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As we head into peak home-buying season, signs of life have begun to spring up in the housing market.
Even so, still-high mortgage rates and home prices amid historically low housing stock continue to put homeownership out of reach for many.
Moreover, the National Association of Realtors agreed to a monumental $418 million settlement on March 15 following a verdict favoring home sellers in a class action lawsuit. Still subject to court approval, the settlement requires changes to broker commissions that will upend the buying and selling model that has been in place for years.
Elevated mortgage rates, out-of-reach home prices and record-low housing stock are the perennial weeds that experts say hopeful home buyers can expect to contend with this spring—and beyond.
“The housing market is likely to continue to face the dual affordability constraints of high home prices and elevated interest rates in 2024,” said Doug Duncan, senior vice president and chief economist at Fannie Mae, in an emailed statement. “Hotter-than-expected inflation data and strong payroll numbers are likely to apply more upward pressure to mortgage rates this year than we’d previously forecast.”
Despite ongoing affordability hurdles, Fannie Mae forecasts an increase in home sales transactions compared to last year. Experts also anticipate a slower rise in home prices this year compared to recent years, but price fluctuations will continue to vary regionally and depend strongly on local market supply.
U.S. home prices declined in January for the third consecutive month due to high borrowing costs, according to the latest S&P CoreLogic Case-Shiller Home Price Index. But prices year-over-year jumped 6%—the fastest annual rate since 2022.
Chief economist at First American Financial Corporation Mark Fleming predicts a “flat stretch” ahead.
“If the 2020-2021 housing market was too hot, then the 2023 market was probably too cold, but 2024 won’t yet be just right,” Fleming said in his 2024 forecast.
For a housing recovery to occur, several conditions must unfold.
“For the best possible outcome, we’d first need to see inventories of homes for sale turn considerably higher,” says Keith Gumbinger, vice president at online mortgage company HSH.com. “This additional inventory, in turn, would ease the upward pressure on home prices, leveling them off or perhaps helping them to settle back somewhat from peak or near-peak levels.”
And, of course, mortgage rates would need to cool off—which experts say is imminent despite rates edging back up toward 7%. For the week ending April 11, the 30-year fixed mortgage rate stood at 6.88%, according to Freddie Mac.
However, when mortgage rates finally go on the descent, Gumbinger says don’t hope they cool too quickly. Rapidly falling rates could create a surge of demand that wipes away any inventory gains, causing home prices to rebound.
“Better that rate reductions happen at a metered pace, incrementally improving buyer opportunities over a stretch of time, rather than all at once,” Gumbinger says.
He adds that mortgage rates returning to a more “normal” upper 4% to lower 5% range would also help the housing market, over time, return to 2014-2019 levels. Yet, Gumbinger predicts it could be a while before we return to those rates.
Nonetheless, Kuba Jewgieniew, CEO of Realty ONE Group, a real estate brokerage company, is optimistic about a recovery this year.
“[W]e’re definitely looking forward to a better housing market in 2024 as interest rates start to settle around 6% or even lower,” says Jewgieniew.
Following years of litigation, the National Association of Realtors (NAR) has agreed to pay $418 million to settle a series of antitrust lawsuits filed in 2019 on behalf of home sellers.
The plaintiffs claimed that the leading national trade association for real estate brokers and agents “conspired to require home sellers to pay the broker representing the buyer of their homes in violation of federal antitrust law.”
Though the landmark settlement is subject to court approval, most consider it a done deal.
The settlement requires NAR to enact new rules, including prohibiting offers of broker compensation on multiple listing services (MLS), the private databases that allow local real estate brokers to publish and share information about residential property listings. The rule is set to take effect in mid-July, once the settlement receives judge approval.
Moreover, sellers will no longer be required to pay buyer broker commissions and real estate agents participating in the MLS must establish written representation agreements with their buyer clients.
NAR denies any wrongdoing and maintains that its current policies benefit buyers and sellers. The organization believes it’s not liable for seller claims related to broker commissions, stating that it has never set commissions and that commissions have always been negotiable.
Per the settlement’s terms, the costs associated with buying and selling a home are set to change dramatically.
“The primary things that will change are the decoupling of the seller commission and the buyer commission in the MLS,” says Rita Gibbs, a Realtor at Realty One Group Integrity in Tucson. “It’s gonna cause some chaos.”
While sellers will no longer be able to offer broker compensation in the MLS, there’s no rule prohibiting off-MLS negotiations. Because of this, Gibbs suspects buyers and sellers will continue offering broker compensation off the MLS.
The Department of Justice confirmed it will permit listing brokers to display compensation details on their websites. However, buyer agents will need to undergo the tedious task of visiting countless broker websites to find who’s offering what.
Michael Gorkowski, a Virginia-based real estate agent with Compass, is also trying to figure out how to manage the potential ruling.
“We often work with buyers for many months and sometimes years before they find exactly what they’re looking for,” Gorkowski says. “So in a case where a seller isn’t offering a co-broker commission, we will have to negotiate that the buyer pays an agreed-upon commission prior to starting their search.”
“In the short term, it is absolutely going to injure buyers, especially FHA and VA buyers,” Gibbs says. “With rare exception, these buyers are not in a position to pay for their own agent.”
Gibbs says that if sellers don’t offer compensation, many buyers who can’t otherwise afford to pay a broker will choose to go unrepresented.
Gorkowski notes that veterans taking out VA loans face a unique challenge under the new rules. “[P]er the VA requirements, buyers cannot pay so it must be negotiated with the seller for now.”
As a result, NAR is calling on the U.S. Department of Veterans Affairs to revise its policies prohibiting VA buyers from paying broker commissions. Even so, there’s skepticism that the federal government will be able to implement changes in time for the July deadline.
Gibbs and Gorkowski are among the many agents especially concerned about first-time home buyers. After July, first-time and VA buyers will be required to sign a buyer-broker agreement stating that they will compensate their broker—but Gibbs says many won’t have the means to do so.
In this situation, agents would likely only show buyers homes where sellers are offering compensation.
“This is a very troubling situation,” Gorkowski says.
With many homeowners “locked in” at ultra-low interest rates or unwilling to sell due to high home prices, demand continues to outpace housing supply—and likely will for a while—even as some homeowners may finally be forced to sell due to major life events such as divorce, job changes or a growing family.
“I don’t expect to see a meaningful increase in the supply of existing homes for sale until mortgage rates are back down in the low 5% range, so probably not in 2024,” says Rick Sharga, founder and CEO of CJ Patrick Company, a market intelligence and business advisory firm.
Housing stock remains near historic lows—especially entry-level supply—which has propped up demand and sustained ultra-high home prices. Here’s what the latest home values look like around the country.
Yet, some hopeful housing stock signs have begun to sprout:
The most recent National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), which tracks builder sentiment, saw a fourth consecutive monthly rise, surpassing a crucial threshold with an increase from 48 to 51 in March. A reading of 50 or above means more builders see good conditions ahead for new construction.
At the same time, new single-family building permits ticked up 1% in February—the 13th consecutive monthly increase—according to the latest data from the U.S. Census Bureau and U.S. Department of Housing and Urban Development (HUD).
Though some housing market data indicates signs of growth are in store this spring home-buying season, persistently high mortgage rates may hinder activity from fully flourishing.
Here’s what the latest home sales data has to say.
Existing-home sales came to life in February, shooting up 9.5% from the month before, according to the latest data from the NAR. Sales dipped 3.3% from a year ago.
Experts attribute the monthly jump to a bump in inventory.
“Additional housing supply is helping to satisfy market demand,” said Lawrence Yun, chief economist at NAR, in the report.
Existing inventory rose 5.9%—logging 1.07 million unsold homes at the end of February. However, there are still only 2.9 months of inventory at the current sales pace. Most experts consider a balanced market falling between four and six months.
Meanwhile, existing home prices continue to soar to unprecedented heights, reaching $384,500, which marks the eighth consecutive month of yearly price increases and a February median home price record.
Sales of newly constructed single-family houses ticked down by a nominal 0.3% compared to January, but outpaced February 2023 sales by 5.9%, according to the latest U.S. Census Bureau and HUD data.
Amid a high percentage of homeowners still locked in to low mortgage rates, home builders have been picking up the slack.
“New construction continues to be an outsized share of the housing inventory,” said Dr. Lisa Sturtevant, chief economist at Bright MLS, in an emailed statement.
Sturtevant notes that declining new home prices are coming amid a recent trend of builders introducing smaller and more affordable homes to the market.
The median price for a new home in February was $400,500, down 7.6% from a year ago.
Source: U.S. Census Bureau and U.S. Department of Housing and Urban Development
NAR’s Pending Homes Sales Index rose 1.6% in February from the month prior even as mortgage rates approached 7% by the end of the month. Pending transactions declined 7% year-over-year.
A pending home sale marks the point in the home sales transaction when the buyer and seller agree on price and terms. Pending home sales are considered a leading indicator of future closed sales.
The Midwest and South saw monthly transaction gains while the Northeast and West saw declines due to affordability challenges in those higher-cost regions.
“While modest sales growth might not stir excitement, it shows slow and steady progress from the lows of late last year,” said Yun, in the report.
Though down from its 2023 high of 7.79%, the average 30-year fixed mortgage rate in 2024 remains well over 6% amid rising home values. As a result, home buyers continue to face affordability challenges.
According to data from its first-quarter 2024 U.S. Home Affordability Report, property data provider Attom found that median-priced single-family homes remain less affordable than the historical average in over 95% of U.S. counties.
For one, the data uncovered that expenses are eating up more than 32% of the average national wage. Common lending guidelines require monthly mortgage payments, property taxes and homeowners insurance to comprise 28% or less of your gross income.
At the same time, home prices and homeownership expenses continue to outpace wage growth.
Consequently, the latest expense-to-wage ratio is hovering at one of the highest points over the past decade, according to the Attom report, despite some slight affordability improvements over the last two quarters.
“Affording a home remains a financial stretch, or a pipe dream, for so many households,” said Rob Barber, CEO at Attom.
Here are some expert tips to increase your chances for an optimal outcome in this tight housing market.
Hannah Jones, a senior economic research analyst at Realtor.com, offers this expert advice to aspiring buyers:
Gary Ashton, founder of The Ashton Real Estate Group of RE/MAX Advantage, has this expert advice for sellers:
Despite some areas of the country experiencing monthly price declines, the likelihood of a housing market crash—a rapid drop in unsustainably high home prices due to waning demand—remains low for 2024.
“[T]he record low supply of houses on the market protects against a market crash,” says Tom Hutchens, executive vice president of production at Angel Oak Mortgage Solutions, a non-QM lender.
Moreover, experts point out that today’s homeowners stand on much more secure footing than those coming out of the 2008 financial crisis, with many borrowers having substantial home equity.
“In 2024, I expect we’ll see home appreciation take a step back but not plummet,” says Orphe Divounguy, senior macroeconomist at Zillow Home Loans.
This outlook aligns with what other housing market watchers expect.
“Comerica forecasts that national house prices will rise 2.9% in 2024,” said Bill Adams, chief economist at Comerica Bank, in an emailed statement.
Divounguy also notes that several factors, including Millennials entering their prime home-buying years, wage growth and financial wealth are tailwinds that will sustain housing demand in 2024.
Even so, with fewer homes selling, Dan Hnatkovskyy, co-founder and CEO of NewHomesMate, a marketplace for new construction homes, sees a price collapse within the realm of possibility, especially in markets where real estate investors scooped up numerous properties.
“If something pushes that over the edge, the consequences could be severe,” said Hnatkovskyy, in an emailed statement.
In February, total foreclosure filings were down 1% from the previous month but up 8% from a year ago, according to Attom.
“These trends could signify evolving financial landscapes for homeowners, prompting adjustments in market strategies and lending practices,” said Barber, in a report.
Lenders began foreclosure on 22,575 properties in February, up 4% from the previous month and 11% from a year ago. Meanwhile, real estate-owned properties, or REOs, which are homes unsold at foreclosure auctions and taken over by lenders, spiked year-over-year in three states: South Carolina (up 51%), Missouri (up 50%) and Pennsylvania (up 46%).
Despite foreclosure activity trending up nationally and certain areas of the country seeing notable annual increases in REOs, experts generally don’t expect to see a wave of foreclosures in 2024.
“Foreclosure activity is still only at about 60% of pre-pandemic levels … and isn’t likely to be back to 2019 numbers until sometime in mid-to-late 2024,” says Sharga.
The biggest reasons for this, Sharga explains, are the strength of the economy—we’re still seeing low unemployment and steady wage growth—along with excellent loan quality.
Massive home price growth in homeowner equity over the past few years has also helped reduce foreclosures.
Sharga says that some 80% of today’s homeowners have more than 20% equity in their property. So, while there may be more foreclosure starts in 2024—due in part to Covid-era mortgage relief programs phasing out—foreclosure auctions and lender repossessions should remain below 2019 levels.
Buying a house—in any market—is a highly personal decision. Because homes represent the largest single purchase most people will make in their lifetime, it’s crucial to be in a solid financial position before diving in.
Use a mortgage calculator to estimate your monthly housing costs based on your down. But if you’re trying to predict what might happen next year, experts say this is probably not the best home-buying strategy.
“The housing market—like so many other markets—is almost impossible to time,“ Divounguy says. “The best time for prospective buyers is when they find a home that they like, that meets their family’s current and foreseeable needs and that they can afford.”
Gumbinger agrees it’s hard to tell would-be homeowners to wait for better conditions.
“More often, it seems the case that home prices generally keep rising, so the goalposts for amassing a down payment keep moving, and there’s no guarantee that tomorrow’s conditions will be all that much better in the aggregate than today’s.”
Divounguy says “getting on the housing ladder” is worthwhile to begin building equity and net worth.
Declining mortgage rates will likely incentivize would-be buyers anxious to own a home to jump into the market. Expect this increased demand amid today’s tight housing supply to put upward pressure on home prices.
Most experts do not expect a housing market crash in 2024 since many homeowners have built up significant equity in their homes. The issue is primarily an affordability crisis. High interest rates and inflated home values have made purchasing a home challenging for first-time homebuyers.
If you’re in a financial position to buy a home you plan to live in for the long term, it won’t matter when you buy it because you will live in it through economic highs and lows. However, if you are looking to buy real estate as a short-term investment, it will come with more risk if you buy at the height before a recession.
Source: forbes.com
A 401(k) plan is a retirement savings plan in which employees contribute to a tax-deferred account via paycheck deductions (and often with an employer match). A pension plan is a different kind of retirement savings plan in which a company sets money aside to give to future retirees.
Over the past few decades, defined-contribution plans like the 401(k) have steadily replaced pension plans as the private-sector, employer-sponsored retirement plan of choice. While both a 401(k) plan and a pension plan are employer-sponsored retirement plans, there are some significant differences between the two.
Here’s what you need to know about a 401(k) vs. pension.
The main distinction between a 401(k) vs. a pension plan is that pension plans are largely employer driven, while 401(k)s are employee driven.
These are some of the key differences between the two plans.
Pension | 401(k) | |
---|---|---|
Funding | Typically funded by employers | Funded mainly by the employee; employer may offer a partial matching contribution |
Contributions | No more than $275,000 in 2024 or 100% of employee’s average compensation for the highest 3 consecutive years | $23,000 ($30,500 for those 50 and up) for 2024. Contributions from employee and employer cannot exceed $69,000 (or $76,500 for those 50 and up) in 2024 |
Investments | Employers choose the investments for the plan | Employees choose the investments from a list of options |
Value of the Plan | Set amount designed to be guaranteed for life | Determined by how much the employee contributes, the investments they make, and the performance of the investments |
Employees typically fund 401(k) plans through regular contributions from their paychecks to help save for retirement, while employers typically fund pension plans.
Employees can choose investments (from several options) in their 401(k). Employers choose the investments that fund a pension plan.
The value of a 401(k) plan at retirement depends on how much the employee has saved, in addition to the performance of the investments over time. Pensions, on the other hand, are designed to guarantee an employee a set amount of income for life.
💡 Quick Tip: The advantage of opening a Roth IRA and a tax-deferred account like a 401(k) or traditional IRA is that by the time you retire, you’ll have tax-free income from your Roth, and taxable income from the tax-deferred account. This can help with tax planning.
A pension plan is a type of retirement savings plan where an employer contributes funds to an investment account on behalf of their employees. The earnings are paid out to the employees once they retire.
There are two common types of pension plans:
• Defined-benefit pension plans, also known as traditional pension plans, are the most common type of pension plans. These employer-sponsored retirement investment plans are designed to guarantee the employee will receive a set benefit amount upon retirement (usually calculated with set parameters, i.e. employee earnings and years of service). Regardless of how the investment pool performs, the employer guarantees pension payments to the retired employee. If the plan assets aren’t enough to pay out to the employee, the employer is typically on the hook for the rest of the money.
According to the IRS, contributions to a defined-benefit pension plan cannot exceed 100% of the employee’s average compensation for the highest three consecutive calendar years of their employment or $265,000 for tax year 2023 and $275,000 for 2024.
• Defined-contribution pension plans are employer-sponsored retirement plans to which employers make plan contributions on their employee’s behalf and the benefit the employee receives is based solely on the performance of the investment pool. Meaning: There is no guarantee of a set monthly payout.
Like 401(k) plans, employees can contribute to these plans, and in some cases, employers match the contribution made by the employee. Unlike defined-benefit pension plans, however, the employee is not guaranteed a certain amount of money upon retirement. Instead, the employee receives a payout based on the performance of the investments in the fund.
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When it comes to pension plan withdrawals, employees who take out funds before the age of 59 ½ must pay a 10% early withdrawal penalty as well as standard income taxes. This is similar to the penalties and taxes associated with early withdrawal from a traditional 401(k) plan.
There are benefits to and drawbacks of pension plans. It’s important to understand both in order to maximize your participation in the plan.
Advantages of a pension plan include:
Funded by employers
For employees, a pension plan is retirement income from your employer. In most cases, an employee does not need to contribute to a defined-benefit pension plan in order to get consistent payouts upon retirement.
Higher contribution limits
When compared to 401(k)s, defined-contribution pension plans have significantly higher contribution limits and, as such, present an opportunity to set aside more money for retirement.
A set amount in retirement
A pension plan typically provides employees with regular fixed payments in retirement,usually for life.
Disadvantages of a pension plan include:
Lack of control
Employees can’t choose how the money in a pension plan is invested. If the investments don’t pan out, the plan could struggle to pay out the funds.
Vesting
Employees may need to work for the employer for a set number of years to become fully vested in the plan. If you leave the company before then, you might end up forfeiting the pension funds. Find out what the vesting schedule is for your pension plan.
Earnings and years employed
How much an employee gets in retirement with a pension plan generally depends on their salary and how long they work for the employer.
A traditional 401(k) plan is a tax-advantaged defined-contribution plan where workers contribute pre-tax dollars to the investment account via automatic payroll deductions. These contributions are sometimes fully or partially matched by their employers, and withdrawals are taxed at the participant’s marginal tax rate.
With a 401(k), employees and employers may both make contributions to the account (up to a certain IRS-established limit), but employees are responsible for selecting the specific investments. They can typically choose from offerings from the employer, which may include a mixture of stocks and bonds that vary in levels of risk depending on when they plan to retire.
Recommended: 401(a) vs 401(k): What’s the Difference?
To account for inflation, the IRS periodically adjusts the maximum amount an employer or employee can contribute to a 401(k) plan.
• For 2024, annual employee contributions can’t exceed $23,000 for workers under 50, and $30,500 for workers 50 and older (this includes a $7,500 catch-up contribution). The total annual contribution by employer and employee in 2024 is capped at $69,000 for workers under 50, and $76,500 for workers 50 and over.
• For 2023, annual employee contributions can’t exceed $22,500 for workers under 50, and $30,000 for workers 50 and older (this includes a $7,500 catch-up contribution). The total annual contribution paid by employer and employee in 2023 is capped at $66,000 for workers under 50, and $73,500 for workers 50 and over.
Some plans allow employees to make additional after-tax contributions to their 401(k) plan, within the contribution limits outlined above.
• Money can be withdrawn from a 401(k) in retirement without penalties. But taxes will be owed on the funds withdrawn. The IRS considers the removal of 401(k) funds before the age of 59 ½ an “early withdrawal.” The penalty for removing funds before that time is an additional tax of 10% of the withdrawal amount (there are exceptions, notably a hardship distribution, where plan participants can withdraw funds early to cover “immediate and heavy financial need”).
While a 401(k) plan might not offer as clearly-defined a retirement savings picture as a pension plan, it still comes with a number of upsides for participants who want a more active role in their retirement investments.
Advantages of a 401(k) include:
Self-directed investment opportunities
Unlike employer-directed pension plans, in which the employee has no say in the investment strategy, 401(k) plans offer participants more control over how much they invest and where the money goes (within parameters set by their employer). Plans typically offer a selection of investment options, including mutual funds, individual stocks and bonds, exchange traded funds (ETFs).
Tax advantages
Contributions to a 401(k) come from pre-tax dollars through payroll deductions, reducing the gross income of the participant, which may allow them to pay less in income taxes. Also, 401(k) contributions and earnings in the plan may grow tax-deferred.
Employer matching
Many 401(k) plan participants are eligible for an employer match up to a certain amount, which essentially means free money.
Disadvantages of a 401(k) include:
No guaranteed amount in retirement
How much you have in your 401(k) by retirement depends on how much you contributed to the plan, whether your employer offered matching funds, and how the investments you chose fared.
Contributions are capped
The amount you can contribute to a 401(k) annually is capped by the IRS, as described above.
Less stability
How the market performs generally affects the performance of 401(k) investments. That could make it difficult to know how much money you’ll have for retirement, which could complicate retirement planning.
💡 Quick Tip: Before opening an investment account, know your investment objectives, time horizon, and risk tolerance. These fundamentals will help keep your strategy on track and with the aim of meeting your goals.
When considering a 401(k) vs. pension, most people prefer the certainty that comes with a pension plan.
But for those who seek more control over their retirement savings and more investment vehicles to choose from, a 401(k) plan could be the more advantageous option.
In the case of the 401(k), it really depends on how well the investments perform over time. Without the safety net of guaranteed income that comes with a pension plan, a poorly performing 401(k) plan has a direct effect on a retiree’s nest egg.
The percentage of private sector employees whose only retirement account is a defined benefit pension plan is just 4% today, versus 60% in the early 1980s. The majority of private sector companies stopped funding traditional pension plans in the last few decades, freezing the plans and shifting to defined-contribution plans like 401(k)s.
When a pension fund isn’t full enough to distribute promised payouts, the company still needs to distribute that money to plan participants. In several instances in recent decades, pension fund deficits for large enterprises like airlines and steel makers were so enormous they required government bailouts.
To avoid situations like this, many of today’s employers have shifted the burden of retirement funding to their workers.
With a 401(k), if you leave your job, you can take your 401(k) with you by rolling it over to your new employer’s 401(k) plan or into an IRA. The process is fairly easy to do.
If you leave your job and you have a pension plan, however, the plan generally stays with your employer. You’ll need to keep track of it through the years and then apply in retirement to begin receiving your money.
Pension plans are employer-sponsored, employer-funded retirement plans that are designed to guarantee a set income to participants for life. On the other hand, 401(k) accounts are employer-sponsored retirement plans through which employees make their own investment decisions and, in some cases, receive an employer match in funds. The post-retirement payout varies depending on market fluctuations.
While pension plans are far more rare today than they were in the past, if you have worked at a company that offers one, that money will still come to you after retirement even if you change jobs, as long as you stayed with the company long enough for your benefits to vest.
Some people have both pensions and 401(k) plans, but there are also other ways to take an active role in saving for retirement. An IRA is an alternative to 401(k) and pension plans that allows anyone to open a retirement savings account. IRAs have lower contribution limits but a larger selection of investments to choose from. And it’s possible to have an IRA in addition to a 401(k) or pension plan.
Ready to invest for your retirement? It’s easy to get started when you open a traditional or Roth IRA with SoFi. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).
Easily manage your retirement savings with a SoFi IRA.
Yes. An individual can have both a pension plan and a 401(k) plan, though the two plans may not be from the same employer. If an employee leaves a company after becoming eligible for a pension and opens a 401(k) with a new employer, their previous employer will still typically maintain their pension. An employee can access the pension funds by applying for them in retirement.
If you have both a pension and a 401(k), it’s wise to contribute as much as you can to your 401(k) up to the annual contribution limit. While a pension can help supplement your retirement income, it may not be enough to cover all your retirement expenses, so contributing to your 401(k) can help fill the gap. One rule of thumb says to contribute at least 10% of your salary to a 401(k) if possible to help ensure that you’ll have enough savings for retirement.
Photo credit: iStock/Sam Edwards
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Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
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American renters are fearful that their home-owning aspirations are increasingly getting out of reach, according to a recent survey by the real-estate platform Redfin, amid an environment of high home prices and elevated mortgage rates.
Almost 40 percent of the renters polled told surveyors they did not believe they would own a home of their own, up from 27 percent in a similar survey Redfin conducted in May and June. Part of the struggle for these Americans is that homes are beyond what they can afford. Securing a down payment can prove elusive, and high mortgage rates may discourage them from acquiring property.
Read more: How to Get a Mortgage in 2024
The Redfin survey sampled about 3,000 U.S. residents in February, and its analysis of renters’ expectations came from a 1,000 renters in the poll.
Mortgage rates in particular have stayed elevated over the past six months. After hitting a peak of 8 percent—the highest level since the turn of the century—mortgage rates declined to the mid-6 percent range at the end of the year and into 2024. In recent weeks, however, the cost of home loans have ticked up to above 7 percent, depressing activity in the mortgage market.
On April 11, the 30-year fixed rate rose to almost 7.4 percent, Mortgage News Daily reported, the highest levels since November 2023. The rise follows news that suggests borrowing costs may stay elevated for longer than economists initially anticipated.
High mortgage rates now mean that first-time buyers must earn about $76,000 to afford what the industry describes as a starter home, which is an 8 percent increase from a year ago and almost 100 percent higher than it was before the pandemic, Redfin said. It added that home prices have soared more than 40 percent since 2019, as buyers took advantage of low borrowing costs during the pandemic to acquire houses, increasing demand, escalating competition and pushing up prices.
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“Buying a home has become increasingly out of reach for many Americans due to the one-two punch of high home prices and high mortgage rates,” Redfin wrote.
Renters being unable to buy homes has in turn contributed to increased competition and price jumps in the rental market. The median asking rent is at $2,000 in the U.S., close to the record high it reached in 2022, Redfin said. Still, despite the elevated cost of rent, renting may be a more affordable option than homeownership.
“Housing costs are high across the board, but renting is a more affordable and realistic option for many Americans right now—especially those who have never owned a home and aren’t able to tap into equity from a previous sale,” said Daryl Fairweather, Redfin’s chief economist. “While owning a home is usually a sound long-term investment, the barriers to entry and upfront costs of buying are higher than renting.”
To purchase a house, a buyer would need about $60,000 as a down payment for a home loan, an amount that is out of reach for many Americans.
Fairweather added, “The sheer expense of purchasing a home is causing the American Dream of homeownership to lose some of its shine.”
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Source: newsweek.com
When you pay off your mortgage, you may have some paperwork and account switching (such as property taxes) to take care of. And you may look forward to greater cash flow.
But is paying off a mortgage always the right move? In some cases, a person who is about to pay off a mortgage may want to consider a couple of options that could make more sense for their particular financial situation.
Learn more about the payoff path and alternatives here.
Paying off your mortgage is a fantastic milestone to reach, but it’s not without trade-offs. Here are a few considerations to help you make the best decision for your situation.
Pros of Paying Off a Mortgage | Cons of Paying Off a Mortgage |
---|---|
No monthly payment | May lose tax deduction |
No more interest paid to the lender | Your cash is all tied up in your home’s equity |
More cash in your pocket each month | If you pay extra to pay off your home, you may miss out on investment strategies |
You’ll need less income in retirement | Lost opportunity costs for other uses for your money |
Greatly reduced risk of foreclosure | No tax deduction for mortgage interest, if you’re among the few who still take the deduction |
💡 Quick Tip: Thinking of using a mortgage broker? That person will try to help you save money by finding the best loan offers you are eligible for. But if you deal directly with an online mortgage lender, you won’t have to pay a mortgage broker’s commission, which is usually based on the mortgage amount.
Here’s how mortgage payoff works:
• To get the amount you need to pay off your mortgage, the first thing you need to do is request a mortgage payoff letter. If you pay the amount on your last statement, you won’t have the right amount. A mortgage payoff letter will include the appropriate fees and the amount of interest through the day you’re planning to pay the loan off.
• Know that the payoff letter is only good for a set amount of time, and make sure to get your payment in on time.
• Follow the instructions you’re given about where and how to submit the payment.
• Once you’ve sent the payoff amount, your mortgage lender is responsible for sending you and the county recorder documentation to release the mortgage and lien on your home.
• You should be sent any funds remaining in escrow.
• You will want to contact your insurance company about this change if your insurance was paid along with your mortgage payment and have the bills switched over to you directly.
• If your property taxes were paid as part of your mortgage, you will want to contact your local tax collector about shifting those bills to you as well.
After paying off your mortgage, you should receive (or have access to) documents proving you paid off the mortgage and no longer have a lien attached to your home. These include:
• Satisfaction or release of mortgage. This document will be filed with the county recorder (or other applicable recording agency). It states that the mortgage has been satisfied and the lien released.
• A canceled promissory note. When you closed on your home, one of the documents you signed was called a promissory note. Now that the mortgage has been satisfied, you may receive this document back with a “canceled” or “paid in full,” though it’s also possible you may have to call and request the document.
• A statement on the paid-off loan balance. Your lender should send you a statement showing that your loan has been paid in full.
After you pay off your mortgage, you’ll need to take care of a few housekeeping items (a couple are mentioned above).
• Close your escrow account. Since you’re no longer sending a mortgage payment to a mortgage servicer, you’ll need to take care of the items in your escrow account, primarily your taxes and homeowners insurance.
• Contact your county recorder’s office to double-check that the mortgage satisfaction paperwork has been filed. Once that has been filed, you will have a clear title on the property.
• Make plans for the extra money. Whether you want to make a bigger push in your retirement account, enlarge your emergency fund, or pay off other debts, you now likely have more cash to do it with. If you don’t make plans for the extra money, it might just evaporate.
Recommended: 2024 Home Loan Help Center
Generally, paying off your mortgage early is a great idea. It reduces the principal, which in turn reduces the amount you’ll pay in interest over the life of your loan. Still, there are reasons that some homeowners consider not paying their mortgage off early.
Most lenders do not charge a prepayment penalty, but home loans signed before January 10, 2014, may include one. Nonconforming mortgage loans signed after that date may have a prepayment penalty that applies within the first three years of repayment. (The different types of mortgage loans include conforming and nonconforming conventional mortgages.)
The best way to find out if prepayment is subject to a penalty is to call your mortgage servicer. The terms of your mortgage paperwork should also outline whether or not you have a prepayment penalty.
Another option you may consider is refinancing your mortgage. There are several reasons you may want to refinance instead of paying off your mortgage.
Lower monthly payment. Getting a lower rate or different loan term may lower your monthly payment. Be sure to check out current rates, and use a calculator for mortgages to find out what a possible new payment would be.
Shorter mortgage term. Refinancing a 30-year mortgage to, say, a 15-year mortgage can keep you close to paying off your mortgage while also providing financial flexibility.
Spare cash. Whatever your need is — home renovations, college funding, paying off higher-interest debt — a cash-out refinance might be an option.
💡 Quick Tip: Compared to credit cards and other unsecured loans, you can usually get a lower interest rate with a cash-out refinance loan.
What happens when you pay off your mortgage? After doing a jig in the living room, you’ll need to take care of a few housekeeping tasks and make plans for the extra money.
An option to consider: Would a refinance to a shorter term make more sense, or pulling cash out with a cash-out refi? It can be wise to review all your options as you move toward taking this major financial step.
Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% – 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It’s online, with access to one-on-one help.
SoFi Mortgages: simple, smart, and so affordable.
The answer depends on an individual’s situation. If you have the money and you’d love to shed that monthly obligation for good, paying off a mortgage is a good idea. But if you’re worried about funding your retirement or losing opportunities to invest, paying off your mortgage may not be a good idea for you.
Ensure that you have received your canceled promissory note, and update your property tax and insurance billers on where to bill you. Since you no longer will have a mortgage servicing company, you must pay your insurance and property taxes yourself.
Paying off a mortgage could give you more money to work with in retirement. But if your retirement accounts need a boost, most financial experts contend that allocating money there is a better idea than paying off your mortgage. Paying off a mortgage when you have low cash reserves can also put you at risk.
Surprisingly, paying off your mortgage early won’t affect your credit score much. Your credit score has already taken into account the years of full, on-time payments you made each month.
Photo credit: iStock/katleho Seisa
*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
SOHL0124043
Source: sofi.com
Welcome to NerdWallet’s Smart Money podcast, where we answer your real-world money questions. In this episode:
Explore how to protect yourself from identity fraud, understand its emotional toll and learn fraud recovery steps.
How can you protect yourself from identity theft and fraud?
What steps should you take if you become a victim of financial fraud?
Hosts Sean Pyles and Sara Rathner delve into the unsettling world of identity theft and fraud prevention to help listeners safeguard their finances and wellbeing. They begin with a discussion on the various facets of identity theft, with tips and tricks on identifying fraudulent activity, enhancing personal banking security and dealing with the aftermath of having your identity compromised. Then, they discuss the differences between identity fraud and scams, the importance of good cyber hygiene, and the steps to take immediately if your personal information is breached.
Sean also speaks with John Breyault, Vice President of Public Policy, Telecommunications and Fraud at the National Consumers League, about the current trends in identity theft and the forms of fraud that are on the rise in 2024. They cover topics such as new account fraud, the impact of zero-day vulnerabilities on personal data security and the necessity for consumers to stay vigilant with software updates and report incidents promptly.
They also explore how victims can navigate the process of recovering from fraud, including freezing credit reports, changing passwords, and engaging with financial institutions and law enforcement to document the crime and seek restitution.
Check out this episode on your favorite podcast platform, including:
NerdWallet stories related to this episode:
This transcript was generated from podcast audio by an AI tool.
Sean Pyles:
So there you are just going along with your life, running errands, finishing work projects, walking the dog, making lunch, paying bills, and then you realize, something is very, very wrong. Someone has gotten into your accounts and stolen your money.
Charlene MacNeil:
August 28th was a normal day. I took my cat to the vet, went and got groceries. That morning, I checked my online banking just to make sure I had enough money to do everything. It just seemed like a normal day and then everything changed that evening when I got that email.
Sean Pyles:
Welcome to NerdWallet’s Smart Money podcast. I’m Sean Pyles.
Sara Rathner:
And I’m Sara Rathner.
Sean Pyles:
We’re back with our Nerdy deep dive into identity theft, fraud, and scams, and their potentially devastating effects on your finances if you become a victim. As we said last episode, and we’ll continue to reiterate over and over, these crimes do not discriminate. Absolutely anyone can find themselves in deep water with their money situation because these financial criminals have so very many tools and options at their disposal.
Sara Rathner:
Yeah. And, Sean, I think we also want to repeat the message that this doesn’t just happen to you because you’re ignorant or careless. It happens because as our guest last week said, “We have to be 100% right all the time.” We have to be watching our accounts and changing our passwords, realizing we’re talking to someone who’s pretending to be from a bank, etc., etc. And the criminal only has to be right once to get what they’re after. So if they catch you in a moment where you’re tired or hangry, they might just do that.
Sean Pyles:
So the last thing that you should feel is embarrassed or ashamed if you do become a victim of ID theft or a scam. Angry and upset, yes, ashamed, no. The more we all talk about it, the more educated we become and the harder we make it for the thieves and scammers.
Sara Rathner:
Yes. Let’s take our power back.
Sean Pyles:
Yes. So last week we talked about identity theft, how it happens, what to be on the lookout for, and how to protect yourself as much as possible. Today we’re going to look at the next step in that process, which is the identity fraud that happens after the theft.
Sara Rathner:
It’s the credit card opened in your name. It’s the tax return that isn’t really yours. It’s the healthcare account that also isn’t yours that gets the thief medical care on your dime. Listener, we’re going to help you understand what it looks like, how to avoid it, and what to do if it happens to you.
Sean Pyles:
All right, well, we want to hear what you think too, listeners. Tell us your stories of identity theft or share how you’re working to fight it or recover from it. Leave us a voicemail or text the Nerd hotline at (901) 730-6373. That’s (901) 730-NERD, or email a voice memo to [email protected].
Sara Rathner:
So, Sean, where do we start today?
Sean Pyles:
Well, we’re going to start today with a real world tale of identity fraud. We’re hearing from Charlene MacNeil, a mom from Alberta, Canada. She’s got a story about what happened when someone was able to get into her account at BMO Bank, a subsidiary of the Bank of Montreal. Then after Charlene, we’re going to talk with an expert in ID fraud, who’s seen it all in his capacity at the National Consumers Union. Charlene MacNeil, welcome to Smart Money.
Charlene MacNeil:
Hello. Thanks for having me.
Sean Pyles:
Charlene, you experienced a form of bank account fraud. When did you first realize that something was wrong?
Charlene MacNeil:
On August 28th, I had just put my kids to bed and I got an email pop up on my cell phone saying that I had a credit limit alert from BMO and it told me that I had $33 left in my account.
Sean Pyles:
And so that was an indication that you didn’t have sufficient funds or maybe your credit was run up. What were you thinking when you first saw that?
Charlene MacNeil:
I panicked when I saw the $33. It just didn’t make sense. So I immediately went onto my online banking and noticed that my line of credit was maxed to the $15,000 mark.
Sean Pyles:
And what steps did you take once you realized that something was very wrong with your account?
Charlene MacNeil:
I immediately called BMO and just told them the email that I got and she told me that she would cancel my card right away and my account and to go to the branch immediately the next day to file a report of what had happened.
Sean Pyles:
So the next day, did you go in and talk with them about that?
Charlene MacNeil:
Yeah, I went in the next morning and I told her what had happened and she had told me that there was a text message that was sent to me like a one-time passcode, and I tried to think back to the day before because I do get text messages or calls from scammers sometimes, but that summer I felt like I had gotten quite a few, but I just kind of always ignored them, so I didn’t really think much of it. And then when she was looking at my account, she asked me if I knew the company Wise, because she noticed that’s where the money had been sent and I Googled Wise right away because I didn’t know what she was talking about.
And when I Googled it, it said international money sending. So she was, “Oh, that’s a red flag. That’s crazy.” She made me feel like we should be able to get the money back, that she would fill out this report and send it off and it should be okay. What had happened was they took my line of credit money, transferred it to my checking account, and they set up a bill payment to the company Wise, and then they sent out the money that way through a bill payment.
Sean Pyles:
So a slightly convoluted way to get the money that you had from your line of credit over to them essentially?
Charlene MacNeil:
Yes, exactly.
Sean Pyles:
And so it seems like things are maybe going, okay, this was a frustrating experience, but you thought you were going to be able to get your money back?
Charlene MacNeil:
Yeah, I went back to work and I felt relieved. “Okay, that’s done. It should be fine.”
Sean Pyles:
But that’s not what ended up happening.
Charlene MacNeil:
No. Two days later, the teller that had helped me, she called me and started the conversation with, “I have some very unfortunate news. They will not refund that money to your line of credit.” And my heart fell because I was just, “What do you mean?”
Sean Pyles:
And this was $15,000 they said they weren’t going to refund?
Charlene MacNeil:
I had a balance on there before. So really they just took whatever I had left in my line of credit and sent it out, so it was like $9,700.
Sean Pyles:
And what reason did they give you for why you wouldn’t be able to get this money back?
Charlene MacNeil:
They had told me that they tried reaching out to Wise, but the money had already been transferred. So whoever the bill was made out to through the company, they had the money and that’s it. They couldn’t get the money back, but she did say, “If you want, we could escalate this and see if there’s something else that they could do.”
Sean Pyles:
Because there have to be some kind of protections. This was an instance of fraud. You didn’t authorize this transfer of money?
Charlene MacNeil:
No, but as this continued on, they kept saying that I had gotten this one time passcode sent to me August 28th at 4:20 p.m., but I don’t recall entering this six digit code that they’re telling me that I entered. But from their records, it shows I entered the code and that it was all good.
Sean Pyles:
It’s also possible that someone could have somehow gained access to your phone number or gotten that code themselves. Correct?
Charlene MacNeil:
That’s what I am trying to explain to them. I just know that I didn’t enter this code.
Sean Pyles:
So did you end up escalating this then?
Charlene MacNeil:
I did. I escalated it three times and then I finally got a final response just saying that it’s really unfortunate, but we can’t get that money back. And they just kept telling me it’s the one-time passcode and that’s the reason why the money was sent out that I pretty much authorized it to be sent out.
Sean Pyles:
I’m really sorry to hear that. Do you know how the people were able to get into your account?
Charlene MacNeil:
I don’t know. I just have a lot of people just giving me different ideas of how maybe it could have happened. I had a conference in Vegas at the beginning of August and it was on the news that Vegas was having issues with scammers.
Sean Pyles:
Was it an issue with people getting on public Wi-Fi and logging into their bank accounts?
Charlene MacNeil:
That or people also told me that maybe somebody walked by my purse and scanned my purse, but people have told me that too, thinking it’s because of the Wi-Fi.
Sean Pyles:
So I’m wondering, Charlene, how has this experience made you feel about the safety of your money? Have you thought about switching banks, anything like that?
Charlene MacNeil:
I’m very nervous because it blows my mind to think that somebody can get onto your online banking and then move money like that without a signature or maybe voice recognition or something. I shut down my line of credit now and I’m kind of waiting to hear what’s going to happen, but I am really considering moving banks. I wish this almost happened on a credit card because I feel like credit card companies have your back more than the bank.
Sean Pyles:
Yeah. Your story brings me back to a theme which is that fraud, scams, anyone can experience these things and it’s not like you followed a typical playbook of seeing a text message come through on your phone or clicking a link in email and entering your login credentials. You don’t know how someone got your information. It just exemplifies that you could be doing everything right and somehow people could still get your information and still get into your bank.
Charlene MacNeil:
Yeah, exactly. August 28th was a normal day. I took my cat to the vet, went and got groceries. That morning, I checked my online banking just to make sure I had enough money to do everything. It just seemed like a normal day and then everything changed that evening when I got that email.
Sean Pyles:
What do you think your next steps will be?
Charlene MacNeil:
I’m not very hopeful, to be honest. It’s something that I just have to accept. And I mean, I’ve done better the last couple months, but in the beginning it was very difficult. I lost lots of sleep, missed some work. It was very stressful. And you feel like you’re the one that did something wrong.
Sean Pyles:
Well, I’m sorry that you experienced this. I’m wondering if there’s anything that you would like listeners to keep in mind as they try to protect themselves and their finances online?
Charlene MacNeil:
Yeah, I mean it’s so important to be checking your banking probably daily just to make sure everything is going as you think. Be very careful, I guess, on public Wi-Fi. I was actually just on a trip with my family to Mexico and so many people use public Wi-Fi. And I did in Vegas just to load my boarding passes.
I did not check my online banking. I know a lot of people when they hear me say that I was on public Wi-Fi in Vegas. I did not check my online banking, but I was on public Wi-Fi and I guess people can be sitting in that room and gain all of your information. So I don’t know. I don’t want people to be paranoid, but I kind of feel paranoid.
Sean Pyles:
It might not be a bad idea in the year 2024 when if you’re on a public Wi-Fi network, someone who’s also on that can get into your device very easily. That’s the truth of where we are right now.
Charlene MacNeil:
Yes, and I heard once they’re in, then they can be in there for a while. If I would’ve checked my online banking a day or two later, they could have seen me enter my codes. Yeah, it’s very invasive.
Sean Pyles:
Well, Charlene, thank you for sharing your story with us today.
Charlene MacNeil:
Well, thank you for hearing me.
Sara Rathner:
Sean, this just makes me so sad and angry that anybody has to deal with this because it’s just not fair. It’s not a fair fight against these really savvy identity thieves.
Sean Pyles:
It’s really not. And what’s so worrisome to me about Charlene’s story is that she still can’t pinpoint exactly how these criminals got into her account. Again, it just shows that this kind of fraud can happen to anyone, but as tempting as it might be to just throw up your hands and yell, “I give up,” that just feeds the beast and doesn’t do us any good.
Sara Rathner:
Well, I’m looking forward to some advice on how to avoid all of this and anything that we could do to keep it from happening to us, to me, to my loved ones, and of course to our listeners.
Sean Pyles:
Well, our next guest will walk us through some of what happens when you’re the victim of identity fraud and give advice on how to avoid it and recover from it if it does happen to you. John Breyault is Vice President of Public Policy Telecommunications and Fraud at the National Consumers League. That’s coming up. Stay with us.
John, thanks so much for joining us on Smart Money.
John Breyault:
Hey, thanks for having me on the show. I really appreciate it.
Sean Pyles:
So last week we spent some time explaining identity theft and the various ways that bad actors can steal our IDs from us. And today, we’re going to explore what they do with all that information once they’ve got it. So I’d like to start by asking you to explain maybe the difference between ID fraud and scams. We’re going to talk about scams in our next episode, but what differentiates the two?
John Breyault:
Both scams and ID theft, we call fraud, right? It’s a crime where it involves typically a scammer trying to acquire information or funds that they can use for their own purposes. So identity fraud is definitely a subset of fraud overall, but it is certainly one of the biggest subsets.
So we know that, for example, the Federal Trade Commission every year puts out their Consumer Sentinel Data Book. It’s a compilation of millions of fraud complaints that they get from agencies and organizations like mine all over the country. And in 2022, which is their most recent data, they received 5.2 million fraud reports and the number one category that they heard about was identity theft. And so clearly this continues to be a major problem that the biggest enforcement agency out there is hearing about. Definitely identity theft is one of the biggest types of fraud, and one I think we continue to see consumers of every age level, every education level, every demographic be victimized by.
Sean Pyles:
And when you think about specific ways that ID fraud and scams can manifest, what makes them distinct?
John Breyault:
I think what makes each scam distinct is often, number one, what is the entry point for the scammer? Is it one where they have to interact with the victim, say by sending them a link that the consumer clicks on and then provides the data to the identity for the scammer that’s then used to commit fraud? Or is this something where the scammers can commit identity fraud really with no interaction with the victim at all?
We know, for example, that due to data breaches, that’s practically limitless information about almost every American out there on criminal forums on the dark web that can be used to basically commit identity theft as a service. With a few hundred dollars in Bitcoin, you too can hire an identity thief to do things like start bogus credit card accounts in your name or try and get healthcare benefits or unemployment insurance. These are all very common types of identity theft that’s out there, and that doesn’t require any of us to do anything.
Sean Pyles:
So you touched on this a little bit, but John, can you give us a sense of what you’re seeing out there right now? What are some of the most prevalent forms of identity fraud in 2024?
John Breyault:
Yeah, I would say some of the fastest growing types of identity theft is new account fraud. It’s not necessarily a new type of identity theft. We’ve seen scammers using information to create new credit card accounts for decades at this point, but certainly it is returning to its previous position as one of the top types of identity fraud. And it’s happening because the resources that identity thieves were devoting to government benefits fraud is going down. As those pandemic relief programs start to wind down, there’s less money for the identity thieves to steal. And so they’ve gone back to some of the tried and true types of identity fraud.
Sean Pyles:
Is there anything that’s relatively new that consumers should know about that maybe they haven’t really heard about?
John Breyault:
What we have seen over the past year has been a staggering increase in the number of data breaches attributable to what are called zero-day vulnerabilities. And if you’ve never heard of a zero-day vulnerability, that’s okay. Basically what it means is it’s a vulnerability that nobody else has identified. Think of it as having a key to a vault that nobody else has, and until the people who own that vault figure out that you have that key, they have no reason to try and solve the problem or change the lock.
Sean Pyles:
So this could be something like a weakness in our phones’ operating systems that allows a bad actor to get into our phones.
John Breyault:
Yes, exactly. It’s operating systems like Windows. It is browsers that can be hacked. It could be Microsoft Office. Really any software program can have a zero-day vulnerability. And so what’s concerning to us is just the increase in breaches that were attributable to zero days. It’s gone up. I believe the number that the ITRC cited was by more than 100% over the past 12 months.
Sean Pyles:
Do we know why this might be? Is it that software developers are maybe pushing out code a bit faster than they should and they aren’t combing through for vulnerabilities? Or is it that hackers are really zeroing in on these vulnerabilities and trying to exploit them?
John Breyault:
Well, I think that’s the $64,000 question, as they say. We have theories on how that is. One of the more worrying ones is that the scammers have learned how to automate their search for zero-day vulnerabilities using artificial intelligence. And if they’re able to search for these zero days at scale, a very low cost, that is scary because I think AI has revolutionized so many other facets of our economy and businesses and government over the past several years.
It definitely has the potential to do the same thing when it comes to fraud. I think many of us who work on fraud and identity theft on a daily basis, we are thinking of the potential of this as the same kind of potential for supercharging fraud and scams that we saw when the internet sort of became a technology that everybody was using. That’s the kind of scale of the threat that’s out there.
Sean Pyles:
And so when people get notifications on their phone saying, “Oh, you have a new software update to patch a security vulnerability,” this might be something that is being addressed. Correct? And it’s important for people to actually update their phones regularly so that they are having the most secure software possible?
John Breyault:
Yes. Cyber hygiene is definitely one of the lowest cost and easiest ways for consumers to reduce their risk of falling victim to identity fraud because once they are detected, the operating systems and browser makers are usually pretty quick to plug the hole. But that is often dependent on consumers paying attention to those little pop-up boxes that say, “Do you want to update your browser? Do you want to update windows?” And actually taking action. Definitely don’t wait to update. Make sure you do that because it really is one of the easiest ways to reduce your risk.
Sean Pyles:
So, John, walk us through some of the ways that listeners can protect themselves from identity fraud. We heard last week about protections from identity theft. So let’s assume that the theft has already happened and now we have to react to prevent the fraud. What are some first steps here?
John Breyault:
Well, number one, I would say act quickly. We know that identity theft is a crime that often relies on consumers doing nothing. If you know that your information has been compromised, take steps to reduce your risk. For many people, that’s going to start with freezing their credit report. All of the major credit reporting bureaus offer consumers the ability to freeze credit.
Number two, I would say try and limit the damage to the extent you can. For example, particularly if your primary email address has been compromised, that can be the entry point for scammers to take over lots of other accounts, your bank accounts, your social media accounts. So definitely change the password on your primary email account right away and turn on two-factor authentication as well to add an additional layer that the scammers have to get through. They’re going to try and use that entry point.
I would do the same for any financial accounts that you may have linked to that email account. In addition, call the banks and let them know what’s going on so that they can place fraud alerts on your accounts. And then finally, make sure and get a police report. Identity theft is a crime in all 50 states, but consumers, I think particularly if you start to see activity related to identity theft, having that report is often documentation that will be needed to get the kind of help from not just law enforcement, but also from banks and other entities that you’ll need.
I think, unfortunately, we know that local police departments aren’t always super excited to create those reports, so you may have to be persistent to do that, but definitely local police departments is the place I would start. And then work your way up to the State Attorney General and ultimately the Federal Trade Commission.
Sean Pyles:
Related to what you were just discussing, let’s go a step further. So let’s say someone took your information and then fraud happened before you could get to it. Who should you really go to for help? Let’s talk about reporting it and starting to deal with the fallout of fraud.
John Breyault:
Yeah. Once fraud has occurred, typically you still have rights. For example, an identity thief created a credit card in your name and started running a bunch of charges. You aren’t liable for that, but you’re going to need to take steps like have that identity theft affidavit and a police report ready to show to creditors who may wonder why you haven’t been paying your credit card bill that you just opened weeks ago. So definitely I would say getting those reports is going to be one key piece of information to have.
Also, call and talk to the entities who the identity thief is using in your name. Let them know who you are, what’s been going on, and see what you can do to address the fraud. Most of us don’t spend all day every day recovering from identity theft, but most of the financial institutions do have people who are devoted to helping you through that journey. But you’ve gotta keep records of that. Grab a notebook, create a little Word document on your computer, and start logging every communication that you have with those entities so that you can create a paper trail because you can’t just depend on them to know where you are in the process and to ensure that in one place they’re going to quickly try and use that information to commit identity theft in other places as well.
Sean Pyles:
Earlier in this episode, I spoke with a woman who experienced a form of bank fraud. A fraudster got access to her line of credit, and her bank didn’t offer much in the way of resolving the issue. She didn’t get her money back. And I’ve heard other similar stories before. What sort of recourse do people in that situation have to try to recoup their losses?
John Breyault:
Generally, if the consumer victim is not the one who is actually hitting send on the money transfer, whether it’s through a payment app or through a wire transfer from your bank, then you have protections under federal law as well as many state laws. So I think it’s important that if in a case like that where it sounds like the scammer got in because they were able to hack this woman’s credentials that she should have rights. Certainly if the bank seems unwilling to work with her, I would say your next stop should be the State Attorney General as well as groups like the Identity Theft Resource Center, which have great resources and help coach victims through recovering from these identity theft schemes.
Sean Pyles:
Yeah. And your advice just there brings up the idea of jurisdiction. The woman that I spoke with was based in Canada, where they have different rules and regulations than we do in the U.S. So I think it’s important for anyone to be familiar with what laws protect them where they’re living, whether it’s in a different country or a specific state.
John Breyault:
Yeah, absolutely. And I would say a great place to start that journey of learning what your rights are and what laws may apply is the FTC has a great website at identitytheft.gov where you can start to go through their checklist and create an identity theft recovery plan.
Sean Pyles:
Well, one final question. I’m asking this of all the experts that we’re talking with for this series, so I’ll ask you too. Have you ever fallen victim to a scam or identity theft or fraud?
John Breyault:
I definitely have. Fortunately for me, it wasn’t sort of life altering, but what got me interested in working on fraud was a trip I took to Jamaica on vacation where I was in a bar, which probably tells you the first thing that I wasn’t thinking very clearly, but one of the locals came up to me and said, “Hey, if you give me $20, I can get you cheaper drinks at the bar.” And I said, “Great.” And so I gave him the $20 and he turned around, bought some beers for him and his friends and just ignored me.
And I wasn’t about to start a fight with a bunch of guys in a bar in Jamaica. So I just said, “Okay, lesson learned.” Don’t always take what people say to you at face value and listen to your gut before you hand over your money. Unfortunately, in this country we have, when it comes to identity theft and being a victim of fraud, we often have this tendency to blame the victim.
And there’s a real stigma attached to being a victim of fraud. And we often use terms like, “You fell for a scam.” Or people say, “I can’t believe I was so stupid.” Or we use terms like, “pig butchering scams,” which suggest that somehow the victim is the one who’s culpable. I think that that is wrong. If I could have one additional message for listeners of this podcast, it’s show a little compassion the next time somebody tells you their fraud story and recognize that these are people who are victims of organized, multinational, very savvy criminals, and help them work through sort of this crime they’ve been a victim of and encourage them to report it.
Sean Pyles:
Well, John, thank you again for talking with us.
John Breyault:
I appreciate it, Sean.
Sean Pyles:
Sara, one thing that I really want listeners to remember is that the cost of experiencing identity fraud can go well beyond the money loss, which of course can be significant. People who are victimized in this way often suffer mental health consequences. Many feel ashamed or like they brought this upon themselves. So like John said, if you’ve experienced a loss like this, get help. Yes, contact the FTC and your local police, but also think about talking with a loved one or a therapist who can help you process your emotions around this.
Sara Rathner:
Yeah, know that you are not alone. You probably know people who have gone through something like this and you could commiserate with each other. The important thing is to receive nonjudgmental help from people who are on your side and will help you wrap your head around everything that’s happened to you, and you can come out the other side stronger and more determined to protect yourself in the future. Okay, Sean, tell us what’s coming up in Episode 3 of this series. I assume there are more horrors on the way.
Sean Pyles:
Unfortunately, yes. Next week we’re going to walk into the lion’s den of the scammiest people on earth. Imposter scams, romance scams, phishing, vishing, all in the name of parting you from your money.
Speaker 5:
That’s what these scammers try to do. They try to rush you into making a decision by telling you something’s urgent or an emergency like the family emergency scam, where they’ll say, “Oh, this is your grandchild and I’m overseas, and I need you to wire money fast because I’m jail or in the hospital.”
Sara Rathner:
Yikes. Well, for now at least, that’s all we have for this episode. Do you have a money question of your own? Turn to the Nerds and call or text us your questions at (901) 730-6373. That’s (901) 730-NERD. You could also email us at [email protected]. Also visit nerdwallet.com/podcast for more info on this episode. And remember to follow, rate and review us wherever you’re getting this podcast.
Sean Pyles:
This episode was produced by Tess Vigeland. I helped with editing, Kevin Berry helped with fact checking, Sara Brink mixed our audio.
Sara Rathner:
And here’s our brief disclaimer. We’re not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances.
Sean Pyles:
And with that said, until next time, turn to the Nerds.
Source: nerdwallet.com
A cup and handle pattern is something identified by stock traders or investors analyzing data related to certain securities. Traders analyzing stock charts can identify a cup and handle pattern, which comprises a period of falling values followed by a “breakout,” and use it to help inform their trading decisions.
The cup and handle pattern is one of many that investors may identify and use to help make investing decisions.
The cup and handle security trading pattern is a bullish continuation pattern used in technical analysis. When the pattern appears on a stock chart, it shows a period of price consolidation followed by a price breakout. The pattern is called cup and handle because it has two distinct parts: the cup and the handle.
The cup pattern forms after an advance and looks like a bowl with a round bottom. It forms after a price advance. After that pattern forms, a “handle” forms to the right of the cup within a trading range. Finally, there is a breakout above the range of the handle, showing a bullish continuation of the prior advance.
Stock broker William O’Neil identified the cup and handle stock pattern and introduced it in his 1988 book, How to Make Money in Stocks.
💡 Quick Tip: When you’re actively investing in stocks, it’s important to ask what types of fees you might have to pay. For example, brokers may charge a flat fee for trading stocks, or require some commission for every trade. Taking the time to manage investment costs can be beneficial over the long term.
The cup-and-handle candlestick pattern starts with the formation of the “cup,” which looks like a bowl. The two sides of the cup are not always the same height but in a perfect scenario they would be. Once the cup forms, the stock price pulls back, forming a “handle” out to the right of the cup. The handle shows price consolidation happening before a price breakout occurs.
The handle is smaller than the cup and generally doesn’t retrace more than ⅓ of the cup’s advance, staying in the upper part of the cup range. It can also form a triangle shape. If the handle forms at the bottom price range of the cup, the pattern may indicate that this is not a good time to trade. It may take six months or longer for the cup pattern to form, but the handle forms much faster, ideally within four weeks.
The entire pattern can also form within minutes or days. Technical analysts watching the cup-and-handle pattern try to buy when the price breaks out from the handle. This is marked by when the price moves above the old resistance level, which is the top of the right side of the cup. The more volume in the breakout the stronger the buy signal.
To estimate the price target the stock might hit after the breakout, a trader would measure the distance from the bottom of the cup to the top of the right side of the cup and then add that number to the buy signal point. If the left and right sides of the cup are different heights, the smaller side would give a more conservative price target, and the taller would be a more aggressive target.
The cup-and-handle is a candlestick pattern that indicates a cup-shaped price consolidation. This involves a downward price movement, a stabilization period, then a price increase of about the same amount as the downward movement.
This is followed by a sideways pullback between the high and low of the cup shape, forming the handle. Then, a price breakout indicates increasing trade volume. However, as with any trading pattern, a cup-and-handle pattern does not guarantee the stock price will continue on a bullish trajectory, it’s just a trading indicator.
The cup and handle is a bullish pattern that can show a continuation or a reversal from a bearish trend into a bullish trend. Either way it indicates that the stock price will likely rise following the pattern.
An example of a cup and handle pattern would be if a cup shape forms between $48 and $50. A handle should then form between $49 and $50, ideally closer to $50. Then the price should break out above the price range of the handle.
💡 Quick Tip: Look for an online brokerage with low trading commissions as well as no account minimum. Higher fees can cut into investment returns over time.
The cup-and-handle pattern is one strategy that traders can use to get a sense of the market and inform their investing decisions. However, it is not a perfect tool.
Like any trading pattern, the cup and handle should be used in conjunction with other trend indicators and signals to make informed trading decisions. Although the cup and handle pattern can be a useful and easy to understand pattern to find entry and exit points, it does have some drawbacks.
The cup-and-handle pattern may form over the course of a day, weeks, months, or even a year. This makes it challenging to figure out exactly when to place a purchase order. Generally it forms over a month to a year, but identifying the exact breakout point is not easy.
Also, the depth of the cup can be a confusing part of the pattern. A shallow or a deep cup might be a false signal. The cup also doesn’t always form a handle at all, and the liquidity of the stock also affects the strength of the trading signal.
Traders wait for the handle pattern to form, which may either be in the shape of a sideways handle or a triangle. When the stock price breaks out above the top of the handle, that indicates completion of the cup-and-handle pattern, and creates a signal that stock price could continue to rise.
Although the cup-and-handle pattern can be a strong buy indicator, it does not guarantee that prices will go up. The stock price may rise, fall again, then continue to rise. Or it might rise and then simply fall.
One way to avoid significant losses when this happens is to set a stop-loss on trades with your broker. Day traders may want to close out the trade before the market closes.
While the cup-and-handle pattern has traditionally been used for stock trading, it can also be used in crypto trading. Cup and handle patterns have formed in Bitcoin and Ethereum charts in recent years. Bitcoin formed a cup and handle pattern in 2019, and Ethereum formed one in 2021. The basic guidelines and indicators are the same for crypto as for stocks.
Recommended: Crypto Technical Analysis: What It Is & How to Do One
Stock patterns are signals that form a certain recognizable shape when charted graphically, making them easy to spot and trade. They can help traders find entry or exit points, estimate price targets and potential risk. The cup-and-handle pattern is a useful and easy to follow trading pattern to help traders spot entry points for bullish trades.
Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).
For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.
Yes, the cup and handle pattern is considered a bullish market signal, and investors may take it as a sign that they should go “long” on an investment or specific market position.
The cup and handle pattern is merely an indicator, and not a promise or sure sign that something is going to happen. As such, investors should be careful not to take it as a sure thing. That said, investors may do well to use it in conjunction with other trading strategies and methods, and along with other trend markers.
The cup and handle pattern doesn’t have “rules” per se, but instead, is a pattern that forms on a stock chart. That form shows a stock price decreasing in price over a short period of time, then stabilizing, forming a “cup,” which is then followed by a rise in value, creating the “handle.”
Cup and handle patterns can emerge on a stock chart over several months, but many times, over a handful of weeks.
Photo credit: iStock/jacoblund
SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below:
Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.
Claw Promotion: Customer must fund their Active Invest account with at least $25 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.
SOIN0124096
Source: sofi.com
As artificial intelligence continues to grow in prominence, mortgage professionals “must carefully evaluate and manage” their use of AI and “focus on deriving the benefits while avoiding potentially catastrophic risks.”
That’s one of the key conclusions reached by the BlackFin Group in a recently published white paper, “Artificial Intelligence (AI) in Mortgage Banking.” The paper was co-authored by several BlackFin executives and mortgage technology leaders from other organizations, including Chuck Iverson at Mason-McDuffie Mortgage and Maria Moskver at Cloudvirga.
The paper notes that “AI is not a homogenous technology” and offers a variety of uses across the mortgage ecosystem, from origination and servicing to default solutions and asset sales. The authors outline six of the most common types of AI — machine learning, deep learning, natural language processing, generative AI, expert systems and cognitive computing — while excluding two others (rule-based systems and robotic process automation) that are less relevant to their definition of AI.
They argue that understanding the technology is imperative when choosing a specific tool to deploy.
“In our view, what distinguishes AI is the ability to address situations that are not precisely like the ones it has previously addressed,” the authors state.
Data from Precedence Research shows that the size of the global AI market is estimated to grow from $454 billion in 2022 to $2.5 trillion in 2032. But even with this expected influx of investment capital and user demand, BlackFin’s paper finds that mortgage companies are struggling today to implement AI tools in an efficient manner.
The authors cite some examples, including automated document processing and underwriting systems, in which a company’s expenses have increased but productivity hasn’t.
“Lenders frequently comment on the lack of ROI on technology as costs have risen, even if much of that increase can be attributed to an increase in sales compensation,” the authors write.
They go on to describe the potential significance of AI in multiple areas of mortgage lending. It can reduce the costs to manufacture or service a loan. It can accomplish tasks that humans or other types of technology cannot. And it can fundamentally change the origination and servicing processes. But the authors also stress that none of this should be expected to happen quickly.
“There is little evidence so far that AI can fundamentally transform our industry in the next 5-10 years — there are too many structural and regulatory impediments for that to be the case,” they wrote.
“I think if you want to innovate, you need to be able to think long-term. I don’t think anyone’s ever innovated in the short-term,” Rechat CEO Shayan Hamidi recently told HousingWire. “So you need to be able to have the appetite for that: be willing to take the risks and be willing to be patient for quite some time. And I think AI is one of those things. You can do some fun, cool stuff with it very quickly, but then if you want to start doing meaningful things, it’s a big long-term investment, at least today.”
BlackFin Group — founded in 2019 and based in Englewood, Colorado — is a management consulting firm that helps to guide strategic decisions and find innovative solutions for banks, nonbanks and credit unions across the country. In 2022, it launched a practice dedicated to reverse mortgages.
Source: housingwire.com
A central counterparty clearing house (CCP), or Central Counterparty, is a financial institution that facilitates trading activities in European equity and derivative markets. Regional banks typically operate CCPs which are an important part of the international financial system.
CCPs maintain stability and efficiency across financial markets and reduce risks including counterparty, default, and market risks. In the United States, CCPs are called Derivatives Clearing Organizations (DCO) and are regulated by the Commodity Futures Trading Commission (CFTC).
The Bank for International Settlements (BIS) defines a CCP as “a clearing house that interposes itself between counterparties to contracts traded in one or more financial markets, becoming the buyer to every seller and the seller to every buyer and thereby ensuring the future performance of open contracts.” The Eurex is a well known CCP.
Central Counterparty Clearing Houses act as intermediaries between buyers and sellers in financial transactions. They handle clearing and settlements in various types of securities and derivatives transactions to reduce credit risk in the markets. Clearinghouses have existed for more than a century, and act as a way to reduce the risk of OTC derivative transactions.
💡 Quick Tip: How do you decide if a certain trading platform or app is right for you? Ideally, the investment platform you choose offers the features that you need for your investment goals or strategy, e.g., an easy-to-use interface, data analysis, educational tools.
Central Counterparty Clearing Houses guarantee trade terms for buyers and sellers. They help reduce risk for investors by taking on credit risk involved in transactions, so even if a buyer or seller defaults on a transaction the other party doesn’t have as much loss as they might have without the CCP.
When buyers and sellers enter into transactions, they each deposit money with the CCP to cover the amount of the transaction. All CCP users must have a margin account.
In a process called “novation,” the CCP enters into two different contracts, one with the buyer and one with the seller. This provides a guarantee to the other party that if one side doesn’t follow through with the agreement the other side will still receive payment. CCPs typically use margin calls to settle trades if one party does not have the funds in their account.
If the trade falls through, the CCP completes the trade at the current market price. CCPs are for-profit businesses that generate revenue from their members and their transactions. They also work with parent exchanges that require them to remain profitable. Just like other types of businesses, CCPs each operate differently and have different business strategies to attract customers and earn revenue.
For instance, there are different types of derivative products that a CCP might choose to offer. One common business model for CCPs is to cross-margin products in a single netting pool. Parent exchanges place obligations on CCPs, so they need to earn enough revenue to meet those.
The specific financial products offered by a CCP, as well as its risk level, fee structure, and other features lead to different types of members, organizational structure, regulations, and rules for margin balances.
CCPs continue to evolve, offer new products, and become more sophisticated over time. Regulations are also evolving for CCPs which may change how they operate in the future.
CCPs maintain the anonymity of investors’ identities to protect their privacy. They also maintain the privacy of trading firms from buyers and sellers by using electronic order books and protect brokerage firms from the risk of buyers and sellers defaulting on their end of options such as calls or puts.
Another use of CCPs is to lower the number of transactions settled in order to move funds efficiently between investors.
💡 Quick Tip: How to manage potential risk factors in a self-directed investment account? Doing your research and employing strategies like dollar-cost averaging and diversification may help mitigate financial risk when trading stocks.
Financial institutions that want to clear trades through a central counterparty can become members of a particular CCP. Membership allows them to reduce credit risk for their customers and themselves. There are CCPs for different types of financial transactions, so financial institutions can choose the appropriate CCP to apply to for their needs.
CCPs want members that have a significant transaction volume, are creditworthy, and have a trading operation that works efficiently with the system run by the CCP. CCPs also want members to contribute funds to their default fund and secure collateral for their transactions. Each CCP has somewhat different criteria and requirements for membership, and membership information is not always publicly available.
There are benefits and drawbacks to CCPs. Here are a few important ones to understand:
CCPs benefit investors in the following ways:
• Reduce counterparty risk
• Maintain stability in financial markets
• Increase efficiency of transactions
• Maintains privacy of customers
There are also some drawbacks to CCPs for investors, including the following:
• Participation fees
• May not be able to process non-standard transactions
• Some CCPs may not have adequate scale
CCPs are now being used with blockchain technology, made popular in cryptocurrency markets, to further reduce risk and costs. An international group of clearing houses launched the Post Trade Distributed Ledger Group launched in 2015. The group studies ways to use blockchain technology for transactions.
Since its formation, the group has expanded to include about 40 global financial institutions collaborating to bring CCPs together with blockchain. The goal of using blockchain technology with CCPs is to reduce margin requirements and risk, reduce operational costs, improve regulatory oversight, and increase the efficiency of trade settlements. Ideally blockchain can help support better settlements, clearing processes, and reporting.
Decentralized exchanges already operate similarly to CCPs as a third party that handles transactions.
Central counterparty clearing houses help reduce the risk of trading derivatives and securities. They became more popular after the financial crisis as a way for investors to minimize counterparty risk.
While CCPs may help maintain stability in financial markets and increase efficiency, they may also involve participation fees, or may not be able to process non-standard transactions. Understanding the ins and outs of CCPs can be helpful to investors as they learn to navigate the markets.
Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).
For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.
While a CCP acts as a clearing house for transactions, it has an additional step involved before doing so. The two parties involved in a transaction agree upon transaction terms, then the CCP must agree to the terms before they clear the transaction.
CCPs require customers to make collateral deposits, known as margin deposits, before entering into transactions. This provides them with funds they can use to guarantee trades in the event that one party defaults on an agreement. The initial margin required depends on the customer, the type of financial product, and the particular trade agreement.
Central clearing reduces counterparty risk by guaranteeing trades for buyers and sellers. They take on the credit risk involved in transactions by becoming the buyer to every seller and the seller to every buyer.
Photo credit: iStock/vm
SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below:
Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.
*Borrow at 10%. Utilizing a margin loan is generally considered more appropriate for experienced investors as there are additional costs and risks associated. It is possible to lose more than your initial investment when using margin. Please see SoFi.com/wealth/assets/documents/brokerage-margin-disclosure-statement.pdf for detailed disclosure information.
Claw Promotion: Customer must fund their Active Invest account with at least $25 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.
SOIN0124099
Source: sofi.com
Refinancing isn’t just for a primary residency. Owners of secondary residences or other real estate can save money if they can find the right deal. Knowing when to refinance your rental property comes down to factors like your current mortgage interest rate and remaining term years.
Whether you need to make your property expenses more manageable or access cash, refinancing your rentals has clear benefits. Some common reasons to consider a rental refinance include:
Who wouldn’t like to pay less interest on their loan each month? If you see rates dropping and have many years left on your mortgage, refinancing can save you thousands of dollars over the long term.
You can lower your payment by lowering your interest rate or extending the terms of your mortgage or both. This could increase your monthly take-home earnings from the rental property.
Refinancing allows you to change the length of your mortgage term. By selecting a 15-year mortgage instead of a 30-year one, you’ll save money on interest over the long run.
If you have a conventional loan and made less than a 20 percent down payment when you bought the property, you’re probably paying private mortgage insurance. Assuming you now have enough equity, you can eliminate this monthly fee by refinancing. Also assuming you have enough equity, you can refinance an FHA loan to a conventional one to get rid of FHA mortgage insurance premiums.
If you want to make home improvements, add an addition or expand amenities on the rental property to up the rent or lease, a cash-out refinance may be a good way to pay for it.
If there is equity in the home, you can use the cash from a refinance to pay down credit cards or other debt with higher interest rates.
By using the equity in a rental home, you could purchase more rentals or upgrade the ones you own. You could also finance other investments or improve your own home.
If you’ve decided it’s the right move for you, here’s a breakdown of how to refinance a rental property:
Knowing how much equity you need to have in the home before you begin the application process could spare you a rejection. (Equity is your ownership stake — the percentage of the home you own outright.) For most conventional and FHA loans, lenders ask that you have at least 20 percent equity in the property. They may want you to have at least 25 percent equity for a rental refinance.
Lenders generally tend to be less lenient with refinancing requirements on investment properties. Some requirements might include:
As with all loans and financial products, it’s a good idea to shop around and talk to a few refinance lenders before you move ahead. By comparing terms, you can determine which offer works best in your situation.
Many lenders who offer lower interest rates have higher origination fees, and vice versa. Be sure to ask about origination fees and other closing costs before you apply and measure that against your interest rate. Getting pre-approved by at least three lenders gives you an idea about your range of choices.
Lenders generally consider rental properties riskier investments than primary residences. As a result, your new rental mortgage rate will probably be higher than what you could get on your main home, says Tom Schneider, VP of product management at Pathway Homes. He explains, “They’re not as great as you might be able to get for your personal property, but there’s not a huge delta.”
The average rental mortgage rate at traditional lenders is usually about 50 basis points higher than that for a primary mortgage, says Schneider. Specialized lenders may charge even higher rates — at least a full percentage point higher — because they cater to a niche market, but they often work fast.
Refinancing typically requires submitting a lot of documents. Streamlined refinancing is the only exception. Your lender will want to see not only your personal finances and obligations but also reports relating to your rental property’s income. Prepare your documents in advance, including:
If your property has been rented in the past, many lenders will allow you to apply 75 percent of the current agreement as part of your income. In other words, if your tenant pays $10,000 annually, you can add $7,500 to your income.
If you have your documents ready, you can often submit your application quickly. You may even be able to complete the application online. Most major lenders will need to evaluate and then underwrite your loan in-house, which can take between 30 and 60 days.
You will need to sign the final documents when the loan is approved.
Before heading to your local lender for a refinance on your rental, take time to consider the benefits and drawbacks of doing so:
Yes, you can refinance a rental property if you have tenants. In fact, it may be easier to refinance a property with tenants than a property that is sitting empty.
Yes. You can use rental income to help qualify for a refinance as long as you can prove that it’s a stable source of income.
If your mortgage lender doesn’t handle rental property refinancing, it may make sense to consult with a mortgage broker or specialized lender who does to see what options you have. A mortgage broker can shop your information around to various lenders and find you the best deals.
Source: bankrate.com
Central banks have raised interest rates significantly over the past two
years to combat post-pandemic inflation. Many thought this would lead to a
slowdown in economic activity. Yet, global growth has held broadly steady,
with deceleration only materializing in some countries.
Why are some feeling the pinch from higher rates and not others? The answer
partly lies in differences in mortgage and housing market characteristics.
The effects of rising monetary policy rates on activity partly depend on
housing and mortgage market characteristics, which vary significantly across
countries, as we show in a chapter of our latest World Economic Outlook.
Housing is an important channel of monetary policy transmission. Mortgages
are the largest liability for households, with housing often serving as
their only significant form of wealth. Real estate also accounts for a large
share of consumption, investment, employment, and consumer prices in most
economies.
To assess how key housing characteristics impact the effects of monetary
policy on activity, our research leverages new data on housing and mortgage
markets compiled across countries: we find that those characteristics vary
significantly across countries. For example, the share of fixed-rate
mortgages in all country-level mortgages can vary from close to zero in
South Africa to more than 95 percent in Mexico or the United States.
Our results indicate that monetary policy has greater effects on activity in
countries where the share of fixed-rate mortgages is low. This is due to
homeowners seeing their monthly payments rise with monetary policy rates if
their mortgage rates adjust. By contrast, households with fixed-rate
mortgages will not see any immediate difference in their monthly payments
when policy rates change.
The effects of monetary policy are also stronger in countries where
mortgages are larger compared to home values, and in countries where
household debt is high as a share of GDP. In such settings, more households
will be exposed to changes in mortgage rates, and the effects will be
stronger if their debt is higher relative to their assets.
Housing market characteristics also matter: the transmission of monetary
policy is stronger where housing supply is more restricted. For example,
lower rates will decrease borrowing costs for first-time home buyers and
increase demand. Where supply is restricted, this will lead to home price
appreciation. Existing owners will see their wealth increase as a result,
leading them to consume more, including if they can use their home as
collateral to borrow more.
The same holds true where home prices have recently been overvalued. Sharp
price increases are often driven by overly optimistic views about future
house prices. These are typically accompanied by excessive leverage,
prompting spirals of falling home prices and foreclosures when monetary
policy tightens, which can lead to starker income and consumption declines.
Weaker housing transmission
Mortgage and real estate markets have undergone several shifts since the
global financial crisis and the pandemic. At the beginning of the recent
hiking cycle and after a long period of low interest rates, mortgage
interest payments were historically low, the average maturity was long, and
the average share of fixed-rate mortgages was high in many countries. In
addition, the pandemic led to population shifts away from city centers and
to relatively less-supply-constrained areas.
As a result, the housing channels of monetary policy may have weakened, or
at least been delayed, in several countries.
Country experiences vary widely. Changes in mortgage market characteristics
in countries such as Canada and Japan suggest a strengthening of the
transmission of monetary policy through housing. This is driven mainly by a
declining share of fixed-rate mortgages, an increase in debt, and more
constrained housing supply. By contrast, transmission seems to have weakened
in countries such as Hungary, Ireland, Portugal, and the United States,
where characteristics have moved in the opposite direction.
Calibrating policy
Our findings suggest that a deep, country-specific understanding of housing
channels is important to help calibrate and adjust monetary policy. In
countries where the housing channels are strong, monitoring housing market
developments and changes in household debt service can help identify early
signs of overtightening. Where monetary policy transmission is weak, more
forceful early action can be taken when signs of overheating and
inflationary pressures first emerge.
What about now? Most central banks have made significant progress toward
their inflation target. It could follow from the discussion that, if
transmission is weak, erring on the side of too much tightening is always
less costly. However, overtightening, or leaving rates higher for longer,
could nevertheless be a greater risk now.
While fixed-rate mortgages have indeed become more common in many countries,
fixation periods are often short. Over time, and as rates on these mortgages
reset, monetary policy transmission could suddenly become more effective and
so depress consumption, especially where households are heavily indebted.
The longer time rates are kept high, the greater the likelihood that
households will feel the pinch, even where they have so far been relatively
sheltered.
—This blog is based on Chapter 2 of the April 2024 World Economic
Outlook, “Feeling the pinch? Tracing the effects of monetary policy
through housing markets.” The authors of the chapter are Mehdi Benatiya
Andaloussi, Nina Biljanovska, Alessia De Stefani, and Rui Mano with
support from Ariadne Checo de los Santos, Eduardo Espuny Diaz, Pedro
Gagliardi, Gianluca Yong, and Jiaqi Zhao. Amir Kermani was an external
consultant and Jesper Lindé consulted on the modeling.
Source: imf.org