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

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

All You Need to Know About Checking Accounts

The most obvious things in life are often overlooked, and your checking account is just one of them. Most people hardly give a thought to this important account and how to best manage it effectively. We’re here to change that.

Here’s all you need to know about checking accounts:

What is a checking account? 

Your checking account at Advantage One Credit Union offers easy and convenient access to your funds. The minimum balance required for opening a checking account can be as low as $25. Like most financial institutions, we also allow an unlimited number of monthly withdrawals and deposits.

Checking accounts are designed to be used for everyday expenses. You can access the funds in your account via debit card, paper check, ATM or in-branch withdrawals, online transfer or through online bill payment.

Making transactions using the connected debit card, or through a linked online account, will automatically use the available balance in your account and lower the balance appropriately.

A paper check is also linked directly to your account, but will generally take up to two business days to clear. It’s important to ensure there are enough funds in your account to cover a purchase before paying with a check.

Maintenance fees 

Many banks charge a monthly maintenance fee for checking accounts.

According to Bankrate’s most recent survey on checking accounts, only 38% of banks now offer free checking, compared with 79% in 2009. Monthly fees can be as high as $25 a month.

Interest rates

Most checking accounts offer a very low Annual Percentage Yield (APY) on deposited funds, or none at all. Institutions that offer checking accounts with interest or dividends will generally charge a monthly fee, with the fee being higher for accounts that have higher rates. They also generally require a minimum balance in the account at all times or a minimum number of monthly debit card transactions. According to Bankrate’s survey, you’ll need to keep an average of $7,550 in an interest-yielding checking account at a bank to avoid a steep maintenance fee.

Security

Funds that are kept in a checking account at a bank are federally insured by the FDIC for up to $250,000. Credit unions feature similar protection for your funds, with all federal credit unions offering government protection through the National Credit Union Association. State and private credit unions may be insured by the NCUA as well, or through their own state or private insurance. Advantage One Credit Union is insured by the NCUA to offer you full and complete protection for your funds.

Managing your checking account 

Managing a checking account is as simple as 1-2-3:

1 – Know your balance

It’s important to know how much is in your account at all times. This way, you can avoid an overdrawn account, or having insufficient funds to cover your purchases. Being aware of how much money you have will also help you stick to a budget and spend within your means. You can generally check your balance by phone [or via online checking or a synced budgeting app].

2 – Automate your finances

Make life a little easier by setting up automatic bill payment through your checking account. You won’t miss the hassle of paying your monthly bills, and you’ll never be late for a payment again. As a bonus, you’ll save on the processing fee that is often charged on bill payments made via credit card.

You can also set up direct deposit to have your paycheck land right in your account.

Finally, ask us about automatic monthly transfers from your checking account to savings so you never forget to put money into savings.

[You may also want to consider signing up for overdraft protection, or to have funds transfer from your linked savings account to checking when your balance is getting low.]

3 – Keep your account well-funded, but not over-funded

Financial experts recommend keeping one to two months’ worth of living expenses in your checking account at all times. This way, you’ll always have enough funds to cover your transactions without fear of your account being overdrawn. You’ll also be able to cover the occasional pre-authorization hold that a merchant may place on your debit card transaction until it clears.

It’s equally important not to keep too much money in your checking account. Once you’ve reached that sweet spot of two months of living expenses, it’s best to keep your savings in an account or an investment that offers a higher APY, such as a money market account or a share certificate.

Checking accounts offer the ultimate in convenience and accessibility. Now that you’ve learned all about these often overlooked accounts, let this financial tool help you manage your finances in the most effective way possible.

Your Turn: How do you manage your checking account effectively? Share your best tips with us in the comments.

Learn More:
investopedia.com
discover.com
bankrate.com
thebalance.com
kiplinger.com

When Does it Make Sense to Pay a Bill with a Credit Card?

Credit cards and debit cards both offer incredible convenience. With just a quick swipe or a linked account, a payment can be instantly processed. It seems like a no-brainer to use that convenience for taking the hassle out of paying bills. But, is it a smart idea to pay monthly bills with a credit card or debit card?

Choosing to pay a bill with a card can have a significant impact on your general financial wellness — for better or for worse. That’s why it’s important to consider the many variables of this decision before going ahead with it.

Let’s take a closer look at the pros and cons of paying monthly bills with a credit card or debit card.

The advantages of paying bills with a credit card or debit card

There are many reasons you may want to pay your monthly bills with a credit or debit card when possible. Here are just a few of the advantages of paying with plastic:

  • Automate monthly payments. Setting up automatic payments for monthly bills through a credit card or debit card will help ensure payments are always on time.
  • Build credit with a consistent monthly payment. Using a credit card for a monthly bill is a great way to amp up a credit score without running the risk of overspending. Just be sure to pay the bill in full and on time every time.
  • Earn rewards for money that needs to be spent anyway. Using a credit card that offers rewards for a bill that needs to be paid anyway will help to pile on those rewards points without overspending. Many debit and/or credit card issuers, [including Advantage One Credit Union’s [debit/credit] card], also offer attractive rewards for using the card to pay for specific expenses, including some monthly bills.
  • Enjoy consumer protection. Paying with plastic offers the consumer the advantages of purchase protection, zero or minimal liability in case of fraud, guaranteed returns and more.
  • Pay your bills quickly without the hassle of writing out checks and using snail mail. With a credit or debit card, paying a bill only takes a few clicks or phone prompts.
  • Budget easily. Paying with a credit or debit card makes for easy tracking of monthly spending.
  • Payments post promptly. Bill payments made via credit or debit card will generally post within one or two business days. Contrast that with a check that needs to be mailed out, delivered to the correct party and then deposited and cleared until the payment is finally processed.

The disadvantages of paying bills with credit or debit cards

Here’s the flip side of paying bills with plastic:

  • There may be fees for paying the bill with a credit card. Pay close attention to the payment options on every bill; some service providers charge a processing fee for paying with a debit or credit card.
  • It can make a difficult financial situation worse. For consumers who are already carrying a sizable amount of debt, it may not be the best idea to charge a monthly bill to a credit card. Similarly, it isn’t responsible to set up an automatic monthly payment through a debit card that is linked to an account that may not have enough money to cover the charge each month.
  • Credit utilization may cross the threshold to an undesirable rate. One of the key components of an excellent credit score is a low credit utilization rate. For consumers with a minimal amount of available credit, charging too many bills to a credit card can cause their score to plunge.
  • Interest may accrue. Consumers who cannot pay their entire credit card bill each month would be saddled with more accrued interest than they can afford if they choose to pay their monthly bills with a credit card.

Which of my bills can I pay with a credit or debit card?

You will likely not be able to pay the following monthly bills with a credit or debit card:

  • Mortgage
  • Rent
  • Car payments

These monthly bills can usually be paid with a credit card, but you may need to pay a fee to do so:

  • Car insurance
  • Home insurance
  • Health insurance
  • Taxes

The following monthly bills usually allow you to pay with a credit card or debit card, and without a fee:

  • Subscription services
  • Phone bills
  • Utility bills
  • Internet providers
  • Cable providers

Before deciding whether to pay a specific bill with a credit or debit card, it’s best to check with your provider to find out if this is a viable option and if there will be a fee attached for paying with plastic.

The bottom line

Sometimes, paying bills with a credit card or debit card makes perfect financial sense, but it sometimes does not. Before deciding which way to go on any particular bill, consider all the relevant factors detailed above to be sure you’re making the responsible choice.

Your Turn: Do you pay any of your monthly bills with a credit card or debit card? Tell us about it in the comments.

Learn More:
thesimpledollar.com
thebalance.com
creditkarma.com

Rising Interest Rates

Report showing rising interest rate dataInterest rates have been steadily increasing over the last year. So, if you’re thinking of taking out a large loan in the near future, you might be waiting until those rates start going down again.

Here’s why that might not be the best idea.

Interest rates will continue to rise
Experts predict interest rates on financial products will continue increasing throughout the year. It’s not looking great for those who are taking out a short-term loan, either. Experts claim 2018 will see three interest rate hikes, each being 0.25%. If you need to borrow money, it’s best to do it sooner rather than later.

The inflation factor
Unemployment rates are down, but wage growth continues to crawl at an almost nonexistent pace. This, in turn, leads to limited price growth, which keeps the inflation rate stagnant. However, the feds are expecting wage growth to finally kick off in 2018, setting into motion an uptick in inflation and price growth.

The government wants to stay ahead of any surge in inflation. They do so by increasing their interest rates even before there is clear evidence of an inflation peak.

Financial institutions and credit card companies pattern their own interest rates after the government’s rate. Therefore, it’s best to work on aggressively paying down outstanding debt you have before you’re hit with increased interest rates.

Government deficits
Long-term interest rates have been rising since December. This is largely due to the growing government deficit that’s linked to recent tax cuts. The pending two-year budget plan will put the government even deeper into the red, likely causing those rates to climb even higher.

Mortgages
Mortgage interest rates are now at an all-time high; they are currently close to 4.6% and are up more than .20% from a year ago.

For the most part, mortgage rates are linked to bond yields. When bond yields rise, so do mortgage rates. The recent tax overhaul caused investors to favor stocks over bonds, and consequently, mortgage rates have been climbing since September.

Some experts are predicting a turnaround for mortgages in 2018, with the rates possibly dipping below 4% sometime this year. However, all agree that by year’s end, the mortgage rate will settle at 4.5%.

No one can be certain of anything, though, and waiting until the rates drop might prove to be pointless. In fact, you might even end up paying a higher rate for that delay.

The good news
Experts predict a great year for returns on savings, especially CDs. Some claim an average one-year CD will yield a 0.7% return by the end of 2018. So, if you’ve been thinking about opening a share certificate or other savings options, talk with [credit union] to get started.

Volatile economy got you stressed? Call, click or stop by the credit union. We’ll guide you through any financial turn!

Your Turn:
What steps are you taking in the current financial climate? Tell us all about it in the comments!

SOURCES:

https://www.kiplinger.com/article/business/T019-C000-S010-interest-rate-forecast.html

https://www.google.com/amp/s/www.bankrate.com/finance/mortgages/interest-rates-forecast.aspx/amp/

https://www.google.com/amp/s/www.bankrate.com/mortgages/analysis/amp/