April 2019

April 30, 2019June 22, 2022

Aging in Place: A Choice or a Lock-In Sentence?

Aging in place, otherwise known as staying in your home as you get older, is becoming the norm, especially among baby boomers. According to a recent study from Chase and Pulsenomics, more than half of boomers plan to age in place. However, 88% say their homes need renovations with increasing bathroom safety at the top of the remodel list.

Many homeowners looking to age in place are tapping into their home equity to get the cash they need to make necessary home improvements or supplement their retirement savings.

But for some homeowners, aging in place isn’t a choice, can be dangerous, and may feel more like a lifetime prison sentence. How can you ensure you have a choice—and can make the right one for you?

Beware: The Rate Lock-In Effect

The so-called “lock-in effect” occurs when homeowners don’t want to give up their mortgages because they have favorable interest rates. When it comes to the housing market, older homeowners are feeling the greatest impact from the rate lock-in effect.

As HousingWire explains, there’s no incentive for homeowners to sell when borrowing the same amount of money at today’s mortgage rates will lead to higher monthly payments.

That’s what happened to Waltham, Massachusetts residents Joe and Suzanne. The couple purchased their two-family home in the 1960s for $19,000. While the couple, who both just turned 90, are in relatively good health, the home has caused some trouble.

Most homes don’t come equipped with features that go hand in hand with aging, such as ramps, wheelchair-accessible bathrooms, and safe showers. For Joe and Suzanne, the steep steps to their second-floor home are a challenge, and Joe even had a fall earlier this year carrying up a bag of groceries. “I’m just too old to risk getting up and down those stairs alone in the winter,” explains Joe. “So, I end up staying here with nothing to do.”

Higher Home Values, Higher Taxes

Plans to age in place can also fall apart when residents are forced out of the homes and communities they love due to factors like increased property taxes and expensive renovations.

Skyrocketing home values aren’t helping either. Property owners in Mecklenburg County, North Carolina received revaluation notices at the start of 2019. Many residents, including those who have paid off their homes, are concerned about the increase in property taxes. While some people may be willing to move to certain neighborhoods despite the costs, folks that have been living in a neighborhood for decades feel the impact more sharply.

The Good News: You Have More Equity

The plus side to increasing home values is having more equity in your home. For many homeowners, tapping into their home’s equity to supplement income is a smart way to continue to age in place.

Rising interest rates means moving to a more senior-friendly home is out of the question for Joe and Suzanne. The couple, who have significant equity in their home, have instead chosen to rely on home equity lines of credit (HELOCs) to help supplement rising taxes and home maintenance fees.

Choose your method for tapping into your home equity wisely. Many equity loans come with monthly payments and interest rates—which are not ideal for homeowners trying to limit their monthly debts or living from Social Security paycheck to Social Security paycheck.

Reverse Mortgages in Retirement: When to Sign On and When to Steer Clear

Equity sharing programs, like Hometap, are another option. Hometap was created to provide homeowners access to some of tomorrow’s home value to cover today’s needs—without interest or monthly payments. Unlike a reverse mortgage, you know exactly what Hometap’s share will be at the time you sell or buy out the investment.

Whether retirement is several years down the line or you’re already planning on aging in place, start planning for what’s next. By being aware of potential pitfalls and opportunities now, you can better position yourself for a thriving future.

Take our 5-minute quiz to see if a home equity investment is a good fit for you.

LEGAL DISCLAIMER

The opinions expressed in this post are for informational purposes only. To determine the best financing for your personal circumstances and goals, consult with a licensed advisor.

April 29, 2019June 23, 2022

Getting Out of Student Loan Hell: Should You Use Your Home Equity?

The equity in your home, when used correctly, can be a powerful tool in reaching your financial goals. As a homeowner with student loans, that equity can possibly help you lower your monthly payments and interest rates while finally getting out of student loan hell. (And remember: There isn’t any real tax benefit of carrying student loans.)

However, before you commit to using your home equity to pay off student loans, start by comparing your various options for tapping into your home equity. The last thing you want to do is trade one loan for another—potentially with worse interest rates or monthly payments that don’t work with your current financial situation.

Lower Your Home Interest Rate and Get Cash

Cash-Out Refinance

According to Zillow, a cash-out refinance is great for paying off high-interest debts. However, you’ll want to make sure you can find lower interest rates. If much of your student debt is from high-interest private education loans, you may find the math works in your favor.

See how your student loan balance compares to homeowners like you in our 2021 Homeowner Report.

Interest rates for cash-out refinancing are generally lower than home equity loans and HELOCs, but don’t be fooled into thinking it’s the best option based on that one number. Factor in closing costs, how much interest you’ll pay over the term of the loan, private mortgage insurance, and any other fees that may come with a cash-out refinance to find the true cost. Calculate whether a cash-out refinance will lower your interest rate and, if it won’t, consider other ways to access your home equity.

Cash-Out Refinance vs. Home Equity Loan: What’s the Difference?

Get One Lump Sum of Cash

Home Equity Loan

If you can’t find lower interest rates via a cash-out refinance, a home equity loan can give you access to cash without refinancing your home. This loan is separate from your mortgage and gives you access to the equity you’ve built in your home in one large lump sum.

With an average 5.5% interest rate for a 10-year fixed term, home equity loans may allow you to consolidate your student loan debt in one single payment at a lower interest rate. For a $100,000, 10-year loan, you can expect a monthly payment around $1,500, depending on your credit score. Estimate how much your monthly payments would be based on your home value, credit score, and other factors. If you can’t keep up with the monthly payments, you may want to forgo a home equity loan so you don’t risk losing your home.

HELOCs & Home Equity Loans: What’s the Difference and Is Either Right for You?

Use Your Equity Like a Credit Card

HELOC

If you don’t need money in one lump sum and want to withdraw it as you need it (up to a certain amount), a HELOC may be your best option. For Josh and his wife Lauren, bloggers at Money Life Wax, a HELOC offered a way to break through interest of student loans and start paying off the principal. “Instead of paying $325 in interest each month, we are paying closer to $80.”

However, HELOCS often have variable rate interest, meaning rates may go up and you can’t be certain about how much interest you’ll pay over the course of the term. As with a home equity loan, you want to estimate your payments based on your situation and, if the payments are too much, reconsider so you don’t risk foreclosure.

Access Equity Without Monthly Payments

Hometap

If you have equity built up in your home that you want to access but don’t like the idea of taking on additional debt or monthly payments (plus interest), a Hometap Investment can be a smart alternative. “This was a great choice instead of a second mortgage!” says John C., a homeowner who used Hometap to pay off education loans.

However, if you know you want to stay in your house for more than 10 years, Hometap may not be the best option for you as investments have a 10-year term. That means you have to sell your home, refinance, or buy back the investment within 10 years.

When you use your home’s equity as a tool, you have an opportunity to better your financial situation. But remember: Everyone’s motives and methods around financial decisions are personal; there’s no “right” answer besides the one that works for you.

Before you pay off your student loans using home equity or any other means, consult a financial advisor. A financial advisor can help you do all the math to see which options may provide you with the biggest benefits and offer you professional guidance as to what makes sense for you, taking into account advantages you may lose like federal student loan benefits.

See if you prequalify for a Hometap investment in less than 30 seconds.

YOU SHOULD KNOW…

We do our best to make sure that the information in this post is as accurate as possible as of the date it is published, but things change quickly sometimes. Hometap does not endorse or monitor any linked websites. Individual situations differ, so consult your own finance, tax or legal professional to determine what makes sense for you.

April 28, 2019June 23, 2022

1 Question to Answer Before Financing Your Second Home

With your first property, you navigated the ins and outs of securing a mortgage, so purchasing a second home should be easier, right? Believe it or not, how you intend to use your home—whether as a vacation house or investment property—directly impacts your financing options. Read on to understand how loans differ and what you need to know before buying your second home.

Define Your Second Home

Banks make a distinction between a house on a lake where you plan to vacation and a house you plan to rent out to generate revenue. Their definitions come down to how you plan to use the property.

Vacation Home: A vacation home is somewhere you intend to live in for part of a year in addition to your primary residence. As Nolo points out, timeshares and rentals don’t qualify as vacation homes. If you plan to list your property on Airbnb in the present or future, be sure to check with your lender first as mortgage rules may preclude short-term rentals of any kind.

Investment Property: An investment property, by contrast, is neither a place you live in nor a primary residence. Instead, its intended use is to make money for the buyer through rentals, appreciation, or via tax benefits. The common types of investment properties are residential or commercial rentals or flippers where the goal is to resell the real estate for profit.

Fund your Second Home

Once you’ve defined how you’ll use your second home, you can determine which financing options you qualify for and which one makes the most sense for you. Remember: Deceiving a lender about intended use is occupancy fraud and could send you to court.

Second Home Mortgage

If you want that beach house, mountain cottage, or other vacation property and can afford the associated costs, a second home mortgage may be your best bet. Mortgage underwriters will only look at expenses for principal, interest, taxes, insurance, and homeowners association (HOA), if applicable. If these check out, your loan is approved.

As a homeowner, however, you’re already familiar with the costs and have gotten a taste of the hidden expenses of home maintenance. With a second home, you’ll also want to factor in a budget for additional expenses, such as travel to and from your second home, utilities, furnishings, cookware, and linens.

Investment Property Mortgage

You see the incredible potential of an income-producing property, whether via renting or flipping. In addition to a sizeable down payment, banks require a strong credit score to lock in a fixed rate. However, know that your lender may check in to verify who exactly is occupying your property either in-person or online.

Home Equity Loans

Using the equity you’ve built in your first home to fund your second means taking less cash from your pocket. Home equity loans can offer lower interest rates compared to a new mortgage.

However, as with your first mortgage, home equity loans require timely payments. Missing a bill puts both your primary and secondary homes at risk. In addition, be sure to understand what kind of rate you’ve signed up for. An adjustable rate is exactly what it sounds like: moveable. You may be paying more than you bargained—or budgeted—for at any given time.

Hometap Investment

Unlike a loan, a Hometap Investment has no monthly payments, interest, or restrictions on how you use those funds—whether it’s a vacation home or investment property. Essentially, you’re taking on another investor in your home’s appreciation rather than borrowing on what you’ve built with the obligation of paying it back.

By using your home’s equity to fund other investments, such as buying another property, you’re diversifying your wealth. Real estate offers an attractive diversification of your portfolio of stocks, mutual funds, and bonds, and a second home ensures you’re not keeping all your wealth in one basket, i.e., your first home.

Is a Second Home in Your Sights?

Buying your first home may have seemed scary but you did it. Along the way, you’ve lived the highs and lows of homeownership arming you with the experience needed to add a second property. Take a close look at your total financial picture and weigh your financing options before you leap. With the right preparation, your second home can help you achieve vacation bliss or financial returns.

Take our 5-minute quiz to see if a home equity investment could be your solution for funding your second home.

YOU SHOULD KNOW…

April 26, 2019June 17, 2022

Good Debt vs. Bad Debt: What You Need to Know

If you’re like most Americans, you likely have some form of debt. While the percentage of Americans with debt varies by age, most groups hover around the 80% mark, carrying an average of $38,000 in debt.

However, not all debt is created equal. Some debts you can leverage to your advantage. Others, you’ll want to pay off as soon as possible. Read on to understand your good debts and your bad debts as well as how you can prioritize your debt payoff strategies and improve your financial portfolio.

Leverage Good Debt

Debts that help you achieve your goals, grow in value, or generate long-term wealth are considered good debts. It’s best to view these debts as investments in your future, investments you expect to come with positive consequences, such as technical or college education. Those with higher education have a higher earning potential, making it worth it for many to take on the student loans and other debt that comes with funding a college education.

Your mortgage is another debt in this category. Beyond providing you housing, your home is a financial asset that’s likely to appreciate in value over time, increasing your wealth.

These debts help you build good credit, but you’ll want to keep an eye on the ratio between your debt and income. LendingClub recommends keeping your total debt under 40% of your gross income. Your debt-to-income ratio is key to unlocking more credit. Keeping your debt much lower than what you make proves that you’re using debt in a way that benefits your financial future.

Another way to benefit from good debt is by leveraging other people’s money (OPM). But wait, if you’re using other people’s money, how do you have debt? As Rich Dad explains, you have two options when you want to invest in something: Use your money or find investors. Investments that leverage funds from others can help you increase returns on an investment and grow your own wealth faster.

Pay Off Bad Debt

The Balance sums up bad debt as anything “consumer-focused.” These are the debts that negatively impact your credit score and, if you’re not careful, can have harmful consequences. Debts you have to pay with cash, such as high-interest credit cards and payday loans, fall into this category.

The high interest rates make your debts more expensive, if not outright unaffordable, and, instead of helping you grow your wealth, take away from your wealth. That’s why you want to pay off these bad debts as soon as possible.

For some homeowners, the snowball payoff method is the most effective. By paying off your smallest balance debt and then tackling the next smallest debt and so on, you see small wins that keep you motivated. Others prefer to pay off high-interest credit cards first to ensure the interest doesn’t get out of control. Whatever strategy you choose, try to stay current on bills and monthly payments to avoid paying extra in late fees and additional interest.

Calculate Your Debt Ratio

The less bad debt you have, the better your credit. The better your credit, the more likely you’ll receive approval for home, car, or personal loans, and the more likely you’ll have a lower interest rate on these loans.

Start improving your ratio by paying off the highest-interest loans first, such as those high-interest credit cards; every extra bit you can put toward it helps. Also try to postpone any purchases you can. Keep checking on your debt-to-income ratio to monitor progress and stay motivated.

For homeowners that need funds, Hometap can be a smart way to access cash from their home’s equity to pay down debts, while working toward meeting long-term financial goals.

Take our 5-minute quiz to see if a home equity investment is a good fit for you.

LEGAL DISCLAIMER

The opinions expressed in this post are for informational purposes only. To determine the best financing for your personal circumstances and goals, consult with a licensed advisor.

April 25, 2019June 17, 2022

Help! I’m 50 and Have Nothing Saved for Retirement

Mention the word “retirement” and many Americans break into a cold sweat—or laugh as though you’ve made a joke. Retirement, in the comfortable sense, may be a distant goal for many. According to a new survey from GOBankingRates.com, 42% of Americans will “retire broke,” meaning they have $10,000 or less saved for their retirement. If you’re one of this group, don’t despair: Even if you’re close to retirement age, it’s never too late to start saving.

Let’s say you’re 50 and you’ve got nothing saved for retirement…so far. What should you do? Here’s a road map to get going with your retirement savings plan.

Start Saving for Retirement Today

If you’re 50 and hope to retire around age 65, that means you have a solid 15 years to build a retirement savings. If you have an employer-sponsored retirement plan, start there.

“The maximum for people 50 and over [to save for retirement] is currently $24,000 a year,” says Alexandra Baig, an Illinois-based CFP®. “At the very least, contribute the amount the employer will match. If you can live without the current tax deduction and your employer offers a Roth 401(k) option, contribute to that instead of the traditional.”

If you’re self-employed or your employer doesn’t offer a 401(k) plan, look into individual retirement accounts (IRAs) where you can contribute on your own. While you won’t have a match, you’re still building your savings—and moving in the right direction.

To make up for lost time, experts recommend individuals starting to save for retirement at 50 should aim to save 30% of their income each year.

But if saving the maximum of $24,000 or 30% of your income annually is too steep, don’t worry: Saving something is better than nothing. To find out what you can start putting away for retirement savings, it’s time to start budgeting.

Make a Realistic Budget that Prioritizes Retirement

Take a look at your monthly earnings and spending, and see what can be repurposed toward retirement savings.

“Create a realistic budget to determine how much cash you have left from your take-home (after-tax) income after paying your other required expenses, such as mortgage, property taxes and insurance, utilities, food, clothing, personal bills, and medical bills,” says Baig. “Look very hard at any optional expenses such as recreation or eating out that you can cut down or eliminate.” Any unnecessary spending that can be reallocated toward retirement will not only be saved with tax benefits but it will grow from compound interest over time.

Speaking of interest, Baig recommends cutting back on credit card usage and/or never carrying a balance. “Don’t put anything on a credit card that you cannot pay off in the same month to avoid wasting money paying high interest,” she says. “This will maximize how much money you can commit to retirement investments.”

If You Can, Plan to Work Longer

The longer you can work, the better your retirement savings will be. By deferring tapping into your savings, you’ll let that larger pool of money continue to grow. You’ll also maximize your Social Security earnings by waiting to start collecting (especially if you wait to retire until age 66 or older). Additionally, your continued earning potential means you’ll continue to add to your savings while also (most likely) requiring fewer lifestyle changes.

Diversify and Adapt Your Investments over Time

While it may sound like a stuffy financial term, diversification simply means not investing everything you have in one area. You’ve probably heard the phrase “don’t put all your eggs in one basket” many times in your life. That applies to investing. You want not only a mix of assets but a mix of asset classes: individual stocks, mutual funds, bonds, real estate.

Unfortunately, the typical retirement-age couple does not have a diverse portfolio. Most have too much of their money tied up in equities, like their homes. Since markets can become volatile at any time, diversifying your portfolio now can help safeguard—and grow—your retirement savings.

“Pick an investment portfolio that allows for some growth,” Baig says. If you begin investing for retirement at age 50 and plan to work until your mid- to late-60s, “then you still have a long- to mid-term time horizon,” she says, “which means you can tolerate some market swings. To the extent possible, do not invest in any fixed-income instrument that yields less than the average expectation for long-term inflation (generally 2%).” To mitigate the risk for late-starters of outliving their money, Baig recommends portfolios that favor equities. To maximize the returns for the investor, she suggests low-cost investments such as index funds.

“As you get closer to retirement, divide your money into ‘buckets’,” she adds, “one for use in the first 10 years of retirement, one in the next 10, one in the final 10. Move only the first bucket into the more conservative investments. Keep the other two in more aggressive investments until it gets closer to the time to tap each.” This way, you’ll balance out your risk for the money you need soon while enabling the money you’ll need later to continue to grow.

Tap into Your Largest Asset

For many homeowners, tapping into their largest asset – their home – can be a smart way to supplement income during retirement.

If you don’t like the idea of having to take on another monthly payment that comes along with traditional loans, a Home Equity Investment product, like Hometap, could be another option for you.

Hometap can help you comfortably age in place through a home equity investment – a smart new loan alternative for tapping into your home equity without taking on debt. With a Hometap Investment, you get access to your home’s equity today so you stay in the home you love with no loans, monthly payments, or interest.

Take our 5-minute quiz to see if a home equity investment is a good fit for your retirement strategy.

YOU SHOULD KNOW…

April 24, 2019May 17, 2022

Good Estimate vs. Bad Deal: How To Evaluate Your Home Renovation Estimate

How do you know if you’ve received a good home renovation estimate? Looking at price alone can blind you to some of the telltale signs of a bad deal.

That’s why we’ve talked with the experts and compiled three checklists to help you evaluate your estimate with eyes wide-open.

4 Must-Haves for Any Good Estimate

Project Scope: Begin at the beginning with a clear picture—in writing—of the project, specifying exactly what it does (and doesn’t) include.
Timeline: How long will that remodel take? Nail down a start date and projected completion with caveats for any unforeseen circumstances.
Payment Schedule: How much and how often does your contractor expect payment? Here’s where you may have some negotiating power and can suggest payment based on phases of completed work to keep the project on schedule.
Change Orders: Renovations sometimes meet with unexpected changes to account for what’s behind the walls, floors, or ceilings. Money magazine advocates for insisting on written approval before any change in the original plan can commence. Protect yourself from skyrocketing fees with a clause on how your contractor will handle changes, how much they will cost, and how long they will take. Don’t rely on that verbal handshake as confirmation of clear communication between parties.

The above tips are standard for qualified and reputable contractors. If you meet with any resistance, consider walking away as your vendor may not have the knowledge or skills to do the job well.

3 Warning Signs of a Bad Deal in the Making

A Low, Low Price: If the price is too good to be true, it probably is. A lowball estimate that’s wildly inconsistent with others you’ve received may signal inexperience that can cost you more down the road.
No Binding Arbitration: Agree on how you’ll disagree now to avoid costly litigation later. A binding arbitration clause in your contract (a standard inclusion) spells out how you’ll resolve disputes.
No License: No work permit, no work. A skilled contractor knows how to apply for and secure a permit. Without one, your project can be shut down. Consider the work permit as insurance that the job will be done right, and insist your contractor follows the rules.

4 Ways to Get the Best Estimate Possible

Now that you know what to include in your contract and what to look out for, how do you find the right person for the job?

Read Reviews: Do your due diligence by reading about other people’s experiences on sites like Google, Yelp, HomeAdvisor, Next Door, and Angie’s List.
Ask for References: As with any job, ask for references—and then put on your reporter hat. Realtor.com suggests asking references about a contractor’s reliability (showing up on time), accessibility (reachable and responsive to questions), and truthfulness about the final price.
Get It in Writing: Specificity is your best friend. Get as much detail in writing as possible before you commit to the contract. Refer to the four must-haves above as a checklist on what to include.
Trust Your Gut: Do you feel comfortable around the vendor? Are they moving or talking too fast and pressuring you in any way? If something doesn’t feel quite right, follow your instincts. After all, this person will be in your home for days, if not months!

Keep the above lists as a reference for evaluating your next home renovation estimate. Preparation is key to realizing the remodel and making the most of your hard-earned money.

If you need assistance funding your renovation, a Hometap Investment can help. Tap into your home’s equity without interest or monthly payments.

Take our 5-minute quiz to see if a home equity investment is a good fit for you.

YOU SHOULD KNOW…

April 21, 2019June 17, 2022

5 Steps Divorced Women Need to Take for Financial Security

With the end of a marriage—especially a long one—there are emotional costs and potentially difficult transitions, not to mention the practical side of splitting up: legal fees, division of assets, endless paperwork, and new plans to make. It often seems every new consideration in a divorce comes with a hefty price tag.

And while divorce is often expensive for all involved, women are especially financially vulnerable during and after a divorce, especially women older than 50. If you’re a recently divorced woman of any age—or are planning to divorce soon—here are five key steps to add to your divorce financial checklist to safeguard your financial future.

1. Revise Your Budget

“A realistic post-divorce budget is critical to meeting your short-term needs and achieving your long-term financial goals,” says Kristin Capalbo, Esq., a family law attorney based in New Jersey.

Transitioning from a two-income household to a single-income budget is a major sea change. Everything will need to be re-evaluated, from your monthly spending to your long-term planning, based on your revised income. Go over all line items and tally up your specific figures. The more you know, the better prepared you’ll be for your new lifestyle.

“If you’re now paying alimony and/or child support, how will you readjust your short-term budget and long-term savings goals to address these extra payments?” asks Capalbo. “If you’re the recipient of alimony and/or child support, what is expected (and reliable) each month? How much will you need to contribute to dependent expenses, such as work-related child care or college costs? What is your plan for when your alimony period is up or when your children are out of the house?”

Speaking with a financial advisor can help you adjust your budget to meet your obligations, while also safeguarding your assets or rebuilding them.

2. Update Your Insurance

During a divorce, all your insurance coverage may change. Review your existing insurance policies (health, home, auto, life, disability, long-term care) to see where updates are needed and what the cost changes will be. If you are receiving alimony and/or child support, make sure your life insurance addresses the possibility of your ex-spouse not being able to continue to pay. Factor all monthly insurance changes into your revised budget.

3. Keep Your Credit Cards—but Remove Your Ex’s Access

If you had joint credit cards with your ex, you may not necessarily want to close the accounts completely as this could impact your credit score. Instead, include the joint cards in your divorce negotiation and determine who gets to keep the accounts. For the credit cards you keep, reach out to the respective issuing banks to remove your former spouse as an authorized user.

4. Know What Will and Won’t Be Taxed

“Recent changes to the tax code can have a major impact on your post-divorce finances, especially when it comes to the treatment of alimony, itemized deductions, the child tax credit, and valuation of businesses,” says Capalbo.

In the middle of a divorce, many adults will get an unpleasant surprise at tax time when they learn what now counts as taxable income. For example, depending on when your divorce was finalized, if you’re receiving alimony, this may no longer count as taxable income; if you’re paying alimony, this may no longer be taken as a tax deduction. Child support is not taxable or deductible.

As many situations are unique, it’s essential that you consult an accountant or tax professional to determine how this new tax reform will affect you post-divorce.

5. Revise Your Goals

Many married couples have held long-term plans: far-flung travel, saving for their child’s college education, a vacation home, retirement. Now that you’re single, the goals themselves don’t have to change but the strategy to reach them does. Look at your new budget and your obligations, now and in the future. How can you revise your timeline post-divorce to make sure you’re working toward the life you want?

“Life after divorce can be intimidating,” Capalbo says, “but with proper planning and the right tools, your finances don’t have to suffer.”

If you’re going through a financially draining divorce and want to avoid the stress, debt, and interest of a personal loan or credit card balance, consider a Hometap Home Equity Investment to offset the cost without taking on debt.

Take our 5-minute quiz to see if a home equity investment is a good fit for you.

LEGAL DISCLAIMER

The opinions expressed in this post are for informational purposes only. To determine the best financing for your personal circumstances and goals, consult with a licensed advisor.

April 20, 2019November 5, 2020

4 Hidden Retirement Costs—and How to Reduce Them

If you’re saving for retirement, you’re on the right track compared to most Americans. A recent Bankrate survey found that 20% of Americans aren’t saving any money. If you are saving, are you saving enough?

Common advice dictates saving 10 to 12 times your current income for that nest egg. Sometimes the formula isn’t that simple, especially when you take into account hidden costs.

The good news? With a little extra planning, you can combat these hidden costs.

Cost #1: Retirement Account Fees

When you’re saving, a little money can add up over the long term. Unfortunately, the same holds true for retirement account fees.

Most fees range from 1–2%, which may sound insignificant. But according to CNBC, someone with “2% in fees will run out of money 10 years sooner” than those with 1%.

How to Reduce It

There are two steps to saving more of what’s yours.

Step 1: Read the fine print. Ask for a copy of your prospectus. It’s in this tedious, but telling, document that you’ll find your expense ratio or how much your investment company charges to manage your account.

Step 2: Determine your tolerance. If you’re happy with the returns, perhaps the fees are manageable. For most, however, the risk outweighs the rewards. Business Insider recommends dumping that actively managed fund for an index. The latter matches with the S&P 500, for example, to give you broad exposure and lower operating expenses.

Cost #2: Health Care

Your health is essential to truly enjoying retirement. The fact is we’re living longer as a nation—and need to plan accordingly. Fidelity Investments estimates a healthy 65-year-old couple retiring in 2018 will need close to $300,000 solely for health care costs.

How to Reduce It

Health care costs will rise. Accordingly, add a line item in your budget for those unpredictable under-the-weather days. If you plan to retire before 65, consider adding a little more padding to cover health insurance premiums pre-Medicare.

Cost #3: Transportation

From gas to insurance, maintenance to repairs, your car expenses add up. It’s likely you’ll spend 12% for transportation in retirement.

How to Reduce It

Your car is an extension of your identity—and freedom. Downsizing to one car may be a difficult decision but cuts your expenses in half. If you’re already in a one-car house or are looking for cheaper ways to supplement your one car, look to public transportation and car-sharing services like Zipcar or car2go.

Cost #4: Housing

Roof replacement, boiler maintenance, appliance servicing: Housing costs weigh in at a hefty 33.9% of expenses for those 65 and older. Just as we age, so too does our dwelling. Regular upkeep is part of owning your home.

How to Reduce It

If you plan to stay in your home, pay off as much of your mortgage as you can. The less you have in monthly payments without a steady income, the better. If you’re open to moving, set the stage to sell by doing some surface upgrades. This can help flip your house more quickly when the time comes to relocate.

The Upside to Asking for Help

Planning for retirement is personal, but you don’t have to do it alone. Talk to retired friends, family, and colleagues for advice and guidance.

If retirement seems closer than you realized and you’re having doubts about your finances, your equity can help you save for and fund your retirement. A reverse mortgage alternative, Hometap gives you access to the equity you’ve built up in your home in cash—without interest or monthly payments.

Take our 5-minute quiz to see if a home equity investment is a good fit for you.

LEGAL DISCLAIMER

The opinions expressed in this post are for informational purposes only. To determine the best financing for your personal circumstances and goals, consult with a licensed advisor.

April 16, 2019June 22, 2022

Which Debt Should I Tackle First?

From credit cards to student loans, home repair bills to car payments, debt can keep homeowners up at night. But of course, not all debts are created equal. If you’re looking to tackle your debt, which debts should you pay off first? The answer will depend on you—specifically, your motivations, your behavior, and your goals to determine your debt repayment ability.

The Magic Number: Exactly How Much Debt Do You Have?

Like any big goal, in order to make progress, you need to know where you’re starting from and where you want to go. First things first: How much debt do you actually have?

“I recently worked with couple that had a bunch of small loans,” says Crystal Rau, a certified financial planner™ professional (CFP®) based in Midland, Texas. “They like to go out to eat, travel, and shop, and that adds up. When I sat down with them and actually showed them what they were spending [each month], it really blew their minds.”

The more you know, the more you can make progress. Tally up your debts: List them out by amount, interest rate, and how the balance is calculated. That initial understanding enables you to then take stock, prioritize, and make a plan and budget to pay off your debts.

Where Should You Start?

When it comes to home buying, many people think “I bought a house, I feel good,’ but this does not change people’s behavior,” says Nandita Das, professor of finance at Delaware State University and a registered investment advisor. “Read carefully what you’re signing and prioritize your debt.”

Consider your behavior, your priorities, and what would best set you up for success: Are you the type of person who needs to see short-term progress to stay motivated? Or do you prefer to take the long view and work toward a big goal?

Next, select your debt payoff approach, particularly the popular avalanche versus snowball methods to pay off debt. With the avalanche method, your highest-interest debt gets top priority to pay off first. Once that’s paid off, move on to the next-highest interest debt, and so on. This method is good for long-term planners or those who like to work toward a big goal.

With the snowball method, first focus on your smallest-balance debt obligation and eliminate that loan first. When that bill is gone, tackle the next-smallest debt amount, and so forth. This method appeals to homeowners who like to see small wins to stay motivated.

“The ‘avalanche versus snowball’ question really asks whether absolute dollar terms are more important to the [homeowners], or psychological wins,” says Greg Knight, an Oakland-based CFP®. “In absolute dollar terms, go with avalanche and shift extra dollars to the highest-interest rate debt first. If absolute dollar terms are not as important and they need the satisfaction of feeling like they are ‘winning,’ then use snowball to wipe out a few small debts.”

(And it goes without saying: With either scenario, make sure you still pay the minimum monthly payments on all lower-priority debts!)

So, are you an avalanche, a snowball—or some combination of the two?

Check In Regularly

Celebrate small wins and be compassionate throughout the debt payoff process. Progress can take many forms along the way.

“If you have a bad month, circle the wagons and get back on track,” says Knight.

Because life happens and circumstances change, a successful debt repayment strategy can also benefit from regular check-ins.

“Me and my husband do bi-weekly money dates,” Rau says. “Twice a month, we sit down and track our goals and see if there’s anything that needs to be adjusted, and it’s really helpful. Just seeing progress every few weeks can keep you motivated.”

Take our 5-minute quiz to see if a home equity investment is a good fit for you.

LEGAL DISCLAIMER

The opinions expressed in this post are for informational purposes only. To determine the best financing for your personal circumstances and goals, consult with a licensed advisor.

April 15, 2019October 18, 2022

How to Get Started with Building an Emergency Fund

Your dishwasher broke.

You got laid off.

Hail caused roof damage.

Your dentist says you need a root canal.

The street sweeper dinged your car.

Emergency fund to the rescue! As homeowners, we understand the importance of having some money saved for those unexpected things that pop up. An emergency fund (or rainy day fund) is an easily accessible savings vehicle you can tap to cover unwelcome expenses. Better yet, having an emergency fund means you won’t have to take on credit card debt or a high-interest loan to cover the surprise bills.

But how should you get started and how much should you save? Read on for expert tips on building and replenishing your emergency fund, plus the overall benefits (e.g., peace of mind) it can provide.

Why You Should Have an Emergency Fund

An emergency fund is essentially an insurance policy that can help cushion against the blow of life’s unexpected events like medical emergencies or job losses. In addition, emergency funds can not only stave off stress, but also prevent mindless spending, and keep you from making bad financial decisions,

But while it’s a smart idea to have an emergency fund, it can be easier said than done to prioritize it. More than half (58 percent) of the 1,025 adults surveyed in a nationwide Bankrate poll said they were concerned about the amount they have in emergency savings. COVID-19 didn’t help matters, as almost 40% of those who had an emergency fund prior to March 2020 were forced to pull from it when the pandemic hit, according to ForbesAdvisor.

Of course, the primary reason to begin building an emergency fund is to have extra cash on hand to cover unexpected expenses: home upkeep and repairs, medical expenses, car maintenance, last-minute travel for funerals, etc. And even if you can’t contribute a significant amount, every little bit helps. Here are some tips on how to get started.

Emergency Fund Basics

Most experts agree that an emergency fund should be kept in an interest-bearing bank account, like savings or a money market deposit account. Both of these options will allow you to pull from them without facing taxes or penalties. The account should be separate from your general savings account (where you save for retirement, a home, etc.) so you can easily distinguish the two.

How Much Should You Have in Your Emergency Fund?

Depending on your circumstances and lifestyle, aim to put aside enough money to cover three to six months’ worth of expenses. If that seems overwhelming, it may help to break this down into a more manageable amount. To calculate the ideal amount for you to put aside to start growing your fund, add up your essential living expenses for one month — including mortgage or rent, food, utilities, etc. For example, if your average expenses total $2,000 per month, you should have at least $6,000 and as much as $12,000 in your emergency fund.

In terms of who should have access to your emergency fund, that’s up to you — but while at least one other trusted family member should be able to pull money out in the event that something happens to you, it’s probably a good idea to limit the number of people who have the ability to take cash out of it.

And how do you know when enough is enough? While it may be hard to believe you can have too much money saved for a rainy day, you run the risk of minimizing your money’s growth potential due to low interest rates and inflation and over-padding your fund may even prevent you from taking advantage of tax benefits. Generally, sticking to the three-to-six month rule will ensure that you have enough cash put aside while avoiding the pitfalls of oversaving.

Balancing an Emergency Fund with Other Financial Priorities

It can certainly be tricky to focus on building (or padding) your emergency fund when you have more pressing financial needs, like paying down debt or working toward other goals, like buying a house. However, life happens, and every bit you can put away for unexpected expenses helps. And even if you’re living paycheck to paycheck, an emergency fund should still be a top priority, according to Forbes. If possible, create a budget that breaks down your monthly income and allocate a designated amount to each expense — including your emergency fund — so you can stay on track. With this method, you’ll slowly but surely chip away at all of your financial goals while making sure you’re covered in a worst-case scenarios.

Find out if tapping into your home equity can help you handle more pressing expenses, like paying off debt or gathering the cash for a down payment on a home, so you can begin to build your emergency fund. Take our 5-minute quiz to see if a home equity investment is a good fit for you.

YOU SHOULD KNOW…
We do our best to make sure that the information in this post is as accurate as possible as of the date it is published, but things change quickly sometimes. Hometap does not endorse or monitor any linked websites. Individual situations differ, so consult your own finance, tax or legal professional to determine what makes sense for you.