Life insurance provides financial protection to individuals and their loved ones in the event of unexpected circumstances. One key aspect to consider when choosing a life insurance policy is whether it generates immediate cash value. In this article, we will explore different types of life insurance policies and discuss which ones offer the benefit of immediate cash value.
Life insurance policies are critical financial planning tools designed to provide financial security for policyholders’ beneficiaries upon their demise. They work by offering a lump-sum payment, known as a death benefit, to beneficiaries after the insured person’s death.
But some life insurance policies offer an additional feature – the accumulation of cash value over time.
This is a unique feature that allows the policyholder to access a portion of the insurance money during their lifetime. This article will delve further into the types of life insurance policies that generate immediate cash value.@media(min-width:0px)#div-gpt-ad-goodfinancialcents_com-medrectangle-3-0-asloadedmax-width:300px!important;max-height:250px!important
Table of Contents
Decoding Cash Value in Life Insurance
The cash value in a life insurance policy is a savings component that grows over time. This feature is inherent in permanent life insurance policies, unlike term life insurance policies that only provide coverage for a predetermined period.
When a policyholder pays premiums towards a permanent life insurance policy, a portion of these payments contributes towards building the cash value.
This cash value grows over time and can be accessed by the policyholder during their lifetime, offering an extra layer of financial security.
Understanding Different Life Insurance Policies
The life insurance market is diverse, offering several types of policies. Some of the main types include term life insurance, whole life insurance, and universal life insurance. Each of these has its unique features, advantages, and suitability for different individuals.
Term Life Insurance
As highlighted by CNBC, term life insurance is designed to offer coverage for a specific period, typically 10, 20, or 30 years. If the policyholder passes away during this term, the insurance company pays a death benefit to the beneficiaries.
But according to financial experts like Dave Ramsey, it could be the best option for most people because it’s simple and affordable. It’s like an umbrella for a rainy day, shielding your loved ones financially if you pass away during the policy term.
However, term life insurance does not provide any cash value component. It’s often chosen for its affordability and simplicity, focusing solely on providing financial protection in the event of the policyholder’s death during the policy term.@media(min-width:0px)#div-gpt-ad-goodfinancialcents_com-banner-1-0-asloadedmax-width:580px!important;max-height:400px!important
Whole Life Insurance
Whole life insurance, as the name suggests, offers coverage for the insured person’s entire lifetime, as long as the premiums are paid. Unlike term life insurance, it combines a death benefit with a cash value component.
A portion of the premiums paid contributes to this cash value, which grows over time. Importantly, this growth is at a guaranteed rate, offering predictability and security for the policyholder. According to The Motley Fool, this type of insurance is often more expensive than term life insurance due to this cash value component and the lifetime coverage it provides.
Universal Life Insurance
Universal life insurance is another type of permanent life insurance policy that combines a death benefit with a cash value component. However, it differentiates itself with its flexibility in premium payments and death benefits. The cash value component in universal life insurance grows based on prevailing market interest rates. @media(min-width:0px)#div-gpt-ad-goodfinancialcents_com-large-leaderboard-2-0-asloadedmax-width:300px!important;max-height:250px!important
Policyholders can adjust the premium amount and death benefit within certain limits, providing them with a degree of control over the policy’s costs and benefits.
Among the various life insurance policy options, it’s the whole life insurance and universal life insurance policies that generate immediate cash value. From the moment these policies are enforced, the cash value starts growing, offering policyholders access to a part of their insurance payout during their lifetime.
Whole Life Insurance and Cash Value
With whole life insurance policies, the cash value grows at a guaranteed rate, offering a predictable savings growth mechanism. The cash value in whole life insurance is built from the premiums paid by the policyholder. This cash value can be borrowed against, offering a valuable source of funds when needed. Alternatively, the policyholder can choose to surrender the policy and receive the accumulated cash value.
Universal Life Insurance and Cash Value
Universal life insurance is a form of permanent life insurance policy that combines the death benefit of term insurance with a cash value component. This type of policy is known for its flexibility, as it allows policyholders to adjust the premium payments and death benefit within certain limits. This flexibility can be instrumental in managing life’s financial uncertainties.
The cash value in universal life insurance grows based on prevailing market interest rates, offering the potential for significant growth during periods of high interest rates. It’s important to note that while this offers an opportunity for financial gain, it can also present challenges. In periods of low-interest rates, the cash value growth can slow down, potentially affecting the policy’s overall value.
Policyholders can access the cash value in a universal life insurance policy through withdrawals or policy loans. This can offer valuable financial flexibility in times of need.
A Word of Caution on Universal Life Insurance
While universal life insurance offers flexibility and potential cash value growth, it’s not without risks. According to the New York Department of Financial Services, policyholders must be cautious about the fluctuating costs and benefits of these policies.
Interest rates can fluctuate, and when they’re low, the cash value of a universal life insurance policy may not grow as expected. This could mean that the policyholder has to pay higher premiums to keep the policy active, especially if the policy costs are being paid from accumulated cash value.
Policyholders should regularly review their universal life insurance policies. If the policy’s cash value is depleting faster than expected, or if the policy costs are increasing, it might be necessary to adjust the premiums or the death benefit to keep the policy in force.
Beware of UL Insurance
Universal life insurance policies also often have complex cost structures, with various fees and charges that can affect the cash value and the death benefit. It’s important to understand these costs and to consider them when deciding on a universal life insurance policy.
Factors Influencing Cash Value Growth
@media(min-width:0px)#div-gpt-ad-goodfinancialcents_com-leader-1-0-asloadedmax-width:336px!important;max-height:280px!importantThe growth of cash value in a life insurance policy is subject to several factors. These can vary greatly from policy to policy, and understanding them can help policyholders make an informed decision. The following are some critical factors:
Premium Payments
The amount of premium paid and the frequency of the payments directly impact the growth of the cash value. Regular and timely premium payments can accelerate the accumulation of cash value over time.
Policy Expenses
Insurance policies come with various expenses, such as administrative fees, mortality charges, etc. These charges are typically deducted from the premium payments before the remaining amount is allocated to the cash value component, thus potentially affecting its growth rate.
Interest Rates
The interest rate at which the cash value grows plays a significant role in its accumulation. A higher interest rate leads to a quicker accumulation of cash value, while a lower rate may slow it down. This is particularly relevant for universal life insurance policies where the interest rate is tied to the prevailing market rates.
Opting for a life insurance policy with immediate cash value can offer several benefits:
Financial Flexibility: The cash value in these policies can be accessed during the policyholder’s lifetime, providing financial flexibility for various needs such as emergencies, education expenses, or retirement planning.
Asset Accumulation: The cash value component of the policy acts as an asset that can grow over time. It can serve as a source of additional funds or supplement retirement income.
Borrowing Options: Policyholders can borrow against the cash value of their life insurance policy. This can be a convenient source of funds without the need for a separate loan application or credit check.
Tax Advantages: The growth of cash value in a life insurance policy is typically tax-deferred. This means that policyholders can enjoy the growth without immediate tax obligations until they withdraw or surrender the policy.
Considerations When Choosing a Policy
When selecting a life insurance policy with immediate cash value, it’s important to consider the following factors:
Financial Goals: Determine your financial goals and how the policy aligns with them. Consider whether you prioritize cash value growth, death benefit coverage, or a combination of both.
Premium Affordability: Evaluate your budget and ensure that the premium payments are affordable in the long run. Remember that missing premium payments can impact the cash value growth and policy coverage.
Long-Term Planning: Assess your long-term financial plans and how the policy fits into them. Consider factors such as retirement, education expenses, and other financial milestones.
As Life Happens points out, life insurance is valuable at any age. It’s not just for when you’re in your golden years and start worrying about leaving a financial safety net for your loved ones. With policies that offer immediate cash value, you’re getting both protection and a financial resource you can access during your lifetime.
Remember that gem of a piece of advice from Dave Ramsey? He says, “Term life insurance is bought, while whole life insurance is sold.”
This simply means that term life insurance, with its lower cost and straightforward benefits, is generally the go-to choice for most people. But the whole life insurance policies, with their additional features, are actively promoted by insurance companies.
Keep in mind that in the wild world of insurance, there’s no right or wrong choice, only what works best for you. It’s like trying to choose between a coffee and a milkshake – they both have their perks, but it ultimately depends on your taste (or in this case, your financial goals).
Are you someone who wants protection with the added benefit of cash value growth, or do you prefer a no-frills approach with just coverage? Can you consistently afford the premium payments to reap the full benefits? How does a policy fit into your long-term plan, considering things like retirement, education expenses, or other financial milestones?
Term Life Insurance
Cash Value Policy (Whole/Universal Life)
PROS
Cost
Generally cheaper
More expensive, but part of premium builds cash value
Simplicity
More straightforward as it provides only a death benefit
More complex due to the cash value component
Duration
Fixed term (usually 10, 20, or 30 years)
Provides coverage for the entire lifetime of the policyholder
Financial Flexibility
No cash value or loan option
Offers a cash value component that can be borrowed against
Investment
No investment component
Can be viewed as an investment due to cash value growth
CONS
Cost
No cash value or return of premium if the term expires before death
Higher premiums due to the cash value feature
Duration
Coverage ends if the term expires before death
Might be unnecessary if coverage is not needed for entire life
Complexity
Doesn’t require much management
Requires active management due to the cash value component
Risk
No risk as it only provides death benefit
The cash value growth might be slower than other investments
Flexibility
No option to borrow against the policy
Policyholders can borrow against the cash value, but this can reduce the death benefit
Choosing a life insurance policy with immediate cash value can provide both protection and financial flexibility. Whole life insurance and universal life insurance policies are two types that offer this benefit. Understanding the factors that influence cash value growth and considering personal financial goals are crucial when making a decision. By selecting the right policy, individuals can secure their loved ones’ future while also building a valuable asset.
Some principal mortgage rates rose over the last seven days. The average 15-year fixed and 30-year fixed mortgage rates both were higher. For variable rates, the 5/1 adjustable-rate mortgage also climbed.
After hiking interest rates 10 times since March 2022, the Federal Reserve pumped the brakes during its June meeting. The central bank’s benchmark federal funds rate will remain at a range of 5.00% to 5.25% for the time being, although the Fed hasn’t ruled out the possibility of further increases if inflation doesn’t continue to moderate.
As long as inflation continues to trend downward, experts say a pause in rate hikes from the Fed could bring some stability to today’s volatile mortgage rate market.
Current Mortgage Rates for July 2023
Mortgage rates change every day. Experts recommend shopping around to make sure you’re getting the lowest rate. By entering your information below, you can get a custom quote from one of CNET’s partner lenders.
About these rates: Like CNET, Bankrate is owned by Red Ventures. This tool features partner rates from lenders that you can use when comparing multiple mortgage rates.
Mortgages hit a 20-year high in late 2022, but now the macroeconomic environment is changing again. Rates dipped significantly in January before climbing back up in February. Aside from a brief surge towards the end of May, rates continue to fluctuate in the 6% to 7% range.
Even though the Fed hit pause on rate hikes, mortgage interest rates will continue to fluctuate on a daily basis. That’s because mortgage rates aren’t tied to the federal funds rate in the same way other products are, such as home equity loans and home equity lines of credit, or HELOCs. Mortgage rates respond to a variety of economic factors, including inflation, employment and the broader outlook for the economy.
“Mortgage rates will continue to ebb and flow week to week, but ultimately, I think rates will stick to that 6% to 7% range we’re seeing now,” said Jacob Channel, senior economist at loan marketplace LendingTree. “I don’t anticipate them to spike or even show a sustained spike following this meeting,” Channel said.
Overall, inflation remains high but has been slowly, but consistently, falling every month since it peaked in June 2022.
After raising rates dramatically in 2022, the Fed opted for smaller, 25-basis-point increases in its first three meetings of 2023. The decision to hold rates steady on June 14 suggests that inflation is cooling and ongoing rate hikes may no longer be necessary to bring inflation down to the Fed’s 2% target. The central bank is unlikely to cut rates any time soon, but positive signaling from the Fed and cooling inflation may ease some of the upward pressure on mortgage rates.
“Rates are getting to a point of being steady. So, it’s more a question of how long it will take for rates to start ticking back down and when inflation will return to a place where your dollar starts buying a little bit more each month,” said Kevin Williams, founder of Full Life Financial Planning.
However, mortgage rates remain well above where they were a year ago. Fewer buyers are willing to jump into the housing market, driving demand down and causing home prices in some regions to ease, but that’s only part of the home affordability equation.
“Interest rates have been much higher in the past and people bought homes and financed homes at those rates. But it’s been hard for people to react to such a rapid increase in just a short amount of time,” said Daniel Oney, research director at the Texas Real Estate Research Center at Texas A&M University. “Everybody had a target for how much they needed to save in order to go into the housing market, but when interest rates increased, those goal posts moved too,” he added.
What does this mean for homebuyers this year? Mortgage rates are likely to decrease slightly in 2023, although they’re highly unlikely to return to the rock-bottom levels of 2020 and 2021. However, rate volatility may continue for some time. “Expect mortgage rates to yo-yo up and down in the first half of the year, at least until there is a consensus about when the Fed will conclude raising interest rates,” said Greg McBride, CFA and chief financial analyst at Bankrate. McBride expects rates to fall more consistently as the year progresses. “Thirty-year fixed mortgage rates will end the year near 5.25%,” he predicted.
Rather than worrying about market mortgage rates, homebuyers should focus on what they can control: getting the best rate they can for their situation.
“The most important thing is that they find the right home. The second most important thing is obviously to find the most efficient way to finance it,” said Melissa Cohn, regional vice president of William Raveis Mortgage.
Take steps to improve your credit score and save for a down payment to increase your odds of qualifying for the lowest rate available. Also, be sure to compare the rates and fees from multiple lenders to get the best deal. Looking at the annual percentage rate, or APR, will show you the total cost of borrowing and help you compare apples to apples.
30-year fixed-rate mortgages
For a 30-year, fixed-rate mortgage, the average rate you’ll pay is 7.17%, which is a growth of 12 basis points compared to one week ago. (A basis point is equivalent to 0.01%.) Thirty-year fixed mortgages are the most frequently used loan term. A 30-year fixed mortgage will usually have a higher interest rate than a 15-year fixed rate mortgage — but also a lower monthly payment. You won’t be able to pay off your house as quickly and you’ll pay more interest over time, but a 30-year fixed mortgage is a good option if you’re looking to minimize your monthly payment.
15-year fixed-rate mortgages
The average rate for a 15-year, fixed mortgage is 6.52%, which is an increase of 6 basis points from seven days ago. You’ll definitely have a bigger monthly payment with a 15-year fixed mortgage compared to a 30-year fixed mortgage, even if the interest rate and loan amount are the same. However, as long as you’re able to afford the monthly payments, there are several benefits to a 15-year loan. You’ll typically get a lower interest rate, and you’ll pay less interest in total because you’re paying off your mortgage much quicker.
5/1 adjustable-rate mortgages
A 5/1 adjustable-rate mortgage has an average rate of 6.11%, an addition of 3 basis points from the same time last week. You’ll typically get a lower interest rate (compared to a 30-year fixed mortgage) with a 5/1 ARM in the first five years of the mortgage. But you might end up paying more after that time, depending on the terms of your loan and how the rate shifts with the market rate. If you plan to sell or refinance your house before the rate changes, an adjustable-rate mortgage may make sense for you. Otherwise, changes in the market mean your interest rate might be a good deal higher once the rate adjusts.
Mortgage rate trends
Mortgage rates were historically low throughout most of 2020 and 2021 but increased steadily throughout 2022. Now, mortgage rates are roughly twice what they were a year ago, pushed up by persistently high inflation. That high inflation prompted the Fed to raise its target federal funds rate seven times in 2022. By raising rates, the Fed makes it more expensive to borrow money and more appealing to keep money in savings, suppressing demand for goods and services.
Mortgage interest rates don’t move in lockstep with the Fed’s actions in the same way that, say, rates for a home equity line of credit do. But they do respond to inflation. As a result, cooling inflation data and positive signals from the Fed will influence mortgage rate movement more than the most recent 25-basis-point rate hike.
We use information collected by Bankrate to track daily mortgage rate trends. This table summarizes the average rates offered by lenders across the US:
Current average mortgage interest rates
Loan type
Interest rate
A week ago
Change
30-year fixed rate
7.17%
7.05%
+0.12
15-year fixed rate
6.52%
6.46%
+0.06
30-year jumbo mortgage rate
7.19%
7.08%
+0.11
30-year mortgage refinance rate
7.29%
7.21%
+0.08
Rates as of July 4, 2023.
How to find the best mortgage rates
To find a personalized mortgage rate, speak to your local mortgage broker or use an online mortgage service. In order to find the best home mortgage, you’ll need to consider your goals and current finances.
Specific interest rates will vary based on factors including credit score, down payment, debt-to-income ratio and loan-to-value ratio. Generally, you want a higher credit score, a larger down payment, a lower DTI and a lower LTV to get a lower interest rate.
Besides the mortgage interest rate, other costs including closing costs, fees, discount points and taxes might also affect the cost of your home. Be sure to comparison shop with multiple lenders — for example, credit unions and online lenders in addition to local and national banks — in order to get a loan that works best for you.
What is a good loan term?
When picking a mortgage, you should consider the loan term, or payment schedule. The mortgage terms most commonly offered are 15 years and 30 years, although you can also find 10-, 20- and 40-year mortgages. Another important distinction is between fixed-rate and adjustable-rate mortgages. The interest rates in a fixed-rate mortgage are set for the duration of the loan. For adjustable-rate mortgages, interest rates are stable for a certain number of years (commonly five, seven or 10 years), then the rate changes annually based on the market interest rate.
One important factor to consider when choosing between a fixed-rate and adjustable-rate mortgage is the length of time you plan on staying in your house. For people who plan on staying long-term in a new house, fixed-rate mortgages may be the better option. While adjustable-rate mortgages might offer lower interest rates upfront, fixed-rate mortgages are more stable over time. If you don’t plan to keep your new house for more than three to 10 years, though, an adjustable-rate mortgage may give you a better deal. The best loan term depends on your specific situation and goals, so be sure to consider what’s important to you when choosing a mortgage.
While Minnesota life did not make the Good Financial Cents® top 10 life insurance companies it did get an honorable mention and we have had great success working with this company.
Table of Contents
The History of Minnesota Life Insurance Company
Since 1880, Securian Financial Group has been the holding company and parent of Minnesota Life Insurance Company and Securian Life – as well as their affiliates. This financial powerhouse specializes in working with employers to offer financial, retirement, and insurance plans to their employees.
And, for more than 80 years, Minnesota Life Insurance Company has provided businesses with customized solutions to their employee benefit needs, as well as with expertise in administering large public and private employer plans to small and medium sized municipal employers. This insurer also offers individual insurance options.@media(min-width:0px)#div-gpt-ad-goodfinancialcents_com-medrectangle-3-0-asloadedmax-width:300px!important;max-height:250px!important
This insurance company insures more state plans than any other group insurer. It also counts 20 percent of the Fortune 100 companies as its clients. Also, it is proud to offer industry leading technology, such as the first mobile optimized website for group insurance transactions.
Minnesota Life Insurance Company Review
The unique brand of service that is provided by Minnesota Life Insurance Company has established the company as a valued partner and a premier provider in the group insurance coverage arena. Just some of the quality and exceptional service that Minnesota Life Insurance is known for includes the following:
100 percent of the insurer’s new clients recommend its implementation services;
The company pays out 99 percent of death claims within ten calendar days of receiving proof;
The insurer offers technological solutions to ease its policyholders’ administrative load;
The average tenure of the company’s staff is 12 years.
Its parent company, Securian, is also considered to be strong and stable. Securian has nearly 15 million customers, and more than 5,000 associates and representatives in its headquarters in St. Paul, Minnesota, as well as in sales offices around the country. Also, the company has more than $1 trillion of insurance in force, and in just the year 2014 alone, it paid out more than $4 billion in benefits to its customers.
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The Financial Strength and Ratings of Minnesota Life
The parent company of Minnesota Life Insurance Company, Securian, has been provided with extremely high ratings from the insurer ratings agencies. These include:
A+ (Superior) from A.M. Best. This is the 2nd highest of a possible 16 total ratings.
AA (Very Strong) from Fitch. This is the 3rd highest of a possible 19 total ratings.
Aa3 (Excellent) from Moody’s Investors Service. This is the 4th highest of a possible 21 total ratings.
A+ (Strong) from Standard & Poor’s. This is the 5th highest of a possible 23 total ratings.
Life Insurance Products Offered
Minnesota Life Insurance Company offers both term and cash value life insurance policies. Life insurance policies are individual and group in nature.
For the group plans that are offered, regardless of whether these are offered as basic or as voluntary plans, group life insurance products are considered to be the mainstay of most employee benefits programs – and Minnesota Life Insurance Company provides them all.
Group life insurance products that are offered through Minnesota Life include the following:@media(min-width:0px)#div-gpt-ad-goodfinancialcents_com-banner-1-0-asloadedmax-width:580px!important;max-height:400px!important
Group Term Life Insurance Coverage – Group term life insurance coverage offers life insurance protection for a set period of time. This type of life insurance will pay out a benefit only if the insured passes away during the term that the coverage is in force. With term life insurance, there is no cash value build up.
Group Universal Life Insurance Coverage – A group universal life insurance plan will combine the protection of life insurance coverage along with the option to build up savings with cash value. This cash value account will earn a fixed rate of interest.
Variable Group Universal Life Insurance Coverage – A variable group universal life insurance plan will offer a death benefit, and will provide the option to invest in a variety of different investments, and will also make allocations to a guaranteed account. With a variable group universal life insurance policy, the investment “sub-accounts,” there can be some both potential risks and rates of return so that employees may “customize” their investments to meet their specific financial goals. These investments can fluctuate, and when they are redeemed, they may be worth more or less than the amount that was initially invested by the employee. These plans may be designed to include a guaranteed account that offers a fixed rate of return that is guaranteed never to fall below three percent. The guarantees for the guaranteed account are based only on the financial strength and claims-paying ability of Minnesota Life Insurance Company, which are important. However, this has no bearing on the performance of the individual investment options.
Accidental Death and Dismemberment Insurance – Accidental death and dismemberment, or AD&D, coverage provides a benefit if the insured attains bodily injuries that result in death or dismemberment as a result of an accident.
Business Travel Accident Insurance – Business Travel Accident, or BTA, insurance will provide a lump sum benefit if the insured dies or is injured due to a covered accident while he or she is traveling for business.
Critical Illness insurance – If an insured is diagnosed with a condition that is covered in a critical illness insurance policy, then the lump sum benefit may be used in any way that the insured chooses. These may include making mortgage payments, paying for child care, or paying for any out-of-pocket medical costs.
Accident insurance – The accident insurance that is provided by Minnesota Life Insurance Company will offer a payout to use in any way that the insured wishes that can cover deductibles, out-of-pocket medical expenses, or even everyday living expenses.
Other Coverage Products Offered by Minnesota Life Insurance Company
In addition to term and permanent life insurance coverage, and the accidental death and dismemberment (AD&D) insurance protection, accident insurance, and critical illness insurance to both large employers and to executive groups across the nation, this insurer also partners with Zurich International Life in order to provide group life insurance coverage for global employees.
Individual annuities are also offered by Minnesota Life Insurance Company. These can help individuals to ensure that they will have an income for the remainder of their lives, by paying out a guaranteed income stream on a regular basis, regardless of how long the person lives. Also, retirement plans are also offered through Minnesota Life Insurance Company.
They have an IncomeToday! Annuity, which is an immediate income annuity (as you can probably guess from the name). With these annuities, you pay one lump sum and then you’ll start receiving paychecks immediately. If you’re getting close to retirement, you might be worried about having enough money, but that’s where these annuities come in.@media(min-width:0px)#div-gpt-ad-goodfinancialcents_com-large-leaderboard-2-0-asloadedmax-width:300px!important;max-height:250px!important
Aside from the immediate paycheck, there are several other annuity options that you can choose. One popular is a fixed indexed deferred annuity. These are annuities that are based on the performance of the markets. That means that these annuities are going to give you guaranteed income, but there is a chance that they could earn you much more.
Another type of annuity that you can choose to supplement your retirement income is variable deferred annuities. When you invest in a variable deferred annuity, there are several options for investing your money. The investment options of the annuity can reflect your risk tolerance and you can change the investments as you get closer to retirement.
Through the parent company of Minnesota Life Insurance Company, Securian, there are many additional insurance and financial products that are offered, too. These include retirement plans, investments, and executive benefits. Because employers are this company’s key market, Securian works with groups in identifying the right plan types for their needs – from profit sharing and 401(k)s to defined benefit and cash balance plans.
The 401(k) plan design options are based primarily on employer goals, as well as the budget and demographics of the particular employer. Investment options can be selected from more than 5,800 unique investment options, and investment allocation portfolios are based on age or risk tolerance. Profit sharing and matching contribution components are also available.
While few employers offer defined benefit plans today, Securian helps companies to differentiate themselves and offer their employees the security of knowing that they’ll have an income for life with a pension income. Regardless of how the investments in the plan perform, the participants in this type of plan will be able to still receive a set amount of retirement income.
Cash balance plans are also available through Securian. These types of plans can help an employer to essentially bridge the gap between a traditional defined benefit plan and a defined contribution plan such as a 401(k). The qualified plan products that are offered by Securian are done so via a group variable annuity contract that is issued by Minnesota Life Insurance Company. While the company (Securian) works with employers of all sizes, it specializes in plans that have assets up to approximately $200 million.
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I recently talked about the right age to open a child’s bank account. That leads to the obvious question about its advantages and disadvantages. If you’re ready to teach your child about money management, giving your child their own debit card with linked spending and savings accounts plus a small monthly allowance gets them off to a good start.
The good news is there are way more advantages to allowing your kid to have a bank account at a young age than there are disadvantages. The bad news is the disadvantages that exist are pretty serious if you’re not prepared to overcome them.
Advantages of Opening a Kid’s Bank Account at a Young Age
From a parent’s perspective, your kid having their own bank account is a convenient way to keep track of their spending without having to worry about cash that can easily get lost. And that would be reason enough. But there are loads of benefits to your child too.
1. Developing Good Money Habits
You can teach financial literacy. But in my experience, people lean toward either spending or saving. I’m no psychologist, but it may be inherent in their personalities, and it’s certainly evident in my children.
My son saves 25% of his allowance and 50% of other money he receives and lets it accrue for big purchases. My daughter can’t resist the urge of a good Hot Topic sale. Early intervention can’t change who they are, but it can instill some good savings habits, regardless of their natural tendencies.
That’s because having control of a set income at a young age can teach children the value of money and how to manage it. If your child tends to spend (your) money, having a finite source of their own might help them realize how quickly their allowance vanishes with one Target purchase. And little savers will be inspired as they watch interest accrue and realize if they wait, they can afford that video game they’ve wanted for months.
Having their own account also acclimates your child to discussions about money, which is a big part of the battle when it comes to financial literacy. A 2023 study from Intuit found that Gen Z, which encompasses children and young adults from age 8 to 23, would rather discuss mental health, sex, or politics than money.
Just as with these other topics, starting the money conversation early — and in age-appropriate ways — can create a culture of openness within your family.
2. Building Financial Literacy & Responsibility
In addition to building responsibility around money, having a bank account and linked debit card also teaches kids the basics of how to handle a bank account. They can view their accounts in the mobile app and see exactly where their money goes.
For instance, when my son reviewed his statements and saw how much he was spending on ice tea and snacks from 7-11, he started going grocery shopping with me more frequently. “Eat at home” is Personal Finance 101, but it was a profound lesson for a 10-year-old.
Plus, just learning the logistics of how to process a debit card transaction, sign for a purchase, or keep an eye on fraud alerts gives kids an advantage when they enter adulthood.
3. Empowerment
After working middle school book fairs for the past three years, I say this as a self-proclaimed expert: Kids feel like hot stuff when they can whip out a debit card and make a purchase just like they see their parents do.
Whether they’re at the pizza place, skate shop, or school, that feeling of empowerment amplifies in front of their friends. But even more empowering is the feeling they get from knowing how much they have to spend in their account and being allowed to decide how to spend it. Debit cards give kids access to an app to check balances, set savings goals, and transfer funds between checking and savings accounts.
4. Opportunities for Saving & Earning Interest
If you choose an online bank that pays interest on savings or even has a roundup-your-purchase-into-savings feature, your children can quickly earn extra cash and learn the concept of compounding.
Many online banks with accounts optimized for kids and teens offer high-yield savings. For instance, Copper Bank, an online-only bank tailored to kids, offers 5% interest when kids reach savings goals they set interest when kids reach the savings goals they set.
5. Security & Protection for Funds
Kids lose things. Jackets. Stuffed animals. Their shoes. And yes, they will lose cash given the opportunity.
While losing a debit card isn’t ideal (my daughter lost hers in the house before she even had a chance to activate it!), most banking apps let you turn your debit card off if you misplace it. Giving your child a debit card instead of cash adds a level of security and protection you can’t get with cash.
Plus, as much as we hate to think about it, sometimes, kids steal or bully others for money. If your kid doesn’t carry cash, other children can’t steal or borrow it.
Speaking of borrowing, you should also teach your kids that they don’t have to advertise how much money they have in their bank account and if their friends ask, it’s OK to say it’s not their business.
6. Convenience
A few weeks ago, my daughter’s friend’s mom offered to take the kids roller-skating. It was easy to transfer the admission fee plus money for lunch directly from my account to my daughter’s debit card.
As a parent, I love the convenience of knowing my kids can have access to money wherever they are.
Of course, convenience comes with drawbacks. My kids never hesitate to ask me for money while they’re out. I find it’s harder to talk them out of a purchase through text messages or on the phone, when I can’t use the time-tested tactics of distraction and diversion.
You can avoid this issue by setting ground rules for money requests. For example, maybe you’ll pay for clothing but not room decor or books but not toys.
Disadvantages of Opening a Kid’s Bank Account at a Young Age
“With great power comes great responsibility,” as the saying goes. And with great responsibility comes hassles, headaches, and red flags to watch for.
That’s especially true when it comes to money — no matter how much or how little you have. Knowing the drawbacks to opening a bank account for your child at a young age can help you prepare to overcome these issues.
1. Potential Fees
Most banks don’t charge monthly maintenance fees, transaction fees, or overdraft charges. They’ll usually decline purchases on a minor’s account before putting the account into overdraft.
However, your child’s account may be subject to transaction fees for out-of-network ATM fees. You might also have to pay fees for external transfers into your child’s account. Plus, some children’s debit cards, like Greenlight, have steep monthly fees.
Just as you would when you’re opening a bank account for yourself, review the terms and disclosures so you’re aware of any fees. If the bank charges fees, consider whether the fee’s value in the form of high interest rates or added benefits makes it worthwhile.
2. Risk of Identity Theft
Opening a bank account, using a debit card, and managing money online all carry security risks. You must share your child’s name, address, and Social Security number to open their bank account, which puts the responsibility of safeguarding that information in a third party’s hands.
Plus, the existence of these accounts and cards leave your child open to the same threats and credit card scams your information is open to: skimmers (point-of-sale machines that steal your debit card information), phishing scams, or hackers.
To reduce the risk of identity theft, teach your child how to be safe shopping online or in stores. Some tips to impart include:
When possible, sign for purchases instead of entering their PIN.
Insert your card into the reader (rather than swiping) or use contactless technology for purchases.
At ATMs, obscure their PIN from strangers and leave the premises if they feel uncomfortable or think someone is watching.
Never give anyone their PIN or bank account password (except you, of course!)
Keep an eye out for fraud alerts and let you know immediately if they spot unusual activity on their account
For more information, see our article on common banking scams and how to avoid them.
3. Lack of Flexibility
Just as some kids’ bank accounts carry fees, some have restrictions on withdrawals or transfers. These may include daily withdrawal limits from ATMs or fees on certain savings account withdrawals. Look for a children’s bank account that waives these fees.
Also, if you think your child may want to make large purchases, look for an account with no daily withdrawal or purchase limits. Otherwise, you may have to devise a workaround like transferring the money into your checking account for withdrawal.
On the other side of that coin, you may want to find an account with no minimum balance requirements. Overall, consider your child’s needs and how much money they’re likely to have when you choose an account.
To find the right account for your child, check out our article on the best bank accounts for kids.
Final Word
For many kids, having their own bank account and linked debit card gives them a sense of responsibility and pride.
But you have to set ground rules for how you expect them to manage their money. After all, you don’t want them to get the idea that their debit card is linked to a magical Bank of Mom or Dad with no withdrawal limits.
And if your kids spend their allowance too quickly, take advantage of features on some accounts that let you assign chores to help them earn extra spending cash.
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Dawn Allcot is a freelance writer and content marketing specialist who geeks out about finance, technology, and travel. Her lengthy list of publishing credits include TheStreet, Chase Bank, Forbes, and MSN. She is the founder and owner of Allcot Media Marketing and GeekTravelGuide, where she shares her love for roller coasters, family travel, healthy living and keto foods.
Recently, the director of the Federal Housing Finance Agency (FHFA) issued a statement clarifying the agency’s rationale for changes to loan level pricing adjustment (LLPA) fees going into effect on May 1. The changes have created some controversy due to the fact that better credit quality borrowers will experience higher fees after May 1 than under the current LLPA grids and vice versa for lower credit quality borrowers.
The FHFA stated that the goals of the fee changes were “to maintain support for purchase borrowers limited by income or wealth, ensure a level playing field for large and small lenders, foster capital accumulation at the Enterprises, and achieve commercially viable returns on capital over time.”
Therein lies some of the confusion. The fact is that the FHFA is applying a form of risk-based pricing to the exercise based on their expectations of long-term performance of mortgages going forward. However, the new LLPAs reflect a process that reduces the effects of risk-based pricing based on other objectives, the outcome of which will benefit high-risk borrowers at the expense of low-risk borrowers by flattening the relationship of credit risk to credit score and LTV.
To gain a visual sense of how the fees will change, consider Figures 1 and 2 below that display the actual LLPAs for two critical borrower segments; 75.01-80% LTVs (no mortgage insurance required) and 80.01-85% LTVs (with mortgage insurance) by credit score. In both cases the current and new LLPA grids show what we should expect generally if loans are risk-based priced, i.e., fees increase as credit scores decline.
However, notice that the new LLPA curve is significantly flatter than the current LLPA curve for both LTV groups. A flattening of the curve suggests that there is less differentiation in fees across credit score categories holding LTV constant. In the extreme, without risk-based pricing, the curve would be horizontal across credit scores, i.e., no differentiation in fees.
In other words, the new grids have become less risk-based, and that has implications for high- and low-risk borrowers. By flattening the curves and pivoting around the 680-699 credit score bucket, high-risk borrowers gain, and low-risk borrowers lose from these changes. What lies behind the curve flattening seems to be the FHFA’s view on the long-term performance of mortgages.
The new fees are set such that, given risk-based capital requirements of the GSEs overall, they would ensure the enterprises achieve a target rate of return. Structuring the LLPAs with this approach still provides the FHFA some latitude to set fees across risk attribute combinations that can achieve other objectives such as supporting low-income borrowers.
As the FHFA pointed out, the current grids were developed some time ago and might reflect mortgage performance from a less benign economic environment than today. If so, the current curves would tend to be steeper if this were the case. To understand how this might happen, consider Figure 3 below, which depicts actual net loss rates for mortgages purchased by Fannie Mae for two different sets of vintages; a more severe period represented by origination years 2005-2007, and 2013-2015 representing a much more favorable period of time.
It is clear from Figure 3 that while net loss rates were significantly higher for the 2005-2007 vintages than 2013-2015 originations, the net loss rate curve is flatter for the 2013-2015 cohort. While using these two vintages represents performance extremes, it illustrates that in redesigning LLPA grids to better reflect long-term mortgage performance, the FHFA could be tilting the fee structure more to reflect a flatter relationship of credit performance and risk attributes than before.
Credit performance differences by credit score are more apparent during the more stressful period than during the more favorable economic conditions experienced by the 2013-2015 vintages.
What does this all mean?
First, the FHFA is technically applying principles of risk-based pricing but has clearly dampened the effect based on policy objectives beyond those of ensuring the safety and soundness of the GSEs. The flattening of the LLPA curves suggests that while the FHFA is using a risk-adjusted return on regulatory capital approach to set LLPAs, there was some latitude in setting individual fees that would help support low-income borrowers so long as holistically they met target returns.
Second, the changes will differentially affect borrowers as described above.
Developing the LLPAs in a manner that achieve multiple objectives can be a tricky business with no clear right or wrong answers, but perhaps the FHFA thinks it can have its cake and eat it too by structuring the grids in such a way that it can tout meeting all of its objectives.
But changing grids at a time when there are cracks in the economy might not be in the best interest of the enterprises. While it is technically true that the FHFA is applying risk-based pricing to the new LLPA grids, it has effectively diluted its effect and in the process done so at the benefit of high-risk borrowers to the detriment of high credit quality borrowers and exposes the GSEs to greater risk should a downturn in the economy unfold than if the current LLPAs were left in place.
Clifford Rossi is Professor-of-the Practice and Executive-in-Residence at the Robert H. Smith School of Business at the University of Maryland. He has 23 years of industry experience having held several C-level executive risk management roles at some of the largest financial institutions.
This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.
To contact the author of this story: Clifford Rossi at [email protected]
To contact the editor responsible for this story: Sarah Wheeler at [email protected]
If you listened to the 2020 presidential debates, you may remember certain controversial topics, such as how the coronavirus pandemic should be managed and who should replace Ruth Bader Ginsberg in the Supreme Court. However, there was another contentious matter you may have missed: minimum wage.
Since 2009, the federal minimum wage has sat at $7.25, and the question many economists, researchers, and even politicians are facing today is whether or not that number is sufficient. In recent years, the new rate that’s most frequently proposed is $15.00 an hour, more than double our current minimum wage. But to determine whether or not the federal minimum wage should increase — and if so, how much — it’s important to ask a few other questions first.
Read on to discover the history of America’s federal minimum wage, including its original intent, its evolution, and its possible future.
What’s Ahead:
How did minimum wage begin, and why?
Although Americans have reaped the benefits of a federal minimum wage since 1938, French workers in the silk industry were the first to introduce the concept more than 100 years prior.
In 1831, these workers went on strike to demand a fair and liveable wage, and while their efforts did not prompt action, the idea lived on. New Zealand became the first nation to set a minimum wage in 1894, and four years later Samuel Gompers, the founding president of the American Federation of Labor, began the conversation in America with his article titled “A Minimum Living Wage.”
Massachusetts eventually became the first American state to mandate minimum wage in 1912, and additional states, as well as industries and companies, followed suit throughout the next couple of decades.
Despite this progress, the Supreme Court slowed the growth of minimum wage provisions, arguing that they interfered with the Constitution. Then, in 1937, the Court experienced a change of heart, in what historians now refer to as “the Big Switch.”
In the case West Coast Hotel Co. v. Parrish, Justice Owen Roberts sided with the court’s liberal minority, resulting in a five-four decision that upheld Washington state’s minimum wage law. More importantly, this decision determined minimum wage laws do not violate the Constitution.
A year later, Congress passed the Fair Labor Standards Act (FLSA), which established our nation’s first federal minimum wage at $0.25 per hour.
How has the minimum wage changed over time?
Since 1938, Congress has raised the federal minimum wage a total of 22 times and expanded the FLSA to cover more workers and industries. Listed below is a brief timeline, covering some important moments in the history of the minimum wage.
1949 – Congress raises the federal minimum wage to $0.75.
1961 – Congress amends the FLSA to include more workers in the retail trade sector.
1963 – The Equal Pay Act ensures equal pay for workers covered by the federal minimum wage requirement, regardless of gender.
1968 – The federal minimum wage peaks in purchasing power, at $1.60 per hour.
After 1969 – The federal minimum wage stops increasing with inflation.
1971 – Congress amends the FLSA to include all non-supervisory government workers.
1989 – Congress amends the FLSA to apply only to businesses with $500,000 or more in revenue, as well as small retail businesses when they engage in interstate commerce.
2009: – The federal minimum wage increases to $7.25, which has remained through 2020.
What is the current minimum wage?
Today’s federal minimum wage is $7.25, which last increased in 2009; however, many states have their own minimum wage laws, as well as some cities like Seattle and New York City.
In fact, there are 29 states — as well as the District of Columbia, Guam, and the Virgin Islands — with minimum wages that are higher than the federal minimum wage.
The District of Columbia has the highest minimum wage, at $15.00, followed by Washington at $13.69. The remaining 21 states have either a minimum wage requirement that equals the federal minimum wage (16 states, plus Puerto Rico) or no established minimum wage requirement (five states).
Is “minimum wage” the same as “living wage”?
The terms “minimum wage” and “living wage” have been used interchangeably, but they are far from the same.
First of all, as established above, the minimum wage is determined and enforced by the government; living wage is not. In addition, while the federal minimum wage was signed into law nearly a century ago, the most well-known living wage calculator was developed and introduced in 2004 by Amy Glasmeier, a professor at the Massachusetts Institute of Technology.
However, the most important difference between these terms is the process they use to develop rates. Glasmeier’s living wage calculator uses expenditure data from a specific state to:
“determine the minimum employment earnings necessary to meet a family’s basic needs while also maintaining self-sufficiency within that region.”
This includes costs for “a family’s likely minimum food, childcare, health insurance, housing, transportation, and other basic necessities (e.g. clothing, personal care items, etc.).”
Meanwhile, the federal minimum wage was developed primarily to prevent unethical business practices and keep American’s out of poverty. In 1969, the U.S. government adopted a formula designed by Mollie Orshansky, a family economist and food economist for the United States Department of Agriculture, as the official federal poverty guideline.
Orshansky discovered that the cost of food amounted to roughly one-third of a family’s total cost of living, after taxes. Consequently, she theorized, one could reasonably estimate a family’s total budget by multiplying food expenses by three.
Today, Orshansky is also known as “Miss Poverty,” and minimum wage laws, at the federal and state levels, roughly meet or exceed the poverty thresholds she developed.
Minimum wage today: a source of controversy
For decades, the minimum wage has provided protection and security for Americans, but today its efficacy, and future, is up for debate.
As the question of whether or not to raise the current federal minimum wage lingers in the spotlight, economists, researchers, and politicians are divided on the purpose of this legislation altogether. Should minimum wage be enough to provide Americans with a comfortable living or merely keep them above the poverty line? Should it be a sustainable, long-time salary or a simply starting wage?
Each side has ample evidence to support its claims, which may help us understand why the solution for this issue is not as simple as it may seem.
The argument for increasing the minimum wage to a living wage
The federal minimum wage has changed 22 times since 1938 and has expanded to encompass a great number of American workers. However, increases have been irregular and inconsistent, hindering the impact of minimum wage laws on some generations.
In fact, we’re currently experiencing the longest period without an increase, and since 1969 the federal minimum wage has stopped adjusting to meet rising inflation. While the costs for transportation, housing, food, and more have increased in recent decades, wages have essentially remained stagnant. As a result, workers today earning $7.25 are being paid 17% less than they would have been 10 years ago, and 31% less than their counterparts in 1968, when adjusted for inflation.
In order to make ends meet, Americans must work longer and harder today than identical workers from 50 years ago, and many still rely on government assistance. Unfortunately, even if the federal minimum wage rose to compensate for inflation, many economists indicate it would not be enough, and increasing the wage to $15 an hour may not be either. Based on a recent analysis from the National Low Income Housing Coalition, a worker would need to make $17.90 an hour just to afford rent for a one-bedroom apartment nationally.
The argument against increasing the minimum wage to a living wage
Many opponents agree that, of course, increased pay seems like a worthwhile economic endeavor; but some researchers have found the ripple effects of raising wages up to $15.00 could produce the opposite results intended.
In fact, recent studies predict increasing the minimum wage, specifically to $15.00 per hour, could actually hurt businesses, forcing employers to reduce hours, limit hiring, and even lay off employees to meet the minimum wage requirements. Opponents also fear too much regulation over wages could limit a free market economy and hinder competition and growth among businesses.
Another issue, opponents say, is the fact that living costs vary from state to state; they argue minimum wage legislation should be left up to the states, rather than the federal government.
According to the poverty guidelines from the U.S. Department of Health and Human Services, a two-person household would need to earn $17,420 each year to clear the poverty line. However, everyday expenses like gas, groceries, and housing fluctuate based on your location. For example, rent for a two-bedroom apartment in New Mexico costs roughly $847 per month, but in California, the average cost is nearly three times the amount, at $2,495! That’s $29,940 for rent alone each year!
Finally, those opposed to increasing the federal minimum wage, specifically increasing the wage to $15.00, encourage supporters to first consider incomes and poverty levels globally. Even with a minimum wage under $5.00 an hour, the United States would maintain its place among the top 20% of all global incomes.
What does the future of minimum wage look like?
Newly elected President Joe Biden is in favor of increasing the federal minimum wage to $15.00, but even still the future of minimum wage remains unknown.
In 2019, the U.S. House of Representatives passed the Raise the Minimum Wage Act, a bill that would increase the federal minimum wage to $15.00 by 2025. The bill has been stalled in the Senate, but 2021 has welcomed new members, which may lean counter to their predecessors. Nevertheless, the bill’s future is far from certain, as political parties in both the House and the Senate are divided fairly equally.
Whether the federal minimum wage changes in the near future or not, it’s important to manage the income you have now and save where you can. Financial apps like Chime® makes it a little easier with automatic savings. For instance, every time you spend using your Chime Visa® Debit Card*, Chime rounds up your payments and purchases to the nearest dollar, then adds the change to your savings account.^ You can also automatically transfer a percentage of your paycheck into your savings to reach your financial goals a little faster.1
* Banking services and debit card provided by The Bancorp Bank, N.A. or Stride Bank, N.A., Members FDIC, pursuant to a license from Visa U.S.A. Inc. and may be used everywhere Visa debit cards are accepted. ^ Round Ups automatically round up debit card purchases to the nearest dollar and transfer the round up from your Chime Checking Account to your savings account. 1 Save When I Get Paid automatically transfers 10% of your direct deposits of $500 or more from your Checking Account into your savings account.
Summary
The federal minimum wage is currently $7.25, and it’s remained there for more than a decade. This is the longest period the minimum wage has ever experienced without an increase, and in light of this reality, the future of this legislation is hotly debated.
Many supporters of increased minimum wage propose a new rate of $15.00 an hour to boost workers’ income closer to living wage estimates. Those in opposition suggest alternatives like $12.00 an hour or allowing the states to determine their own minimum wage laws.
Whatever change our country invites, its impact on American industries, businesses, and families remains controversial, and its future uncertain.
According to a weekly survey of 100+ lenders by Freddie Mac, the average mortgage interest rates increased week over week — 30-year fixed rates went up (6.67% to 6.71%) as did 15-year fixed rates (6.03% to 6.06%).
VA rates are no different. In fact, when compared to other loan types — conventional and FHA, for example — VA home loans offer consistently lower rates than for the average consumer.
Shop and compare your personalized rates with multiple lenders (Jul 3rd, 2023)
VA Mortgage Rates 2023
VA
Conventional
FHA
May 2023
6.22%
6.43%
6.49%
April 2023
6.03%
6.34%
6.35%
March 2023
5.96%
6.27%
6.22%
February 2023
6.17%
6.36%
6.36%
January 2023
6.56%
6.81%
6.66%
December 2022
6.62%
6.90%
6.73%
Source: Economic Research Federal Reserve Bank of St. Louis
How to find your lowest interest rate
The interest rate available to you will depend on the specifics of your financial situation. Shopping for the best interest rate isn’t just a matter of looking at the rates lenders have posted online because those rates won’t necessarily be available to all borrowers.
The rate lenders can offer you will depend on:
Your credit score and credit history
The size of your down payment or existing equity
Your loan-to-value ratio (LTV)
Your debt-to-income ratio (DTI)
You will need to fill out a loan application to find out what interest rate the lender can offer you. After the lender has verified your financial information, they can give you a quote for an interest rate that reflects your financial situation.
It’s best to get at least three to five of these quotes and compare them. You should look for the lowest interest rate — but you’ll also want to consider APR and estimated closing costs.
Shopping around for the best mortgage rate available to you can help you to save thousands of dollars over the life of your mortgage.
What does it mean to “lock” a mortgage rate?
A mortgage lock involves a commitment by you and your lender. When you request a lock, your lender agrees to give you that rate, even if interest rates increase. On the other hand, you are also making a commitment to close at that rate, even if interest rates fall.
What does it cost to lock your rate?
The longer your rate lock, the higher the risk to the mortgage lender, which means you’ll pay to lock a mortgage rate. With most lenders, the standard lock period is 30 days. They quote rates assuming a 30-day lock.
By locking 7 to 15 days before closing, you will typically get better pricing. For instance, one national lender’s rate sheet charges .15 percent more for a 30-day lock than it does for a 15-day lock, and .25 percent more for a 45-day lock.
For a $300,000 home loan, it would cost an extra $750 to lock a rate for 45 days instead of 15.
The cost can get even higher if you choose to lock your rate for 60 days or more.
What about “free” rate lock?
When lenders were experiencing very high volume, refinance processing suffered. Purchases get priority with most lenders, and refinance transactions can end up on the back burner.
This can result in “blown locks” for refinances. To counter this and avoid angering customers, some lenders offered “free” locks of up to 90 days. However, they weren’t really free, because the rate for those loans was slightly higher than it was for purchases.
When you get mortgage quotes for a refinance or purchase, make sure you know what lock period you’re getting on your quote. That way you can make a valid comparison.
When should I lock in my mortgage rate?
The best strategy for locking in your mortgage rate will depend on a couple of factors and your own preferences. You have a few options. There are three schools of thought about locking in a mortgage rate.
Some borrowers like to “set and forget” their rate, and they are averse to risking a higher rate in order to perhaps obtain a lower one. These borrowers are likely to lock their rate when they see an acceptably low rate.
Other borrowers are willing to take a little more risk for the chance of getting a lower rate — watching rates carefully to see if they drop.
Finally, there are the ones who want it all. These borrowers buy a “float down” option, which allows them to lock in a rate, protecting them from potential rate increases. However, if interest rates fall while their loan is in process, they can get a lower rate.
Float downs: Know what you’re buying
There are rules for float downs. Some lenders only let you exercise the float down option the day they draw your closing documents. Others allow you to lock in a lower rate anytime during the process.
Still, others require the new rate to be at least a certain percentage lower than your locked rate before they let you switch — typically .125 to .25 percent.
Read your documents carefully, and understand what a float down will cost you since these agreements are not standardized.
Find the right mortgage rate for you
Ultimately, the best mortgage rate for you is going to depend on the circumstances of your financial situation and market conditions. By comparing your options and speaking to different lenders, you can ensure that you’re getting the right mortgage. for your home goals.
Shop and compare your personalized rates with multiple lenders (Jul 3rd, 2023)
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Observing the current trends in the stock market has been challenging. The Federal Reserve is making moves to curb high inflation rates, and many financial experts concur that an economic downturn could be on the horizon.
Unsurprisingly, these developments have affected the market. Notable indices like the S&P 500, the Dow Jones Industrial Average, and the Nasdaq composite have experienced significant downturns.
In situations like this, it can be daunting to determine which stocks to invest in, if at all. Yet, even in an environment that feels like navigating through turbulent waters, there are promising opportunities to seize.
Best Stocks to Buy Right Now
When the bears take hold of the market, it’s easy to second-guess your investment decisions and difficult to find anything you’d be interested in piling your money into. However, no matter how red the market is, there’s always a glimmer of green.
Where are those glimmers now?
The top stocks to buy now are large companies with a massive economic moat — a competitive advantage that keeps competitors from chipping away at them. Many of these are non-cyclical plays that offer strong dividends. And there are a few cyclical gems that risk-tolerant investors may want to dive into for a discount on gains that seem all but guaranteed in the future.
Here are some ideas for the best stocks to consider buying right now. There’s a little something for every kind of investor. For more ideas, check out our list of the best stock picking services, including The Motley Fool Stock Advisor.
Best for the risk-tolerant investor.
Dividend Yield: 0%
Valuation Metrics: Price-to-earnings ratio (P/E ratio): ~30
Market Cap: ~$610 Billion
Tech stocks like Amazon are likely the last pick you’d expect to find on this list. The company operates in a highly cyclical industry and has given up about a third of its value this year alone. There’s no question that some AMZN investors are frustrated beyond words at this point, but that’s often the best time to buy.
Even through the recent selloff, the stock has maintained its position as a favorite among exchange-traded funds (ETFs) and mutual funds. What’s so exciting about this falling knife?
Amazon is an e-commerce giant with a clear ability to weather economic storms. The company’s share price didn’t even flinch in the face of the COVID-19 pandemic, likely because it benefited greatly from stay-at-home orders and store closures.
That’s not the first crisis the company has faced. Although it had its ups and downs, the company’s strong fundamentals carried it through the dot-com bubble burst and the Great Recession. And though the stock may be trading down at the moment, that trend isn’t likely to last forever.
If history is any indication, the company will be sailing toward all-time highs again in no time flat.
The company also has a potential bounce back to greatness as fears settle. Throughout the majority of its existence, Amazon has focused on razor-slim margins in the e-commerce space. However, its newer Amazon Web Services (AWS) cloud computing offering is anything but a thin-margin offering. Margins on the AWS business are so big that they’re pushing the company’s average margins to the roof.
All told, Amazon does face some economy-related headwinds ahead, but it’s nothing the company hasn’t already proven to be perfectly capable of handling. If you’re risk-tolerant enough to hold on through what may be a short-term rough patch and wise enough to dollar-cost average in the bear market, AMZN is a stock that’s worth your consideration.
2. Devon Energy Corp (NYSE: DVN)
Best for income investors.
Dividend Yield: ~9%.
Valuation Metrics: P/E ratio: ~5
Market Cap: ~$30 billion.
Devon Energy is an income investor’s dream. The company is the highest-paying dividend stock on the S&P 500. Devon Energy is an oil and gas powerhouse with a long history of stellar performance — and after more than 80% growth over the past year, the share price growth is expected to continue.
Income investing veterans may be thinking, “DVN is only paying dividends because oil and gas prices are soaring.” But that’s not the case. The company has consistently paid strong dividends to investors for the past 29 years, even when oil and gas prices have been down.
It has a strong balance sheet and impressive credit rating. Even when the oil and gas industry isn’t so hot, the company has access to the money it needs to pay dividends.
Now may be the best time to buy too.
The Organization of Petroleum Exporting Countries (OPEC), the world’s largest oil cartel, recently announced plans to boost oil production. The announcement sent DVN falling, giving up much of the gains it’s seen this year already. Although the stock is up 12% YTD, it’s given up more than 33% of its value in the past month.
These declines aren’t going to last forever.
European nations are expected to ban more than two-thirds of Russian oil imports within the next year, which could send oil prices headed for the top yet again. That’s great news for DVN and its investors.
Nonetheless, if you’re an income investor, chances are you’re not too concerned with price appreciation; you’re more interested in the quarterly dividend check. When you invest in Devon Energy, you can rest assured that meaningful dividend payments will come on schedule, just as they have for nearly 30 years.
Best for growth investors.
Dividend Yield: 0%.
Valuation Metrics: P/E ratio: ~30
Market Cap: ~$610 billion.
Meta Platforms, formerly Facebook, is a favorite on Wall Street; it’s the fourth most commonly found stock in ETF portfolios. However, the past year has been a tough time. Although that may send most investors running for the hills, it’s actually an opportunity.
Meta is a growth stock by just about any definition. The company has had solid revenue growth for years, and earnings per share (EPS) growth was impressive until the most recent earnings report. Moreover, the stock was known for tremendous price appreciation until the rug was pulled from the tech sector as inflation concerns set in earlier this year.
The declines have created an opportunity you don’t see often — a growth stock that can make value investors drool. Meta is trading with a P/E ratio of around 12, while the S&P 500’s P/E is over 19. The stock’s P/B ratio is also sitting at a five-year low.
Sure, there are a few short-term headwinds to consider, including:
Weak E-Commerce Spending. As prices rise and recession fears mount, e-commerce and consumer spending will likely fall, which could weigh on the company’s advertising revenue.
Transition to the Metaverse. Meta recently changed its name from Facebook in an effort to rebrand the company as the center of all things metaverse. This transition may come with some growing pains in the near future.
Economic Headwinds. Many experts are warning of a potential recession, which could eat into the company’s revenue and profitability in the short term.
Even with these headwinds, Meta offers a unique opportunity to tap into a stock that has historically outperformed the market in a big way but to do so at a steep discount to the current market value.
4. H&R Block Inc (NYSE: HRB)
Best for value investors.
Dividend Yield: ~3%.
Valuation Metrics: P/E ratio: ~11
Market Cap: ~$4.8 billion.
H&R Block is a household name, offering do-it-yourself tax services as well as full-service tax professionals. It’s also one of the most appealing value stocks on the market.
First, let’s address the elephant in the room — the 123 P/B ratio. Sure, that’s high by any standard. However, it’s inconsequential to HRB. The company has few tangible assets because it’s in the service sector.
To get a true picture of the discount the stock trades at, just look at its P/E and P/S ratios, which stand at around 5 and 1.4, respectively. That’s low for any sector. Its P/E ratio is about a quarter of that of the S&P 500.
Beyond the seriously discounted valuation, HRB stock has significant appeal in the current economic times.
All people eat, sleep, and pay taxes. Increasing interest rates and dwindling consumer spending may have a negative impact on other businesses, but people still have to file their taxes regardless of the state of the economy. HRB’s business model fares well even if a recession were to set in.
While other companies are looking for ways to cut costs headed into a recession, HRB is working on revamping its small-business product to increase profitability.
If that’s not enough for you, the company even provides a nice, thick layer of icing on the cake with a respectable 3% dividend yield.
5. ASML Holding NV (NASDAQ: ASML)
Best for banking on the microchip shortage
Dividend Yield: ~1.4%.
Valuation Metrics: P/E ratio: ~34
Market Cap: ~$ 263 billion.
There’s been quite a bit of interest in semiconductor manufacturers like NVIDIA (NASDAQ: NVDA) and Advanced Micro Devices (NASDAQ: AMD) as of late. A widespread semiconductor shortage is having a profound impact on nearly every industry from automobiles to computers and even healthcare.
However, companies like NVIDIA and AMD couldn’t survive without companies like ASML Holdings, a semiconductor equipment manufacturer that makes tools for the aforementioned brands and several others.
ASML Holdings enjoys a monopoly on the extreme ultraviolet (EUV) lithography machines needed to make the tiny patterns you find on microchips. They’re not just aesthetically pleasing either. The smaller and more complex these patterns, the more data a chip is capable of processing.
These machines aren’t cheap either. ASML snags about $150 million in revenue every time it sells one, and revenue is expected to climb ahead. Even with a potential recession looming, analysts are forecasting significant growth in earnings through the rest of 2022 and 2023.
The bottom line is simple. ASML holds a global monopoly on a tool used to create an in-demand product in a global supply shortage. Its tools are used to create the microchips auto manufacturers, medical device manufacturers, and tech companies can’t seem to get enough of. Not to mention, recent declines in the stock have brought the share price to a more than reasonable valuation.
6. Exxon Mobil Corp (NYSE: XOM)
Best for combating inflation.
Dividend Yield: ~3.6%.
Valuation Metrics: P/E ratio: ~7
Market Cap: $432 billion.
Exxon Mobil is one of the biggest names in oil and gas, making it a great stock to combat inflation. Economists often use the price of gasoline as a first-glance gauge of inflation. When gas prices start to rise, it begins a domino effect. Shipping costs increase, which leads to higher end-consumer prices.
That’s why Exxon Mobil is one of the best stocks you can buy to combat inflation.
The company is the largest gas station chain in the U.S. As prices rise, Exxon becomes a direct beneficiary that rakes in ever-growing revenues and profits. Sure, the stock isn’t so impressive when gas prices are down, but at the moment, it’s a great play.
Exxon isn’t just a gas station chain either. The company has its fingers in all streams of the production process, from drilling crude oil to refineries to selling the end product directly to consumers.
With gas prices rising to well over $4 per gallon, the company is adding plenty of free cash flow to its balance sheet.
At the same time, XOM shares are more than fairly priced. The company’s P/E ratio is well below the average for the S&P 500 and its P/S ratio is approaching 1. Add in a yield of around 4%, and we have a winner, my friends.
7. UGI Corp (NYSE: UGI)
Best for risk-averse investors.
Dividend Yield: ~1.5%
Market Cap: ~$6.1 billion.
Many investors’ stance on risk has changed since the bear market set in. If you’ve become more risk-averse and want a stable utility play with great dividends to fill the void in your portfolio, UGI is a compelling pick.
The company is a regulated natural gas and propane distributor with a history that spans well over a century. It has consistently paid dividends to investors for 138 years and raised its dividend payments for the past 35 years consecutively.
That means that even in 2001 when the dot-com bubble popped, in 2008 and 2009 when the Great Recession took hold, and in 2020 when COVID-19 reared its ugly head, UGI investors enjoyed dividend increases.
Sure, the stock price has had a painful fall over the past year, but its declines are still a meaningful beat compared to the S&P 500’s losses.
Moreover, the company’s growth metrics suggest recent declines will be short-lived. In the most recent quarter, UGI produced 34%+ revenue growth, 90%+ net income growth, 85%+ diluted earnings growth, and 42%+ net profit growth.
When you invest in UGI, you’re investing in a company that has more than a century under its belt — one that hasn’t missed a beat on paying investors dividends in all that time and has a history of outperforming the S&P 500 in bear markets.
8. Duke Energy Corp (NYSE: DUK)
Best for recession-proofing your portfolio.
Dividend Yield: ~4%.
Valuation Metrics: P/E ratio: ~20
Market Cap: ~$75 billion.
Duke Energy is one of the largest electric utility providers in the United States. The company serves more than 7.7 million energy customers and more than 1.6 million natural gas customers across six states.
There are three compelling reasons to consider investing in DUK in a bear market:
Consumer Habits. When the economy takes a hit, consumers spend less, but they just about always pay their utility bills. That makes DUK a great investment in a recession.
History. The company has historically outperformed the S&P in the face of multiple economic hardships.
Stability Over Growth. The company has seen some impressive growth in recent years but management’s core focus is on the stability of the business, making it a low volatility play.
Truth be told, there’s not much to say about Duke Energy. It’s not a sexy business, it doesn’t have a ton of growth prospects, and it’s not likely to make you rich any time soon. But what it’s not doing only serves to outline what it is doing.
Duke Energy is continuing its mission to provide its customers with quality, fairly priced services. As it does, it gives its investors stable returns, consistently paid dividends, and an easier time going to bed at night regardless of the state of the economy or broader market.
Final Word
The stocks above are some of the best to stand behind as the declines in the market continue. Considering the state of the market, every one of them is a large-cap stock, and most follow a more reserved investment strategy.
Though these are my favorite picks for investors looking for different options, you have your own unique risk tolerance and investment goals. Never blindly invest in stock picks you read about online, not even the picks above. Do your own research and make educated investment decisions based on what you learn and how it relates to your unique situation.
Disclosure: The author currently has no positions in any stock mentioned herein but may purchase shares of Devon Energy (DVN), H&R Block (HRB), ASML Holdings (ASML), UGI Corp (UGI), and Duke Energy (DUK) within the next 72 hours. The views expressed are those of the author of the article and not necessarily those of other members of the Money Crashers team or Money Crashers as a whole. This article was written by Joshua Rodriguez, who shared his honest opinion of the companies mentioned. However, this article should not be viewed as a solicitation to purchase shares in any security and should only be used for entertainment and informational purposes. Investors should consult a financial advisor or do their own due diligence before making any investment decision.
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Joshua Rodriguez has worked in the finance and investing industry for more than a decade. In 2012, he decided he was ready to break free from the 9 to 5 rat race. By 2013, he became his own boss and hasn’t looked back since. Today, Joshua enjoys sharing his experience and expertise with up and comers to help enrich the financial lives of the masses rather than fuel the ongoing economic divide. When he’s not writing, helping up and comers in the freelance industry, and making his own investments and wise financial decisions, Joshua enjoys spending time with his wife, son, daughter, and eight large breed dogs. See what Joshua is up to by following his Twitter or contact him through his website, CNA Finance.
Average mortgage rates fell just a little last Friday. But last Thursday’s massive jump means they finished that week — and last month — higher than when they started them.
First thing, it was looking as if mortgage rates today might again barely budge. But that could change as the hours pass.
Markets will be closed tomorrow for the Independence Day holiday. And we’ll be back on Wednesday morning. Enjoy your celebrations!
Current mortgage and refinance rates
Program
Mortgage Rate
APR*
Change
Conventional 30-year fixed
7.129%
7.158%
Unchanged
Conventional 15-year fixed
6.638%
6.651%
Unchanged
Conventional 20-year fixed
7.506%
7.558%
Unchanged
Conventional 10-year fixed
6.997%
7.115%
Unchanged
30-year fixed FHA
6.672%
7.303%
Unchanged
15-year fixed FHA
6.763%
7.237%
Unchanged
30-year fixed VA
6.729%
6.937%
Unchanged
15-year fixed VA
6.625%
6.965%
Unchanged
5/1 ARM Conventional
6.75%
7.266%
Unchanged
5/1 ARM FHA
6.75%
7.532%
+0.11
5/1 ARM VA
6.75%
7.532%
+0.11
Rates are provided by our partner network, and may not reflect the market. Your rate might be different. Click here for a personalized rate quote. See our rate assumptions See our rate assumptions here.
Should you lock a mortgage rate today?
Recent reporting in the financial media makes me think mortgage rates are unlikely to see any significant and sustained falls until at least the fourth (Oct.-Dec.) quarter of 2023 and probably not until 2024.
And that’s why my personal rate lock recommendations remain:
LOCK if closing in 7 days
LOCK if closing in 15 days
LOCK if closing in 30 days
LOCK if closing in 45 days
LOCK if closing in 60days
However, with so much uncertainty at the moment, your instincts could easily turn out to be as good as mine — or better. So let your gut and your own tolerance for risk help guide you.
>Related: 7 Tips to get the best refinance rate
Market data affecting today’s mortgage rates
Here’s a snapshot of the state of play this morning at about 9:50 a.m. (ET). The data, compared with roughly the same time last Friday, were:
The yield on 10-year Treasury notes edged down to 3.82% from 3.85%. (Good for mortgage rates.) More than any other market, mortgage rates typically tend to follow these particular Treasury bond yields
Major stock indexes were mostly lower. (Good for mortgage rates.) When investors buy shares, they’re often selling bonds, which pushes those prices down and increases yields and mortgage rates. The opposite may happen when indexes are lower. But this is an imperfect relationship
Oil prices inched up to $70.61 from $70.25 a barrel. (Neutral for mortgage rates*.) Energy prices play a prominent role in creating inflation and also point to future economic activity
Goldprices rose to $1,930 from $1,919 an ounce. (Neutral for mortgage rates*.) It is generally better for rates when gold prices rise and worse when they fall. Gold tends to rise when investors worry about the economy.
CNN Business Fear & Greed index — climbed to 84 from 80 out of 100. (Bad for mortgage rates.) “Greedy” investors push bond prices down (and interest rates up) as they leave the bond market and move into stocks, while “fearful” investors do the opposite. So lower readings are often better than higher ones
*A movement of less than $20 on gold prices or 40 cents on oil ones is a change of 1% or less. So we only count meaningful differences as good or bad for mortgage rates.
Caveats about markets and rates
Before the pandemic and the Federal Reserve’s interventions in the mortgage market, you could look at the above figures and make a pretty good guess about what would happen to mortgage rates that day. But that’s no longer the case. We still make daily calls. And are usually right. But our record for accuracy won’t achieve its former high levels until things settle down.
So, use markets only as a rough guide. Because they have to be exceptionally strong or weak to rely on them. But, with that caveat, mortgage rates today might again hold steady or close to steady. However, be aware that “intraday swings” (when rates change speed or direction during the day) are a common feature right now.
Important notes on today’s mortgage rates
Here are some things you need to know:
Typically, mortgage rates go up when the economy’s doing well and down when it’s in trouble. But there are exceptions. Read ‘How mortgage rates are determined and why you should care’
Only “top-tier” borrowers (with stellar credit scores, big down payments, and very healthy finances) get the ultralow mortgage rates you’ll see advertised
Lenders vary. Yours may or may not follow the crowd when it comes to daily rate movements — though they all usually follow the broader trend over time
When daily rate changes are small, some lenders will adjust closing costs and leave their rate cards the same
Refinance rates are typically close to those for purchases.
A lot is going on at the moment. And nobody can claim to know with certainty what will happen to mortgage rates in the coming hours, days, weeks or months.
What’s driving mortgage rates today?
Currently
To see sustained lower mortgage rates we need to see the inflation rate halving, the economy weakening, and the Federal Reserve stopping hiking general interest rates. And none of those looks likely anytime soon.
Some progress is being made on inflation. But not enough.
And the economy is showing extraordinary resilience. Last week’s gross domestic product (GDP) headline figure was 50% higher than many expected.
Meanwhile, the Fed seems highly likely to hike general interest rates by 25 basis points (0.25%) on Jul. 26. And there may well be at least one more increase after that in 2023.
Recession
As I’ve written before, our best hope for lower mortgage rates is a recession. That should weaken the economy, reduce inflation and perhaps cause the Fed to at least hold general rates steady.
Economists have been predicting an imminent recession for ages. And, not so long ago, I bought that line and was expecting one at any moment.
But, now, many big hitters aren’t expecting a recession until 2024. Yesterday, CNN Business listed a few of those making that prediction:
Bank of America CEO Brian Moynihan
Vanguard economists
JPMorgan Chase economists
Of course, others disagree, as economists always do. Some think a recession will still land later this year. And others believe there will be no recession at all.
This week
There are a few reports this week that could send mortgage rates up or down a bit. But Friday’s jobs report is the one most likely to have a decisive impact.
The consensus among economists is that the report will show 240,000 new jobs created in June compared with 339,000 in May. Anything lower than 240,000 might see mortgage rates tumble, which would be great.
However, we’ve witnessed economists making similar predictions for employment several times over recent months. And, nearly every time, their forecasts have greatly underestimated the resilience of the American labor market and therefore the American economy.
Of course, they might be right this time. Let’s hope so. But I shouldn’t hold my breath if I were you.
Please read the weekend edition of this daily report for more background on what’s happening to mortgage rates.
Recent trends
According to Freddie Mac’s archives, the weekly all-time low for mortgage rates was set on Jan. 7, 2021, when it stood at 2.65% for conventional, 30-year, fixed-rate mortgages.
Freddie’s Jun. 29 report put that same weekly average at 6.71%, up from the previous week’s 6.67%. But Freddie is almost always out of date by the time it announces its weekly figures.
In November, Freddie stopped including discount points in its forecasts. It has also delayed until later in the day the time at which it publishes its Thursday reports. Andwe now update this section on Fridays.
Expert mortgage rate forecasts
Looking further ahead, Fannie Mae and the Mortgage Bankers Association (MBA) each has a team of economists dedicated to monitoring and forecasting what will happen to the economy, the housing sector and mortgage rates.
And here are their rate forecasts for the current quarter (Q2/23) and the following three quarters (Q3/23, Q4/23 and Q1/24).
The numbers in the table below are for 30-year, fixed-rate mortgages. Fannie’s were published on May 23 and the MBA’s on Jun. 21.
In the past, we included Freddie Mac’s forecasts. But it seems to have given up on publishing those.
Forecaster
Q2/23
Q3/23
Q4/23
Q1/24
Fannie Mae
6.4%
6.2%
6.0%
5.8%
MBA
6.5%
6.2%
5.8%
5.6%
Of course, given so many unknowables, the whole current crop of forecasts might be even more speculative than usual. And their past record for accuracy hasn’t been wildly impressive.
Find your lowest rate today
You should comparison shop widely, no matter what sort of mortgage you want. Federal regulator the Consumer Financial Protection Bureau found in May 2023:
“Mortgage borrowers are paying around $100 a month more depending on which lender they choose, for the same type of loan and the same consumer characteristics (such as credit score and down payment).”
In other words, over the lifetime of a 30-year loan, homebuyers who don’t bother to get quotes from multiple lenders risk losing an average of $36,000. What could you do with that sort of money?
Mortgage rate methodology
The Mortgage Reports receives rates based on selected criteria from multiple lending partners each day. We arrive at an average rate and APR for each loan type to display in our chart. Because we average an array of rates, it gives you a better idea of what you might find in the marketplace. Furthermore, we average rates for the same loan types. For example, FHA fixed with FHA fixed. The end result is a good snapshot of daily rates and how they change over time.
How your mortgage interest rate is determined
Mortgage and refinance rates vary a lot depending on each borrower’s unique situation.
Factors that determine your mortgage interest rate include:
Overall strength of the economy — A strong economy usually means higher rates, while a weaker one can push current mortgage rates down to promote borrowing
Lender capacity — When a lender is very busy, it will increase rates to deter new business and give its loan officers some breathing room
Property type (condo, single-family, town house, etc.) — A primary residence, meaning a home you plan to live in full time, will have a lower interest rate. Investment properties, second homes, and vacation homes have higher mortgage rates
Loan-to-value ratio (determined by your down payment) — Your loan-to-value ratio (LTV) compares your loan amount to the value of the home. A lower LTV, meaning a bigger down payment, gets you a lower mortgage rate
Debt-To-Income ratio — This number compares your total monthly debts to your pretax income. The more debt you currently have, the less room you’ll have in your budget for a mortgage payment
Loan term — Loans with a shorter term (like a 15-year mortgage) typically have lower rates than a 30-year loan term
Borrower’s credit score — Typically the higher your credit score is, the lower your mortgage rate, and vice versa
Mortgage discount points — Borrowers have the option to buy discount points or ‘mortgage points’ at closing. These let you pay money upfront to lower your interest rate
Remember, every mortgage lender weighs these factors a little differently.
To find the best rate for your situation, you’ll want to get personalized estimates from a few different lenders.
Are refinance rates the same as mortgage rates?
Rates for a home purchase and mortgage refinance are often similar.
However, some lenders will charge more for a refinance under certain circumstances.
Typically when rates fall, homeowners rush to refinance. They see an opportunity to lock in a lower rate and payment for the rest of their loan.
This creates a tidal wave of new work for mortgage lenders.
Unfortunately, some lenders don’t have the capacity or crew to process a large number of refinance loan applications.
In this case, a lender might raise its rates to deter new business and give loan officers time to process loans currently in the pipeline.
Also, cashing out equity can result in a higher rate when refinancing.
Cash-out refinances pose a greater risk for mortgage lenders, so they’re often priced higher than new home purchases and rate-term refinances.
How to get the lowest mortgage or refinance rate
Since rates can vary, always shop around when buying a house or refinancing a mortgage.
Comparison shopping can potentially save thousands, even tens of thousands of dollars over the life of your loan.
Here are a few tips to keep in mind:
1. Get multiple quotes
Many borrowers make the mistake of accepting the first mortgage or refinance offer they receive.
Some simply go with the bank they use for checking and savings since that can seem easiest.
However, your bank might not offer the best mortgage deal for you. And if you’re refinancing, your financial situation may have changed enough that your current lender is no longer your best bet.
So get multiple quotes from at least three different lenders to find the right one for you.
2. Compare Loan Estimates
When shopping for a mortgage or refinance, lenders will provide a Loan Estimate that breaks down important costs associated with the loan.
You’ll want to read these Loan Estimates carefully and compare costs and fees line-by-line, including:
Interest rate
Annual percentage rate (APR)
Monthly mortgage payment
Loan origination fees
Rate lock fees
Closing costs
Remember, the lowest interest rate isn’t always the best deal.
Annual percentage rate (APR) can help you compare the ‘real’ cost of two loans. It estimates your total yearly cost including interest and fees.
Also pay close attention to your closing costs.
Some lenders may bring their rates down by charging more upfront via discount points. These can add thousands to your out-of-pocket costs.
3. Negotiate your mortgage rate
You can also negotiate your mortgage rate to get a better deal.
Let’s say you get loan estimates from two lenders. Lender A offers the better rate, but you prefer your loan terms from Lender B. Talk to Lender B and see if they can beat the former’s pricing.
You might be surprised to find that a lender is willing to give you a lower interest rate in order to keep your business.
And if they’re not, keep shopping — there’s a good chance someone will.
Fixed-rate mortgage vs. adjustable-rate mortgage: Which is right for you?
Mortgage borrowers can choose between a fixed-rate mortgage and an adjustable-rate mortgage (ARM).
Fixed-rate mortgages (FRMs) have interest rates that never change, unless you decide to refinance. This results in predictable monthly payments and stability over the life of your loan.
Adjustable-rate loans have a low interest rate that’s fixed for a set number of years (typically five or seven). After the initial fixed-rate period, the interest rate adjusts every year based on market conditions.
With each rate adjustment, a borrower’s mortgage rate can either increase, decrease, or stay the same. These loans are unpredictable since monthly payments can change each year.
Adjustable-rate mortgages are fitting for borrowers who expect to move before their first rate adjustment, or who can afford a higher future payment.
In most other cases, a fixed-rate mortgage is typically the safer and better choice.
Remember, if rates drop sharply, you are free to refinance and lock in a lower rate and payment later on.
How your credit score affects your mortgage rate
You don’t need a high credit score to qualify for a home purchase or refinance, but your credit score will affect your rate.
This is because credit history determines risk level.
Historically speaking, borrowers with higher credit scores are less likely to default on their mortgages, so they qualify for lower rates.
For the best rate, aim for a credit score of 720 or higher.
Mortgage programs that don’t require a high score include:
Conventional home loans — minimum 620 credit score
FHA loans — minimum 500 credit score (with a 10% down payment) or 580 (with a 3.5% down payment)
VA loans — no minimum credit score, but 620 is common
USDA loans — minimum 640 credit score
Ideally, you want to check your credit report and score at least 6 months before applying for a mortgage. This gives you time to sort out any errors and make sure your score is as high as possible.
If you’re ready to apply now, it’s still worth checking so you have a good idea of what loan programs you might qualify for and how your score will affect your rate.
You can get your credit report from AnnualCreditReport.com and your score from MyFico.com.
How big of a down payment do I need?
Nowadays, mortgage programs don’t require the conventional 20 percent down.
In fact, first-time home buyers put only 6 percent down on average.
Down payment minimums vary depending on the loan program. For example:
Conventional home loans require a down payment between 3% and 5%
FHA loans require 3.5% down
VA and USDA loans allow zero down payment
Jumbo loans typically require at least 5% to 10% down
Keep in mind, a higher down payment reduces your risk as a borrower and helps you negotiate a better mortgage rate.
If you are able to make a 20 percent down payment, you can avoid paying for mortgage insurance.
This is an added cost paid by the borrower, which protects their lender in case of default or foreclosure.
But a big down payment is not required.
For many people, it makes sense to make a smaller down payment in order to buy a house sooner and start building home equity.
Choosing the right type of home loan
No two mortgage loans are alike, so it’s important to know your options and choose the right type of mortgage.
The five main types of mortgages include:
Fixed-rate mortgage (FRM)
Your interest rate remains the same over the life of the loan. This is a good option for borrowers who expect to live in their homes long-term.
The most popular loan option is the 30-year mortgage, but 15- and 20-year terms are also commonly available.
Adjustable-rate mortgage (ARM)
Adjustable-rate loans have a fixed interest rate for the first few years. Then, your mortgage rate resets every year.
Your rate and payment can rise or fall annually depending on how the broader interest rate trends.
ARMs are ideal for borrowers who expect to move prior to their first rate adjustment (usually in 5 or 7 years).
For those who plan to stay in their home long-term, a fixed-rate mortgage is typically recommended.
Jumbo mortgage
A jumbo loan is a mortgage that exceeds the conforming loan limit set by Fannie Mae and Freddie Mac.
In 2023, the conforming loan limit is $726,200 in most areas.
Jumbo loans are perfect for borrowers who need a larger loan to purchase a high-priced property, especially in big cities with high real estate values.
FHA mortgage
A government loan backed by the Federal Housing Administration for low- to moderate-income borrowers. FHA loans feature low credit score and down payment requirements.
VA mortgage
A government loan backed by the Department of Veterans Affairs. To be eligible, you must be active-duty military, a veteran, a Reservist or National Guard service member, or an eligible spouse.
VA loans allow no down payment and have exceptionally low mortgage rates.
USDA mortgage
USDA loans are a government program backed by the U.S. Department of Agriculture. They offer a no-down-payment solution for borrowers who purchase real estate in an eligible rural area. To qualify, your income must be at or below the local median.
Bank statement loan
Borrowers can qualify for a mortgage without tax returns, using their personal or business bank account. This is an option for self-employed or seasonally-employed borrowers.
Portfolio/Non-QM loan
These are mortgages that lenders don’t sell on the secondary mortgage market. This gives lenders the flexibility to set their own guidelines.
Non-QM loans may have lower credit score requirements, or offer low-down-payment options without mortgage insurance.
Choosing the right mortgage lender
The lender or loan program that’s right for one person might not be right for another.
Explore your options and then pick a loan based on your credit score, down payment, and financial goals, as well as local home prices.
Whether you’re getting a mortgage for a home purchase or a refinance, always shop around and compare rates and terms.
Typically, it only takes a few hours to get quotes from multiple lenders — and it could save you thousands in the long run.
Current mortgage rates methodology
We receive current mortgage rates each day from a network of mortgage lenders that offer home purchase and refinance loans. Mortgage rates shown here are based on sample borrower profiles that vary by loan type. See our full loan assumptions here.
Americans believe they will need $1.27 million to retire comfortably, according to the latest set of findings from Northwestern Mutual’s 2023 Planning & Progress Study. That number continues to increase, up from $1.25 million reported last year. High-net-worth individuals – those with more than $1 million in investable assets – believe they’ll need $3 million to retire comfortably.
Consider working with a financial advisor as you plan your retirement.
Most workers have got a ways to go with their savings, the report finds. On average, Americans have set aside $89,300 of the $1.27 million they think they’ll need. That average ranges from slightly less than $36,000 in retirement savings for those in their 20s, to nearly $114,000 for people in their 70s – leaving them far off from their required savings goals.
A Positive Development
However, even in the face of a 20% loss in stocks during 2022 and soaring inflation, workers still managed to increase the average retirement savings balance by 3% from the 2022 average of $86,869.
“The good news is that they are saving and investing more for tomorrow, even in this time of high inflation and market volatility,” said Aditi Javeri Gokhale, chief strategy officer, president of retail investments and head of institutional investments at Northwestern Mutual. “That is a step in the right direction and a reverse of what we saw last year when the gap widened rather than narrowed. The challenging news is that there continues to be a big disparity between what they think they’ll need to retire and what they’ve saved to date.”
The study found that people in their 20s had saved an average of $35,800 for retirement. To hit the $1.27 million goal, someone 25 years old with that starting balance would need to invest about $306 per month for the next 40 years at an annual return of 7%. Someone 35, with the average current balance of $67,400 would need to save about $668 a month for the 30 years until they near retirement.
A 45-year-old with the average $77,400 in savings, with just 20 years to save, requires monthly savings of $1,973 per month. At 55, with a current retirement asset balance of $110,900 and 10 years until they near retirement, a worker would need to sock away the unlikely total of $6,344 per month.
Expectations as Retirement Nears
On average, the study found that 52% of people say they expect to be financially prepared for retirement when the time comes, with Gen Z coming in the most optimistic, at 65%. Gen Xers are the least optimistic, with just 45% saying they expect to be ready. Millennials are right in the middle at 54%, while 52% of Baby Boomers who have yet to retire think they’ll be financially set to retire.
The study also found that, on average, Americans expect to work a bit longer before they can call it quits than they did in previous surveys. Currently, they expect to work until age 65, up from 64 last year and 62.6 in 2021. The full retirement age for Social Security benefits is 67 years old for anyone born in or after 1960.
When it comes to feeling ready for retirement, the study found that creating a well thought-out financial plan brought a real boost of confidence. Survey respondents who described themselves as disciplined financial planners knocked two years off their retirement age, expecting to quit at 63, while people who described their planning as informal or having no plan figured they’d be retiring at age 67.
Bottom Line
Finding the answer to the question, “What’s your number?” is an essential piece of financial planning, so that investors can understand the amount of appropriate risk necessary to meet their investment and retirement goals. Typically, experts recommend saving 10% or 15% of salary for the bulk of your working years. Workers also can consult their own Social Security estimate to get a full picture of their potential retirement income.
Tips on Retirement
While many investors obsess about trying to “beat the market,” smart investors understand that they simply need to meet their own periodic goals to “make their number” – their desired total retirement assets before they leave work. One way to get help figuring out your number is to work with a financial advisor who can help you answer all your questions about retirement options. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have free introductory calls 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.
Fidelity recommends that you have 10 times your annual income saved for retirement by age 67. To find out if you’re on track, try SmartAsset’s retirement calculator. This free tool will estimate how much you’ll have when the time comes to retire.