Refinancing a rental property can allow you to change the mortgage term, rate or both or take out equity for financial needs.
To refinance your rental property, be sure you’re up on lender requirements, know your equity and are ready to shop around to find the best rate.
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.
7 reasons to refinance a rental property
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:
Lower your interest rate
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.
Lower monthly mortgage payments
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.
Alter the mortgage term
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.
Eliminate mortgage insurance
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.
Get cash for home improvements
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.
Consolidate debt
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.
Tap into your home equity
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.
How to refinance a rental or investment property
If you’ve decided it’s the right move for you, here’s a breakdown of how to refinance a rental property:
Step 1: Check your equity
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.
Step 2: Know the requirements
Lenders generally tend to be less lenient with refinancing requirements on investment properties. Some requirements might include:
DTI ratio: For a primary residence, lenders may allow you to have a debt-to-income ratio of up to 50 percent if you have savings and good credit. Because lenders may see an investment property as a riskier loan, you may be capped at about 43 percent.
LTV ratio: The loan-to-value ratio represents how much equity you have in your home. It measures your current loan balance against the current property value. As mentioned above, you may need as much as 25 percent equity in a rental property to refinance it, meaning an LTV ratio no greater than 75 percent.
Limited number of properties: If you’ve got a large portfolio of rental properties, you may not be able to refinance at your local retail bank or get as good of a loan. Instead, you might do better with an investment property-oriented outfit that offers asset-based lending. “At the bank, not only are you going to have the same property requirements, but you’ll also have personal income requirements,” says Jason Haye, VP national sales manager at Velocity Commercial Capital, which specializes in loans for multi-family and small commercial properties. “We’ll look at the property alone.”
Appraisal: Your lender will want proof that your property is worth what you say. You can get a broker price opinion in some cases, but the lender will probably insist on an actual appraiser (it’ll arrange it, but you pay for it).
Tenants: Having tenants is crucial to a rental refinance. “It’s supposed to be an income-based property, and if it’s vacant, it’s generating zero. That’s not good,” says Haye. “It seems basic, but make sure you have a renter in there.”
Step 3: Compare refinance rates and lenders
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.
Step 4: Gather your documentation
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:
Proof of income: You’ll likely need to provide copies of recent paystubs to confirm your employment and income.
Tax returns: The lender will also likely ask for copies of tax returns to verify employment history and income.
Personal details needed for credit check: This includes your consent, full name, address, social security number and date of birth.
Explanatory letters: If you have any gaps in income or a negative mark on your credit history that needs explaining, you might need to provide the lender with a letter.
Homeowners insurance policy: You must show the lender you have enough insurance coverage to protect the home and property it is lending a mortgage to.
Recorded deed: This document shows you have a legal claim to the property.
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.
Step 5: Submit your refinance application
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.
Step 6: Close on your new loan
You will need to sign the final documents when the loan is approved.
Should you refinance your rental property?
Before heading to your local lender for a refinance on your rental, take time to consider the benefits and drawbacks of doing so:
Benefits of refinancing a rental property
Cash for updates. A refinance can provide funds for updating or renovating the property, which could justify raising rent on your asset.
It provides an opportunity for new terms. You could change your 30-year mortgage to a 15-year mortgage with a refinance.
You can pay off debt. Using a cash-out refinance could allow you to pay off or down accumulated debts.
Drawbacks of refinancing a rental property
You’ll have to pay some money upfront. Like any other mortgage, you’ll have to cover closing costs and lender fees. Plus, if you need a property survey or appraisal, you might have to pay for those, too.
It may not be as affordable as you think. Be sure to factor in all the costs of refinancing a loan, including a change in interest rates, and make sure it’ll save you money.
You might initially lose equity. If you have been building equity and take a chunk out of it to refinance, your rental property will temporarily lose value as an asset. It will take time to build back up the equity you used.
FAQ about refinancing a rental property
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.
You likely agree that saving money is a good idea. Putting extra cash aside every month can help you reach your financial goals, whether that’s building an emergency fund, going on vacation, or putting a down payment on a car or home.
But wanting to save money and actually doing it are two very different things. It’s easy to get caught up in day-to-day needs (and wants), and never gain any traction on savings. But don’t give up. We’ve got 33 tricks and tips that can make saving simple and pain-free. The best part — you can get started as soon as today.
Saving Money Doesn’t Have to Be Overwhelming
While spending less and saving more admittedly sounds painful, it doesn’t have to be that hard. You don’t have to go to the extremes like never shopping or having fun. Just making a few small changes in your day-to-day spending habits can actually add up to a big difference in how much you save each month.
Getting better with money is like any type of behavior modification — the key to lasting change is to make small, incremental changes that stick.
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33 Easy Ways to Save Money
What follows are 33 simple money-saving tips you can start working on right now.
1. Tracking Your Spending
One of the best ways to spend less and save more is to take a close look at where your money is currently going. You can track your spending by scanning your checking account and credit card statements over the last few months. But a simpler way is to use a budgeting app that syncs with your accounts and keeps track of what you spend in different categories in real time.
Once you have a big-picture idea of your cash flow, you can make adjustments. Spending a lot more on takeout than you thought? Commit to cooking one or two more nights per week. Is keeping up with fashion killing your budget? You may want to focus on spending less on clothing.
2. Selling Items You Never Use
An simple way to earn some extra cash is to periodically sell gently used items you no longer want or need. You might organize a yard sale or resell your items piecemeal via online marketplaces like OfferUp, Facebook Marketplace, or eBay. If you have extra clothes, shoes, or accessories in good condition, consider listing them on Poshmark or thredUP. Selling your unwanted stuff is essentially getting paid for clearing out clutter.
3. Limiting Time Spent on Social Media
Watching influencers take luxury vacations and promote their favorite products can prompt you to spend more and live beyond your means. In fact, recent research finds that social media can significantly impact your finances — and not in a good way.
Putting a time limit on daily phone scrolling, on the other hand, can automatically lead to less spending and more saving. It also frees up time for activities that can truly enhance your life, like reading, exercising, seeing (real) friends, even taking up side hustle (and earning more money).
4. Setting Goals for Saving
When we do things with focus, intention, and a clear goal in mind, we usually have an easier time making it happen. Instead of saving for the sake of saving, consider setting specific savings goals with target dates and amounts. For instance, maybe you want to save $5,000 for a summer vacation or $2,000 for a new computer.
By setting a target date, you can work backward and figure out exactly how much you need to set aside regularly. For example, if you want a new laptop in eight months, and it will cost you about $2,000, you’ll need to save $250 a month or about $60 a week.
5. Buying Generic Brands
Generic brands typically have the same ingredients and offer comparable quality to name brands but for a fraction of the price. For example, generic drugs usually cost 80% to 85% less than their brand-name counterparts. During your next supermarket or drugstore visit, try to go generic whenever it’s offered. Chances are, the only difference you’ll notice is less money draining out of your checking account.
6. Comparison Shopping
Spending a bit of extra time comparison shopping can help you scoop up the best deals and avoid paying full price. You can do it on your phone while you shop in-store. For online shopping, consider installing a browser extension that helps you find the lowest prices and automatically applies coupons and cash-back options at checkout. Many of these tools will also alert you when the price of an item you intend to purchase drops.
7. Automating Your Savings
Rather than transfer money to your savings account whenever you think of it, consider putting your savings on autopilot. Simply set up a recurring transfer from your checking account to your savings account for the same day each month (perhaps right after you get paid). It’s fine to start small. Even $50 can add up to a sizable sum over time, since the transfer happens every month without fail.
8. Making Monthly Debt Payments
While it’s not directly putting money into your bank account, making on-time, consistent payments on your debt means you’ll pay it off quicker. Once your debt is paid off, the money you are currently spending on principal/interest can go towards savings. In addition to your monthly minimum payments, try to put extra payments towards high-interest debt each month. You’ll whittle those balances down faster and save on interest.
9. Delaying Gratification
If you see something you want to buy but don’t actually need, consider putting off the purchase for at least one week (or ideally 30 days). Tell yourself that if you still want the item and can afford it after the waiting period, you can go ahead and buy it. Chances are good that once that waiting period is over, you’ll no longer have a burning need to purchase the item and simply move on.
10. Meal Planning
If it’s 6pm, you’re tired from a full day of work, and have no food in the house, you’ll probably seek out the path of least resistance — getting takeout or eating out. Your best defense against overspending on food is to sit down every Sunday to scan recipes and come up with a meal plan for the week (including breakfast, lunch, dinner, and snacks). You can then make a shopping list and hit the store.
Recommended: Examining the Price of Eating at Home Versus Eating Out
11. Avoiding the Daily Coffee
While it’s fine to occasionally splurge on a fancy coffee, getting your daily coffee out can add up, especially if you sometimes throw in a tempting pastry at the last minute. Even cutting back your coffee shop visits to just two or three times a week and brewing at home the other days can help you save a lot on coffee.
12. Making Repairs Instead of Buying New
While it is easier to replace items than fix them, the latter approach is better for both your wallet and the environment. Depending on the item, a repair could end up costing significantly less expensive than a replacement. Call around for quotes or ask for help from a tech-savvy or handy friend. Also see if there are “repair cafes” in your community. These are volunteer-run events where you can get items mended or fixed for free.
13. Using Cash Instead of Credit Cards
While credit cards are convenient, they make it all too easy to spend money. When you tap or swipe to make a purchase, you don’t really have a sense that you are giving up physical money. Switching to cash-only, even for just a month or so, can help you become more mindful about your spending. You might even try the envelope system. This involves labeling envelopes for each spending category, dividing your available cash for the month into the envelopes, and then only spending what’s in each envelope.
14. Switch to a New Cell Phone Carrier
When it comes to cell service, you don’t have to stick with the big names. Mobile virtual network operators (such as Mint Mobile, Consumer Cellular or Republic Wireless) typically offer the same quality of service at a much lower price tag. It’s also a good idea to look at your last cell phone bill to see how much data you actually use. You may be able to get a smaller plan to save even more.
15. Doing it Yourself Instead of Hiring Someone
Before you hire someone for a home repair or improvement job, like painting a room, re-caulking your tub or shower, or installing a water filter under your sink, consider whether or not you could do it yourself. Often, the cost of materials and a simple YouTube search will lead to significant savings.
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16. Stacking Coupons
There are two major types of coupons: Store coupons, which are issued by a specific retailer and can only be used at those locations (you can find these in the paper and through a retailer’s app or mailer); and manufacturer’s coupons, which are found on manufacturer’s and coupon sites. By stacking them, you get an even deeper discount. Stacking coupons for an item that is on sale is a triple whammy that can bring you back to pre-inflation prices.
17. Canceling Some Subscriptions
Dropping subscriptions that you hardly use or are redundant is a simple money-saving move with a potentially big payoff, since these debits occur monthly. It’s worth scanning your checking account and credit card statements for recurring charges to see if there are any items you can cut. If you primarily watch one streaming service but pay for four, for example, canceling three can save you significant cash.
18. Using a Refillable Water Bottle
While keeping bottled water (and seltzers or sodas) on hand is convenient, the cost can add up, especially if you have a family. A simple way to spend less at the grocery store each week is to give each person in your household their own reusable water bottle. You can then take bottled drinks off your shopping list. This will not only save money but also reduce plastic waste.
19. Taking Advantage of Free Resources
You might be surprised at how many things you can actually get for free. For example, your library can grant you access to movies, books, activities, and in some cases, passes to state parks and other nearby attractions. You might also join a Buy Nothing group. These are hyper-local virtual communities where neighbors can give and receive essentially anything for free.
20. Canceling Your Gym Membership
If you’re becoming a stranger to your gym, consider canceling your membership. Even if you got a great deal, gyms debit money out of your bank account every month, whether you go or not. You might look for alternative, low-cost ways to get physically fit, such as walking/jogging/biking around your neighborhood, lifting free weights at home, and taking hikes.
21. Saving Change
A nickel here and a quarter there might not seem like much, but if you start dropping all your spare change into a jar every day, you’ll be surprised at how much you’ll accumulate. If you rarely carry or pay in cash, consider collecting digital change. Many money-saving apps automatically round up your purchase to the nearest dollar, then transfer the difference into your savings account.
💡 Quick Tip: Want a simple way to save more everyday? When you turn on Roundups, all of your debit card purchases are automatically rounded up to the next dollar and deposited into your online savings account.
22. Skipping Alcohol at Restaurants
Ordering a cocktail or a glass of wine (or three) when out to dinner can significantly inflate your bill. Consider getting water or a non-alcoholic beverage instead, then perhaps having a glass of wine when you get home. If you must drink, local beer, “house wine” options, and happy hour cocktails are usually the cheapest options.
23. Finding Free Family Entertainment
Taking the family to concerts, movies, and immersive art exhibits can add up quickly. Instead, look for free or low-cost community activities. These offerings typically spike during the summer months and around holidays. To stay abreast of upcoming goings-on, you can sign up for newsletters or follow social media accounts of your local community, recreation centers, and libraries.
24. Doing a No-Spend Challenge
A simple way to save (potentially hundreds) is to do a no-spend month. This involves spending money only on essentials for 30 days. Before you begin, it’s a good idea to set parameters for what you will and won’t spend money on and then commit to the plan. It’s only a month! By the end of the challenge, you may realize there were certain things you didn’t really miss and rethink your approach to spending.
25. Reducing Your Energy Use
You may be able to significantly lower your utility bills with just a few tweaks to your habits and home. Try taking shorter showers, fixing any drippy faucets or constantly running toilets, turning off lights whenever you leave a room, and washing your clothes in cold water. Once you see a difference in your monthly bills, you’ll be encouraged to carry on and find more ways to cut energy use.
26. Adjusting Your Tax Withholdings.
If you typically get a refund after doing your taxes, you’re essentially giving the government an interest-free loan. That’s money that could be working for you by earning interest in a high-yield savings account. Revisit your withholdings and put that extra money into your own bank account.
27. Taking a Staycation Instead of a Vacation
It may sound boring, but you’d be surprised how much a staycation can feel like a fun and luxurious getaway. The key is to take a complete break from your daily routine, change up the scenery, and spend time doing things you truly enjoy. This can provide the respite you’ve been longing for — minus the headaches of travel — and for a fraction of the price.
28. Finding Cheap Ways to Reward Yourself
If you focus too hard on saving and never on fun, you might end up feeling deprived and give up on the whole project. Instead, allow yourself to celebrate small money wins and life events on the cheap. For instance, for every X amount you’ve put away into your emergency fund, you might reward yourself with a fancy coffee, a $5 “spree” at the dollar store, or getting a treat at your favorite ice cream shop.
29. Avoiding Bank Fees
Overdraft fees, ATM fees, and monthly maintenance fees can make your bank account balance move in the wrong direction — down instead of up. To ditch costly overdraft fees, keep regular tabs on your checking account to make sure you have enough to cover your debits and checks. To eliminate other fees, you may want to look for a bank account that doesn’t charge monthly maintenance fees and ATM fees.
30. Haggling
Negotiating prices isn’t just for buying cars or houses. You can haggle for just about any product or service — your cable and cell phone bills, things you buy in stores, and even your rent. The key to success is to come to the negotiation prepared (do all the research you may need in advance), speak with confidence, and start off the conversation with the question, “What flexibility do you have?”
Recommended: 15 Creative Ways to Save Money
31. Saving Your Windfalls
It can be tempting to go hog wild and spend your windfalls. But next time you get a work bonus, cash gift, or tax refund (which you actually want to avoid, see tip #26), consider spending a small percentage of it on something frivolous and fun, then putting the rest into your savings account. This can help you reach your savings goals significantly faster.
Recommended: The Fastest Ways to Get a Tax Refund
32. Timing Your Purchases Right
If you want to buy something that you don’t need right away, it’s worth researching the best times of the year for deals and sales. For example, you can often find great deals on cars in May, October, November and December; clothes are typically cheapest at the end of any season; and the end and the very beginning of the year are generally the best times to buy appliances.
33. Switching to a High-Yield Savings Account
If your extra cash is sitting in a traditional savings account, you’re missing out on a free source of extra cash. A high-yield savings account is a type of savings that you can open at many banks and credit unions. But it differs from a traditional savings account in that it offers an annual percentage yield (APY) that’s 10 to 20 times higher. If, for example, you put $25,000 into a savings account with a 4.60% APY, you’ll earn an extra $177.78 by the end of the year — just for letting the money sit in the bank.
Saving Money with SoFi
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FAQ
Why is saving money important?
Saving money enables you to build an emergency fund that protects you against the unexpected. It also allows you to work towards — and achieve — future goals, such as buying a car or home, sending your kids to college, and being able to one day retire.
How can I find the motivation to save money?
To find the motivation to save money, it helps to set specific goals. Think about the things you want to buy or do in the next year or two and how much these things will cost. You can then determine how much you need to set aside each month to reach your goals. Watching your savings account balance go up can also help keep you motivated.
What are the consequences of not saving money?
When you don’t have a cushion of savings, any bump in the road (such as a car or home repair, trip to the ER, or loss of income) can force you to run up credit card debt. This can lead to a debt spiral that can take months, if not years, to recover from. Not saving also means you won’t make any progress towards your financial goals and simply continue living paycheck to paycheck.
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SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.
SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
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Mortgage brokers’ compensation is in the spotlight after a recent Federal Deposit Insurance Corporation (FDIC) test concluded that some financial institutions failed to prove that payments were “reasonably related” to the value of services provided.
In its March Supervisory Highlights, the FDIC stated that many institutions have developed policies and procedures to ensure sufficient mortgage broker services are provided in order to receive compensation, which was the first of a two-part test.
However, the second part of the test revealed that these financial institutions did not develop enough compliance initiatives to determine whether the payments were reasonably related to the services’ value.
The FDIC supervises approximately 3,000 state-chartered banks and thrifts not members of the Federal Reserve System. The current supervisory highlights summarize the overall results of supervised institutions in 2023, when the FDIC conducted about 900 consumer compliance examinations.
Violations involve mortgage broker relationships in cases where financial institutions pay mortgage brokers and when institutions act as mortgage brokers.
Examiners found that institutions had violated Section 8 of the Real Estate Settlement Procedures Act (RESPA) and its implementation rule, Regulation X. In practice, these rules prohibit giving or accepting a thing of value for referrals of settlement services in federal mortgage loans.
The current rules have been applied by the Consumer Financial Protection Bureau (CFPB) since 2011. The CFPB inherited the responsibility to impose statements of policies (SOPs) created by the Department of Housing and Urban Development (HUD) in 1999 and 2001.
These rules state that a mortgage broker performs “sufficient origination work” if it takes the application and performs at least five additional services. (There are some caveats related to counseling services, referrals, and duplicative work.)
“Examiners identified violations involving relationships where mortgage brokers provided fewer than five services, and relationships where mortgage brokers provided more than five services,” the FDIC supervisory highlights states.
Violations identified vary across different stages of the loan process.
Some institutions did not provide the services they listed to examiners, such as helping the borrower clear credit problems or participating in loan closings—professionals did not attend the closing meetings or infrequently participated via phone.
Other institutions also listed some counseling services separately when they should be listed as one item. These services include educating the borrower, explaining the different loan types, and demonstrating monthly payments.
Another example is an institution acting as a mortgage broker that said it provided disclosures to the borrower but only forwarded a link provided by the lender with the document. The same institution also stated that it initiated or ordered appraisals when it added borrowers’ information into a lender’s software.
The FDIC recognizes that technology now has a role in the brokerage firm services provided and can impact its value. The FDIC said in its report that while it reduces time it does not necessarily mean that a service has less value.
If you’re thinking about refinancing your home loan or paying off your mortgage early, you might request a mortgage payoff statement. The amount due on this document is likely to be different from your current balance because it includes interest owed until the payoff date and any fees due.
Read on to learn more about what a mortgage payoff statement or letter is and when you might need one.
What Is a Mortgage Payoff Statement?
Starting with mortgage basics, a mortgage is a loan used to purchase different types of real estate, including a primary home. A bank or other lender agrees to lend money, which the borrower commits to pay back monthly for a set period of time and with interest.
The different types of mortgage loans include conventional and government-insured mortgages and reverse mortgages.
There are jumbo loans, which exceed the dollar limits set by the Federal Housing Finance Agency, and home equity loans.
Say you have a mortgage and want to know exactly how much you’d need to pay to satisfy the loan. A mortgage payoff letter will tell you that magic number. Unlike your current balance, the payoff amount includes interest owed up to the day you intend to pay off the loan. It may also include fees that you’re on the hook for and haven’t paid yet.
Your monthly mortgage statement, on the other hand, only shows your loan balance and the amount due for your next monthly payment. 💡 Quick Tip: You’ve found an award-winning home. Enjoy an award-winning mortgage experience, too. SoFi has knowledgeable Mortgage Loan Officers to guide you through the process.
How Does a Mortgage Payoff Statement Work?
You can request a payoff statement from your loan servicer at any time. Note: Your mortgage servicer may be different from your lender. The company that manages your loan handles billing, accepts loan payments, keeps track of your principal and interest, and fields questions from borrowers.
You may request a payoff statement for any type of loan, including mortgages, student loans, personal loans, and auto loans. However, if you need your mortgage payoff statement, go to your mortgage servicer directly. The name and contact information of your mortgage servicer is included in your monthly statements.
When you make the request from the company that handles your mortgage servicing, you’ll need to provide the following details:
• Your name
• Address
• Phone number
• Your loan number
• The date you want your payoff to be effective if you’re seeking to pay off your mortgage early.
Asking for a payoff statement does not necessarily mean that you intend to pay off your loan immediately. You may simply be determining whether or not paying off your mortgage early is feasible, for example. The request itself does not initiate the prepayment process.
Traditional lenders, such as brick-and-mortar banks, may mail you a paper mortgage payoff statement. Online lenders may send a payoff statement online.
Recommended: 5 Tips for Finding a Mortgage Lender
What Information Do Mortgage Payoff Letters Contain?
All mortgage payoff letters tend to contain similar information, including:
• Payoff amount: The amount of money that would satisfy the loan.
• Expiration date: The date through which the payoff amount is valid. The letter may also include an adjusted amount should you pay before or after the expiration date.
• Payment information: The letter will also usually tell you who to make the final check out to and where to mail it.
• Additional charges: You will be alerted to any additional fees and charges that you’ll need to include.
💡 Quick Tip: Your parents or grandparents probably got mortgages for 30 years. But these days, you can get them for 20, 15, or 10 years — and pay less interest over the life of the loan.
Do You Need a Mortgage Payoff Statement?
There are a few common situations in which you might need a payoff statement.
• Refinancing a mortgage: When you refinance your mortgage, your chosen lender pays off your old home loan with a new one, preferably with a lower interest rate and possibly a new term. When you seek to refinance, your new lender may ask you to provide a payoff statement on your current loan.
• Prepaying a mortgage: It’s possible to pay off a mortgage early. A payoff statement will show you exactly how much you’d need to pay to do so. Most prepayment penalties for residential home loans that originated after January 10, 2014, are prohibited. Still, check before you decide to prepay.
• Working with a debt relief company: If you’re having trouble managing your debts, you’ve fallen behind on payments, or you otherwise need mortgage relief, you may choose to work with a debt relief company that can help negotiate with your lenders. The company will need to see payoff statements to get an idea of the scope of your debt.
• Collections and liens: A lender might send you a payoff statement if you’ve fallen behind on your payments and they are sending your debt to a collection agency. In this case, the payoff statement may tell you how much you need to pay to stop the collection action.
If your lender decides to seize your home to recoup unpaid mortgage payments, they may place a lien on the property. They may send a payoff statement that alerts you that your property will be seized if the specified amount isn’t paid in full.
There are other ways to figure out how much you owe on your mortgage loan. You can talk to your lender and ask for a verbal payoff quote. This will provide an estimate, but understand that it is not a legal agreement and isn’t binding.
The Takeaway
If you have a home loan, you may want to request a mortgage payoff statement, especially if you’re thinking about refinancing or paying off your mortgage early. Requesting the mortgage payoff letter does not initiate any formal processes, so it’s fine to think of it as an information-gathering exercise.
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.
FAQ
How do I get my mortgage payoff statement?
Contact your loan servicer to request your mortgage payoff statement.
When should I get my mortgage payoff statement?
Request your mortgage payoff statement when planning to prepay your mortgage, refinance, or consolidate debt.
How long does it take to get a mortgage payoff statement?
Generally speaking, you should receive your mortgage payoff statement within seven business days of your request.
Photo credit: iStock/Vadym Pastukh
*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.
A traditional 401(k) and a Roth 401(k) are tax-advantaged retirement plans that can help you save for retirement. While both types of accounts follow similar rules — they have the same contribution limits, for example — the impact of a Roth 401(k) vs. traditional 401(k) on your tax situation, now and in the future, may be quite different.
In brief: The contributions you make to a traditional 401(k) are deducted from your gross income, and thus may help lower your tax bill. But you’ll owe taxes on the money you withdraw later for retirement.
Conversely, you contribute after-tax funds to a Roth 401(k) and can typically withdraw the money tax free in retirement — but you don’t get a tax break now.
To help choose between a Roth 401(k) vs. a traditional 401(k) — or whether it might make sense to invest in both, if your employer offers that option — it helps to know what these accounts are all about.
5 Key Differences Between Roth 401(k) vs Traditional 401(k)
Before deciding on a Roth 401(k) or traditional 401(k), it’s important to understand the differences between each account, and to consider the tax benefits of each in light of your own financial plan. The timing of the tax advantages of each type of account is also important to weigh.
1. How Each Account is Funded
• A traditional 401(k) allows individuals to make pre-tax contributions. These contributions are typically made through elective salary deferrals that come directly from an employee’s paycheck and are deducted from their gross income.
• Employees contribute to a Roth 401(k) also generally via elective salary deferrals, but they are using after-tax dollars. So the money the employee contributes to a Roth 401(k) cannot be deducted from their current income.
💡 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.
2. Tax Treatment of Contributions
• The contributions to a traditional 401(k) are tax-deductible, which means they can reduce your taxable income now, and they grow tax-deferred (but you’ll owe taxes later).
• By contrast, since you’ve already paid taxes on the money you contribute to a Roth 401(k), the money you contribute isn’t deductible from your gross income, and withdrawals are generally tax free (some exceptions below).
3. Withdrawal Rules
• You can begin taking qualified withdrawals from a traditional 401(k) starting at age 59 ½, and the money you withdraw is taxed at ordinary income rates.
• To withdraw contributions + earnings tax free from a Roth 401(k) you must be 59 ½ and have held the account for at least five years (often called the 5-year rule). If you open a Roth 401(k) when you’re 57, you cannot take tax-free withdrawals at 59 ½, as you would with a traditional 401(k). You’d have to wait until five years had passed, and start tax-free withdrawals at age 62.
4. Early Withdrawal Rules
• Early withdrawals from a 401(k) before age 59 ½ are subject to tax and a 10% penalty in most cases, but there are some exceptions where early withdrawals are not penalized, including certain medical expenses; a down payment on a first home; qualified education expenses.
You may also be able to take a hardship withdrawal penalty-free, but you need to meet the criteria, and you would still owe taxes on the money you withdrew.
• Early withdrawals from a Roth 401(k) are more complicated. You can withdraw your contributions at any time, but you’ll owe tax proportional to your earnings, which are taxable when you withdraw before age 59 ½.
For example: If you have $100,000 in a Roth 401(k), including $90,000 in contributions and $10,000 in taxable gains, the gains represent a 10% of the account. Therefore, if you took a $20,000 early withdrawal, you’d owe taxes on 10% to account for the gains, or $2,000.
5. Required Minimum Distribution (RMD) Rules
With a traditional 401(k), individuals must take required minimum distributions starting at age 73, or face potential penalties. While Roth 401(k)s used to have RMDs, as of January 2024, they no longer do. That means you are not required to withdraw RMDs from a Roth 401(k) account.
For a quick side-by-side comparison, here are the key differences of a Roth 401(k) vs. traditional 401(k):
Traditional 401(k)
Roth 401(k)
Funded with pre-tax dollars.
Funded with after-tax dollars.
Contributions are deducted from gross income and may lower your tax bill.
Contributions are not deductible.
All withdrawals taxed as income.
Withdrawals of contributions + earnings are tax free after 59 ½, if you’ve had the account for at least 5 years. (However, matching contributions from an employer made with pre-tax dollars are subject to tax.)
Early withdrawals before age 59 ½ are taxed as income and are typically subject to a 10% penalty, with some exceptions.
Early withdrawals of contributions are not taxed, but earnings may be taxed and subject to a 10% penalty.
Account subject to RMD rules starting at age 73.
No longer subject to RMD rules as of January 2024.
Bear in mind that a traditional 401(k) and Roth 401(k) also share many features in common:
• The annual contribution limits are the same for a 401(k) and a Roth 401(k). For 2024, the total amount you can contribute to these employer-sponsored accounts is $23,000; if you’re 50 and older you can save an additional $7,500 for a total of $30,500. This is an increase over the 2023 limit, which was capped at $22,500 ($30,000 if you’re 50 and older).
• For both accounts, employers may contribute matching funds up to a certain percentage of an employee’s salary.
• In 2024, total contributions from employer and employee cannot exceed $69,000 ($76,500 for those 50 and up). In 2023, total contributions from employer and employee cannot exceed $66,000 ($73,500 for those 50 and up).
• Employees may take out a loan from either type of account, subject to IRS restrictions and plan rules.
Because there are certain overlaps between the two accounts, as well as many points of contrast, it’s wise to consult with a professional when making a tax-related plan.
Recommended: Different Types of Retirement Plans, Explained
How to Choose Between a Roth and a Traditional 401(k)
In some cases it might make sense to contribute to both types of accounts (more on that below), but in other cases you may want to choose either a traditional 401(k) or a Roth 401(k) to maximize the specific advantages of one account over another. Here are some considerations.
When to Pay Taxes
Traditional 401(k) withdrawals are taxed at an individual’s ordinary income tax rate, typically in retirement. As a result these plans can be most tax efficient for those who will have a lower marginal rate after they retire than they did while they were working.
In other words, a traditional 401(k) may help you save on taxes now, if you’re in a higher tax bracket — and then pay lower taxes in retirement, when you’re ideally in a lower tax bracket.
On the other hand, an investor might look into the Roth 401(k) option if they feel that they pay lower taxes now than they will in retirement. In that case, you’d potentially pay lower taxes on your contributions now, and none on your withdrawals in retirement.
Your Age
Often, younger taxpayers may be in a lower tax bracket. If that’s the case, contributing to a Roth 401(k) may make more sense for the same reason above: because you’ll pay a lower rate on your contributions now, but then they’re completely tax free in retirement.
If you’re older, perhaps mid-career, and in a higher tax bracket, a traditional 401(k) might help lower your tax burden now (and if your tax rate is lower when you retire, even better, as you’d pay taxes on withdrawals but at a lower rate).
Where You Live
The tax rates where you live, or where you plan to live when you retire, are also a big factor to consider. Of course your location some years from now, or decades from now, can be difficult to predict (to say the least). But if you expect that you might be living in an area with lower taxes than you are now, e.g. a state with no state taxes, it might make sense to contribute to a traditional 401(k) and take the tax break now, since your withdrawals may be taxed at a lower rate. 💡 Quick Tip: Before opening any investment account, consider what level of risk you are comfortable with. If you’re not sure, start with more conservative investments, and then adjust your portfolio as you learn more.
The Benefits of Investing in Both a Roth 401(k) and Traditional 401(k)
If an employer offers both a traditional and Roth 401(k) options, employees might have the option of contributing to both, thus taking advantage of the pros of each type of account. In many respects, this could be a wise choice.
Divvying up contributions between both types of accounts allows for greater flexibility in tax planning down the road. Upon retirement, an individual can choose whether to withdraw money from their tax-free 401(k) account or the traditional, taxable 401(k) account each year, to help manage their taxable income.
It is important to note that the $23,000 contribution limit ($30,500 for those 50 and older) for 2024 is a total limit on both accounts.
So, for instance, you might choose to save $13,500 in a traditional 401(k) and $9,500 in a Roth 401(k) for the year. You are not permitted to save $23,000 in each account.
What’s the Best Split Between Roth and Traditional 401(k)?
The best split between a Roth 401(k) and a traditional 401(k) depends on your individual financial situation and what might work best for you from a tax perspective. You may want to do an even split of the $23,000 limit you can contribute in 2024. Or, if you’re in a higher tax bracket now than you expect to be in retirement, you might decide that it makes more sense for you to put more into your traditional 401(k) to help lower your taxable income now. But if you expect to be in a higher income tax bracket in retirement, you may want to put more into your Roth 401(k).
Consider all the possibilities and implications before you decide. You may also want to consult a tax professional.
The Takeaway
Employer-sponsored Roth and traditional 401(k) plans offer investors many options when it comes to their financial goals. Because a traditional 401(k) can help lower your tax bill now, and a Roth 401(k) generally offers a tax-free income stream later — it’s important for investors to consider the tax advantages of both, the timing of those tax benefits, and whether these accounts have to be mutually exclusive or if it might benefit you to have both.
When it comes to retirement plans, investors don’t necessarily have to decide between a Roth or traditional 401(k). Some might choose one of these investment accounts, while others might find a combination of plans suits their goals. After all, it can be difficult to predict your financial circumstances with complete accuracy — especially when it comes to tax planning — so you may decide to hedge your bets and contribute to both types of accounts, if your employer offers that option.
Another step to consider is a 401(k) rollover, where you move funds from an old 401(k) into an IRA. When you do a 401(k) rollover it can help you manage your retirement funds.
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.
FAQ
Is it better to contribute to 401(k) or Roth 401(k)?
Whether it’s better to contribute to a traditional 401(k) or Roth 401(k) depends on your particular financial situation. In general, if you expect to be in a lower tax bracket in retirement, a traditional 401(k) may make more sense for you since you’ll be able to deduct your contributions when you make them, which can lower your taxable income, and then pay taxes on the money in retirement, when you’re in a lower income tax bracket.
But if you’re in a lower tax bracket now than you think you will be later, a Roth 401(k) might be the preferred option for you because you’ll generally withdraw the money tax-free in retirement.
Can I max out both 401(k) and Roth 401(k)?
No, you cannot max out both accounts. Per IRS rules, the annual 401(k) limits apply across all your 401(k) accounts combined. So for 2024, you can contribute a combined amount up to $23,000 (or $30,500 if you’re 50 or older) to your Roth 401(k) and your traditional 401(k) accounts.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
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.
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Looking for the best jobs that help people? Whether you are looking for a full-time job or a way to make extra income, there are many ways to make money by helping others. Picking a job that matches what you want to achieve personally and lets you help others can feel really good. In lots…
Looking for the best jobs that help people?
Whether you are looking for a full-time job or a way to make extra income, there are many ways to make money by helping others.
Picking a job that matches what you want to achieve personally and lets you help others can feel really good. In lots of different fields, jobs where you can help people have become very popular.
Whether it’s teaching, counseling, healthcare, or responding to emergencies, each job lets you change someone else’s life for the better. If you like the idea of helping out your community and giving assistance to those who need it, there are plenty of rewarding jobs that might be right for you.
Now, that doesn’t mean the jobs below are easy. While you may feel good knowing that you are helping people, many of these jobs are very hard. But, you will know that you are truly helping people and changing the world for the better.
30 Best Jobs That Help People
Below are 30 full-time and part-time jobs helping others in crisis, in your community and at homes.
1. Social worker
If you’re someone who likes to help others, becoming a social worker might be the perfect job for you. Social workers support people who face challenges in their lives. This could mean working with children, families, or even whole communities.
Social workers might work in schools, helping kids and families get through tough times, or in hospitals guiding patients through health challenges.
2. Teacher
A teacher’s job is about more than just giving lessons. The job is to guide and help students understand new information. When you teach, you make a real difference in the lives of your students.
Teachers work in different settings, such as at a public school, private institution, or even provide one-on-one education as a tutor. Some teachers work online too, which is a great option if you’re looking for more flexibility.
You can choose to become a kindergarten teacher, high school teacher, college instructor, or anything in between.
Recommended reading: 36 Best Side Jobs for Teachers To Make Extra Money
3. Nurse
Nurses play an important role in healthcare, helping people feel better and stay healthy.
I have met so many amazing nurses in my life, and it is such a helpful career path. I still very much remember all of the wonderful nurses who helped me when I was in the hospital giving birth to my daughter – these nurses were amazing and helped me so much, and I truly felt like they cared.
Nurses can work from home, in a hospital, or even in a law firm. A similar career path where you can help people is to become a nurse practitioner, with a higher salary and extra responsibilities.
Recommended reading: 27 Best Side Hustles For Nurses To Make Extra Money
4. Personal trainer
If you like staying active and want to help others, becoming a personal trainer could be a great fit for you.
As a personal trainer, you’ll get to work with people every day, helping them achieve their fitness goals. It’s not just about showing exercises; it’s about motivating and guiding people to live healthier lives.
Here are some of the things that personal trainers do:
Create workout plans.
Show people how to exercise correctly.
Keep track of a client’s progress.
Teach clients about healthy lifestyle choices.
Personal trainers are found in places like gyms, fitness centers, and sometimes they can even come to your home. Some trainers lead group classes, while others give one-on-one sessions.
5. Occupational therapist
An occupational therapist (OT) helps people of all ages do different activities that are important for their daily lives, work, school, and leisure. Some examples of occupational therapy include:
Dressing – OTs help individuals in selecting appropriate clothing and developing strategies to independently dress themselves.
Eating – OTs may recommend adaptive equipment or techniques to help individuals with feeding difficulties.
Household chores – They provide strategies to make household chores more manageable for individuals with physical or cognitive limitations.
Job tasks – OTs help individuals develop skills and strategies to perform job duties effectively and safely.
Community integration – They support individuals in participating in community events, clubs, and social gatherings.
As you can see, OTs help people in so many ways.
They work in places like hospitals, schools, or even patients’ homes are common spots for occupational therapists.
6. School counselor
School counselors play a big part in guiding students toward their future.
They help with class schedules, give advice, or plan big steps like going to college or finding a job. This job is important because school counselors help students do their best and feel good about themselves.
They also help in other ways, such as helping students who are going through a hard time in life, like helping them with handling a mental health issue or even dealing with the passing of a parent. They are very much needed in all schools!
7. Substance abuse counselor
Substance abuse counselors help people fight addiction and get their lives back on track. Their job is important because they guide people through tough times, showing them how to stay away from drugs or alcohol and live a healthier life.
They meet with people and listen to their stories, teach them new ways of dealing with problems without using substances, and support them as they make changes to better their lives.
8. Physician
Being a doctor is a way to make a big impact in your community, as everyone knows.
Depending on the specialty, they can check your health, find out what’s wrong when you’re sick, and give you the right medicine to help you feel better.
Doctors are important because they help us when we’re sick and also keep us healthy. They listen to our concerns, offer comfort, and provide treatments. This makes a big impact on many people’s lives every single day.
9. Lawyer
A lawyer’s main job is to protect the legal rights of their clients. This means giving advice based on the law and, sometimes, defending your client in court.
A lawyer might work at a large law firm, for businesses, or for everyday people with different problems. Lawyers tend to specialize in one area of law, like helping injured people, family issues, working with businesses, traffic tickets, and so on.
10. Paramedic
Paramedics are the people who arrive first when there’s a medical emergency.
Their job is to take care of people who are hurt or very sick, right there on the spot or while they’re on the way to the hospital for further treatment. They give first aid and other medical care, stay calm under pressure, and drive an ambulance if needed.
11. Firefighter
Firefighters are trained to fight fires and keep people, buildings, and nature safe. They rescue people and animals from burning buildings, help at accident scenes, and teach the public about staying safe from fires.
This is a tough job that every community needs.
12. Nutritionist
If you like helping people and love everything about food and health, think about becoming a nutritionist! A nutritionist is someone who helps people eat better and live healthier lives.
A nutritionist is a health expert who knows a lot about food and how it affects our bodies. They look at what people eat, their health goals, and make personalized plans to help them eat better. Nutritionists teach people about healthy eating, help with meal plans, and give support to make lasting changes in lifestyle.
They work in different places like schools, hospitals, or their own offices to help people be healthier through good nutrition.
13. Pediatric sleep consultant
Getting enough sleep is super important for babies and their parents. But sometimes, parents have trouble making sure their baby sleeps well.
This can lead to some parents getting nearly no sleep, and it impacts their life, their job, and their mental health.
That’s where pediatric sleep experts come in handy. They know a lot about helping kids sleep better, which helps families have better nights. If you really like working with kids and want to help them, becoming a sleep coach could be a great career option for you.
This is an area that so many parents need so that they can continue living their lives.
For me, I have taken many tips from pediatric sleep consultants so that I could help my child sleep better, and so that I in turn could get sleep as well. These were life-changing tips!
Recommended reading: How To Become A Sleep Consultant And Make $10,000 Each Month
14. Dentist
Dentists work with teeth and gums, and they help keep your mouth healthy as well as fix problems when they come up.
If you have a cavity, they can fill it. Or if you have something more serious, they can fix it too. Dentists tell you how to take care of your teeth so you can keep them strong and avoid future problems.
15. Psychologist
Psychologists help people deal with their feelings and thoughts by listening to people and understanding their problems. They work in schools, offices, and sometimes even online.
They ask questions, do tests, and figure out the best way to help people feel better.
16. Police dispatcher
Being a police dispatcher is an extremely important job that helps people in crisis.
Dispatchers have an important job in keeping communities safe and making sure everything runs smoothly. They answer emergency calls when you call 911 and send out the right help.
17. Police officer
Police officers in law enforcement keep areas safe by stopping crime and making sure laws are followed. They patrol the streets, keep an eye out for any trouble, and if someone calls for help or there’s an accident, police officers are the first to arrive.
A police officer’s work is very important for everyone’s safety. They are trained to handle many kinds of situations.
Some police officers have a degree in criminal justice, but not all have college degrees.
18. Massage therapist
Massage therapists use their skills to help relax tight muscles and ease pain. They work in many places like spas, hospitals, or sports centers.
This is a career path where you can make others feel physically better, relieve stress, and feel relaxed.
19. Speech and language therapist
Speech therapists (also known as speech-language pathologists) help people of all ages overcome difficulties with communication, as well as swallowing disorders.
Speech therapists work with children and adults who face challenges with speaking and understanding others, help those who have trouble eating or swallowing due to health issues, and create fun and engaging exercises to improve clients’ speech and language skills.
Many, many people use speech-language pathologists these days, especially for young children, and it is such a needed career path right now. Many cities have very long waitlists because there simply are not enough speech therapists, so this can be a very helpful career choice to get into.
20. Rehabilitation specialist
Rehabilitation specialists give support to those who need a little extra help due to health troubles like injuries or mental health challenges.
A day in the life of a rehabilitation specialist could include working with kids or adults, helping them with their skills to live a good life (kind of like teaching and cheering on someone as they learn or remember how to do important daily stuff).
These jobs are often found in places like hospitals, private clinics, or community centers.
21. Caregiver
Caregiving roles are very important careers that help people who really need it.
Caregivers play an important role in the lives of those who need help due to age, sickness, or disability. They provide support and company, making a real difference every day.
Caregivers do things like cook meals, drive people places, or just talk to make someone’s day brighter.
22. Home health aide
A home health aide is somewhat similar to a caregiver. Caregivers and home health aides both help people who need support with daily activities because of sickness, disability, or getting older. However, caregivers usually do a wider range of tasks like keeping people company, driving people places, cooking, and doing chores.
Home health aides focus more on personal care, such as helping with bathing, dressing, and reminding about medications. Home health aides often get formal training and might work under a nurse or another healthcare worker, while caregivers might not have formal training and often work on their own or for agencies.
Home health aides have an important job where they help people who need extra care to live comfortably in their homes. People like seniors or those with disabilities count on them to be there for them.
23. Translator
Translators connect people who speak different languages, and this job is important because they help people understand each other.
Translators work in many places. Some work in hospitals, making sure doctors and patients understand one another. Others translate books or websites, so everyone can enjoy stories or information, no matter what language they speak.
Many translation jobs let you work from home. Some jobs are full-time, and some are part-time. You can find what fits your life.
Recommended reading: 28 Ways To Get Paid To Text And Make Money
24. Environmental engineer
Environmental engineers figure out how to keep nature clean and safe. They sometimes work on projects that prevent pollution or create plans to fix damage that’s already been done, like cleaning up oil spills.
25. Pharmacist
Pharmacists know all about medicine, fill doctors’ prescriptions for patients, and explain how to take the medicine safely. This is a job that helps people because people need medicine in order to feel better.
Pharmacists work in pharmacies, drugstores, clinics, and hospitals.
26. Optometrist
Optometrists are eye doctors that help people see better. They check your eyes, find out if you need glasses or contacts, and can spot eye troubles before they become a bigger issue.
Eyes are important, of course, and so this is a job that definitely helps people.
27. Midwife
Becoming a midwife might be a great job for you if you enjoy helping people and have an interest in healthcare. Midwives are healthcare professionals who help women before, during, and after they have a baby.
Midwives work in different places, such as in a hospital, in a clinic, or visiting moms at their homes.
I had a midwife and doctor team for my pregnancy, and the midwife was amazing. She made me feel comfortable and was very friendly and calming.
28. Conservationist
Conservationists get to spend their days outdoors, helping plants and animals survive and stay healthy. They research and learn about different species and find ways for humans to live alongside them without causing harm.
The planet is home to incredible animals and places, but some are at risk. Conservationists help protect these natural wonders and make sure there are plenty of wild areas for animals to thrive in. They also work to keep the air and water clean for everyone to enjoy.
29. Dental hygienist
Dental hygienists are important in preventing and treating oral diseases. It’s more than just cleaning teeth.
They also teach patients how to take care of their mouth, show them the right way to brush and floss, and help them understand why oral health is so important.
30. Blogger
Okay, so I realize that this option is not like any of the rest.
But, I have personally helped thousands of people over the years with my blog, so I think being a blogger definitely helps people. I have received many emails and letters from readers who have said that I helped them pay off their debt, stop living paycheck to paycheck, reach retirement, and more.
With a blog, you can help people understand different topics, learn actionable tips, get motivated to reach their goals, and more.
If you enjoy writing and sharing stories or expertise, becoming a blogger might be right up your alley. A blogger creates content for a blog, which is an online space for posting thoughts, knowledge, and insights.
Your blog can become a helpful resource on topics you’re passionate about. Whether it’s cooking, personal finance, or even traveling, your words could be valuable to someone else.
I started Making Sense of Cents back in 2011. Since then, my blog has made over $5,000,000.
I didn’t plan to make money when I started the blog. It was just a way for me to keep track of my own money journey. At first, I didn’t even know people could make money from blogging or how to make a successful blog!
But after only six months, I started earning money from my blog.
You can learn how to start a blog with my free How To Start a Blog Course (sign up by clicking here).
Frequently Asked Questions
Below are answers to common questions about how to find jobs that help people.
What is the best career to help others?
The best careers to help others include becoming a social worker, teacher, nurse, therapist, counselor, and firefighter.
What job helps people with their money?
Financial planners or advisors help people manage their money effectively. They provide advice on investments, savings, and budgeting to help individuals achieve their financial goals and secure their future financial stability.
What job can I do to make people happy?
Many of the jobs above can help people become happy, such as being a teacher, personal trainer, school counselor, nutritionist, pediatric sleep consultant, psychologist, and massage therapist.
What are some jobs that help people’s mental health?
Mental health counselors and therapists give support and treatment to people dealing with mental illnesses. They play an important part in improving their clients’ emotional and psychological well-being.
What are some creative jobs that help others?
Art therapists help people deal with stress, trauma, or sickness by using creative activities. They combine the healing power of art with counseling techniques to support healing and personal development.
What are jobs that help people in crisis?
Jobs that help people in crisis include substance abuse counselors, social workers, registered nurses, and art therapists.
What are jobs helping others without a degree?
A bachelor’s degree, master’s degree, or doctoral degree is not required for all jobs that help people. For example, home health aides and personal care aides help people with daily tasks and give companionship. Typically, formal education is not required, but training and a caring personality are important to actually help people.
Best Jobs That Help People – Summary
I hope you enjoyed this article on the best jobs that help people.
When you think about jobs that help others, you might think of social work or healthcare right away.
But there’s a wide range of options, including jobs in teaching, therapy, public service, and even technical fields like translation or environmental engineering.
Each of these jobs is important for making our community better and healthier, often by working directly with people to make their lives better. These roles give more than just a paycheck – they give you the satisfaction of knowing that your work helps people outside of the office too.
What do you think are the best jobs that help people and pay well?
Portfolio beta refers to a popular metric that investors use to measure a portfolio’s risk, or its sensitivity to price swings in the broader market. While past performance does not indicate future returns, knowing a portfolio’s beta can help investors understand the price variability of their stocks, or how much their holdings may move if there’s stock volatility or big gains in a benchmark index like the S&P 500.
Investors often consider beta a measure of systematic risk, or risk that stems from the entire market and that investors can not diversify away. Macro events such as interest-rate or economic changes often fall into the category of systematic risk, while idiosyncratic, stock-specific risk includes events like a change in company management, new competitors, changed regulation, or product recalls.
Table of Contents
How to Calculate Beta of a Portfolio
The Beta of a portfolio formula requires relatively simple math, as long as investors know the Beta for each stock that they hold and the portion of your portfolio that each stock comprises.
Here are the steps you’d follow to calculate the Beta of a hypothetical portfolio:
1. Calculate the total value of each stock in the portfolio by multiplying the number of shares that you own of the stock by the price of its shares:
Stock ABB: 500 shares X $20 a share each = $10,000.
2. Figure out what proportion each stock in their portfolio represents by dividing the stock’s total value by the portfolio’s total value:
Stock ABB’s total value of $10,000/Portfolio’s total value of $80,000 = 0.125.
3. Multiply each stock’s fractional share by its Beta. This will calculate the stock’s weighted beta:
Stock ABB’s beta of 1.2 X its fractional portfolio of 0.125 = 0.15.
4. Add up the individual weighted betas.
Here is the whole hypothetical portfolio with a total beta of 1.22, benchmarked to the S&P 500. That means when the index moves 1%, this portfolio as a whole is 22% more risky than the index.
Stock
Value
Portfolio Share
Stock Beta
Weighted Beta
ABB
$10,000
0.125
1.20
0.15
CDD
$30,000
0.375
0.85
0.319
EFF
$15,000
0.1875
1.65
0.309
GHH
$25,000
0.3125
1.42
0.44375
Sum
1.22
4 Ways to Characterize Beta
Investors always measure a portfolio’s beta against a benchmark index, which they give a value of 1. Stocks that have a beta higher than one are more volatile than the overall market, and those with a beta of less than one are less volatile than the overall market.
Understanding beta is part of fundamental stock analysis. Once you know the beta of your portfolio, you can make changes in order to increase or decrease its risk based on your overall investment strategy by changing your asset allocation.
There are four ways to characterize beta:
High Beta
A high beta stock — one that tends to rise and fall along with the market often — has a value of greater than 1. So if a stock has a beta of 1.2 and is benchmarked to the S&P 500, it is 20% more volatile than the broader measure.
If the S&P 500 rises or falls 10%, then the stock would conversely rise or fall 12%. The same would be true for portfolio beta. While there’s more downside risk with high-beta stocks, they can also generate bigger returns when the market rallies – a principle of Modern Portfolio Theory.
Low Beta
A low beta stock with a beta of 0.5 would be half as volatile as the market. So if the S&P 500 moved 1%, the stock would post a 0.5% swing. Such a stock may have less volatility, but it also may have less potential to post large gains as well.
Still, investors often prefer lower volatility securities. Low beta investment strategies have shown strong risk-adjusted returns over time, too.
Negative Beta
Stocks or portfolios with a negative beta value inversely correlate with the rest of the market. So when the S&P 500 rises, shares of these companies would go down or vice versa.
Gold, for instance, often moves in the opposite direction as stocks, since investors tend to turn to the metal as a haven during stock volatility. Therefore, a portfolio of gold-mining companies could have a negative beta.
So-called defensive stocks like utility companies also sometimes have negative beta, as investors buy their shares when seeking assets less tied to the health of the economy. A downside to negative beta is that expected returns on negative beta securities tend to be weak – even less than the risk-free interest rate.
Zero Beta
A stock or portfolio can also have a beta of zero, which means it’s uncorrelated with the market. Some hedge funds seek a market-neutral strategy. Being market-neutral means attempting to perform completely indifferent to how an index like the S&P 500 behaves. 💡 Quick Tip: Options can be a cost-efficient way to place certain trades, because you typically purchase options contracts, not the underlying security. That said, options trading can be risky, and best done by those who are not entirely new to investing.
How to Calculate an Individual Stock’s Beta
For investors, calculating the beta of all their stock holdings can be time consuming, and typically, financial data or brokerage firms offer beta values for stocks.
But if you wanted to calculate beta for an individual stock, you’d divide a measure of a stock’s returns relative to the broader market over a given time frame by a measure of the market’s return by its mean, also over a specific time frame. Here is the formula:
Beta = covariance/variance
Covariance is a measure of a security’s returns relative to the market’s returns.
Variance is a measure of the market’s return relative to its mean or average.
Recommended: What Is Covariance and How Do You Calculate It?
Alpha vs Beta vs Smart Beta
Beta is one of the Option Greeks, terminology frequently used by traders to refer to characteristics of specific securities or derivatives in the market. Another commonly used Greek term is Alpha. While beta refers to an asset’s volatility relative to the broader market, Alpha is a measure of outperformance relative to the rest of the market.
Beta also comes up a lot in the exchange-traded fund or ETF industry. Smart Beta ETFs are funds that incorporate rules- or factor-based strategies.
What Impacts Beta?
A variety of factors impact an asset’s beta. In general, stocks seen as riskier than average typically feature higher betas. Stock-specific factors such as debt levels, aggressive management, bold projects, volatile cash flows, and even ESG factors can influence a stock’s idiosyncratic risk. Higher business risk, while stock-specific, can lead to a more volatile stock price than the overall market, hence a higher beta.
Higher betas often appear in particular sectors. There are even investment fund strategies that play on beta – you can buy funds that exclusively own high beta or low beta stocks. A stock’s sector, industry, geographic location, and market cap size all impact a stock’s volatility and beta.
Cyclical and growth sectors like energy, industrials, information technology, and consumer discretionary often feature high betas. Utilities, consumer staples, real estate, and much of the healthcare sector typically have low beta.
Small caps and stocks domiciled in emerging-market economies also often have a higher beta (compared to the U.S. large-cap S&P 500). 💡 Quick Tip: Are self-directed brokerage accounts cost efficient? They can be, because they offer the convenience of being able to buy stocks online without using a traditional full-service broker (and the typical broker fees).
Important Things to Know About Beta
1. A stock’s beta may change over time. Because beta relies on historical price data, it is subject to change.
2. Beta is not a complete measure of risk. It can be a useful way for investors to estimate short-term risk but it’s less helpful when it comes to considering a long-term investment because the macroeconomic environment and company’s fundamentals may change. In some cases, beta is not the best measure of a stock or a portfolio’s risk.
3. Beta is an input when investors are using the Capital Asset Pricing Model (CAPM) — a way to measure the expected return of assets taking into account systematic risk. It’s a method that also looks at the cost of capital for investors.
4. The estimated beta of a stock will be less helpful for companies that do not trade as frequently. Thin liquidity for a stock may bias its beta value since there is less robust historical price data.
5. Beta does not offer a complete picture of a stock’s risk profile as it’s linked to systematic risk. Investors must also consider stock-specific risk when managing their portfolios.
The Takeaway
As discussed, beta is a popular metric that investors use to measure a portfolio’s risk, or its sensitivity to price swings in the broader market. Knowing stock holdings’ betas can be important information when you’re building your portfolios.
You can calculate their portfolio beta using simple math as long as you’re able to obtain the individual betas for your stock holdings. While beta is a helpful tool to try to gauge potential volatility in a portfolio, its reliance on historical data makes it limited in measuring the complete risk profile of an asset or portfolio.
Qualified investors who are ready to try their hand at options trading, despite the risks involved, might consider checking out SoFi’s options trading platform. The platform’s user-friendly design allows investors to trade through the mobile app or web platform, and get important metrics like breakeven percentage, maximum profit/loss, and more with the click of a button.
Plus, SoFi offers educational resources — including a step-by-step in-app guide — to help you learn more about options trading. Trading options involves high-risk strategies, and should be undertaken by experienced investors.
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.
FAQ
What is a good beta for a portfolio?
In a general sense, a good beta for a portfolio would be 1. That’s only a general guideline or rule of thumb, however, as it means that a portfolio’s value is roughly as volatile as the market overall.
What does a beta of 1.3 mean?
A beta of 1.3 means that a portfolio’s value is 30% more volatile than the overall market, which means its value will swing more wildly than the market.
Why is market portfolio beta 1?
Beta measures a portfolio or asset’s sensitivity relative to the overall market. If a portfolio’s beta is 1, it is equally as volatile as the market, not more or less so.
How do I reduce my portfolio beta?
Perhaps the simplest way to reduce your overall portfolio’s beta is to replace higher-beta assets within the portfolio with assets that have lower associated beta.
Is it possible to have zero beta portfolio?
It is possible, and would amount to a zero-beta portfolio, which means the portfolio itself has no systemic risk whatsoever. In other words, this portfolio would have no relationship to the overall movements of the market, and likely have low returns.
What is the difference between stock beta and portfolio beta?
A stock beta is a measure of an individual stock’s volatility, while portfolio beta is a measure of an overall investment portfolio’s volatility.
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. [cd_ETFs] 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.
Reverse mortgage professionals in Massachusetts will be reliant on their borrowers’ ability to complete their required counseling sessions under the state’s face-to-face mandate following the expiration of a provision temporarily relaxing the standard that expired on April 1.
This is according to prior legislative documents reviewed by RMD and an announcement this week by the National Reverse Mortgage Lenders Association(NRMLA).
In an email update to its members, NRMLA explained that a spending bill containing an amendment that would permanently allow for telephonic and video counseling was approved by both houses of the state’s legislature, but that the addition of new amendments to the Senate version had prolonged the process that would allow it to become law prior to the expiration of the last extension.
The issue has remained a specter over the state’s reverse mortgage business for years. Massachusetts is the only state in the country to require in-person reverse mortgage counseling, a requirement that caused issues and effectively halted its reverse mortgage business during the early days of the COVID-19 pandemic.
Industry professionals and trade organizations — including NRMLA and the regional Massachusetts Mortgage Bankers Association (MMBA) — have urged state leadership to adopt a more permanent solution. It looked as if one would pass last year, but a revision of the budget bill deliberated at that time included an amendment that removed the permanent allowance from a prior version approved by the State House.
Reverse mortgage industry veteran George Downey of The Federal Savings Bank in Braintree, Mass. has been a critical figure in the advocacy for a permanent solution that would allow for remote counseling. While he remains apprehensive about the latest budget bill and whether it will include the desired language in its final form, he also shared that this time feels a bit different when compared to prior recent efforts to address this issue.
In addition to support from NRMLA and other trade associations, Downey said the outreach he and others have done on the issue has felt fruitful.
“We’ve done as much as I think reasonably could be done to get the information to the surface so that the conference committee members, when they were evaluating these various amendments, would have some sense of what this is about and how important it is,” Downey said in an interview. “So, I feel a measure of confidence in that regard. I’ll be optimistic and give us 50% odds.”
Part of the challenge in getting such a provision passed, he said, stems from longtime reputational challenges the reverse mortgage product has had that are difficult to challenge among lawmakers, he explained.
“It’s those old misconceptions, those old biases that carry a lot,” he said. “That’s just speculation on my part, but I’m pretty sure that that was the problem.”
Downey previously explained to RMD that there are only five full-time U.S. Department of Housing and Urban Development (HUD)-approved counselors serving the state. But the disruption caused by COVID-19 has helped lead lawmakers, regulators and the public to become more aware of how useful remote communication is today.
At the NRMLA Annual Meeting and Expo held last October in Nashville, HUD’s Deputy Assistant Secretary for Housing Counseling David Berenbaum alluded to the challenges in Massachusetts. He elected not to directly comment on them but said that there is no reason for HUD to believe that alternative delivery methods of counseling could not provide quality services.
“Our expectation at HUD is that the quality of the services should be maintained regardless of modality,” he said at the event. “And I do know from my experience in the space that superb housing counseling can happen in many different ways. It’s really the professional offering those services that make all the difference.”
Special margin requirements refer to higher-than-normal requirements for margin traders. That typically means requirements that are above 25%.
According to the Securities and Exchange Commission (SEC), many brokers keep even higher maintenance margin requirements, typically between 30% and 40% — and sometimes higher depending on the type of securities purchased. These special margin requirements may vary.
What Are Special Margin Requirements?
Special margin requirements are higher than standard margin requirements — above a maintenance margin rate of 25%. Higher margin rate requirements mean you must maintain a higher equity amount in your account when trading on margin.
Margin trading refers to using cash and securities in your account as collateral to purchase more assets. In doing so, you can use leverage to amplify returns — but you must also pay interest on borrowed funds. For anyone interested in trading on margin, it’s important to know the rules of margin accounts and also which stocks feature special margin requirements.
When it comes to trading stocks on margin, there are plenty of blanket rules and regulations in place. For instance, the Federal Reserve requires a 50% initial margin and a 25% maintenance margin.
The Financial Industry Regulatory Authority (FINRA) and the New York Stock Exchange (NYSE) also require at least $2,000 of cash or securities to be deposited before someone can trade in a margin account.
Special margin requirements are often found on highly volatile stocks, so just a small drop in the price of these stocks can trigger a margin call. Brokers might also issue special margin requirements on concentrated positions in your account. Leveraged positions and other factors might also trigger special margin requirements.
Leverage and margin are related — but not the same.
Brokers do not just haphazardly issue special margin requirements. An analysis of historical volatility is used along with the use of SPAN margin. SPAN margin is calculated by standardized portfolio analysis of risk — a system used by exchanges around the world to control risk. SPAN margin determines margin requirements based on an assessment of one-day risk for a trader’s account. It is used primarily in options and futures markets. The SPAN system allows an exchange to know what a “worst-case” one-day move could be for any open futures position.
Special vs Standard Margin Requirements
Special Margin Requirement
Standard Margin Requirements
Brokers can determine special margin rates
Initial margin set at 50%
A special margin requirement might exist for a concentrated position
Some securities cannot be purchased on margin
💡 Quick Tip: Are self-directed brokerage accounts cost efficient? They can be, because they offer the convenience of being able to buy stocks online without using a traditional full-service broker (and the typical broker fees).
Increase your buying power with a margin loan from SoFi.
Borrow against your current investments at just 10%* and start margin trading.
How Do Special Margin Requirements Work?
Special margin requirements work by enforcing stricter equity deposits in your account when trading volatile stocks. The broker wants to protect itself in the event the securities in your account rapidly drop in value. Another way a broker protects itself is by issuing margin calls when special margin requirement percentages are breached.
With a margin call, you must deposit more cash or securities into your account to meet the call. You can also liquidate your holdings to generate cash and increase your equity percentage. If you fail to meet the call on time, the broker might liquidate your positions for you.
For a broker, it’s important to have safeguards like special margin requirements in place in case financial markets turn volatile. If many investors face margin calls all at once, the broker could face credit risk if those investors are unable to repay loans used in margin trading. 💡 Quick Tip: When you trade using a margin account, you’re using leverage — i.e. borrowed funds that increase your purchasing power. Remember that whatever you borrow you must repay, with interest.
Pros and Cons of Special Margin Requirements
In terms of benefits and drawbacks, the upside is that special margin requirements help to control risk when investors engage in day trading — and the downside is more restrictions on your margin trading account.
Here’s a deeper dive into positives and negatives for the broker and for the investor.
Pros and Cons for Brokers
Pros
Cons
Reduces risk when markets turn volatile
More restrictive trading could turn away customers
Allows for tighter margin calls on risky positions
Individuals might seek looser requirements from other brokers
Historical data provides a guide as to which stocks are most volatile
Uncertainty exists when trying to predict what the most volatile securities will be going forward
Pros and Cons for Investors
Pros
Cons
Highly volatile stocks are easier to identify
Higher equity is required to trade certain stocks
Provides a guardrail when trading stocks
Margin calls can trigger more quickly
Can be a tool to identify highly volatile stocks for options trading
Margin percentages can change without notice
The Takeaway
While many stocks and ETFs have initial margin amounts of 50% and maintenance margin levels at 25%, some volatile stocks have higher special margin requirements. These requirements help protect both brokers and investors in the event that the stock tanks.
Margin trading is typically riskier than trading with a cash account. Investing with borrowed funds amplifies returns — positive and negative. It is important to be aware of the risks involved with this strategy.
If you’re an experienced trader and have the risk tolerance to try out trading on margin, consider enabling a SoFi margin account. With a SoFi margin account, experienced investors can take advantage of more investment opportunities, and potentially increase returns. That said, margin trading is a high-risk endeavor, and using margin loans can amplify losses as well as gains.
Get one of the most competitive margin loan rates with SoFi, 10%*
FAQ
What is a special margin account?
A margin account is a type of brokerage account in which your broker lends you cash, using the account’s equity as collateral, to purchase securities. These securities are known as marginable securities. Margin increases your purchasing power but also exposes you to the potential for larger losses.
What are margin requirements?
Margin requirements are percentages of equity you must maintain in your margin trading account. According to Regulation T of the Federal Reserve Board, the initial margin for equities is 50% and maintenance margin is 25%. There are higher special margin requirements for highly volatile stocks. In addition, if you have a concentrated position, you might face a special higher margin requirement.
How much money do you need to open a margin account?
The NYSE and FINRA require a deposit of $2,000 or cash or securities with your broker before trading on margin. Some firms may require larger deposits.
Photo credit: iStock/akinbostanci
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.
*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.
When researching personal loans, you may see the terms APR (Annual Percentage Rate) and interest rate used interchangeably. However, they are not the same thing. The interest rate refers to the cost of borrowing money, expressed as a percentage of the principal amount, but it doesn’t include any other fees or charges.
APR, on the other hand, includes not only the interest rate but also other fees and charges you may incur when borrowing money. This makes the APR a more important number to look at that interest rate.
Read on for a closer look at APR vs interest rate, what it means when these two numbers are different, and what it means when they are the same.
What Is Interest?
Interest is the cost you pay for the privilege of taking out a loan — the money you’ll owe along with the principal, or the amount of money you’re borrowing.
Interest is expressed in a rate: a percentage that indicates what proportion of the principal you’ll pay on top of the principal itself. Interest may be simple — charged only against the principal balance — or compound — charged against both the principal balance and accrued interest itself. Typically, personal loan rates are an expression of simple interest. 💡 Quick Tip: Before choosing a personal loan, ask about the lender’s fees: origination, prepayment, late fees, etc. SoFi personal loans come with no-fee options, and no surprises.
Loan APR vs Interest Rate
So what’s the difference between an APR vs. an interest rate?
APR stands for Annual Percentage Rate and specifically designates how much you’ll spend, as a proportion of the principal, over the course of one year. Furthermore, the APR includes any additional charges on top of interest, such as origination or processing fees, which a straight interest rate does not.
In other words, APR is a specific type of interest rate expression — one that’s more inclusive of additional costs.
Interest Rate
APR
Expression of how much will be paid back to the lender in addition to repaying the principal balance
Expression of how much will be paid back to the lender in addition to repaying the principal balance
Includes interest only
Expresses cost of the loan over one year including any additional costs, such as origination fees
Why Is My Personal Loan APR Different Than the Interest Rate?
If your personal loan’s APR differs from its interest rate, that indicates that there are additional fees, such as origination fees, included in the total amount you’re being charged. If there were no fees, the APR and interest rate would be identical.
How Important Is APR vs Interest Rate?
A loan’s APR is generally more important than its interest rate because APR reflects the true cost of the loan — it accounts for interest as well as any fees tacked on by the lender. Looking at APR also allows you to compare two loan offers apples to apples. One loan may have a lower interest rate than another loan but if the lender tacks on high fees, then it may not actually be the better deal.
APR vs Interest Rate on Revolving Credit Accounts
Personal loans aren’t the only financial product that involve APR and interest rate. Revolving credit accounts — including credit cards — also have interest rates expressed as APR. However, with credit cards, these two rates are one and the same: APR is just the interest rate, and the terms can be used interchangeably.
Credit card issuers may charge other fees, e.g., cash advance fees, late fees, or balance transfer fees as applicable to individual usage. But it’s impossible to predict the type or amount of fees that might be charged to any one card holder.
Although these two expressions are the same, it’s important to understand that the interest rate on credit cards and other revolving credit accounts is usually compound interest, which is precisely why it can be so easy to spiral into credit card debt. When interest is charged on the interest you’ve already accrued, the total goes up quickly.
A single credit card account can have multiple APRs, depending on how the credit is used.
• Purchase APR: the standard APR for general purchases.
• Cash advance APR: the rate charged for cash advances made to the card holder.
• Balance transfer APR: may begin as a low or zero promotional rate, but increase after the introductory period ends.
• Penalty APR: may be charged if a payment is late by a predetermined number of days.
💡 Quick Tip: With average interest rates lower than credit cards, a personal loan for credit card debt can substantially decrease your monthly bills.
What Is a Good Interest Rate for a Personal Loan?
The interest rate on your personal loan — or any financial product — will vary based on a wide variety of factors, including your personal financial history (such as your credit score and income) as well as which lender you choose, how big the loan is, and whether or not it’s secured with collateral.
The average personal loan rate is currently about 12% APR. However, the rate you receive could be higher or lower, depending on your financial situation and the lender you choose.
Getting a Good APR on a Personal Loan
To get the best rate on your personal loan, there are some financial factors you can influence over time. Here are some action items to consider.
Improving Your Credit
It’s been said before, but it’s true: the higher your credit score, generally the better your chances are of achieving favorable loan terms and lower interest rates — not to mention qualifying for the loan at all. While there are loans out there for borrowers with bad credit and fair credit, improving your credit profile can make borrowing money more affordable.
Paying Down Your Debts
One way you may be able to improve your credit is to pay down your debts. And along with the opportunity to bolster your credit, paying down debt can also improve your chances of being approved for a loan because your debt-to-income ratio is one factor lenders look at when qualifying you for a loan. What’s more, paying down debt can make keeping up with your monthly loan payments a lot easier, since you’ll have more leeway in your budget.
Be Careful When Applying for Credit
Applying for too much credit at once can be a red flag for lenders and ding your credit score, so if you’re getting ready to apply for a personal loan, auto loan, or mortgage, try to limit how many times you’re having your credit score pulled. Typically, prequalifying for a loan involves a soft credit pull, which won’t impact your credit.
While credit scoring models do allow for rate shopping, it’s still a good idea to compare multiple lenders over a limited amount of time — a 14-day period is recommended — to find the lender that works best for your financial needs. If done in a short window of time, multiple hard credit pulls for the same type of loan will count as just one.
Recommended: Soft vs Hard Credit Inquiry
The Takeaway
Personal loans and other financial lending products come at a cost: interest. That’s the amount you’ll pay on top of repaying the principal balance itself. Interest is expressed in a percentage rate, most commonly APR, which includes both the interest and any other fees that can increase the cost of the loan.
Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.
SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.
FAQ
Why is my personal loan APR different than the interest rate?
If the annual percentage rate (APR) on your personal loan is different from the interest rate, it means the lender is charging additional fees, such as origination fees or others.
How important is APR vs interest rate?
The annual percentage rate (APR) is generally the more important figure to look at, since it includes additional costs incurred in getting the loan, such as fees. The APR will give you a more holistic picture of the price of the loan product.
What is a good APR and interest rate for a personal loan?
Personal loan interest rates vary widely but currently average around 12% APR. Depending on your personal financial history, the type and amount of the loan you’re borrowing, and your lender, the rate you receive could be higher or lower.
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Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
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.