Top Jumbo CD Rates for December 2017

Jumbo CD rates
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In the banking world, CD stands for certificate of deposit. This is a type of savings account where you agree to put a certain amount of money in for a set period of time. In return, the bank agrees to pay you interest. You may have to pay early-withdrawal penalties if you access your money before the CD term ends.

There is a type of CD called a jumbo CD, in which you generally have to put in a minimum deposit of $100,000. Sometimes these jumbo CDs have higher interest rates than CDs where you deposit less than $100,000.

The top jumbo CD rates

To compile a list of the top jumbo CD rates, we used information from DepositAccounts.com, which, like MagnifyMoney, is a LendingTree company. We sorted products by APY. Then, we excluded any institutions with a health rating below a B, as well as any credit unions with very restrictive membership requirements. If there was a tie between APYs, we chose the CD with a minimum deposit of $100,000. All products on this list are insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA), but with jumbo CDs, it’s especially important to remember that only deposits up to $250,000 are insured.

Keep in mind that other banks might offer a CD with a better APY and a lower minimum deposit than $100,000. However, the chart below reflects the true definition of a jumbo CD, which involves a deposit of $100,000 or more.

This table is updated as of Dec. 6, 2017, but it’s always a good idea to double-check the annual percentage yield (APY) before making your choice of where to invest. Some banks on the list offer promotional APYs, so be sure to check that the rates below are still available since rates can change day to day.

Institution

CD Term

APY

Minimum Deposit Amount

M.Y. Safra Bank

3 months

1.16%

$100,000

M.Y. Safra Bank

6 months

1.42%

$100,000

My eBanc

1 year

1.77%

$100,000

My eBanc

18 months

1.80%

$100,000

Veridian Credit Union

2 years

2.02%

$100,000

M.Y. Safra

3 years

2.11%

$100,000

M.Y. Safra Bank

4 years

2.25%

$100,000

Kinecta FCU

5 years

2.50%

$100,000

As of Dec. 6, 2017

Banks that offer the best jumbo CD rates

M.Y. Safra Bank

M.Y. Safra Bank holds four spots on this list, which means it has competitive rates for jumbo CDs of a few different terms. When you go to its homepage, you’ll notice the banner shows “Special CD Offers.” This means that it’s important to keep track of these interest rates to make sure you get one that is current. This page has asterisks next to online promotions, so you know which ones might not be offered for a long time.

One downside to M.Y. Safra Bank is that the website is hard to navigate and is slow to load. This could be difficult for sophisticated investors who are used to banking with ease.

For a three-month jumbo CD, the APY is 1.16%. For the six-month jumbo CD, the APY is 1.42%. The APY on the three-year jumbo CD is 2.11% and for the four-year jumbo CD, the APY is 2.25%. Keep in mind there might be other banks that offer 35- or 38-month CDs for slightly better rates, but they were not factored into this chart since this category was specifically for a three-year offering.

My eBanc

My eBanc is an online-only bank. It’s a division of BAC Florida Bank. Unlike M.Y. Safra Bank’s, the eBanc website is much easier to navigate and has clear instructions on how to open a jumbo CD.

According to the site, My eBanc has no maintenance fees and compounds interest daily. When your jumbo CD matures, withdrawing your money is simple, although there is an early-withdrawal fee.

For a one-year jumbo CD, the APY is 1.77% and for an 18-month, the APY is 1.80%.

Veridian Credit Union

Veridian Credit Union is headquartered in Waterloo, Iowa, has 30 locations and over 700 employees. You can become a member of the credit union if you live in the area or if you’re a registered user of Dwolla, an e-commerce company which is available to anyone.

You can see current rates on jumbo CDs on the Veridian rate sheet. Keep in mind that several of the rates listed are current specials and might not be available long term. At the time of this writing, Veridian Credit Union has a very competitive rate on a two-year jumbo CD for 2.02%.

Kinecta FCU

Kinecta Federal Credit Union is located in Manhattan Beach, Calif. Membership is open to anyone who lives in the area or anyone who pays a $10 membership fee to become a member of the Consumers Cooperative Society of Santa Monica.

The lender has very competitive rates on jumbo CDs. A five-year can earn 2.50%.

The difference between jumbo and regular CDs

As mentioned previously, you can open a CD with less than $100,000. You can even get CD rates comparable to the ones above, with a lower minimum deposit requirement. Of course, the more money you put in a CD, the more interest you can earn, but if you don’t have $100,000 to open a jumbo CD, it’s important to know you do have other options with lower minimums.

Withdrawal penalties on jumbo CDs

According to a recent BankRate survey, the penalties for withdrawing your money from your CD early could be serious. Some banks will even take part of your principal as a penalty.

Below are the most common penalties, according to the survey:

  • 3 month CD: Three months of interest
  • 6 month CD: Three months of interest
  • 1 year CD: Six months of interest
  • 2 year CD: Six months of interest
  • 5 year CD: A year’s worth of interest

So, it’s important to be confident that you want to put your money in a CD. When you do this, you’re making an agreement with the bank to leave it there for a set period of time. If you’re unsure if you want to tie up your money for a long period of time, consider a high-yield savings account instead.

How jumbo CDs are taxed

It’s important to know that the interest you earn on your jumbo CD will be taxed as interest income, not as capital gains income.

This means that your bank or credit union will send you a 1099-INT form at the end of the year to show how much interest you earned in your jumbo CD and you will be taxed on that.

Are jumbo CDs safe?

According to the U.S. Securities and Exchange Commission: “Certificates of deposit are considered to be one of the safest savings options. A CD bought through a federally insured bank is insured up to $250,000.”

Some people prefer investing in the stock market over CDs because you can often get higher rates of returns; however, the stock market is a riskier bet, and returns are not guaranteed like those associated with CDs.

CDs are not affected by the whims of the stock market. The interest rate you agree on with your bank is the rate you will get. That interest rate, however, may not outpace inflation, meaning you may not really earn much, if anything, over time.

Final thoughts

If you have over $100,000 and want to invest it in a jumbo CD, you have several options. Like the chart above shows, you can choose many different terms and durations for your jumbo CD. Just be sure to research the bank you invest with so you know you’re putting your money with a top-rated institution. Also, be sure that you’re comfortable with putting your money in a CD long-term because there are often penalties for withdrawing your money early.

The post Top Jumbo CD Rates for December 2017 appeared first on MagnifyMoney.

Discover Customer Service Review

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These days, financial companies need to have impeccable customer service. Not only are there a significant amount of competitors, but consumers now go to social media to air their grievances. With this in mind, it’s important for financial companies to take the time to listen to their customers and serve them well.

One financial company that has a particularly good customer service reputation is Discover.

Discover’s customer service reputation

Discover has an award-winning customer service team and is known for high customer satisfaction rates. It has won numerous industry awards and has been in the top rankings on several customer satisfaction surveys in recent years. It ranked high in several studies, multiple years in a row, which indicates a continued dedication to customers.

Below are some examples of recent praise and awards Discover earned:

What’s impressive about this list is that Discover wins awards in multiple categories. Not only does the financial industry recognize its excellence with credit cards and banking, but it also gets top honors in new customer service categories, like with its mobile app.

How Discover compares

Although Discover ranked the highest in customer satisfaction with credit card users in J.D. Power’s 2016 rankings, it came in second place behind American Express in 2017.

Still, Discover has several standout features when compared with other major financial companies, especially with its app. You can communicate with Discover’s customer service team through the app 24/7. Another noteworthy feature is that you can “freeze” your account through the app if you lose your card. Discover also touts its 100 percent U.S.-based customer service, though the effect that has on the bank’s customer service quality is hard to measure.

Also, Discover is what’s called a branchless bank, which means there are no physical locations. Among branchless banks, Capital One 360 ranks the highest in customer satisfaction, whereas Discover Bank ranks second, followed by E*TRADE Bank. J.D. Power noted in its direct banking study. (The rankings in this category were extremely close.)

However, if you’re the kind of person who likes the ability to go into a bank branch to resolve account issues, this sort of bank structure may not appeal to you.

How to get in touch with Discover customer service

You can get in touch with Discover customer service in the following ways:

Mail

Payment Address

Discover Financial Services
P.O. Box 6103
Carol Stream, IL 60197-6103

Customer Service – General Inquiries

Discover Financial Services
P.O. Box 30943
Salt Lake City, UT 84130-0943

Discover Gift Cards

P.O. Box 52145
Phoenix, AZ 85027-2145

Phone

U.S. Calls

1-800-DISCOVER

Outside U.S. Calls

1-801-902-3100

TDD (for the hearing impaired)

1-800-347-7449

Live chat

In order to speak to a Discover customer service representative via live chat, you need to log into your account first on the top right of the Discover homepage.

Self-service

There are also numerous places where you can get help with specific Discover products. Find answers to frequently asked questions, redeem rewards, learn how to find out your FICO score and more at the links below.

Credit Card Help Center

Make payments, register your account,
report a lost or stolen card, activate your card, get a cash advance,
live chat, call 24 hours a day

Credit Resource Center

Read content about credit card tips, credit health, saving money,
debt management, credit scores, budgeting, and more.

Banking Help Center

A homepage that lists several different ways to contact
Discover to talk about their banking products, like opening an
account or reporting fraudulent activity.

Home Equity Help Center

Use this page to access financial calculators, learn how you can use
your home equity, find loans and rates, and of course apply
for a home equity loan.

Student Loans Help

Use this page to log into your student loan account and email
Discover specific questions. You can also use this page to pay your
student loans, learn how to apply for student loans, and access student
loan calculators.

Personal Loans Help

Use this page to find out the types of personal loans Discover offers.
You can also access resources, calculators, make payments, and see
if you qualify for a personal loan in just a few minutes
(with no impact to your credit score.)

Business Card Help

This page leads to the same general “Credit Card Help Center”
page mentioned above.

Gift Card Help

You can use this page to get contact information related to
Discover gift cards. You can also activate the card, check your balance,
and see a list of FAQs.

Discover card options to consider

Discover has several different credit card options to consider. Below are some of the most popular Discover it cards.

Keep in mind that one of the best perks among these cards is no annual fee. Additionally, there is significant protection for shopping and purchases. For example, Discover covers your purchases up to $500 if they are stolen or damaged. It also offers extended product warranties and will refund the difference if you find a lower price on one of your purchases elsewhere within 90 days.

Discover it® 18-Month Balance Transfer Card

The best part of this card is definitely the introductory 18-month balance transfer offer. Keep in mind that you will have to pay a 3 percent fee on the transfer, but then you get 0 percent interest for 18 months. This card is best for people with good credit scores who want to get out of credit card debt. Keep in mind you cannot transfer a balance from another Discover card to this card. You can read our full review here.

Discover it® - 18 Month Balance Transfer Offer

APPLY NOW Secured

on Discover’s secure website

Discover it® Secured Card

This credit card is for people who have no credit or bad credit. Cardholders put down a minimum deposit of $200 to secure a credit line so they can work on improving their credit scores. There is no annual fee but there is a high APR, which should not be a problem if you pay your card off every month. The card stands out from other secured cards in that it offers rewards and automatic account reviews after eight months, to see if you can “upgrade” to an unsecured credit card and get your deposit back. You can read our full review here.

Discover it® Secured Card - No Annual Fee

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on Discover’s secure website

Discover it® Miles

Like the other Discover cards on this list, this card comes with no annual fee. The biggest benefit is that you’ll earn 1.5 points on every dollar you spend, which you can use toward travel. This card is best for those who love to travel and would rather all of their points go toward that. What sets it apart from other popular travel credit cards is that Discover will also match all of the miles you earn at the end of your first year.

Discover it® Miles

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on Discover’s secure website

Discover it® chrome

This card is similar to other Discover cards except it’s perfect for people who enjoy dining out. Discover will give you 2 percent cash back at restaurants and gas stations up to $1,000 in combined purchases every quarter — no sign-ups required. Plus, it’ll automatically match all the cash back you earn at the end of your first year. Like the others, there is no annual fee.

Discover it® chrome

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To see other types of Discover credit cards and find the one that fits you best, check out all of the Discover cards, which includes student cards. Don’t forget you can also get your FICO score for free.

Check out all the other cardmember benefits here.

The post Discover Customer Service Review appeared first on MagnifyMoney.

The 5/1 ARM Mortgage: What Is It and Is It for Me?

5/1 ARM mortgage
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Finding the right mortgage can be a confusing process, especially for first-time homebuyers. There are so many options that it can be hard for a consumer to know how to get the optimal rate and terms.

One way to get a better initial interest rate is by taking out a 5/1 ARM mortgage. Small wonder that many potential borrowers want to know what makes a 5/1 ARM mortgage so unique and whether it might be the right loan for them.

Below is a guide to how 5/1 ARM mortgages work, how they are different from traditional 15- and 30-year mortgages, and what pros and cons consumers need to understand.

How a 5/1 ARM works

A 5/1 ARM mortgage, as explained by MagnifyMoney’s parent company, LendingTree, is a type of adjustable-rate mortgage (hence, the ARM part) that begins with a fixed interest rate for the first five years. Then, once that time has elapsed, the interest rate becomes variable. A variable rate means your interest rate can change. Consequently, so can your payment.

The number “5” in “5/1 ARM” means that your interest rate is fixed for five years. The number “1” in “5/1 ARM” means your interest rate could change each year after the first five years have passed.

Interest rates are based on an index, which is a benchmark rate used by lenders to set their rates. An index is based on broad market conditions and investment returns in the U.S.. Thus, your bank can adjust its interest rates at any point that the benchmark rate changes or if there are major fluctuations in the U.S. stock market.

What’s fixed? What’s adjustable?

Fixed-rate mortgages have the same interest rate for the duration of the mortgage loan. The most common loan periods for these are 15- and 30-year.

Because a 15-year fixed rate mortgage is, obviously, for a shorter term than a 30-year fixed rate mortgage, you will likely pay much less interest over time. However, as a result, you will have a higher monthly mortgage payment since the loan payoff period is condensed to 15 years.

Adjustable-rate mortgages like the 5/1 ARM loan mentioned above have a fixed interest rate for the beginning of the loan and then a variable rate after the initial fixed-rate period.

The chart below shows an example of the same house with three different types of mortgages.

As you can see below, the 15-year fixed rate mortgage has a lower interest rate, but a much higher payment. The 5/1 ARM has the lowest interest rate of all, but once that interest rate becomes variable, the lower rate is not guaranteed. This is one of the cons of a 5/1 ARM mortgage, which will be outlined in the next section.

Mortgage snapshot

Here is an example of three different types of mortgage payments for someone taking out a $200,000 mortgage. The chart below makes the assumption that the fictional person this is for has a high credit score and qualifies for good interest rates.

 

Interest Rate

Monthly payment

Principal Paid
After 5 Years

Total Interest Cost
After 5 Years

30-year fixed

3.625%

$912.10

$20,592.12

$35,046.14

15-year fixed

3.0%

$1,403

$57,987.88

$26,263.08

5/1 ARM

2.875%

$829.78

$22,595.20

$27,191.90

The pros and cons of 5/1 ARM mortgages

The pros

The biggest advantage of a 5/1 ARM mortgage is that interest rates are typically lower for the first five years of the loan than they would be with a typical 15- or 30-year fixed-rate deal. This allows the homeowner to put more of the monthly payment toward the principal balance on the home, which is a good way to gain equity in the property.

The 5/1 ARM mortgage commonly has a lifetime adjustment cap, which means that even though the rate is variable, it can never go higher than that cap. That way, your lender can tell you what your highest monthly payment will be in the future should your interest rate ever reach that point.

The cons

As mentioned above, the con of a 5/1 ARM mortgage is the whole “adjustable” component. Once you get past the five-year term, there will be uncertainty. Every year after the fifth year of your mortgage, the rate can adjust and keep adjusting.

There is a way around this. You can refinance your mortgage after the five years and secure a new mortgage with a fixed rate. But be warned: Refinancing comes with fees. You will have to calculate on your own whether or not the savings you derive from a lower payment for five years is worthwhile as you measure it against the cost of refinancing to a fixed-rate loan.

That’s why it’s important to know how long you want to live in your home and whether or not you’ll want to sell your home when you move (as opposed to, say, renting it out).

A 5/1 mortgage is right for …

“For certain people, like first-time homebuyers, 5/1 ARM mortgages are very useful,” Doug Crouse, a senior loan officer with nearly 20 years of experience in the mortgage industry, tells MagnifyMoney.

Here are the types of people who could benefit from a 5/1 ARM mortgage:

  • First-time homebuyers who are planning to move within five years.
  • Borrowers who will pay off their mortgages very quickly.
  • Borrowers who take out a jumbo mortgage.

Crouse explains that with some first-time homebuyers, the plan is to move after a few years. This group can benefit from lower interest rates and lower monthly payments during those early years, before the fixed rate changes to a variable rate.

Mindy Jensen, who is the community manager for BiggerPockets, an 800,000-person online community of real estate investors, agrees. “You can actually use a 5/1 ARM to your advantage in certain situations,” Jensen tells MagnifyMoney.

For example, Jensen mentions a 5/1 ARM could work well for someone who wants to pay down a mortgage very, very quickly. After all, if you know you’re going to pay off your loan early, why pay more interest to your lender than you have to?

“Homeowners who are looking to make very aggressive payments in order to be mortgage-free can use the 5/1 ARM” to their advantage, she explains. “The lower initial interest rate frees up more money to make higher principal payments.”

Another group that can benefit from 5/1 ARM mortgages, Crouse says, is those who take out or refinance jumbo mortgages.

For these loans, a 5/1 ARM makes the first few years of mortgage payments lower because of the lower interest rate. This, in turn, means that the initial payments will be much more affordable for these higher-end properties.

Plus, if buyers purchased these more expensive homes in desirable areas where home prices are projected to rise quickly, it’s possible the value of their home could soar in the first few years while they make lower payments. Then, they can sell after five years and hopefully make a profit. Keep in mind that real estate is a risky investment and nothing is guaranteed.

The 5/1 isn’t right for …

Long-term home buyers who plan to stay put for the long haul probably won’t benefit from a 5/1 ARM loan, experts say. “An adjustable-rate mortgage loan is a bad idea for anyone who sees their home as a long-term choice,” Jensen says.

Crouse echoes the sentiment: “If someone plans to stay in their home for longer than five years, this might not be the best option for them.”

Jensen adds that homeowners should consider whether or not they want to be landlords in the future. If you decide to move out of your home but keep the mortgage and rent a property, it won’t be so beneficial to sign up for a 5/1 ARM loan.

Questions to ask yourself

If, after reading this guide, you think a 5/1 ARM mortgage might be right to you, go through this list of questions to be sure. Remember, you can also consult with your lender.

  • How long do I want to live in this home?
  • Will this home suit my family if my family grows?
  • Is there a chance I could get transferred with my job?
  • How often does the rate adjust after five years?
  • When is the adjusted rate applied to the mortgage?
  • If I want to refinance after five years, what is the typical cost of a refinance?
  • How comfortable am I with the uncertainty of a variable rate?
  • Do I want to rent my house if I decide to move?

Hopefully these questions and this guide can aid you in reaching a sensible decision.

The post The 5/1 ARM Mortgage: What Is It and Is It for Me? appeared first on MagnifyMoney.

What is PITI? 

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If you’re getting ready to buy a home, you might hear the term “PITI” from your real estate professional. You might also come across it in emails with your lender or read it in your mortgage paperwork.

So what is PITI? Simply put, it’s an acronym that describes the four key components of your monthly housing costs as a homeowner. 

Specifically, PITI stands for: principal, interest, taxes and insurance.

Many people make the mistake of comparing the cost of their monthly rent and utilities with a monthly mortgage and interest payment. In this kind of flawed comparison, owning a home can often seem like the better deal. 

However, as evidenced by PITI, there is more to owning a home than paying a mortgage plus interest. Not even addressing utilities, you also have to factor in property taxes and insurance, which can definitely increase your monthly payments.  

That’s why it’s important to use a PITI loan calculator, like this one from our parent company LendingTree, and speak to your lender to find out what your actual PITI payments will be. Only then will you have a comprehensive idea of the true cost of homeownership. 

To help you get there, we’ll go into more detail below about each of these four components of a mortgage and what to consider before you buy a home. 

Principal 

Your home’s principal is the base amount of money you borrowed to buy it. So, if you financed $200,000 for a home, you have $200,000 of principal left to pay off. 

It’s very important to note that your entire mortgage payment will not be applied to your principal balance. Only a portion of it will. The rest of your mortgage payment will go toward interest, taxes and insurance. If you want to pay down your mortgage faster, you’ll have to send in extra payments and instruct your mortgage company to apply that cash to the principal, not toward future interest. 

Interest 

Interest is the cost you pay for taking out a loan. The bank charges you for lending you money in the form of interest. After all, if it lends you X dollars, that’s X dollars it can’t use itself. So there is a cost associated with lending. You’ll normally see interest in percentage form. (The interest rate on this loan is 4 percent.)  

Still, it can be difficult to understand how to calculate your interest rate and how that affects your mortgage payment. Here are some of the ways to determine your interest costs: 

There is also a difference between your mortgage interest rate and your APR. According to the Consumer Financial Protection Bureau, your APR (annual percentage rate) includes your mortgage interest and other charges like fees. So be sure to ask your lender to see your APR so you can get a sense of the total cost of your mortgage. Knowing APR is also a good tool to use to properly compare lenders, because some lenders charge higher fees than others even if they’re offering the same loan amount. 

Lastly, your interest payment will not be the same every month. This is called amortization, the gradual reduction of a debt by regular scheduled payments of interest and principal. Many first-time homeowners are surprised at how much of their mortgage payment goes toward interest and not principal. In order to plan ahead, ask your lender for a sample amortization schedule so you can get an idea of how much of your monthly payments will go toward interest and how much will apply to principal over time. As you pay down your interest costs, you’ll start to see the principal balance reduce more and more. 

Taxes

As a homeowner, you pay property taxes on your home. These funds are used to fund your local communities, including your local public schools, fire departments, police forces, libraries and more. 

Here is some information on property taxes and how your city determines them: 

  • Property taxes vary from one state to the next. 
  • A local tax assessor will determine your local property tax, but has no control over your state tax rate. You can also look up how to calculate property taxes to find out more information about your own home. 
  • You can check your property tax assessment every year to make sure there are no errors on it. In some areas, you’ll have an updated assessment every year, but in others, it could be every few years. 
  • There are many factors that impact your property tax rate. Some of these factors include improvements to your property, the price of similar homes in your area, and even things not related to your home, like state and local budget cuts 

Luckily, the property taxes you pay are often an income tax deduction, so that is one benefit to homeownership. 

Insurance 

The amount of insurance you pay as a homeowner really depends on where you live, how  much of a down payment you gave your lender, and what type of coverage you want or need. Below are three examples of common types of insurance that homeowners carry:  

  • Homeowners insurance: Homeowners insurance typically protects your home against damage caused by things like a house fire. Most homebuyers put their insurance payments in an escrow account ahead of time. Then, your bank uses the funds you put in the account to pay the insurance on your behalf. 
  • Flood insurance: Not all homeowners buy flood insurance. This will really depend on where your home is, and whether there’s a risk of flooding from hurricanes or being in a low-lying area. It’s important to do your research and get a flood certificate to find out if the property is located on a floodplain.  
  • Private mortgage insurance: If you can’t put 20 percent down on your house, some banks (but not all) will require you to pay for private mortgage insurance, also known as PMI. Some types of mortgages, like FHA loans, require such insurance.

    What is not included in PITI payments? 

Although PITI is comprehensive when considering how much it will cost you to own and operate your home, there are some other costs that aren’t factored in.

Below are some examples.

  • Utilities: Your utilities might include electricity, natural gas, water, trash collection and the like. 
  • Recurring subscriptions: Have you factored in things like cable, phone, internet, Netflix, etc. 
  • Homeowners association fees: If you live in a condo or in a neighborhood that shares the costs associated with common spaces or services, you might have to pay an HOA fee on top of your PITI costs. 
  • Home improvements: If you want to upgrade some part of your home, this will be an added cost. 
  • Home maintenance costs: You can predict basic home maintenance costs, like cutting the grass or fixing a leaky faucet. You can’t predict some of the larger expenses, like those arising from termite damage or a broken hot water heater.This is why it’s important to have an emergency fund before buying a home.

    Ryan Inman, a Las Vegas based financial adviser, often works with young families and potential homeowners. He says it’s important to pay attention to the non-PITI costs mentioned above. “My best advice to first-time homebuyers is to compare the amount of rent and utilities you are paying now with how much PITI, HOA fees and utilities will be on a home,” he tells MagnifyMoney. 

“Save the difference for three to six months, and see how your lifestyle is affected. 

The key to Inman’s strategy is figuring out if you can maintain a comfortable lifestyle (no dramatic changes or sacrifices) on your mock homeowner’s budget. If it’s no problem, then you might be ready for homeownership.  

“Also, factor in that you will now be responsible for maintaining the home,” he adds. “There is no rule for how much this can be,” since it really depends on the age and quality of the home, “but it could be costly.” 

Next steps: 

Now that you understand more about what PITI stands for and represents, it’s time to do your research. Remember, you can calculate your total mortgage PITI payment by using a PITI payment calculator 

When you get your results using the PITI payment calculator, don’t forget to add in the uncounted items mentioned above, like home maintenance costs and utilities. 

It’s also important to have a cash buffer for unexpected emergencies so you don’t go into debt fixing a flooded basement or addressing significant damage from a storm. 

If you do all of this, you’ll have an excellent idea of what your cost of homeownership will be. If you feel comfortable with this cost and are convinced you’re set to handle anything unexpected that might pop up, then you’re well on your way to becoming an owner. 

The post What is PITI?  appeared first on MagnifyMoney.

Why You Should Open Up a Roth IRA for Your Kids

A Roth IRA is probably one of the most powerful retirement vehicles available on the market. Unlike a traditional IRA, the contributions made to a Roth IRA are pre-tax, which allows you to withdraw your money tax-free after age 59½ .

When it comes to a Roth IRA, it’s important to think of how you can use it in other ways too, namely, how your kids can use one to become financially successful one day. There are two ways unique ways you can use a Roth IRA to help your children.

The first way is to open one in their name that they can use to save for their eventual retirement. The second is to use a Roth IRA in your name as a college savings account.

Both of these options come with pros and cons, and it’s important to know them before deciding if either of them is right for you.

Opening an IRA in Your Child’s Name for Their Retirement

The challenge of opening an IRA in your child’s name is that in order to open an IRA in your child’s name, the child has to have a paycheck. You can see exactly what qualifies as earned income here. It might seem like this is impossible, but it’s not. Entrepreneurial parents all over the country who see the value in early retirement savings are taking advantage of this.

For example, if you run a business, you can employ your children to stamp your mail, be models for your brochures, and even manage your social media. As long as you issue them a 1099 or a W2 for their work, they are eligible to open a Roth IRA.

Another negative is that you can’t supplement your child’s income to reach the $5,500 cap on Roth IRA contributions. They can only put in what they earn up to $5,500. So if your child only earns $1,500 from working part-time at an ice cream shop one summer, they can only invest $1,500. However, if they earn $6,000 from that same ice cream shop, they can only invest $5,500.

When children have a Roth IRA in their names, the money is officially theirs. This is different from earmarking a savings account for them in your name. Instead, this is money that they earned going into an account that can benefit them in retirement. The biggest pro is that this is an awesome teaching tool for them. You can really show them how their money can compound and grow over the years.

Even if you start the Roth with a small amount and never touch it again, a one-time $5,500 investment (the current Roth IRA contribution limit) can grow to over $100,000 at a 6% return if your child lets it grow from age 12 to age 62. Fifty years of compounding interest will do that!

What an awesome gift that would be if your child never touched this until they were at their retirement age and got a bonus six-figure payout from work they did when they were a kid. That’s a good memory to leave with them.

Opening a Roth IRA in Your Name as a College Savings Account

Many people don’t realize that another great benefit of a Roth IRA is that you can use it as a college savings account. You could use a Roth IRA in your child’s name for their college savings, but let’s say your child doesn’t work, or if they do, you’d rather they kept the IRA for their own retirement one day.

If that’s the case, you could use your own Roth IRA for their college savings, and here’s why. According to Certified Financial Planner, Matt Becker, “If the money is used for higher education expenses for you, your spouse, your child, or your grandchild, there is no 10% penalty.” (Usually, if you withdraw earnings from a Roth before age 59 ½ there would be a penalty, but not if the money is used for college.)

The downside to all this is that if you use this money for your child’s college education, then you’re not saving it in your Roth for your own retirement someday, and that’s pretty important! The pro is that your money isn’t locked into a 529 plan where you have to use the money for qualified higher education expenses. Another interesting pro is that 529 assets are counted toward your Estimated Family Contributions on the FAFSA, but investment accounts, like Roth IRAs are not.

That said, it’s important to look very closely at the differences between 529 plans and Roth IRA plans if you want to use your Roth as a college savings vehicle. Additionally, if you are a high-income earner, you might not be able to contribute to your own Roth IRA unless you do what’s called a backdoor IRA. The current 2017 income limit for Roth IRA contributions is a $186,000 annual income for those who are married and filing jointly or $118,000 for those who are single.

As you can see, Roth IRAs are great accounts for a variety of different savings purposes, and you should try to think outside the box when it comes to using them to help your children create a bright financial future.

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Why I Refinanced My Student Loans — Twice

 

Refinancing your student loans can be a great way to accelerate debt repayment or free up some of your monthly budget. I recently refinanced my student loans for a second time, which was a strategic move to improve my overall financial health.

Here’s why I think this can be a smart idea, if you do it at the right time in the right way.

What Is Student Loan Refinancing?

If you’re new here and wondering what refinancing even is, allow me to explain. When you refinance your student loans, you essentially apply for a new loan so that a new lender will buy out your current student loans and give you a new loan with better terms.

“Better” terms depends on what your goal is. For many people, getting a better loan means getting a lower interest rate. If you want to save hundreds of thousands of dollars of interest over the life of your loan, refinancing is a great way to do that. You can structure your loan to pay it off faster at a lower interest rate. This might mean higher monthly payments than you’re used to but a much lower cost of your loan overall.

If you’re having trouble paying your student loans and your monthly payment is too high right now, you can also refinance your student loans to lower your monthly payment. So if you’re on a 10-year plan now, you could refinance to a 15- or 20-year plan to spread out your payments until you get on better financial footing.

Why I Refinanced Twice

About a year ago, I refinanced my federal student loans with SoFi because I wanted to get a better interest rate and pay off my loans faster. My student loans totaled $33,000 with an interest rate of 6.8% with 15 years left on the loan. My monthly payment was around $295 a month. I dropped over a half a percentage point in the interest rate to 6.25% and chose to pay off my loans in 7 years, which increased my monthly payment to about $485. Had I stayed with this loan, I would have saved almost $12,000 in interest fees over time.

I paid my monthly payments dutifully every month, but when my husband and I recently sat down to plan an aggressive debt payoff using the snowball method, we realized that I had been a bit too aggressive with my initial refinance.

Essentially, we wanted to throw as much money as possible at our high-interest debt. Our student loans were at manageable interest rates compared to our credit cards, and we wanted to restructure things a bit to free up more cash.

After receiving a refinance advertisement from College Ave in the mail, I decided to see if I could refinance my student loans and my husband’s graduate school loans with them. It had been only a year or so since my first refinance, but I was still interested. For the record, I tried twice previously to refinance my husband’s loans with SoFi, but they didn’t like his current salary as a medical resident, and they said I was not a qualified co-signer.

Well, luckily College Ave thought I was, so I was able to refinance both my student loans and my husband’s graduate school loans with College Ave. Our interest rates remained the same but I was able to customize a payoff plan that works well with our current debt snowball.

Basically, I chose a plan that allowed us to make graduated payments, so my payments for the next two years are significantly lower than they used to be. That gives me two years to knock out some of our credit card debt without worrying about having large student loan payments.

The Benefits of Student Loan Refinancing

In addition to getting longer or shorter payoff periods and better interest rates, there are other reasons why you might choose to refinance your student loans. For example, if you co-signed your student loans with your parents, sometimes student loan refinance companies will let you get a new loan entirely in your name, getting your parents off the hook.

Many people also refinance their student loans to be more organized. If you have several different student loans and bills with a mixture of interest rates, consolidating your student loans allows you to finally have one monthly bill with one interest rate in one place. This helps reduce the possibility of being late on your payments.

Things to Watch Out for Before You Refinance

While I’m obviously an advocate of refinancing, it’s important to know the downsides as well. The main downside is that if you refinance to a private company from having federal student loans, you lose a lot of the flexibility and perks of the federal student loan system.

Not all private lenders have as many repayment options as federal loans have, and most of them do not offer the perks that come with income-based repayment. For example, my husband’s medical school loans are under the income-based repayment plan called REPAYE, where the government is subsidizing his interest payments (several hundred dollars a month). This is not a perk I was willing to give up, but I was happy to refinance his private graduate school student loans to another private lender with better terms.

It’s Easier Than You Think

I know that switching student loan providers might sound like a complicated process, but with all the online financing companies available now, it’s easier than ever. The process to apply to refinance my student loans took less than 20 minutes both times.

Just make sure to have some identification documents on hand, like your driver’s license and Social Security card, to keep the process running smoothly. After my application was approved, it took about two weeks for my student loans to be completely moved over. Plus, since my new servicer paid off my own loans, that counted as a “payment,” which freed up even more cash this month.

Ultimately, student loan refinancing can be a strategic tool you can use when it comes to bettering your finances and getting out of debt faster. As long as you understand the process, ask to make sure you’re aware of any possible fees, and double-check that the process runs smoothly, you could be well on your way to financial freedom just by adjusting your interest rates and your payments on your student loans.

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