Seth Sprague, CMB, Richey May’s Director of Mortgage Banking Consulting Services (aka, resident servicing expert), outlines the 13 key trends and strategies in servicing including recommendations on how to make the right decisions for your business. Want more help defining the optimal strategy? You know where to find us.

Thinking about boosting volume with construction loans? Think outsourcing. Homebuilder confidence is slowly improving, with sales of newly built single-family homes rising 4.1 percent in April, according to the NAHB’s latest numbers. If that’s piquing your interest in launching a construction loan program or scaling your existing offerings, CFSI Loan Management can provide the foundation you need to excel. “We’ve seen it time and time again,” says CFSI CEO Brian Mingham. “Outsourcing the trickiest aspects of construction lending, like budgeting, inspections, funding draws and disbursements, can reduce costs and unleash new business opportunities.” Imagine having all the complexities seamlessly handled by a team of seasoned experts, so you close more deals. CFSI has helped hundreds of lenders do exactly that for the past 10 years. To find out how they can help you, contact Brian Mingham (855-344-3052).

We know the current market can be stressful. But fortunately, there’s a bright side: home equity. These products have been around for decades but in recent years have taken a back seat to cash-out refinances. Now this is changing as borrowers with historically low first mortgage rates and generationally high levels of tappable equity rediscover HELOCs and home equity loans. Leverage this historic opportunity with FirstClose Equity, the rapid end-to-end digital technology that processes HELOCs and home equity loans in days instead of weeks. FirstClose Equity is designed to enable lenders to dramatically elevate the experience they deliver to existing or potential customers while providing a streamlined workflow for processors. Learn more.

“Looking for 100 percent financing with competitive pricing? All roads lead to ESSEX CORRESPONDENT and our Down Payment Assistance (DPA) product. Become a fully delegated and underwrite/fund your own 100 percent LTV purchase product. FHA 1st 96.5 percent LTV with two 3.5 percent 2nd mortgage options; 0 percent Forgivable or a 10 year Fully Amortized. No DTI limit, AUS approval required. FICOS as low as 600. One set of guidelines is available in 47 states. No first-time home buyer requirement. No 3rd party underwrite allows you to close as quickly as your team can originate. Email Kim Schenck or contact your Account Executive today and get signed up!”

While the mortgage industry is flooded with rules, there is no rule prohibiting you from celebrating National Donut Day a day earlier! Plus, we Donut want you to miss an opportunity for a free Krispy Cream. Among other things we don’t want you to miss, MERS season is officially here, and early-bird pricing is available now! If your organization had more than 1,000 MINs [on the MERS® System] on March 31st, you must have the annual review completed by an “authorized MERS third-party reviewer. Donut fret, MQMR aced the MERS certification with flying colors! Donut miss this opportunity to save, pricing will increase through the end of the year. Donut wait until the last minute, as your annual audit report may be submitted anytime between now and December 31, 2023. Schedule a call to discuss your MERS Annual Audit requirement and lock-in the sweetest deal of the season!

Sponsored Webinars and Training

Join MCT today, June 1st at 10am PT, for its webinar discussing Strategies to Improve Profitability in the Current Market. In this webinar, MCT’s Phil Rasori and Paul Yarbrough will provide a current market overview and include actionable insights to improve profitability for lenders. Attendees will receive key hedging, trading, best execution, and MSR recommendations, as well as how to leverage technology to improve profitability and efficiency. MCT also recently released a new whitepaper on Mortgage Pipeline Hedging 101. The whitepaper reviews information on moving to mandatory, the strategy of hedging, the benefits of hedging, and how to determine if you are ready. Read the whitepaper to learn how you can use hedging as a tactic to mitigate risk and optimize profitability when selling mortgage loans.

Lenders that support down payment assistance (DPA) are in high demand as a multitude of market conditions put a strain on affordability. To help more lenders win business by supporting consumers with DPA, the Mortgage Bankers Association is hosting the webinar Profit & Succeed with DPA on June 8 at 2 pm EDT. Best practice approaches to DPA lending will be shared by panelists Mark Hasson of Lennar Mortgage, Kate McDougall of Lake Michigan Credit Union and Down Payment Resource’s Veronica Khandelwal and Sean Moss. Registration is FREE for MBA members! Register now to turn up the heat with DPA programs this summer

Investors and Lenders: Jumbo, Non-QM, and DSCR News

Newfi Wholesale’s newly expanded Non-QM product suite offers 90 percent LTV up to $1.5M, loan amounts up to $4M, 2-1 buydowns, DSCR (no minimum ratio) 1-8 units, and alt-doc solutions that make sense for your borrowers. (For more information contact SVP, Non-QM Development & Strategy Dan Bayer or 925-584-0579.)

Effective 5/15/2023, updates to Kind Lending’s Choice Jumbo Program are now live. See UW guide for full program requirements located in Kwikie. Additionally, based on FHFA’s announcement that it would rescind controversial loan-level pricing adjustments (LLPAs) for conventional borrowers with debt-to-income (DTI) levels at or above 40 percent, as of May 14th,

Kind Lending will no longer be charging for a DTI >=40 percent on any FNMA or FHLMC loans. If you have an affected loan that is in process now, Kind Lending will automatically remove this price adjustment and will send out a new lock confirmation.

United Wholesale Mortgage (UWM) is rolling out a suite of six fixed-rate jumbo products. “Brokers now have access to more competitive jumbo pricing, along with transparent investor guidelines and loan qualifications, giving them a leg up on big banks and retail lenders. This will give loan officers the flexibility to tailor a fixed jumbo loan to each borrower’s situation, helping them get into their homes faster, cheaper, and easier.”

As a leader in Non-QM lending, Carrington Correspondent is working hard to deliver top-notch products to trusted partners. Nearly 2 dozen changes took effect on March 23, 2023, which hopefully will have a positive impact on your business and borrowers. Highlights include reduced FICO at which cash-out may be considered for reserves from 700 to 620 for all Non-QM loans. Investor Advantage (DSCR) changes include Resales within 6 months ok, Cash-out FICO requirement down from 640 to 620 and updated “1st-time investor” definition to no investment ownership within 36 months (was 12) – LTV benefit. Prime Advantage (FICO 660+) Now permits primary residences of 3-4 units (was 1-2).

Carrington Prime Advantage for borrowers who just miss qualifying for traditional or jumbo financing. Carrington Flexible Advantage Plus for borrowers who have recently re-established credit scores above 620. Carrington Flexible Advantage for borrowers with recent credit events and FICO down to 550. Carrington Investor Advantage for seasoned property investors with no income documentation.

Did you know there is no State Licensing Required in 20 States & DC? These states consider DSCR loans as commercial loans, so they are generally not subject to licensing requirements.

Carrington Mortgage Services Investor Advantage (DSCR) loan may be the answer for your borrowers.

Champions Funding recently announced an expanded business loan product to increase your offerings to real estate investors. Champs Accelerator Expanded (DSCR < .75) / No Ratio, part of its robust suite of DSCR loan options to fit your borrowers’ needs. Champs accepts transferred appraisals on DSCR and can get your loans closed quickly.

Looking for more options for your borrowers? American Heritage Lending offers CondoTels & Non-Warrantable Condos programs.

Angel Oak Mortgage Solution’s Investor Cash Flow mortgage (DSCR Loan) program now allows you to offer your clients financing for condotels. In addition to this new program enhancement, Angel Oak has implemented rate reductions across all loan programs. If you haven’t ran a loan scenario recently, today is the day to Get Started!

Angel Oak Mortgage Solutions shared great news regarding lending services, now offering its DSCR loans to non-permanent residents. Angel Oak believes in the importance of helping everyone achieve their dreams of homeownership, regardless of residency status. If you have clients who are non-permanent residents seeking financing options, Angel Oak Mortgage Solutions would be honored to assist.

Capital Markets

What will we talk about without the periodic debt ceiling negotiations to consume the press? There’s always the Fed. The Federal Reserve’s Beige Book for May described overall economic activity as little changed in April and early May with four Districts reporting small increases and two reporting slight-to-moderate declines. Consumer expenditures remained resilient while manufacturing activity was flat or up in most Districts. Residential real estate activity improved, and employment increased in most Districts, while prices rose at a slowing pace.

For LOs watching prequals stack up on desks across the country, we had a second consecutive bond price rally (rates down) yesterday due to both a sense that the House of Representatives would pass the debt limit bill and dovish Fed speak. Expectations for a June rate hike flipped from over 70 percent to below 30 percent after Fed Governor Jefferson said that a potential decision to hold the fed funds rate range steady at the June meeting should not be viewed as a signal that the hiking cycle is over. Philadelphia Fed President Harker said that he supports holding steady in June, but also acknowledged that more tightening could be done at subsequent meetings.

Today’s economic calendar includes a series of labor market indicators ahead of tomorrow’s payrolls report. First up were job cuts from Challenger, Gray & Christmas for May: U.S.-based employers announced 80,089 cuts in May, a 20 percent increase from the 66,995 cuts announced one month prior, 287 percent higher than the 20,712 cuts announced in the same month in 2022. Next was ADP employment for May (278k, a huge jump). Weekly jobless claims were 232k with the back month revised higher, while Q1 productivity and unit labor costs were -2.1 percent and 4.2 percent, respectively. Later today brings S&P Global manufacturing PMI and ISM manufacturing PMI for May, April construction spending, Freddie Mac’s Primary Mortgage Markets Survey, and remarks from Philadelphia Fed President Harker. We begin the day with Agency MBS prices roughly unchanged from Wednesday’s close, the 10-year yielding 3.62 after closing yesterday at 3.64 percent, and the 2-year stubbornly high at 4.40 after the spate of jobs news.

Employment

“Button Finance, an industry-leading Home Equity mortgage lender, is seeking a dynamic and experienced Marketing Specialist to build out our correspondent lending program. The ideal candidate will have a strong background in creating innovative marketing strategies and a deep understanding of the mortgage industry. You’ll lead campaigns, drive customer acquisition, and enhance our brand visibility. Join a growing company that is constantly delivering top-quality customer service with HELOCs/HELOANs closing in under 12 days and 24-hour review times. Strong skills in digital marketing, data analysis, and exceptional communication are required. Join our team and contribute to shaping the future of mortgage lending. Please send resumes to Rose King.”

Hey, did you hear that Planet is acquiring right-sized, financially solid distributed retail companies to expand its geographic footprint? This month’s acquisition of Platinum Home Mortgage Corporation brought 20+ branches and 100+ Professionals to Planet. After three decades together, Platinum’s producers were confident in their choice to join Planet because of its financial stability, competitive pricing, and strong leadership. Planet has solidified its position as a leading mortgage industry player by gaining the #9 spot on Inside Mortgage Finance’s overall lender leaderboard and the #4 spot among government loan producers. With the additional volume from Platinum’s power players, Planet expects to continue gaining market share (especially for government, where it’s at 5.2 percent now). To find out how you can profit from working with people who think bigger, work smarter, and perform better, contact Planet’s VP, Talent Acquisition Peter Briggs (435-709-6278).

 Download our mobile app to get alerts for Rob Chrisman’s Commentary.

Source: mortgagenewsdaily.com

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Eating cheap is easy. Given $10 to buy ingredients for a meal for four, even the most hopeless home cook could whip up grilled cheese and tomato soup or a simple spaghetti-and-meatballs combo.

But putting together a gourmet dinner for under $10 is more challenging. So we asked food and finance bloggers, as well as home cooks, to send in their best suggestions. (We’ve shared them below with recipe details, or, where available, linked to their blogs.)

Now Frugal Foodie has a challenge you: what’s your best super-cheap yet gourmet meal? Post it in the comments, and don’t forget to “like” your favorite submissions.

(All cost estimates are based on non-sale New York City supermarket prices. If it’s a cheap meal inNYC, we figure cooks in most other places in the country will spend even less. Prices are also adjusted for quantity: if a recipe calls for half an onion, you’ll probably find something to do with the other half. Finally, estimates don’t take into account basic ingredients you likely already have, like flour, olive oil or dried spices.)

One Pan Chicken and Rice

by Hilary Allard of Sliced and Diced

Cost: $5.73, or $1.43 per serving.

Allard’s sauté uses one pot and is finished in the oven, minimizing dishes as well as cost. Even better, cooks can swap out Mexican flavors (black beans, cumin, scallions and tomatoes with green chilies) for Indian and Mediterranean variations without affecting their bottom line.

Caramelized Cauliflower Fritatta

by Michael Natkin of Herbivoracious

Cost: $7.08, or $1.77 per serving

Fresh herbs give Natkin’s frittata zing, but can make a big dent in the budget if you’re not already growing your own. (Those who are would pay just $5.59, or $1.40 per serving, and be able to include as many types of fresh herbs as Natkin suggests instead of using just a $1.49 bunch of parsley, as we calculated.)

Monday Spinach Rice Medley

by Katie Clark and Telly Kousakis of More Dough Than Dollars

Cost: $7.15, or $1.79 per serving

Inspired by a kitchen cleanout project, Clark’s meatless dish could easily be upgraded for a few dollars more by adding cooked, sliced sausage (her suggeston).

Strawberry Chicken Salad

by Frugal Foodie of Mint.com

Cost: $8.49, or $2.12 per serving

Marinate a pound of chicken in a little olive oil, lemon juice and ground black pepper. Grill until cooked through, slice and set aside to cool. Tear up a head of romaine, and top with the chicken, sliced strawberries and a slices avocado. For a dressing, puree some of the remaining strawberries with a splash of balsamic vinegar (or alternately, a splash of olive oil and lemon juice) and some black pepper.

Venetian Chicken

by Nina Hoffman of RecipeLion.com

Cost: $8.95, or $2.24 per serving

Go ahead and buy a bottle of wine to add the optional two tablespoons in this slow cooker meal. You’re saving enough cash to justify the splurge.

Classic Turkey Chili

Maris Callahan of In Good Taste

Cost: $8.96, or $2.24 per serving.

Another great one-pot meal, Callahan’s chili could also be prepared in a slow cooker for a super-easy weekday dinner. Prepare it to your taste with different veggies and spices.

Polenta Pie

by Julie Arnheim of Rubbing Nickels

Cost: $9.58, or $2.40 per serving.

Ground turkey, polenta and fresh herbs are the most expensive ingredients in this take on shepherd’s pie, but you can economize further by preparing your own polenta (saves $2).

Cuban Shredded Beef

by Art Ginsberg of MrFood.com

Cost: $9.60, or $2.40 per serving

Shred this slow-cooked beef dish before serving it over rice or on a roll. (Frugal Foodie’s mom makes a version of this that subs out the green bell pepper for a few sliced white mushrooms.)

Ginger Chicken Lettuce Wraps & Srirachi Peanut Sauce

Renae Simeon of $10 Buck Dinners

Cost: $9.82, or $2.46 per serving.

The key to this kicky dish: a spicy Asian-style marinade. Substitute peanuts for the pine nuts, or eliminate the nuts altogether to cut $3 from the bill.

Taco Salad Bar

Jenetta Lea Penner of Frugal Freebies and Deals

Cost: $9.98, or $2.50 per serving

A family friendly taco bar can easily come in at less than $10, especially if you’re shopping the sales for ingredients, Penner says. Her picks for this version: ground beef (browned at home in your choice of spices), a tomato (chopped), cheddar (bought in block form and grated), a head of lettuce (torn), a can of black beans (drained and warmed) and a jar of salsa. It’s enough that you’ll probably have leftovers, too.

Frugal Foodie is a journalist based in New York City who spends her days writing about personal finance and obsessing about what she’ll have for dinner. Chat with her on Twitter through @MintFoodie.

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Now might be a good time to buy.

That’s the takeaway from a recent Morningstar analysis, which reported in on a seeming contradiction in stock prices. The market as a whole, Morningstar writes, is expensive. But those prices are a bargain compared to what the underlying companies generally should cost.

At threshold level, stock prices have gone way, way up over the last several years. As Morningstar writes, its U.S. Market Index is up about 8.6% in 2023 alone and 16.2% over the recent low last October. That’s despite 2022’s inflation, which has largely but not yet completely abated, and ongoing concerns of a potential recession in late 2023.

“We still think the U.S. equity market looks expensive and has been getting more expensive since the start of the year,” wrote Morningstar while quoting Jim Masturzo, chief investment officer of multi-asset strategies at Research Affiliates. “The market is holding up well given the macroeconomic environment.”

So where can investors find the best bargains?

For hands-on help strategizing your investments, consider matching for free with a vetted financial advisor. 

For the Best Bargains, Look to Value Stocks

Look at the S&P 500, and you’ll also see lofty share prices. From an October 2022 low around 3,500, the S&P 500 is now back to hovering near 4,200 points. Even if you disregard the March, 2020 low as an aberration, this is a huge gain from the S&P 500’s pre-Covid value of around 3,300 points.

So the stock market is doing well, with high prices that are going steadily up. Much of that, writes Morningstar, is down to technology stocks that have posted huge gains in recent months and years. These are “the big technology stocks that dominate the weightings in broad market indexes, such as Apple (AAPL) — up 35% in 2023 — and Alphabet (GOOGL) — is up 39% so far this year. That, say some strategists, has left large growth stocks particularly expensive.”

Expensive is one word for it. At time of writing Apple traded for $177 and Alphabet for $123. Stocks like Tesla (TSLA) and Meta (META) traded for $197 and $263 per share, respectively. Although, to be fair, none of these compare with the likes of Chipotle Mexican Grill (CMG), which has a current share price of $2,064.

Yet despite these high prices, Morningstar feels that now is still a good time to buy. “[B]y Morningstar’s fair value estimate measures, stocks are actually undervalued by more than 9%, with value stocks looking particularly cheap,” Morning star writes. “That market discount, however, has been narrowing significantly since the October low.”

The key to this analysis is that term “value stocks.” Morningstar sees a market rich in value stocks.

Stocks are considered value stocks when they have a low share price compared with the underlying value of the company. For example, if you poured over the books of a company and decided that it was fairly worth about $20 per share, but it is currently trading for $15 per share, you would consider it a value stock.

Value stocks are generally considered a good buy for long term investors. Historically the market has been good at correcting a company’s share price to its fundamental value, a process known as “market efficiency.” Investors who buy a stock trading below the company’s fair valuation can generally expect that share price to rise over time to the level of its fundamental value. (some economists have criticized the market efficiency theory in the era of soaring tech sector valuations.)

The tricky part is figuring out that company’s underlying value.

How to Analyze a Company’s Underlying Value in Search of Bargain Stocks

Investors use a number of different metrics to decide what a company should trade for, including indicators like volatility (lower volatility tends to mean stronger value), dividends (higher dividends show stronger cash flow) and peer/competitor share price (higher priced competitors suggest a valuable industry). However the most common indicator that investors reach for is a company’s Price-to-Earnings Ratio, or P/E ratio.

A P/E ratio measures a company’s share price against its total earnings per share. For example, say that a company trades for $40 per share. It has released 1 million shares of stock total and it had $20 million in total earnings last year, giving it earnings of $20 per share. The company’s P/E ratio would be 2 ($40/$20).

The price to earnings ratio shows how much value you get for every dollar invested in a given stock. In our case above, for example, you pay $2 in share price for every $1 of company earnings. Or, to put it another way, every $2 that you invest in the company buys you $1 of value.

In general, across the market, 16 is considered an average price-to-earnings ratio. This means that with an average investment you pay $16 for every $1 of underlying earnings. Companies with low P/E ratio, whether compared with peer industries or the market at large, are generally considered value stocks. It’s likely that other investors will bid the price of this asset up because it offers better value than comparable investments.

All of which brings us back to Morningstar’s analysis.

As we noted above, Morningstar sees a market rich in value stocks. This is due to several different factors, including both standard P/E ratios and an adjusted form of this analysis known as the Cyclically Adjusted P/E, or “CAPE,” ratio. A CAPE analysis uses a company’s inflation-adjusted earnings over the past 10 years, rather than the firm’s most recent earnings report, in order to try and eliminated short-term anomalies in the business cycle. With both a standard P/E and a CAPE analysis, Morningstar writes, “fair value suggests stocks are undervalued.”

“Up 8.6% this year to date, the Morningstar U.S. Market Index sports a price/earnings multiple of 19.8 times based on trailing 12-month earnings,” Morningstar writes. “That compares with a P/E of 24.2 times at its peak in late 2021 and 17 times at the low in mid-October 2022… [And] value stocks are cheap relative to growth stocks [with] the materials sector trading at a P/E of 15 compared with an average closer to 18. Energy stocks are trading at a P/E of 7 compared with an average of 16.”

This is even true outside of the United States, where emerging markets are trading at a P/E ratio of 13.5.

Now, it’s important to understand that investors still do need to look for value. The large cap stocks out there, especially in technology, are expensive. “They are very high historically and relative to interest rates, liquidity, and inflation,” Morningstar’s analysis notes. What this means, in a nutshell, is that technology stocks have quite possibly met or exceeded their fundamental value. These companies have commanded a lot of growth, which means there’s not much of a gap left between their share price and their value.

The high-priced stocks that are demanding hundreds of dollars per share may grab headlines, but they aren’t necessarily driving the market’s value. Instead, look for the stocks with strong business fundamentals and a low P/E ratio.

Because despite the strong market, they’re out there, and now might be a great time to buy them.

The Bottom Line

A recent Morningstar analysis suggests that now might be a great time to buy into the market. Even though prices are high, they’re often low relative to the underlying value of companies at large, making this a strong moment for would-be investors.

Fundamentals Investing Tips

  • A P/E ratio is part of what’s known as “fundamental analysis.” This means that you look at the underlying company’s strengths and weaknesses to look for good investment opportunities. It’s an essential part of any long-term investor’s toolkit. 
  • You know what else is an essential part of your toolkit? Good advice. 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 interview your advisor matches at no cost to decide which one 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/Blue Planet Studio, ©iStock/Galeanu Mihai

Eric Reed
Eric Reed is a freelance journalist who specializes in economics, policy and global issues, with substantial coverage of finance and personal finance. He has contributed to outlets including The Street, CNBC, Glassdoor and Consumer Reports. Eric’s work focuses on the human impact of abstract issues, emphasizing analytical journalism that helps readers more fully understand their world and their money. He has reported from more than a dozen countries, with datelines that include Sao Paolo, Brazil; Phnom Penh, Cambodia; and Athens, Greece. A former attorney, before becoming a journalist Eric worked in securities litigation and white collar criminal defense with a pro bono specialty in human trafficking issues. He graduated from the University of Michigan Law School and can be found any given Saturday in the fall cheering on his Wolverines.

Source: smartasset.com

Apache is functioning normally

March 14, 2022
by Zach Festini

With an announcement from the Federal Reserve coming soon, we have a big week ahead of us. Let’s cover the latest in this week of mortgage industry news.

Rates Update

Despite their small, recent declines, mortgage rates rose last week in parallel with rising Treasury yields. Even so, rates are still relatively stable – especially with the Ukraine war as a driving factor for decreases and market volatility these past few weeks. This uncertainty overseas will likely continue to affect mortgage rates in the short term until some form of compromise is reached.

Of course, this doesn’t mean that rates will remain where they are forever. Record-high inflation in 2022 has signaled the Federal Reserve to ramp up its tapering of asset purchases and begin raising interest rates. A significant rate hike is expected to be announced this week when the Fed convenes tomorrow, March 15, and March 16. Depending on how things develop, we’ll likely see rate increases to products across the board – not just mortgages.

For now, be sure to keep an eye out for an announcement from the Federal Reserve. Follow us online for the latest information and contact your Total Mortgage loan officer so you can act quickly if further increases are announced.

Older, but Still Important News

Let’s cover some older industry news that has affected buyers since the start of this year.

  • At the start of February, the Federal Housing Finance Agency (FHFA) lifted its restrictions on borrowers with self-employment income. These were originally put in place in response to the pandemic but have since been removed, offering borrowers greater opportunities in an already competitive market. The same credit and income requirements may apply, but home financing is now generally more accessible for the self-employed.
  • The Federal Housing Finance Agency (FHFA) announced upcoming fee increases (effective April 1, 2022) for certain Fannie Mae and Freddie Mac home loans. These increases will ultimately depend on each product’s loan-to-value ratio. “High-balance” loans qualify as any that go above the conforming baseline limit introduced on January 1.

To learn more about any of these recent developments, contact your Total Mortgage loan officer today.

In Closing

The immediate future of our industry points to higher mortgage rates across the board as we continue our return to pre-pandemic levels. The Ukraine war has held rates steady since it began, but the Fed has indicated that this likely won’t steer them from their course of raising rates this year. Higher rates mean lower affordability for the average buyer, so it’s important to act sooner than later if you’re in the market for a home. Contact a Total Mortgage loan officer to get started now.

Filed Under: Uncategorized

Source: totalmortgage.com