Our homes should be oases of calm where we can retreat to from the hectic world we live in. But that’s easier said that done, especially since every corner of the house stands as a reminder of something we didn’t quite get to yet; whenever we walk past our desk, weâre being reminded that thereâs […] More
The post Here’s Everything You Need to Set Up a Meditation Corner in Your House appeared first on Fancy Pants Homes.
A consumer loan is a loan or line of credit that you receive from a lender. Consumer loans can be auto loans, home mortgages, student loans, credit cards, equity loans, refinance loans, and personal loans. This article will address each type of consumer loans. Get Approved for personal loan today. Types of consumer loans: Consumer …
The post What Is A Consumer Loan? appeared first on GrowthRapidly.
Youâve saved up your money, you found the perfect house, and youâre ready to buy. Now you just need a mortgage. Commercial banks may be the obvious choice, but they arenât the only option for your mortgage. Mortgage brokers, online mortgage lenders, and credit unions also originate mortgage loans. Credit unions and other non-banks are… Read More
The post Credit Union Vs. Bank Mortgage: Which Should You Choose? appeared first on Credit.com.
My daughter recently lost $80 in her bedroom. It’s just gone. One theory is that we accidentally donated it to Goodwill, since she had stored it in an old book and we’d been clearing out a lot of junk. But it got me thinking: What would be a better place to keep money she’s not using?
She’s been bringing in some respectable allowance earnings with the chores she’s taken on recently. Plus, she always receives some money for birthdays, and she doesn’t spend much. Maybe an investment account?
While the investing rules are a little different for minors compared to adults, it’s not hard to get your child started investing. Even if they only make a little money, the experience may encourage them to start investing for retirement early in adulthood, which can set them up for life. Here’s how to show your kid the basics of investing.
Determine what kind of account to set up
Children can set up savings, checking, or brokerage accounts using the Uniform Transfers to Minors Act (UTMA) or the Uniform Gifts to Minors Act (UGMA). All they need is an adult (presumably you) to sign on as the account’s custodian. This means you have to approve what your child does with the money until your kid is of age, which is 18 or 21, depending on what state you live in. Because the funds or investments in a UTMA legally belong to your child, once they’re in this account, they can only be spent for your child’s benefit. You can’t deposit $100 in your child’s UTMA account and later decide you want it back or transfer it to another child.
Setting up a UTMA account is much like setting up any other account. You can walk into a bank or credit union and open one for your child by filling out some paperwork and showing your identification, or you can go online to sign up for one with a firm such as Vanguard.
Your child could also set up a UTMA 529 savings plan. The 529 is a college savings vehicle that has tax advantages, but also comes with restrictions on how it can be spent. More on that below.
Aside from a traditional brokerage account, your child could also try a micro-investing account, since they’re likely to be starting with a small amount of money. You can set up a custodial account through Stash or Stockpile — in fact, Stockpile even works with BusyKid, an app that helps families track kids’ chores and pay their allowances digitally.
Besides an investment account, you may also need to open a checking or money market UTMA for your child and link it to the brokerage account, as a way to fund the brokerage account and a place to receive dividends and other proceeds.
Unless they have earned income from working, your kids can’t set up a traditional or Roth individual retirement account. (See also: 9 Essential Personal Finance Skills to Teach Your Kid Before They Move Out)
Figure out what investment vehicles to use
Once their account is set up, kids have access to the same investment products that adults do, such as mutual funds, individual stocks, or exchange-traded funds. Which products they choose depends on their interests, how much money they have to start with, and how actively they wish to invest.
A child who is interested in following one or more companies in the news and making active investment choices may want to buy individual stocks. Look for a brokerage firm with no minimum initial deposit (or a low one) and low trade fees. While this is a concrete and exciting way to start understanding the stock market, make sure that kids understand that for the long haul, many financial advisers recommend investing in funds over individual stocks.
If your child doesn’t have any individual companies in mind, but would like to invest in the market as a whole, a mutual fund such as an S&P 500 index fund is a great way to go. Good ones have low expenses, meaning that your kid gets to keep more of his/her investment. Unfortunately, mutual funds do tend to require minimum investments. For instance, to buy shares in Charles Schwab’s often-recommended S&P 500 index fund, you need to open a Schwab brokerage account with a $1,000 initial deposit. However, there is one way around that: You can also open a Schwab account with a $100 deposit — but you have to deposit an additional $100 each month until the account has a $1,000 balance.
Your child could also buy exchange-traded funds, which work a lot like mutual funds but tend to have lower minimum investments.
Another way to get started with a small initial investment is to use one of the micro-investing apps mentioned above, which split one share of stock or of an ETF and sells the investor a fraction of it. These apps can make getting started very simple for young kids by characterizing investments by category. In exchange for making things this simple for you, these services usually charge a monthly fee; Stash’s is $1 per month.
While your child could also opt to invest in Treasury bonds or certificates of deposit, at today’s low interest rates, this probably wouldn’t be a very exciting way for them to learn about investing.
What about taxes?
Does your child have to pay taxes on their investment gains? Do they have to file their own tax return? The answer to both questions is, "It depends."
If your child’s investment income is less than $1,050, don’t worry about it; you don’t need to report this to the Internal Revenue Service. If the child’s investment income is less than $12,000, the parent can opt to report it on their own tax return, or file a separate return for the child. At more than $12,000, you have to file a tax return for your child.
What rate will your kid pay? Unearned income up to $2,100 will get taxed at between 0 percent and 10 percent, depending on what kind of income it is. After that, your child’s unearned income will be taxed at your rate, no matter if you file separately or together. So don’t imagine that you can save a bundle on taxes by transferring all your investment accounts to your kids — the IRS caught on to that gambit years ago.
If your child chose to put their money in a UTMA 529 plan, they never have to pay federal taxes (and generally not state taxes either) on the earnings, as long as they spend it on qualifying educational expenses, such as tuition and textbooks.
Will investing hurt their chances of getting college aid?
It’s important to note that when it’s time to apply for college financial aid, assets in the child’s name count against them more than assets in the parents’ name. Unless you’re sure your family won’t qualify for financial aid — and outside of the 1 percent, that’s not usually something you can be sure of in advance — encourage your child to choose shorter-term goals for their investment account. They could choose a goal of anything from buying a new Lego set, to a week of sleep-away camp, to their first car.
Again, putting their investments in a 529 plan changes the situation a bit. Even if the child is the account owner, the financial aid officers consider assets in a 529 account a parental asset. This is great, because only about 5 percent of parental assets count against financial aid eligibility, compared to 20 percent of student assets in a non-529 UTMA account.
If your student does invest college savings in their own name, have them spend their own money first before you tap into a 529 plan or any other savings you are holding for their education.
Like this article? Pin it!
28 Free Ways to Entertain Your Kids This Summer
Does Your Kid Need an IRA?
How to Stay Calm During a Market Fluctuation
Should You Pay Your Kids For Good Grades?
21 Things You Should Make Your Kids Pay For
Inflation measures how much an economy rises over time, comparing the average price of a basket of goods from one point in time to another. Understanding inflation is an important element of investing. The Bureau of Labor Statistics CPI Inflation Calculator shows that $5.00 in September 2000 has the purchasing power equal to $7.49 in […]
The post 5 Best Hedges in the Face of Inflation appeared first on Good Financial CentsÂ®.
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.
In 2020, aroundÂ 55% of AmericanÂ adults invest in the stock market. That’s down from a peak of 65% in 2007 but around the average over the past 10 years.Â Do you want to get a piece of the action? Before you jump all in, make sure you know the basics of how to invest in stocks.Â A… Read More
The post How to Invest in Stocks: A Guide to Getting Started appeared first on Credit.com.
What you may know about RVing: Itâs a great, cheap way to travel, or even a low-cost alternative for living full time. What you may not know: RVing costs can stack up, and even eclipse the cost of traditional car-and-hotel travel, or living in a sticks-and-bricks home. Here, weâll detail the primary expenses associated with [â¦]
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.
Coronavirus hasnât entirely ended life as we knew it, but itâs certainly caused changes, some of which are likely to be with us for a very long time. For some the coronavirus is literally a matter of life and death, and it raises an important question: how does coronavirus affect life insurance? No one likes […]
The post How Does Coronavirus Affect Life Insurance? appeared first on Good Financial CentsÂ®.