What You Didn’t Know About Home Loans

A home loan, otherwise known as a mortgage, enables you to purchase a house without paying the full price out of pocket at the time of the purchase.

For most people, buying a home is the biggest financial transaction of their lifetime. For that reason, if you’re in the market for a new home, it’s best to learn all you can about home loans and how they work before you get too deep into the process.

Here are some things you may not know about home loans:

Rates fluctuate daily

Borrowers who are eager to secure a home loan with a low interest rate may get into the habit of checking mortgage rates as often as some people check the weather. Interest rates fluctuate every day, which means the rate you see today may be different than the one you see when you actually are approved for the loan.

The cheapest interest rate does not guarantee the cheapest loan

When choosing a lender, borrowers will often choose the one offering the lowest interest rate, but this can actually be to their detriment. There are other factors to consider, including closing costs and the lender’s policy on releasing equity for a line of credit or a loan. Also, in adjustable-rate mortgages (ARM), the loan featuring the lowest interest rate may not have the lowest rate a few years down the line and may actually cost more in the long run.

A fixed-interest rate mortgage can ultimately cost you more

When interest rates are low, many home-buyers choose a mortgage with an interest rate that is fixed throughout the life of the loan, believing it is the most cost-effective choice. This may or may not be correct. A fixed-rate mortgage might comes with higher exit fees, or fees paid to the lender when the loan is repaid. Also, if rates drop further throughout your loan’s term, you won’t be able to take advantage of the new rates unless you refinance. Finally, interest rates on fixed-term mortgages are generally higher than the initial rate on ARMs.

A lower credit score can cost you tens of thousands of dollars in interest

Most people know that a higher credit score is generally awarded with a lower interest rate, but not many people know to what extent this is true. A high credit score can translate into tens of thousands of dollars in interest payments over the life of a home loan. A credit score difference of 100 points can increase a monthly mortgage payment by $150 or more, depending on the size of the loan and the interest rate.

If you’re thinking of applying for a home loan soon and your credit isn’t in the “very good” category (higher than 740), it may be worthwhile to spend a few months working to boost your score before you apply for a mortgage.

The housing market impacts rates

While the federal funds rate will have the greatest impact on the rise and fall of interest rates, the state of the housing market will affect it, too.  Lenders need to turn a profit from their loans, which means the higher the volume of loans they process, the less they need to earn from each one to remain profitable. Consequently, when the housing market is booming and lenders are granting loans on a frequent basis, they will be more inclined to offer lower interest rates to borrowers.

You can have your mortgage payments automated

Your home loan payments will likely be your largest monthly bill, and missing a payment or paying it late can have serious consequences. Fortunately, you can avoid these scenarios by signing up to have your monthly mortgage payments automatically deducted from your checking account. Most lenders provide this service; check with yours to see if this is an option they offer.

Buying a home will likely be the biggest purchase you ever make. Be sure to find out all there is to know about mortgages and their interest rates before applying for a home loan.

Your Turn: Do you have another lesser-known fact about home loans to share? Tell us about it in the comments.

Learn More:
kloze.com
wyndhamcapital.com
binvested.com
bankrate.com

Beware of PPP Scams

The Paycheck Protection Program (PPP) has been a welcome relief for small businesses struggling to stay afloat while also keeping their employees’ incomes flowing during the coronavirus pandemic.

The program provides eligible businesses with unsecured loans to help them cover payroll, rent and other ongoing business expenses, with the possibility of partial or complete loan forgiveness. The loans are furnished by the Small Business Association (SBA) with applications processed by private lenders or other organizations. There have been many changes and updates made to the PPP since it was first passed on April 24, 2020. Most recently, the SBA began accepting applications for Second Draw PPP Loans on Jan. 11, 2021 from participating lenders.

Unfortunately, the PPP has been plagued by fraud since its inception. In these scams, criminals posing as representatives of the SBA, another government entity or a legitimate lender trick business owners into applying for a loan through their organization, sharing information that can then be used to hack their accounts and more.

Here’s what you need to know about PPP scams and how to avoid them:

How PPP loans are processed

The more you know about how PPP loans work, the stronger protection you’ll have against possible scams.

If you want to apply for a PPP loan, simply download the loan application through the SBA. Fill it out and submit it to an SBA-approved lender. You may also need to provide all or some of the following documents:

  • Tax returns for 2019
  • Payroll reports showing how you achieved your requested total loan amount
  • Documents proving your company’s structure, formation and ownership
  • Verifiable payroll expense documents and breakdown of payroll benefits
  • Payroll summary report with corresponding financial statements
  • Certification that all employees live within the United States. If you have employees overseas, you’ll need to provide a separate list of these workers and their respective salaries.
  • Most recent mortgage or rent statement and utility bills
  • Documentation about how COVID-19 has negatively impacted your business

If you’re applying for a Second Draw PPP Loan, you will also need documentation that showcases how you have used, or plan to use, your original PPP funds.

After you’ve submitted your application, you can sit back and wait for approval. There’s no need to share any additional information on the phone or via email.

How can I protect my business from PPP fraud?

Here’s a list of dos and don’ts to help keep your business safe from PPP scams.

 Do:

  • Be wary of any individuals demanding immediate payment from you, or asking that you make immediate contact with them to be eligible for a PPP loan. These are likely scammers.
  • Only use a lender that is accredited by the SBA. You can find a full list of SBA-approved lenders here.
  • Look for the .gov at the end of each email or website allegedly from the SBA or another government entity, such as http://www.sba.gov.
  • Reach out to your local and state government if you need help applying for a PPP loan.
  • Report any suspected scams to the Better Business Bureau (BBB) and your state’s attorney general office. If a suspicious caller or email contact alleges to represent the SBA, alert the SBA as well.

Don’t:

  • Share any personal information, like your Social Security number or checking account details, with an unverified caller or email contact.
  • Pay for a program that promises to process or expedite a PPP loan request if the organization behind the program is not truly accredited by the SBA. Click on links or download files from an unfamiliar email address. These links could infect your device with malware.

Times are tough all around as the world grapples with the “new normal” and small businesses have been especially hard-hit. PPP loans can help struggling organizations get back on their feet, but scammers don’t want to let that happen. Use the tips outlined above to protect yourself and your business from a PPP scam. Stay safe!

Your Turn: Have you been targeted by a PPP scam? Tell us about it in the comments.

Learn More:
sba.gov
bloomberg.com
ucbi.com
chicagotribune.com

What Do I Need to Know About Today’s Real Estate Market?

Q: The news from the real estate market can be confusing. What do I need to know as a buyer, a seller, or just an American citizen, about today’s real estate market?

A: Trends and stats in real estate are constantly changing, especially during the unstable economy of COVID-19. Here’s all you need to know about the real estate market today.

Is it a buyer’s market right now? 

Actually, pickings are slim for home-buyers right now, giving sellers the upper hand and driving up prices for buyers. According to the National Association of Realtors (NAR), inventory was down nearly 20% in October 2020 compared to October 2019.

Low supply also means homes are on the market for a shorter period of time than what would be likely in other years. According to the NAR, in October 2020, more than seven out of every 10 homes sold were on the market for less than a month. This means buyers don’t have the leisure of lingering over their decisions and may find themselves getting caught in heated bidding wars.

If you’re currently in the market for a new home, it’s best to be prepared to change some of the items on your list of must-haves into nice-to-haves. You may also want to expand your search to include other neighborhoods or home types than you originally planned. And of course, don’t forget to have your mortgage pre-approval in hand before beginning your search. This will give you a leg up on bidding wars and show sellers you’re serious about buying.

What does low inventory mean for sellers?

An uneven balance of supply and demand that favors sellers means homeowners who are looking to sell will have more offers than anticipated. They may be able to choose the best offer for their home — perhaps even at a price that is higher than expected as well.

If you’re selling your home right now and have plans to purchase another, remember that the things making it easier for you to sell your home in this market will also work against you when you purchase a new one. Prepare for prices that may be above market value and a pressured buying environment.

Is home equity up? 

According to the NAR, home prices have swelled to a national median of over $300,000, with October 2020 marking 100 consecutive months of year-over-year price gains. CoreLogic’s 2020 3rd Quarter Homeowner Equity Insights report shows that the average U.S. household with a mortgage now has $194,000 in home equity. These factors make it a great time to sell a home.

If you’re selling your home, it’s a good idea to work with an experienced agent to ensure you get the best possible offer for your home.

If you’re planning to buy a home in this market of increasing home prices, make sure to work out the numbers and to determine how much house you can afford before starting your search.

If possible, consider choosing a 15-year fixed-rate conventional mortgage, which will give you the lowest overall price on your home.

Are interest rates still low? 

Interest rates reached record lows in 2020 and economists are predicting low rates continuing through 2021.

For buyers, this helps make homes more affordable. However, it’s important not to let a low interest rate make you think you can afford a home containing a price tag that is really out of your affordability. As mentioned, be sure to run through the numbers and determine how much house you can really afford before you start looking at houses.

How is the home-buying process different right now? 

Many parts of the home-buying process are now being done virtually due to COVID-19 restrictions. Some sellers are only offering virtual tours to only very serious buyers. Other parts of the process, like the attorney review and the actual closing, may be done completely virtually using remote online notarization and electronic signature apps.

What do I need to know about the real estate market if I don’t plan to buy or sell a home this year?

According to Freddie Mac, equity will likely continue to rise in 2021. But it will be at a more controlled pace. You may want to monitor how much your home is worth this year since you may change your mind about selling before the year is up.

Similarly, if you’re a homeowner with no plans to move, this can be a great time to tap into your home’s equity with a home equity loan or line of credit from Advantage One Credit Union. Contact us at 734-676-7000 or shoot us a line at news@myaocu.com to find out more.

Your Turn: Have you bought or sold a home recently? Share your best tips with us in the comments.

Learn More:
daveramsey.com
rockethomes.com
keepingcurrentmatters.com

When and Why to Take on Business Debt

Taking on debt can be an inevitable step for many businesses. A loan or a line of credit can provide a struggling business with the cash it needs to expand or fund a new venture.

As with every financial move, thought, it’s best to consider all angles before going ahead with the decision. Here’s what you need to know about when and why it can make sense to take on business debt:

When is it a good idea to take on business debt?

Businesses can benefit from taking out loans or opening new lines of credit under these circumstances:

When seeking resources to help grow the business. It takes money to make money, and a small business loan can help business owners pay for an expansion when they don’t have the current resources to fund it on their own. The funds can be used to broaden the company’s line of products or services, pay for a move to a larger location, fund a marketing campaign or hire additional staff.

Before taking on debt for this purpose, it’s important for a business to first measure the anticipated return on investment (ROI) for the debt. The ROI for taking on new debt needs to exceed its post-tax interest costs for the debt to be profitable for the business. For example, if a business takes out a loan to pay for new equipment costing $10,000 that will enable it to sign a $20,000 contract, it needs to ensure that a loan won’t cost them more than $10,000 in interest and other fees. Otherwise, the business will not stand to gain from taking on new debt. The profit margin also needs to be generous enough for the venture to be worth the time and effort for the business. If the final gain is minimal, the business owner may be better off investing energy in another lower-cost endeavor.

When trying to build credit. Taking out a small loan or opening a new line of credit can be a great way to build a credit profile for a business and to strengthen its relationship with financial institutions. Small loans and lines of credit can help a business prove it is responsible and trustworthy for repaying debts. This will open the doors to larger loans that may be needed in the future.

When taking on debt for this reason, it’s important for a business to run the numbers and to be sure it can handle the monthly payments, even before the anticipated boost in revenue. If a company cannot meet its monthly payments, taking on new debt can wind up doing more harm than good to its credit.

Why is debt often a preferred source of funds?

Businesses in need of extra cash can choose from several options. Primarily, a business can decide to sell equity in its company or to take out a small business loan or open a new line of credit. Here’s why debt can be a preferred source of funds for businesses:

It has lower financing costs. Unlike equity, debt is limited. Once the loan is paid back, the business owner can forget it ever existed. On the flip side, selling equity in a company generally means forking over a part of the profit for as long as the business exists. (It’s important to note, though, that debt has fixed repayment costs as opposed to equity stakes, which are determined as a percentage of the company’s profit. This means a business owner will need to pay back debt regardless of the company’s success.)

It provides tax advantages. Business debt can decrease a company’s tax liability by lowering its equity base. As an added bonus, interest on business loans and lines of credit are usually tax-deductible.

It mitigates risk. Taking on debt to access funds, instead of selling equity, lowers the company’s risk in the event that the business does not succeed.

[If you’re ready to take out a business loan or to open a new line of credit for your business, we can help! Our business loans and the lines of credit feature favorable rates and easy terms. Call, click, or stop by Advantage One Credit Union today to secure the funds you need to grow your business.]

Your Turn: Tell us about your experience with getting a business loan or line of credit in the comments.

Learn More:
entrepreneur.com
montrealfinancial.ca
businessinsider.com

What’s the Best Way to Use a Home Equity Loan?

Q: With interest rates falling and home prices rising, it seems like a great time to tap into my home’s equity using a home equity loan. What’s the best way to use these funds?

A: A home equity loan, or a HEL, can be a fantastic way to source extra funds during a falling-rates environment. Tapping into your home’s equity, or the positive difference between what is owed on a home and its current value, will give you the funds you need for a large expense with no additional strings attached.

With interest rates on a Advantage One Credit Union Home Equity Loan at just [XX%]APR*, the repayment plan is always affordable. If approved, you’ll receive the funds in one lump sum within a few days. There are no restrictions on how to use these funds, but since you’re essentially risking the loss of your home with this loan, it’s important to choose wisely when deciding how to use the funds.

Here are four forward-thinking uses for a home equity loan:

1. Home improvements

One of the most popular uses for home equity is for home renovations and improvements. These can be as major as adding a 1,000-square-foot extension to your home, as minor as replacing old carpet with new hardwood flooring or anything in between.

Using your home’s equity for home improvement projects is a smart choice for multiple reasons. For one, the money you put into the renovations acts as an investment. If you choose improvements that increase your home’s value, you can make back the money you spent or even see a return when you sell your home. Also, if you use the funds from a home equity loan to increase your home’s value, you may be able to deduct the interest paid on the loan from your taxes (be sure to consult with your tax adviser if you plan to go this route).

If you plan to use your home equity funds for home improvements, be sure to choose wisely. It’s best to go for improvements that add lasting value to your home instead of blowing big bucks on superficial remodeling projects that may look dated just a few years down the line.

2. Debt consolidation

Another popular use for a home equity loan is to consolidate high-interest debt. Paying off multiple debts at high interest rates can be cumbersome and difficult to manage. Worse, the heavy interest rates mean more of the borrower’s money goes toward the lender and less goes toward paying down the principal of the debts. Using a home equity loan to consolidate debt to a single and no-interest or low-interest loan can slash a pile of debt by several thousands of dollars and help shorten repayment time by several years.

3. College education

When interest rates are falling, funding a college education through a home equity loan instead of a high-interest student loan can be a smart choice. Similarly, homeowners struggling to meet their student debt payments without defaulting on the loan might want to use their home’s equity to pay off the debt quickly and replace it with a more manageable low-interest loan. It’s important to note that paying off a federal student loan with home equity might not be the best choice, as these loans are sometimes eligible for partial or complete forgiveness.

4. Emergency fund

Most of us know that financial experts recommend having three to six months’ worth of living expenses stashed in an emergency fund to be used if the need arises. But reality keeps this magical-sounding fund a distant dream for too many people. If you’ve been struggling to get your own emergency fund off the ground, tapping into your home’s equity can be a great way to get that boost you need. You’ll have a large stash of cash to build your fund, and the manageable payment plan will help ensure you put money into savings each month. As a bonus, if you experience a financial emergency of any kind after taking out your home equity loan, you’ll already have the funds on hand to help pull you through.

Before you take out a home equity loan

A home equity loan can provide homeowners with the funds they need for a home improvement project, to get their debt under control, pay for their college education or to build an emergency fund. However, before making either of these moves, it’s important to run the numbers so you are sure you can easily meet the regular loan payments. Otherwise, you risk defaulting on the loan and losing your home.

If you’re ready to take out a home equity loan, look no further than Advantage One Credit Union. Our rates and terms are always competitive. Give us a call at 734-676-7000 or stop by Advantage One Credit Union to get started on your loan application today.

* APR = Annual Percentage Rate and is valid as of [date].

Your Turn: How did you use the funds from your home equity loan? Tell us about it in the comments.

Is it a Good Idea to Open a HELOC Now?

If you’re looking for a large sum of money to use for a home improvement project, or the economic devastation of COVID-19 has left you in desperate need of cash, consider tapping into your home’s equity. One great way to do this is by opening a home equity line of credit, or a HELOC. Let’s take a closer look at HELOCs and why they can be an excellent option for cash-strapped homeowners in today’s financial climate.

What is a HELOC?
A HELOC is a revolving credit line allowing homeowners to borrow money against the equity of their home. The HELOC is like a second mortgage on a home; if the borrower owns the entire home, the HELOC is a primary mortgage.

Given that a HELOC is a line of credit and not a fixed loan, borrowers can withdraw money from the HELOC as needed rather than borrowing one lump sum. This allows for more freedom than a loan and is especially beneficial for borrowers who don’t know exactly how much money they’ll ultimately need to fund their venture.

Borrowers withdraw funds (aka “draws” or “advances”) from the HELOC during a set amount of time that is known as the “draw period,” which generally lasts 10 years. Some lenders place restrictions on HELOCs and require borrowers to withdraw a minimum amount of money each time they make a draw, regardless of need. Other restrictions include the requirements to keep a fixed amount of money outstanding, or to withdraw a specific sum when the HELOC is first established. [At Advantage One Credit Union, we allow borrowers to ….]

How do I repay my HELOC?
Repayment of HELOCs varies, but is usually very flexible.
Many lenders collect interest-only payments during the draw period, with principal payments being strictly optional. Others require ongoing monthly payment toward both principal and interest.

When the draw period ends, some lenders will allow borrowers to renew the credit line and continue withdrawing money. Other lenders require borrowers to pay back the entire balance due, also known as a “balloon payment.” Still others allow borrowers to pay back the loan in monthly installments over another set amount of time, known as the “repayment period.” Repayment periods are generous, lasting as long as 20 years.

How can borrowers spend the money?
While home improvement projects are popular uses for HELOCs, borrowers are free to spend the money however they please. Some other uses for HELOCs include debt consolidation, funding a wedding, adoption, dream vacation or the launch of a new business.

Is everyone eligible for a HELOC?
Like every loan and line of credit, HELOCs have eligibility requirements, which help lenders determine the applicant’s financial wellness and responsibility. Most notably, the borrower must have a minimal amount of equity in the home.

Lender requirements vary, but most homeowners will be eligible for a HELOC with a debt-to-income ratio that is 40% or less, a credit score of 620 or higher and a home assessment that stands at a minimum of 15% more than what is owed.
How much can I borrow with a HELOC?

HELOC amounts vary along with three criteria: the value of your home, the percentage of that value the lender allows you to borrow against and the outstanding amount on an existing mortgage.

To illustrate, if you have a $300,000 home with a mortgage balance of $175,000 and your lender allows you to borrow against 85% of your home’s value, multiply your home’s value by 85%, or 0.85. This will give you $255,000. Subtract the amount you still owe on your mortgage ($175,000), and you’ll have the maximum amount you can borrow using a HELOC, which is $80,000.

What are the disadvantages of a HELOC?
A HELOC is secured by your home’s equity, which places your home at risk of foreclosure if the HELOC is not repaid. Before opening a HELOC, it’s a good idea to run the numbers to get an idea of what your monthly payments will look like and whether you can easily afford to meet them.

Also, many lenders require the full payment of the HELOC after the draw period is over. This can prove to be challenging for many borrowers.
Finally, if you don’t plan to stay in your home for long, a HELOC may not be the right choice for you. When you sell your home, you’ll need to pay off the full balance of the HELOC. You may also need to pay a cancellation fee to the lender.

A HELOC can be a great option now
HELOCs have variable interest rates, which means the interest on the loan can fluctuate over the life of the loan, sometimes dramatically. This variable is based on a publicly available index, such as the U.S. Treasury Bill rate, and will rise or fall along with this index, though lenders will also add a margin of a few percentage points of their own.
The fallout of COVID-19 may impact the economy for months, or years, to come; however, there is a silver lining among the rising unemployment rates and bankrupt businesses: historically low interest rates. The average APR for fixed 30-year mortgages has hovered at the low 3% for months now, and experts predict it will continue falling. The low rates make it an excellent time to take out a HELOC with manageable payback terms.

The economic uncertainty the pandemic has generated also makes it a prime time to have extra cash available for any need that may arise.

Are you looking to tap into your home’s equity with a HELOC? Call or click today to get started. Our favorable rates, generous eligibility requirements, and easy terms, make a Advantage One Credit Union HELOC a great choice.

Your Turn:
How are you using your HELOC? Tell us about it in the comments.

Learn More:
www.huffpost.com
nerdwallet.com
thepennyhoarder.com
bankrate.com

All You Need to Know About Student Loan Changes During COVID-19

Female College student with class supplies in arms smiles as she is walking on campusWith unemployment levels rising and many employers cutting work hours, lots of college grads are now struggling to meet their student loan payments. Thankfully, the federal government has passed legislation to ease this burden. Unfortunately, though, many borrowers are confused about the terms and conditions of these changes.

Here’s all you need to know about the changes to student loan debt during the coronavirus pandemic.

All federal student loan payments are automatically suspended for six months
As part of The Coronavirus Aid, Relief and Economic Security Act (the CARES Act) signed into law on March 27 all federal student loan payments are suspended, interest-free, through Sept. 30, 2020. If borrowers continue making payments, the full amount will be applied to the principal of the loan. The suspension applies to all federal student loans owned by the Department of Education as well as some Federal Family Education Loans (FFEL) and some Perkins loans. Students do not have to take any action or pay any fees for the suspension to take effect.

Additionally, during the suspension period, the CARES Act does not allow student loan servicers to report to the credit bureaus borrower nonpayments as missed payments. Therefore, the suspension should not have a negative effect on borrowers’ credit scores.
If you’re not sure whether your student loan is federally owned, you can look it up on the Federal Student Aid (FSA) website. Be sure to have your FSA ID handy so you can sign in and look up your loans. You can also call your loan servicer directly to clear up any confusion.

Here is the contact information for federal student loan servicers:

Suspended payments count toward Public Service Loan Forgiveness and loan rehabilitation.
Public Service Loan Forgiveness (PSLF) is a federal program allowing borrowers to have their student loans forgiven, tax-free, with the stipulation that they work in the public sector and make 120 qualifying monthly payments. A disruption of these 120 payments can disqualify a borrower from the program.

According to the CARES Act, suspended payments will be treated as regular payments toward PSLF. This ensures that borrowers who have been working toward these programs will not lose the progress they’ve made toward loan forgiveness.

The same rule applies to individuals participating in student loan rehabilitation, during which borrowers with defaulted student loans must make nine out of 10 consecutive monthly payments to pull their loans out of default. The U.S. Department of Education will consider the six-month suspension on payments as if regular payments were made toward rehabilitation.

Some states and private lenders are offering student loan aid for struggling borrowers.
If your student loan is not federally owned and you are struggling to meet your payments, there may still be options available, such as loan deferment or forbearance. If you are in need of such assistance, contact your lender directly to discuss your options. Consider an income-driven repayment plan.

If you have an FFEL that is ineligible for suspension, you can lower your monthly payments by enrolling in an income-based repayment plan, which adjusts your monthly student loan payment amount according to your discretionary income. Other lenders offer similar plans, often referred to as income-driven repayment plans. If your salary was cut as a result of COVID-19, or you are currently unemployed, these plans can provide relief by making your monthly payments more manageable.

Employers can contribute toward employees’ student loan debt for temporary tax relief
The federal government offered temporary tax relief for employers contributing up to $5,350 toward their employees’ student loan payments. This benefit is in effect until Jan. 1, 2021 and it can be used for any kind of student debt, whether federal or private.

If you don’t qualify for the student loan payment suspension, you can try speaking with the human resources department at your workplace to find out how they can help you with your student loan debt at this time.

Your Turn:
Have you taken advantage of student loan debt relief offered during the coronavirus pandemic? Tell us about it in the comments.

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Getting Ahead on Your Student Loan Before You Graduate

young woman working at a laptop in an officeAs you prepare for graduation and begin scouting different employment opportunities, be sure to look at the larger picture before you accept a position.

Hopefully, you’ve chosen a career path that will bring you joy and gratification. Equally important, though, is a job that can support your lifestyle choices. While the positions you consider for your first post-college job will likely offer the opportunity for growth, you’ll still need to pay your bills—and make your student loan payments—as soon as you graduate. A job that brings you satisfaction and a pleasant working environment will not last long if the salary it offers causes you to sink into debt.

How do you determine what kind of salary will be large enough to support your desired lifestyle?

To get this information, you’ll need to create a mock monthly budget for your post-college self.

Using a spreadsheet or paper and pen, create two columns, one for expenses and one for actual dollar amounts. In the expense column, list your typical monthly expenses, including housing costs, transportation costs, health insurance, groceries, entertainment costs, clothing costs, dining out, savings, etc. In the dollar column, list the amount of money you expect to pay every month for each expense.

Your budget should look something like this:

ExpenseMonthly Cost
Housing$1,200
Transportation$300
Health Insurance$250
Groceries$350
Student Loan Payments$350

It will take some research and some hard, honest thinking to come up with these numbers. For housing costs, take a moment to think about where you see yourself settling down after college. You don’t have to know the exact neighborhood you’ll live in, but it’s good to know the city that will work best for you in terms of lifestyle, career path, and family plans. You can narrow this down to a few choices so long as you keep it reasonable. Once you’ve chosen your desired location, research the median rental prices in the area on real estate sites like Zillow and Redfin.

Next, work on transportation costs. If you already own a car, you’ll have an idea of what it costs you each month. Otherwise, spend some time thinking about what kind of car you want to drive. You can find listings on Carfax.com. Include costs like auto insurance, gas, and upkeep, in this category.

Or, if you plan on living somewhere with reliable public transportation, you might choose this route instead. Make a calculation of how much you’ll spend on bus and/or train rides, along with the occasional cab or ride-share ride.

Complete your budget using your best estimates for each category. Once you’ve filled out each expense amount, add up your total and multiply it by 12 to give you the amount of money you’ll need each year for supporting the lifestyle of your choice. (This number will increase with inflation, but since current salaries will likely increase along with the inflation rate, this exercise can still give you an idea of the annual salary you’ll need.)
Now that you have these numbers, you’re ready to go ahead with your job search. When considering possible positions, you don’t have to choose the one that pays the highest salary if there are other things about the job you don’t love. However, it’s best to pursue positions that can actually support you.

Your Turn:
Are you choosing your first job for the salary or for other factors? Share your take with us in the comments.

Learn More:
knsfinancial.com
usnews.com
usnews.com
brazen.com

4 Ways To Finance A Home Renovation

family renovating their houseHome Equity Line of Credit
A Home Equity Line of Credit (HELOC) is an open credit line that is secured by your home’s value. HELOCs offer flexible terms and lower upfront costs than most other loans.

Home Equity Loan
A Home Equity Loan (HE) allows you to borrow a fixed amount of cash, which you receive in one lump sum. However, upfront fees can be high.

Credit cards
Credit cards can work for minor touch-ups, but funding bigger projects this way can leave you with steep interest payments and end up costing much more than planned.

Personal loans
Personal loans are short-term loans that sometimes have high interest rates and upfront fees.

Do your research and talk with us at Advantage One to help find the best option for your needs.

Your Turn:
How did you fund your home renovation? Share your choice with us in the comments!

Mortgage Rates Are Dropping; Should I Refinance?

a young couple refinances their house at the credit unionQ: I’ve heard that mortgage rates have dropped dramatically since the start of 2019. Should I refinance my mortgage loan to take advantage of these lower rates?

A: Refinancing a mortgage is essentially paying off the remaining balance on an existing home loan and then taking out a new mortgage loan, often at a lower interest rate. It may sound like a no-brainer, but there are many factors to consider before moving forward with a refinance.

Is it a good time to refinance?
Mortgage rates have been falling steadily over the last few months. During the last week of March this year, rates took their biggest one-week nosedive in more than a decade, and mortgage applications rose 39%, as thousands of homeowners sought out their lenders for a refinance.

However, the downward trend has already reversed as of the beginning of April, when rates hit 4.29%. That’s up from 4.17% just one week prior. If you’re thinking of refinancing in the near future, it’s best to do move quickly so you can lock in the lowest possible rate. You may be able to save hundreds of dollars a month if you refinance a loan that currently has a relatively high interest rate.

Is a refinance right for you?
While this is definitely an excellent time to take out a new mortgage, that doesn’t mean a refinance is the right fit for everyone.

Here are two reasons a refinance might be a good fit for you:

  • Your credit is strong and you’d like to lower your monthly payments
    The first, and most obvious, reason homeowners refinance their mortgage is to take advantage of a lower interest rate. The drive behind this reason might be a change in finances, personal life or simply the desire to save money. As mentioned, the current mortgage rates make this an excellent time to refinance into a lower interest rate.

    Don’t try a refinance unless your credit is in good shape, though. Taking out another mortgage with a less-than-desirable credit score can mean getting hit with a high interest rate, even if national rates are dropping.

    Aside from reducing your monthly payments, a lower interest rate can also help you build more equity in your home sooner.

  • You’d like to shorten the life of your loan.
    People sometimes choose to refinance their mortgage because they want to finish paying off their loan sooner. If you have a mortgage that has a really high interest rate but you can easily meet these payments, consider refinancing into a shorter-term option. You may be able to pay off your loan in half the time without changing your monthly payment much at all

When refinancing your mortgage is a bad idea
In the following three circumstances, refinancing your mortgage may not make sense.

  • You’re in debt.
    If you’re looking for the extra stash of cash each month to pull you out of debt, you probably shouldn’t be refinancing. Most people who refinance for this reason end up spending all the money they save, and then some. Without making any real changes to your spending habits, giving yourself extra money is only enabling more debt. While the intention is rooted in sound logic, unless you make an equally sound change in your spending habits, you’ll be right back to your present situation in very little time.
  • A refinance will greatly lengthen the loan’s terms.
    If you’ve only got 10 years left on your mortgage and you want to refinance to stretch out those payments over 30 years, you won’t come out ahead. Any money you save on lower payments will be lost in the cost of the refinance and the extra 20 years of interest you’ll be paying on your mortgage.
  • You don’t plan on living in your home much longer.
    If you plan on moving within the next few years, the money you save might not even come close to the costs of a refinance.

How much will it cost?
Homeowners are often eager to get started on a refinance until they see what it will cost them.

Remember all those fees and closing costs you paid when you first bought your house? Prepare to pay most of them again. Broker fees will vary, but a typical refinance will cost anywhere between 3-6% of the loan’s principal.

Before proceeding with your refinance, make sure you’ll actually be saving money. You can do this by procuring a good faith estimate from several lenders. This will get you your projected interest rate and the anticipated loan price. Next, divide this price by the amount you’ll save each month with your anticipated new rate. This will give you the number of months that will have to pass before you break even on the new loan. If you don’t plan on staying in your home for that long, or you can’t afford to wait until then to recoup your losses, refinancing may not make sense for you.

Rates are still low, and if your finances are in good shape, a refinance can be a great way to put an extra few hundred dollars into your pocket each month. [If you’re ready to talk to a home loan expert about refinancing, call, click or stop by Advantage One today to ask about getting started on your refinance. We’re always happy to help you save money!]

Your Turn:
Have you refinanced? What drove your decision? Was it the right decision for you? Let us know in the comments!

SOURCES:

https://www.myfinance.com/5-reasons-to-refinance/?utm_source=Millennial+Money&utm_campaign=millennialmoneycru&utm_medium=mfCRU

https://www.consumersadvocate.org/mortgage-refinance/a/best-mortgage-refinance?matchtype=e&keyword=should%20i%20refinance&adpos=1t2&gclid=CjwKCAjww6XXBRByEiwAM-ZUILOeJrx3aTigcckJXeQcxYZ5KC-gPj1HDcbQYQlprrg3zX08LqGaohoCL14QAvD_BwE

https://www.investopedia.com/mortgage/refinance/when-and-when-not-to-refinance-mortgage/

https://www.investopedia.com/mortgage/refinance/7-bad-reasons-to-refinance-mortgage/

https://www.bankrate.com/mortgages/analysis/

https://www.wkbn.com/news/local-news/with-mortgage-rate-drop-many-buyers-consider-refinancing/1897961701