Make smarter decisions with your money today.
Thank yourself tomorrow.
Calculators and Tools
Do you currently have credit card debt? Use our calculator to figure out how much you should be paying each month, how long it will take to pay off and how much you'll end up losing to interest.
Your actual payment to the IRS can depend on thousands of factors, but this simple tool should give most people a pretty accurate estimate of how much of their money is straight to going to Uncle Sam.
Curious how much your savings can grow? Just tell us how much you have to invest and your time horizon and we'll show you what you can end up with.
The 3 most important factors that determine real estate prices: location, location and location. See how much housing costs where you live now, or where you'd like to live in the future.
8 Things That Can Affect Your Mortgage Rate
Most people buying a new home will need to borrow money from a lending institution to pay for the full cost of the house. These loans are referred to as mortgages, and like every other type of loan, they have a cost associated with them known as an interest rate. In mortgage lending, the interest rate is simply called the mortgage rate. The mortgage rate is a small percentage of the loan that you must pay every month to continue living in your home.
Interest rates of every kind, including the mortgage rate, measure the underlying risk that the loan may not be paid back. Lending institutions charge a higher rate when they perceive a higher risk of the loan not being paid back. Alternatively, they charge a lower interest rate when they perceive a lower risk of the loan not being paid back. There are various reasons that lending institutions perceive higher or lower risk when determining what your mortgage rate should be.
One of the most basic pieces of information that almost all lenders use is your credit score and credit report. Before you go in to get a mortgage, get a copy of your credit report to make sure that it’s accurate. If there are any errors that will negatively affect your credit score, get them removed from your credit report as soon as possible. Your credit report provides the lender with detailed information on the level of risk they are taking by lending you money. Your payment history, length of credit history, number of credit accounts, derogatory marks, and other information will help them determine what mortgage rate to charge you. If you plan on buying a house in the near future, monitor your credit report closely and do everything in your power to raise your credit score. The Fair Credit Reporting Act (FCRA) requires each of the three nationwide credit reporting companies (Equifax, Experian, and TransUnion) to provide you with a copy of your credit report, at no charge, once every 12 months. You can request your free copy at annualcreditreport.com.
The loan term is how long it will take you to pay your mortgage back. Shorter terms usually have lower mortgage rates. However, shorter loan terms also have higher monthly payments. The lending institution is taking on less risk because you will be paying your mortgage back much quicker. Longer loan terms have higher mortgage rates because it increases the chances that the loan may not be paid back. More unfortunate circumstances may occur over a longer period of time that may prevent you from paying your mortgage back.
A larger down payment means a lower mortgage rate because lenders perceive you as less risky when you have a higher stake in the property. The standard down payment is typically around 20% of the home value. If you can afford more than 20%, you should consider paying more. It can save you money in the long-run because less interest will accrue over time. You will also build equity in your home much faster because it will take you less time to pay off the total amount of the loan. Your home price will also be a significant factor in determining your mortgage rate. A more expensive home will come with a higher mortgage rate because it will require more money to fully pay off the loan. Get a good sense of your price range to determine what mortgage rate could be associated with the price level of your new home.
Traditional single family homes get the lowest mortgage rates because they have lower historical default rates. On the other hand, multi-family homes, condos, co-ops, and mixed-use developments have higher historical default rates, and therefore higher mortgage rates associated with them. Housing used for a vacation home or a rental also has a higher mortgage rate due to higher default rates.
Mortgage lenders have different pricing depending on what location you live in. If you are planning on moving to a different location, especially another state, check the lenders rates in that specific area. Also, larger lenders often times don't service rural areas. If you are moving to a more remote rural area, make sure and find a lender that will do business with you.
Sometimes your ability to get a lower rate depends on the time you spend shopping around. There are most likely multiple mortgage lenders in your area and you should take the time to get a quote from each one. These are competing institutions that will often have different prices for mortgages. Taking the time to get a quote from each one could save you thousands of dollars in the long-run.
Fixed Rate Mortgages have a mortgage rate that stays constant throughout the life of the mortgage and is based on the factors described above. Adjustable Rate Mortgages are based on the factors described above but the mortgage rate will also fluctuate after a given amount of time. Usually ARMs start out with a lower mortgage rate than a Fixed Rate Mortgage because you are potentially taking on more risk in the future. When the ARMs start to adjust, they adjust based on a specific market, often times the US Treasury market. Once the adjustment period starts, your new mortgage rate will be the market rate plus some margin, maybe 1% or 2%. ARMs can be risky for the borrower, as interest rates can rise significantly over the life of a mortgage. Fixed Rates can be risky for the bank, since it allows the consumer to lock in an amount that may become well below the market rate.
Interest rates fluctuate significantly over time, driven primarily by macroeconomic factors such as inflation and the overall strength of the economy. Current interest rates are near historic lows, but nobody can say for certain how long that will last. As with any investment, there is always an element of luck and timing.
8 Things That Can Affect Your Mortgage Rate
Investing for Retirement
Investing can come in many different forms. The professionals on Wall Street use sophisticated analysis methods, and at times, take on significant risk to achieve their investment goals. For the average person, investing is a much different and much simpler process. The goal of retirement investing is to accumulate a large sum of money, over many decades, so that you can live comfortably for a long time after you leave the workforce.
A common and simple approach is to implement a buy and hold strategy. John C. Bogle, the founder of Vanguard Group, argues that the best way to retire comfortably is to invest in low cost, diversified mutual funds and simply leave them alone until you retire. A common mistake amateur investors make is to respond excessively to short-term market movements. When people see the market move significantly lower in a short amount of time, it’s natural to panic a little. Many people run for safety and sell at the lower market prices, thinking their investments are ‘trending’ downward and they need to stop the bleeding. The problem is, you don’t really know where the bottom is until it’s gone. Even Warren Buffett admits he can’t predict short term market fluctuations. What you can do though, is keep your costs low by investing in low cost funds, make consistent contributions to your retirement account, and only buy and sell to make strategic asset allocation changes (e.g. moving to lower risk assets as you get closer to retirement). Retirement investing is a long-term goal and you should treat it as such.
One of the most important concepts in retirement investing is diversification. This concept is important because it will protect you from major losses should one of your assets rapidly deteriorate in value. The idea is to allocate your money across many different assets and asset classes (e.g. stocks, bonds, commodities, cash, etc.) so that if one asset class performs poorly it will not drag your entire portfolio down. This is nothing more than the law of large numbers you probably learned about in school. You take many uncorrelated (or loosely correlated) random variables (asset price movements), add them together, and you end up with something that has significantly less variance (risk) than the components taken individually.
If all asset prices were completely independent, you could mitigate virtually all risk simply by diversifying your portfolio. Unfortunately, that’s not the world we live in. We have home prices in one state that affect home prices in another. We recently saw a drop in home prices across the country cause a huge drop in average American wealth, which caused a drop in consumer spending and deeply affected many businesses. The stock market as a whole has its good years and bad years. Same for the bond market and same for just about any other market you can think of. That’s why it’s important to also consider the risk of individual assets within your portfolio. Bonds are generally considered lower risk than stocks. Within the stock market, larger, so called ‘blue chip’ companies are generally considered safer than smaller, newer ones.
Both 401(k)s and IRAs are very similar. They’re both accounts that allow you to defer taxes on contributions until the money is withdrawn. Where they differ is mostly in income and contribution limits.
Let’s start with the 401(k). This has the higher annual contribution and income limits of $18,000 (2016) and $265,000. That means if you make between $18,000 and $265,000 within a year, you can put $18,000 into a 401(k), have a taxable income of $18,000 less. In addition to your $18,000 limit, some employers choose to make a matching contribution, usually on only part of the $18,000. You won’t pay any taxes on the money you put into a 401(k) until you withdraw from the account, usually in retirement, at which time your withdrawal will be taxed similar to income as if it were earned in retirement. Workers over 50 can add an additional $6,000/year ‘catch up’ contribution to their 401k, for a total of $24,000.
IRAs are taxed the same as 401(k)s. The biggest difference is that you can only contribute $5,500/year (plus an additional $1,000/year if you’re over 50). There’s also a much lower income limit. Contribution limits are phased out for single individuals with incomes between $116,000 - $131,000 and married couples filing jointly between $183,000 - $193,000. That means if you’re single and you want to contribute $5,500/year, you must make at most $116,000 in income. Otherwise, you won’t be allowed to deduct the contribution, which is the whole point of having an IRA. A single person making more than $131,000 won’t be able to deduct anything, and someone with an income between $116,000 and $131,000 will be able to deduct somewhere between $0 and $5,500.
Traditional retirement accounts work as I’ve just described above. Roth retirement accounts, on the other hand, are a little different. When you contribute to a Roth IRA or 401(k), you don’t deduct your contributions from your taxable income. Why would anyone choose to do that? The trade off is that you can withdraw from the accounts without paying any taxes. If you think you’ll be in a higher tax bracket when you retire (maybe you’re going through a rough time now and you have unusually low income, or many deductions that you won’t have later, etc.), a Roth account is a good way to go. You’ll pay taxes on all the money while you’re in a low bracket and be able to withdraw tax free when you’re in a higher bracket later in life. Of course, that’s not the case for most people, especially for those able to contribute to a retirement account. Usually you contribute to your retirement account during your peak earning years, which are usually your peak taxable income years as well. For those people, a traditional account usually makes the most sense.
Now that you have invested early and often, bought and held, diversified, and discovered which retirement accounts work best for you, it is time to enjoy the fruits of your labor. But what if you still have concerns about your money lasting as long as you do? This is where fixed income investments come into play. Fixed income investments are designed to provide you with a steady income with very little risk. If you are looking to boost your income well into retirement, these investments will work great for you. Bonds pay you a percentage of the total investment every year until maturity, when you are paid back the entire amount you invested. Annuities are another type of fixed income investment that are bought through insurance companies. These also pay out a fixed amount, and they usually pay out for the rest of your life but not a second longer. At the moment, bonds and annuities do not pay out large sums of money because interest rates are so low. A slightly riskier option that may offer a better return is to invest in low risk, high dividend stocks. Many retirees live off dividend streams and hold onto the underlying asset to leave to their heirs.
Investing for Retirement
A Brief History of Credit Cards
Even though many of us cannot live without them, credit cards were not always part of our lives. There was a time, just two generations ago, when consumers had to carry cash everywhere, or rely upon store credit. It took several decades for credit cards to become the integral part of our lives that they are for so many of us today. The story of how Americans fell in love with plastic is an interesting one.
During the 19th century, some department stores and hotels issued what were known as “credit coins.” These were nothing more than metal tokens issued to persons with credit accounts.1 The credit coin enabled a clerk to identify people who had credit.
The coins were replaced by metal cards called charga-plates in the 1920s. Charga-plates were the first credit cards in the United States, but they could only be used at a specific business such as a gas station or a department store.
A charga-plate was a metal card with the customer’s name, address and account number stamped on it. A clerk took an impression of the card when a purchase was made to keep a record. The purchase was put on a bill sent to the customer each month. Customers had to pay the bill in order to keep card.
The first bank credit card was created by John Biggins of the Flatbush National Bank in Brooklyn, New York, in 1946. Biggins created a system in which customers used a card he called Charge-It to make purchases at businesses. The bank paid the business and billed the customer monthly.
Charge-It was only available to local businesses in Brooklyn, but it was the first card that worked at more than establishment. It was also the first card issued by a bank rather than a business. Merchants were willing to take Charge-It because it meant the bank would handle all the paperwork involved in issuing credit.
The next step was the creation of credit-card companies, businesses that specialized in issuing cards. Two men; Frank X. McNamara and Alfred S. Bloomingdale, came up with the idea of a card that would pay for restaurant meals. McNamara started the Diner’s Club in New York City in 1950, and Bloomingdale organized Dine and Sign in Los Angeles the same year. The two soon met and merged their businesses into the first national credit card: the Diner’s Club Card.
The Diner’s Club proved popular. It had 20,000 members by 1951, just a year after launching. Diner’s Club was the first national card to charge interest, 7% plus an annual fee of $3, to make a profit.
The Diner’s Club Cards were made of cardboard, but they were so successful that companies like Hilton Hotels and American Express took notice. Hilton issued its own card that became the Carte Blanche in 1958. In 1959 American Express brought out the first plastic card and created a national icon, the Amex card. American Express also created the first worldwide credit card network. Although they were made of plastic, these instruments were not credit cards in the modern sense. They were charge cards that operated on a closed loop. That meant consumers could only use them at a few businesses, often just restaurants. Since they were charge cards, users had to pay the balance off in full at the end of the month. That meant the cards were mostly used by the rich and people who travelled a lot.
The first true American credit card was the BankAmericard, issued by Bank of America in Fresno, California. Unlike the American Express or Diners Club, BankAmericard came with a revolving balance. That meant a cardholder only had to pay part of the balance each month. This made the cards useful to working and middle class families who might not be able to pay the whole balance.
Merchants were willing to take the card because they would get paid right away by Bank of America rather than having to bill customers and wait. BankAmericard was so successful that it was licensed to banks throughout the United States. The success of BankAmericard prompted Citibank to launch the Everything Card in 1967, and a competing group of California banks to start Master Charge in 1966. Master Charge and the Everything Card merged in 1969 and eventually became Master Card. BankAmericard is now known as Visa.
The basis of a nationwide credit network was laid in 1978 when the U.S. Supreme ruled that nationally-chartered banks could charge the same interest rate in every state. Before that, banks had to follow a complicated set of limits on interest rates created by state legislatures. This made it profitable for organizations like Visa and Citibank to issue credit cards nationwide. It also enabled banks to charge higher interest rates, which in turn enabled them to issue cards to middle and working class people. Advances in computer technology enabled companies to process transactions instantly with a swipe of a magnetic strip. This made it convenient to use credit cards at restaurants, supermarkets and other businesses.
Today there are almost 200 million credit card holders in the United States. To put that in perspective, there are just over 100 million families in the country. In other words, the vast majority of American adults are credit card holders and credit and debit cards have completely eclipsed cash in terms of ubiquity. While we may be on the cusp of a new trend toward phone-based payments, such as those currently offered by Apple and Google, one thing is clear - payment by credit is here to stay.
A Brief History of Credit Cards