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How to Save for Retirement in Your 20s, 30s, 40s, 50s and 60s
You donât want to work the rest of your life. Hereâs how to save in your 20s, 30s, 40s and 50s, even if retirement seems light years away.
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.
What's the Best Type of Mortgage for You?
When you're ready to buy a home, choosing the best lender and type of mortgage can seem daunting because there are many choices. Since no two real estate transactions or home buyers are alike, it's essential to get familiar with different mortgage products and programs.
Let's take a look at the two main types of mortgages and several popular home loan programs. Choosing the right one for your situation is the key to buying a home you can afford.
What is a mortgage?
First, here's a quick mortgage explainer. A mortgage is a loan used to buy real estate, such as a new or existing primary residence or vacation home. It states that your property is collateral for the debt, and if you don't make timely payments, the lender can take back the property to recover their losses.
In general, a mortgage doesn't pay for 100% of a home's purchase price.
In general, a mortgage doesn't pay for 100% of a home's purchase price. You typically must make a down payment, which could range from 3% to 10% or more, depending on the type of loan you qualify for.
For example, if you agree to pay $300,000 for a home and have $15,000 to put down, you need a mortgage for the difference, or $285,000 ($300,000 – $15,000). In addition to a down payment, lenders charge a variety of processing fees that you either pay upfront or roll into your loan, which increases your debt.
At your real estate closing, the lender wires funds to the closing agent or attorney. After you sign a stack of mortgage and closing documents, your down payment and mortgage money go to the seller and various parties, such as a real estate broker, title company, inspector, surveyor, and insurance company. You leave the closing as a proud new homeowner and begin making mortgage payments the next month.
What is a fixed-rate mortgage?
The structure of your loan and payments depends on whether your interest rate is fixed or adjustable. So, understanding how these two main types of mortgage products work is essential.
A fixed-rate mortgage has an interest rate that never changes, no matter what happens in the economy.
A fixed-rate mortgage has an interest rate that never changes, no matter what happens in the economy. The most common fixed-rate mortgage terms are 15- and 30-years. But you can also find 10-, 20-, 40-, and even 50-year fixed-rate mortgages.
Getting a shorter mortgage means you pay it off faster and at a lower interest rate than with a longer-term option. For example, as of December 2020, the going rate for a 15-year fixed mortgage is 2.4%, and a 30-year is 2.8% APR.
The downside is that shorter loans come with higher monthly payments. Many people opt for longer mortgages to pay as little as possible each month and make their home more affordable.
Here are some situations when getting a fixed-rate mortgage makes sense:
- You see low or rising interest rates. Locking in a low rate for the life of your mortgage protects you against inflation.
- You want financial stability. Having the same mortgage payment for decades allows you to easily budget and avoid financial surprises.
- You don't plan to move for a while. Keeping a fixed-rate mortgage over the long term gives you the potential to save the most in interest, especially if interest rates go up.
What is an adjustable-rate mortgage (ARM)?
The second primary type of home loan is an adjustable-rate mortgage or ARM. Your interest rate and monthly payment can go up or down according to predetermined terms based on a financial index, such as the T-bill rate or LIBOR.
Most ARMs are a hybrid of a fixed and adjustable product. They begin with a fixed-rate period and convert to an adjustable rate later on. The first number in the name of an ARM product is how many years are fixed for the introductory rate, and the second number is how often the rate could change after that.
For instance, a 5/1 ARM gives you five years with a fixed rate and then can adjust, or reset, every year starting in the sixth year. A 3/1 ARM has a fixed rate for three years with a potential rate adjustment every year, beginning in the fourth year.
When shopping for an ARM, be sure you understand how often the rate could change and how high your payments could go.
ARMs are typically 30-year products, but they can be shorter. With a 5/6 ARM, you pay the same rate for the first five years. Then the rate could change every six months for the remaining 25 years.
ARMs come with built-in caps for how much the interest rate can climb from one adjustment period to the next and the potential increase over the loan's life. When shopping for an ARM, be sure you understand how often the rate could change and how high your payments could go. In other words, you should be comfortable with the worst-case ARM scenario before getting one.
In general, the introductory interest rate for a 30-year ARM is lower than a 30-year fixed mortgage. But that hasn't been the case recently because rates are at historic lows. The idea is that rates are so low they likely have nowhere to go but up, making an ARM less attractive.
I mentioned that the going rate for a 30-year fixed mortgage is 2.8%. Compare that to a 30-year 5/6 ARM, which is also 2.8% APR. When ARM rates are the same or higher than fixed rates, they don't give borrowers any upsides for taking a risk that their payment could increase.
ARM lenders aren't making them attractive because they know once your introductory rate ends, you could refinance to a lower-rate fixed mortgage and they'd lose your business after just a few years. They could end up losing money if you haven't paid enough in fees and interest to offset their cost of issuing the loan.
Unless you believe that rates can drop further (or until ARM rates are low enough to offer borrowers significant savings), they aren't a wise choice in the near term.
So, unless you believe that rates can drop further or until ARM rates are low enough to offer borrowers significant savings, they aren't a wise choice in the near term. However, always discuss your mortgage options with potential lenders, so you evaluate them in light of current economic conditions.
RELATED: How to Prepare Your Credit for a Mortgage Approval
5 types of home loan programs
Now that you understand the fundamental differences between fixed- and adjustable-rate mortgages, here are five loan programs you may qualify for.
1. Conventional loans
Conventional loans are the most common type of mortgage. They're also known as a "conforming loan" when they conform to standards set by Fannie Mae and Freddie Mac. These federally-backed companies buy and guarantee mortgages issued through lenders in the secondary mortgage market. Lenders sell mortgages to Fannie and Freddie so they can continuously supply new borrowers with mortgage funds.
Conventional loans are popular because most lenders—including mortgage companies, banks, and credit unions—offer them. Borrowers can pay as little as 3% down; however, paying 20% eliminates the requirement to pay an additional monthly private mortgage insurance (PMI) premium.
2. FHA loans
FHA or Federal Housing Administration loans come with lenient underwriting standards, making homeownership a reality for more Americans. Borrowers need a 3.5% down payment and can have lower credit scores and income than with a conventional loan.
3. VA loans
VA or Veterans Administration loans give those with eligible military service a zero-down loan with no monthly private mortgage insurance required.
4. USDA loans
The USDA or U.S. Department of Agriculture gives loans to buyers who plan to live in rural and suburban areas. Borrowers who meet certain income limits can get zero-down payments and low-rate mortgage insurance premiums.
5. Jumbo loans
Jumbo loans are higher mortgage amounts than what's allowed by Fannie Mae and Freddie Mac, so they're also known as non-conforming loans. In general, they exceed approximately $500,000 in most areas.
Always compare multiple loan products and get quotes from several lenders before committing to your next home loan.
This isn't a complete list of all the loan programs you may qualify for, so be sure to ask potential lenders for recommendations. Remember that just because you're eligible for a program, such as a VA loan, that doesn't necessarily mean it's the best option. Always compare multiple loan products and get quotes from several lenders before committing to your next home loan.
Your Retirement Savings Goal for 2021 – The Best Interest
The 2021 Monkey Dartboard Investing Invitational
Let’s put dartboard investing to the test, using real money in this year-long investing experiment. Will the darts beat the experts?
20 Money-Saving Auto Insurance Discounts
If you own a car or truck, you know it can be expensive. Your loan payment, ongoing maintenance, fuel, taxes, and auto insurance can take a big chunk of your budget. According to a 2019 AAA study, the average cost to own and operate a new vehicle was $9,282 per year.
When you consider just auto insurance, the most recent data from the Insurance Information Institute shows that the average cost is $936 per year nationwide. However, where you live significantly affects your rate. New Jersey drivers pay the most, $1,309, and Iowa drivers pay the least, $628 per year.
Many personal attributes get factored into your base car insurance rates that you can't change. They include where you live, if you’re a homeowner, your age, gender, marital status, and credit rating.
Insurance savings are available, but many policyholders don’t know what discounts exist or that they need to ask for them.
However, when it comes to getting auto insurance discounts, you have more control. Insurance savings are available, but many policyholders don’t know what discounts exist or that they need to ask for them.
In this post, we’ll review 20 auto insurance discounts that can easily save you money. What’s available depends on your insurer and the state where you live.
But even if you only qualify for a few insurance discounts, they can add up. Then you can put your savings toward something more rewarding, such as taking a vacation or boosting your emergency fund.
20 Money-Saving Auto Insurance Discounts
See how many of the following discounts you qualify for.
1. Safe Driver Discount
Your driving history plays a significant role in how much you pay for car insurance. It makes sense that auto insurers love safe drivers and are willing to reward them for being claim-free.
If you have a clean record with no moving violations or at-fault accidents over the past three to five years, most insurers typically give you a nice discount.
Potential savings: 10% to 20%.
2. Educated Driver Discount
But what if you don’t have a squeaky-clean driving record? You may be able to redeem yourself by passing an in person or online defensive driving course. Insurers know that boosting your education and skills can make you a better driver.
Potential savings: 5% to 15%.
3. Affiliation Discount
Did you know that belonging to a particular group can qualify you for a car insurance discount? Depending on your insurer, it’s likely that they have hundreds of different partner organizations that allow members to get a break on the cost of car insurance.
They may include alumni associations, education organizations, certain fraternities or sororities, honor organizations, and recreational groups.
Potential savings: 5% to 10%.
4. Occupation Discount
There are also auto insurance discounts if you work in specific industries or occupations, such as being in the military, a teacher, medical professional, or government employee. Also, members of professional associations, such as unions and state bar associations, often qualify for reduced rates.
Potential savings: 5% to 15%.
5. Good Student Discount
An often-overlooked car insurance discount is for students who make good grades. You typically qualify if you’re in high school, college, or graduate school (up to age 26) and have at least a “B” average.
Insurers consider good students less of a risk when they’re behind the wheel. So, parents shouldn’t miss the opportunity to make it more affordable to insure their young drivers.
Potential savings: 10% to 25%.
6. Distant Student Discount
Another way to cut the cost of insurance for students who live away from home, no matter their grades, is to request a distant student discount. It applies if a student lives at least 100 miles away from home and doesn’t have an insured vehicle with them on campus. They’ll be covered when they come home for breaks, but at a reduced rate.
Potential savings: 5% to 25%.
7. Low Mileage Discount
Maybe you’re driving less for a new job or keeping a car in the garage more often. If your driving patterns change, be sure to let your car insurance company know. Vehicles that are on the road less have fewer claims, and that earns you a substantial insurance discount.
Potential savings: 5% to 15%.
8. Usage-Based Discount
Many insurers offer usage-based insurance or UBI, which adjusts your rate based on how you drive. Data may be collected using a device that you keep in your vehicle or that gets reported from a smartphone app.
UBI programs evaluate different driving behaviors such as the time of day you drive, your average speed, how hard you brake and corner, and your mileage. If you’re considered a safe driver, your discount gets applied at renewal.
Potential savings: 5% to 40%.
9. Loyalty Discount
Every auto insurer wants to retain existing customers and give you every reason not to switch. Being loyal to one company for at least a few years often results in substantial savings.
Potential savings: 10% to 25%.
10. Multi-Car Discount
If you have more than one vehicle in your household, insuring all of them with the same company usually gives you a multi-car discount. Insurers offer incentives to make sure they get as much of your business as possible.
Potential savings: 10% to 25%.
11. Bundling Discount
In addition to insuring more than one vehicle, getting different types of coverage with the same insurer is known as bundling or a multi-line discount. Many insurers cover more than just cars. You could get auto and homeowner, renters, or life insurance with the same company and score savings.
Potential savings: 5% to 15%.
12. Paperless Discount
Some insurers offer a discount if they don’t have to mail paper documents, such as your policy description and bills. Merely electing to be a paperless customer can qualify you for a small discount. You can get your information by email or an online account.
Potential savings: 3% to 5%.
13. Full Payment Discount
Instead of making monthly or semi-annual auto insurance payments, paying your entire annual premium upfront may qualify for savings.
Potential savings: 5% to 10%.
14. Automatic Payment Discount
Also, signing up for automatic premium payments using automatic withdrawals from your bank account can help you save a small amount.
Potential savings: 3% to 5%.
15. Online Quote Discount
Some auto insurers offer a discount if you sign up for a policy after getting an online quote. You could shop directly on a carrier’s website or an aggregator site, such as Bankrate.com.
Potential savings: 5% to 10%.
16. Switching Discount
Just like your existing auto insurer wants to keep you, others want to entice you. A switch or transfer discount is a promotional offer that cuts your rate for a time after you sign up with a new carrier.
Potential savings: 5% to 15%.
17. New Car Discount
If you purchase a new vehicle or one that’s less than three years old, many auto insurers offer a discount. Newer cars typically have modern safety features that reduce the likelihood that you’ll make a claim.
Potential savings: 5% to 10%.
18. Anti-Theft Discount
Car insurance companies want to help you prevent car theft, so most offer discounts for having any device, feature, or system that helps keep criminals away from your car. They could be factory-installed or an after-market product that you install.
Examples of systems that may lower your insurance rate include a GPS-based location system, such as OnStar, or a theft recovery system, such as LoJack. VIN etching, which is a permanent engraving of your vehicle’s identification number on the windshield and windows, may also qualify you for a discount.
Potential savings: 5% to 20%.
19. Safety Features Discount
Cars with modern safety features, such as anti-lock brakes, airbags, and rear-view cameras, are less likely to get in an accident and cost an insurer. So be sure to let them know every on-board safety device in your vehicle.
Potential savings: 5% to 30%.
20. Mature Driver Discount
If you’re at least age 55 and pass an in-person or online defensive driving course, you can qualify for a discount. Insurers know that maintaining good driving skills reduces your risk and makes you less likely to file a claim. Most insurers offer a mature driver discount in many states.
Potential savings: 5% to 30%.
Understanding Auto Insurance Discounts
The savings you get from auto insurance discounts are typically capped. For example, an insurer may only allow a total discount of 40% off your base premium, even if you qualify for multiple discounts.
You don't have to wait until your auto insurance policy is up for renewal to compare quotes.
Also, it’s important to remember that not all discounts are applied to your rate automatically. You may have to ask for discounts that an insurer wouldn’t know you qualify for, such as getting a new job or having a driver in your family who qualifies for a good student discount. And not every insurer may offer all of the discounts we’ve covered.
Auto insurance prices vary from company to company, and they can even change from month to month. You don't have to wait until your auto insurance policy is up for renewal to compare quotes. So, if you haven’t reviewed your car insurance lately or it’s been a while since you’ve shopped policies, you may be leaving money on the table.
A Guide to Coinsurance and Copays
Having health insurance makes it possible to receive medical care while only paying a fraction of that care’s true cost. Insurance doesn’t cover everything, however. Some of the cost of your care is still up to you to pay, and … Continue reading →
The post A Guide to Coinsurance and Copays appeared first on SmartAsset Blog.
How to Avoid the Financial Blunders People Make in Their 20s
Nobody’s perfect with their money. We all slip up. These are the biggest blunders 20-somethings make â and how they can redeem themselves.
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.
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