What Is Home Equity?

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What Is Home Equity?

Most homeowners now have more equity in their homes than they did two years ago, thanks to surging home values during the pandemic. That means right now is a good time to consider tapping into your home equity if you're looking to borrow money at a lower interest rate than you might get with other types of loans such as personal loans. Home equity is the difference between what you owe on your mortgage and the current market value of your home.

You build equity in your home by consistently making mortgage payments over the years. Equity is valuable because it allows you to borrow money against your home at lower interest rates than other types of financing. Once you have enough equity built up in your home, lenders and banks will allow you to borrow against it. Some of the most common reasons to borrow against your equity are to pay for life expenses such as home improvements, higher education costs such as tuition, or to pay off high-interest credit card debt.

Most lenders want to see that you've built up at least 15% to 20% in equity in order to let you borrow money against your house in the form of refinancing or other kinds of home equity loans. One of the simplest ways to ensure you have a good chunk of equity in your home is to make a large down payment if you are able to. 

For a typical homeowner with a 30-year fixed-rate mortgage, building up 15% to 20% usually takes about 5 to 10 years. Even if you paid less for your home when you bought it years ago, your equity is based on the present-day value of your house. If, for example, your home is currently worth $500,000 and you have $400,000 left to pay on your mortgage, you would have $100,000 of equity in your home.

Here's what you need to know about home equity, what it is, how to calculate it and why it's important to homeowners. 

How do you calculate home equity?

To calculate your home equity, simply subtract your remaining mortgage balance from the current market value of your home. So if you owe $400,000 on your mortgage and your house is worth $500,000, you have $100,000, or 20% equity in your home. You may need to work with an appraiser or real estate agent in order to get an accurate evaluation of your home's fair market value, especially since home values have risen by record-breaking amounts since the beginning of the pandemic. 

Ways to borrow against home equity 

There are various ways to access the equity in your home. Some of the most common equity financing options are home equity loans, home equity lines of credit (or HELOCs) and reverse mortgages. It's important, however, to keep in mind that all of these options require you to put up your home as collateral to secure the loan, so it's critical to understand that there's a risk of losing your home to foreclosure if you miss payments or default on your loan for any reason. 

Home equity loan

A home equity loan lets you borrow money against the equity you've built in your home and provides you with a lump sum of cash at a fixed interest rate. Lenders typically want to see that you have at least 15% to 20% in your home to approve you for a home equity loan. A home equity loan doesn't replace your mortgage like a refinance, rather, it's an entirely new loan that you'll repay monthly along with your existing mortgage payment. But just like a mortgage, with a home equity loan, your interest rate never changes and your monthly payments are fixed, too.

HELOCs

A home equity line of credit, or HELOC, is a type of loan that lets you borrow against the equity you've built up in your home and functions like a credit card. It provides you with an open line of credit that you can access for a certain amount of time, typically 10 years, followed by a set repayment period, which is usually 20 years. Lenders also generally want you to have at least 15% to 20% in your home for HELOC approval. With a HELOC, you don't have to take all of your funds out at once, and you can withdraw money repeatedly from your HELOC over the 10-year period, once previously borrowed sums are paid back.

"A HELOC offers more flexibility than a home equity loan -- you can't withdraw money from a home equity loan like you can with a HELOC, and a HELOC allows you to receive replenished funds as you pay your outstanding balance," said Robert Heck, VP of Mortgage at Morty, an online mortgage marketplace.

HELOCs have variable interest rates however, so it's important to make sure you can afford higher monthly payments if your rate goes up once your introductory interest rate expires, especially in the current economic climate. 

Reverse mortgage  

You must be 62 years or older to access a reverse mortgage and have either paid off your home or have significant equity accumulated, usually at least 50%. With a reverse mortgage, you do not have to make monthly mortgage payments and the bank or lender actually makes payments to you. You must still pay your property taxes and homeowners insurance and continue to live in the house, however. A reverse mortgage allows you to access the equity in your home and not pay back the funds for an extended period of time while using them for other expenses during retirement. It's important to keep in mind that you are building a mortgage balance back up as you borrow against your equity, and your estate will eventually have to pay off your loan. A common way to repay this loan is to sell your house. 

The bottom line

Unlocking the equity in your home can be a valuable way to access financing to cover other life expenses. It's important to understand the differences between the kinds of equity loans available to secure the best one for your particular financial situation. When comparing ways to access equity, always take into account the interest rate, additional lender costs and fees, and the size of the loan and how it will be disbursed to you, as well as the amount of time you have to pay it back, before you enter into an agreement to borrow against the equity in your home. 

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Are We in a Recession? Here's What You Should Know About Layoffs, Debt and Investing

Are We in a Recession? Here's What You Should Know About Layoffs, Debt and Investing

This story is part of Recession Help Desk, CNET's coverage of how to make smart money moves in an uncertain economy.

What's happening

Based on the latest numbers, the US is in a period of decline -- possibly even a recession.

Why it matters

Recessions are historically marked by a period of widespread layoffs, bankruptcies, higher borrowing costs and turbulence in the stock market.

What's next

Gather facts to protect your financial position. No one can predict the future, and it's important to move calmly and deliberately.

A recession is top of mind for many Americans. But how do we know if we're in one? Technically, the country is in a recession when gross domestic product, the value of all goods and services produced during a specific period, falls during two quarters back to back. Last week's results proved this was the case: GDP dropped by 1.6% in Q1 and 0.9% in Q2, according to the advanced estimate by the Bureau of Economic Analysis.

While all signs point to a recession, in the US, this is determined by the National Bureau of Economic Research -- and it has not called a recession yet. 

But whether we can call this period a recession or not feels like a game of semantics. 

Ultimately, everyday Americans are struggling as prices continue to soar, the cost of borrowing rises and layoffs increase across the country. Here are some recent questions I answered for my So Money podcast audience about how best to prepare, save, invest and make smart money moves in these uncertain times. 

What can we expect in a recession?

It's always helpful to go back and review recession outcomes so that we can manage our expectations. While every recession varies in terms of length, severity and consequences, we tend to see more layoffs and an uptick in unemployment during economic downturns. Accessing the market for credit may also become harder and banks could be slower to lend, because they're worried about default rates. 

Read more: The Economy Is Scary. Here's What History Tells Us 

As the Federal Reserve continues to raise rates to try to clamp down on inflation, we'll see an even greater increase in borrowing costs -- for mortgages, car loans and business loans, for example. So, even if you qualify for a loan or credit card, the interest rate will be higher than it was in the prior year, making it harder for households to borrow or pay off debt. We're already seeing this in the housing market, where the average rate on a 30-year fixed mortgage was recently approaching nearly 6%, the highest level since 2009. 

During recessions, as rates go up and inflation cools, prices on goods and services fall and our personal savings rates could increase, but that all depends on the labor market and wages. We may also see an uptick in entrepreneurship, as we saw in 2009 with the Great Recession, as the newly unemployed often seek ways to turn a small business idea into reality.

Will layoffs become more common?

With the unemployment rate sitting at 3.6%, the job market may appear to be, at least right now, the only stable part of the economy. But that's likely to be temporary, as companies battling with the current financial headwinds -- including inflation, rising interest rates and weakening consumer demand -- have already begun to announce layoffs. According to Layoffs.fyi, a website that tracks job losses at tech startups, there were close to 37,000 layoffs from startups in the second quarter of 2022. This week, Shopify announced reducing its workforce by about 10% or roughly 1,000 layoffs. CEO Tobi Lutke said the e-commerce company's pandemic-driven growth plans "didn't pay off."

In the Great Recession, unemployment peaked at 10%, and it took an average of eight to nine months for those out of work to secure a new job. So now could be the time to review your emergency fund if you think there's a shortfall. If you won't be able to cover a minimum of six to nine months' worth of expenses, which is hard for most people, see if you can accelerate savings by cutting back on spending or generating extra money. It's also a good time to make sure your resume is up to date and to establish contact with influential individuals in your professional and personal network. If you are laid off, make sure to apply for unemployment benefits right away and secure your health insurance. 

If you're self-employed and worried about a possible downturn in your industry or a loss of clients, explore new revenue streams. Aim to bulk up your cash reserves as well. Again, if previous recessions taught us anything, it's that having cash unlocks choices and leads to more control in a challenging time.

Will interest rates on my loans and debts go up?

As the Federal Reserve continues to raise interest rates to try to curb inflation, adjustable interest rates are set to increase -- ratcheting up the APRs of credit cards and loans, and making monthly payments more expensive. Ask your lenders and card issuers about low-interest credit options. See if you can refinance or consolidate debts to a single fixed-rate loan.

In past recessions, some financial institutions were hesitant to lend as often as they did in "normal" times. This can be troubling if your business relies on credit to expand, or if you need a mortgage to buy a house. It's time to pay close attention to your credit score, which is a huge factor in a bank's decision. The higher your score, the better your chances of qualifying and getting the best rates. 

Should I stop investing in my 401(k)?

With stocks in a downward spiral, many want to know how a recession could impact their long-term investments. Should you stop investing? The short answer is no. At least, not if you can help it. Avoid panicking and cashing out just because you can't stomach the volatility or watch the down arrows during a bear market. 

My advice is to avoid making knee-jerk reactions. This may be a good time to review your investments to be sure that you're well-diversified. If you suddenly experience a change in your appetite for risk for whatever reason, talk it through with a financial expert to determine if your portfolio needs adjusting. Some online robo-advisor platforms offer client services and can provide guidance. 

Historically, it pays to stick with the market. Investors who cashed out their 401(k)s in the Great Recession missed out on a rebound. Despite the recent downtick, the S&P 500 has risen nearly 150% since its lows of 2009, adjusted for inflation.

The one caveat is if you desperately need the money you have in the stock market to pay for an emergency expense like a medical bill, and there's no other way to afford it. In that case, you may want to look into 401(k) loan options. If you decide to borrow against your retirement account, commit to paying it back as soon as possible.

Should I wait to buy a home?

With mortgage rates on the rise and housing prices not cooling nearly fast enough, owning could be more expensive than renting right now. A report from the John Burns Real Estate Consulting firm looked at the cost to own versus renting across the US in April and found that owning costs $839 a month more than renting. That's nearly $200 greater than at any point since the year 2000.

Fixed rates on 30-year mortgages have practically doubled since last spring, which has helped slow down offers and cool housing prices -- but competition among buyers is still stiff due to historically low inventory. All-cash offers and bidding wars continue in plenty of markets. If you've been shopping for a home in recent months or the past year to no avail, you may feel exhausted and defeated.

As I stated in my newsletter: Don't be hard on yourself. You're not doing anything wrong if you have yet to offer the top bid. While it's true that a fixed-rate mortgage can offer you more predictability and budget stability, as long as inflation continues to outpace wages, there could be some bright sides to renting right now. For one, you're not buying a home in a bubble market that some economists are saying is soon to burst. If you have to unload the home in a year or two -- during a possible recession -- you may risk selling at a loss.

Secondly, renting allows you to hold onto the cash you would have spent on a down payment and closing costs, and will help you stay more liquid during a time of great uncertainty. This allows you to pivot more quickly and secure your finances in a downturn. Remember: Cash is power.

Read more: Should You Buy a Home in 2022 or Wait? 3 Factors to Consider

My final note is that it's important to remember that recessions are a normal part of the economic cycle. Long-term financial plans will always experience some declining periods. Since World War II, the US has had about a dozen recessions and they typically end after a year or sooner. By contrast (and to give you some better news), periods of expansion and growth are more frequent and longer lasting. 

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Adjustable-rate mortgages: Everything you need to know

Adjustable-rate mortgages: Everything you need to know

The vast majority of mortgages are of the traditional, fixed-rate variety which offer stability and predictable payments for the life of your loan. Adjustable-rate mortgages offer more flexibility -- and often a lower initial rate -- than fixed-rate loans. But you're going to take on some risk in exchange for those benefits. 

Low rates on fixed-rate mortgages may have driven more borrowers away from ARMs over the past decade -- they currently make up a tiny share of the overall mortgage origination market -- but they can still be a good choice in the right circumstances, according to Mike Swaleh, area manager with Fairway Independent Mortgage Company in St. Louis.

"You really only want to take on the risk of an ARM product when the rate difference compared to a fixed-rate loan is high enough to make it worth it," says Swaleh. ARMs can also be a good idea if you're not planning on owning the home for longer than the introductory period or you have the financial flexibility to withstand a high rate increase.

Below, we break down how ARMs work, how they differ from other types of mortgages and whether they're a good option for you.

What are adjustable-rate mortgages?

There are many types of ARMs, but they all have one thing in common: a fixed-rate introductory period followed by a variable interest rate. This is what differentiates all ARM products from traditional fixed-rate mortgages.

With an ARM, you'll pay a set rate for an introductory period of one or more years (more on that below), after which the interest rate can go up or down -- depending on a range of macro-economic factors. Once you're in the adjustable-rate period, your monthly payment could change significantly every year -- making budgeting more difficult.

The big appeal of ARMs is that the initial introductory rate is usually lower than the rate on a fixed-rate mortgage. This has held true even in 2021, when fixed rates have hit historic lows. With an adjustable-rate mortgage, you're taking a gamble that the savings you collect in that introductory period will pay off even if your payment eventually goes up. 

Two factors that will affect your payment during the adjustable-rate period are indexes and caps.

Indexes that affect ARMs

Short-term rates like those for ARMs are based on a few major indexes. These indexes set the base rate for any loans that are made. The most common ones for ARMs are: 

• The Constant Maturity Treasury: This is the weekly average yield on the US Treasury note, which represents short-term government securities and is backed by the Federal Reserve Board.
• Secured Overnight Funding Rate: This rate, which serves as a benchmark for all overnight cash lending, is replacing the London Interbank Offered Rate as the primary index for short-term loans.
• The 11th District Cost of Funds Index: This provides a weighted average of the rates banks pay on savings accounts and money they borrow from other institutions. 

On top of whichever index your ARM uses, your lending institution will set a margin. This margin is usually set for the life of your loan and added to your current rate when your loan adjusts. For instance, if the index is 1.5% and your lender's margin is 2%, your effective rate is 3.5%.

Adjustable-rate caps

These indexes can change significantly over time, which leaves you vulnerable to substantial rate swings. This risk is somewhat mitigated, however, by rate caps. These caps serve as guard rails that prevent your interest rate and loan payment from increasing too much.

Your adjustable-rate loan caps should be disclosed upfront and usually come in one of two forms:

• Periodic caps, which limit how much your rate can increase from one period to the next.
• Lifetime caps, which put a lid on how much your rate can go up over the life of the loan.

Although payment caps protect you from big rate hikes, they can also expose you to something dangerous: negative amortization. If the index rate is higher than your cap, your payment might not be large enough to cover the principal, and you could end up seeing your loan balance go up instead of down.

How introductory periods work

To truly understand adjustable-rate mortgages, it's important to get a handle on the nomenclature. 

With a 5/1 ARM, the five indicates your introductory period -- five years -- and the second number -- the one -- indicates the annual frequency with which your rate readjusts after the introductory period ends. For a 5/1 ARM with an introductory rate of 2.5% (0.5% index and 2% margin) and a 30-year term, your rate will be set at 2.5% for the first five years, after which it's eligible for adjustment once a year.

This means that you can count on a set payment for five years. In year six, if the index jumps to 2.5%, your new effective rate is 4.5%. For the remaining 25 years of your loan, your principal payment won't change, but your interest payment will increase. And that could add hundreds of dollars to your monthly payment.

Common types of adjustable-rate mortgages

There are a wide variety of ARMs on the market. Here's an overview of the most common ones:

Hybrid ARMs

These ARMs have both a fixed period and an adjustable period, as indicated in the example above. The first number indicates the fixed period (in years), and the second indicates how often the adjustable rate will be reviewed and updated. This adjustment time frame is usually one year but could be different (every six months or every five years, for example). Common types of hybrid ARMs include:

• 5/1 ARM: The most common ARM, this mortgage features an introductory five-year fixed-rate period after which your rate can be adjusted annually. 
• 7/1 ARM: This ARM has a seven-year fixed-rate introductory period, after which your adjustable-rate would change once a year for the duration of the loan.
• 10/1 ARM: This ARM has a 10-year fixed-rate introductory period, after which your adjustable-rate could change once a year for the duration of the loan.
• One-year ARM: This ARM has a one-year fixed-rate introductory period, after which your rate would adjust once a year for the duration of the loan. Right now, one-year ARMs are popular options for jumbo loans, particularly since current rates are at all-time lows.

Interest-only ARMs

These ARMs offer an introductory period during which you pay only interest while your principal balance stays the same. Often, you'll have a low monthly payment during the introductory period, but it could increase significantly once you're required to start paying off the principal -- especially if your rate increases at the same time.

Payment-option ARMs

These adjustable-rate mortgages offer considerable flexibility -- and risk. Lenders may offer several payment options, including paying interest and principal, only paying interest or making a minimum payment -- each with its own pros and cons. Some lenders may let you select a different payment option each month. Unpaid interest on these types of loans can add up quickly, however, putting you at risk of negative amortization. 

FHA ARM Loans

You don't need a conventional loan to opt for an ARM. FHA loans, which are backed by the Federal Housing Administration, are also available in various hybrid formats. These loans are typically used for first-time homebuyers and can be a good option if you can't afford a 20% down payment or have poor credit. FHA ARMs are available as one-year ARMs, as well as 3/1, 5/1, 7/1 and 10/1 options.

Reasons to consider an adjustable-rate mortgage 

Despite the risks, an ARM can be a good option for some home buyers. They offer several advantages:

• Lower interest rates than fixed-rate mortgages: The difference varies based on market conditions, but you're likely to get a lower initial rate on an ARM than a 30-year, fixed-rate mortgage. When fixed rates are high, ARMs can make for a compelling alternative.
• Flexibility: If you know you're not going to be in a home for the long haul, you can take advantage of a low introductory rate and then refinance or sell before you reach the adjustment period.
• Low introductory payments: Locking in a low monthly payment for five years (or more) can free up funds for other purposes. And if you expect to earn a higher salary in the future, a higher monthly payment in the future may be less daunting.
• Rates and monthly payments may decrease: There's always the chance that your rate and payment could go down -- though that's more likely if you bought or refinanced your home at a time when rates were high.

Reasons to avoid an adjustable-rate mortgage

While ARMs offer some material benefits, the risks are significant. (In fact, ARMs played a role in the 2008 financial crisis, before which they were marketed to homebuyers who did not understand the risks. The good news is ARMs are more tightly regulated now and that the riskiest versions have been retired. 

"The two big ways ARMs have changed since the mortgage crisis is in product and prevalence," says Swaleh. "Prior to the 2008-2011 collapse, ARMs made up a sizable portion of all mortgages originated. Today, they do not. In 2020, my team did 540 loan transactions. Not a single one of them was an ARM. As far as products go, the two most dangerous products (interest-only and negative-amortization loans) are far less available."

Still, there are some serious disadvantages to consider before taking on an ARM:

• Monthly payments can increase: This is the most obvious risk you're taking with an ARM, and it can be significant -- even if your loan has caps. Make sure you understand your ARM's indexes and caps so you can calculate potential future payments.
• Negative amortization: As noted, payment caps can create a dangerous situation in which your loan balance can actually increase if you're not paying enough toward the principal.
• Difficult to build into a budget: You may have good reason to believe that your income will increase or rates will go down, but if 2020 taught us anything, it's that nobody can perfectly predict what will happen in the next few years. Could you handle a payment increase even without a raise? Do you have money saved in case you were to lose your job or take in less income? If not, then you may want to think twice about an ARM.
• Prepayment penalties: Some ARMs have prepayment penalties to prevent you from paying any extra principal or paying off the loan in advance. Be sure to ask your lender about any payment penalties before you sign off on a loan.
• Complicated fee structure: Some lenders structure their ARMs with complicated discount points that provide an even lower rate initially. Some ARMs also have origination fees, funding fees, and other costs associated with this type of mortgage product that you should talk to your lender about. This fee structure can further obscure the actual cost of your loan and make it harder to know if you're really getting a good deal.

How to apply for an adjustable-rate mortgage

If you decide to apply for an ARM, you'll find the steps are basically the same as they would be for any loan, but you should proceed with a little extra caution.

1. First, review your credit and clean up any errors. If you need to improve your credit to increase your chances of locking in a better introductory rate, you may want to wait a few months.
2. Determine what you can afford in terms of money down and monthly payments. Remember that the latter can change with an ARM, so be sure you are planning with this in mind.
3. Get loan estimates from several lenders so you can compare rates, fees and closing costs. If you apply with several lenders within a short period (usually 30 days or less), the credit checks won't count as multiple inquiries on your credit report.
4. Ask lenders about important aspects of ARM loans such as rate caps, negative amortization, discount points and the index used to determine your rate. Make sure you have all of this information before moving forward.
5. Compare ARM terms to your fixed-rate options. Even if you're convinced an ARM is the best option for you, it's always helpful to explore all of your options before making a large financial decision.
6. Get preapproved for an ARM. Next, you'll want to begin the application process and get preapproved so you can determine how much house you can comfortably afford.
7. Finalize your ARM paperwork. Once you've been preapproved and decided on a lender, it's time to select the product that's best for your financial situation and sign your loan paperwork.

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How to save, invest and earn more for a better 2022

How to save, invest and earn more for a better 2022

This story is part of The Year Ahead, CNET's look at how the world will continue to evolve starting in 2022 and beyond.

Trying to forecast the future can be a fool's errand, but recent trends in the money world and expert financial predictions offer a window into what 2022 may have in store for us. From rising interest rates to inflation pressures to new IRS rules, here's an overview of what we can expect - and how to make the most of our money.

1.) In debt? Make pay down a priority

If you're saddled with high-interest debt, the new year may be a smart time to prioritize knocking down those balances, as the threat of rising interest rates looms.  

"The U.S. Federal Reserve lowered interest rates in response to the pandemic to help stimulate the economy, which made borrowing money far less expensive for consumers. But as the economy continues to improve and the inflation we're seeing now becomes more of a concern, it's likely the Fed will raise interest rates, which will make borrowing more expensive... which can affect everything from mortgages to credit card debt," says Stefanie O'Connell Rodriguez, host of Real Simple's Money Confidential podcast. 

"If you have credit card debt, this might be a good time to prioritize getting that balance down as much as possible so you're not just paying the minimums and subject to higher interest rates on your remaining balance as rates rise," she advises.

To ease the rate burden, you may want to consider transferring card balances to cards offering 0% introductory interest rates but only if you can pay down the balance before the promotional rate expires, which is often between 12 and 18 months.

Finally, the threat of rising rates may give some homeowners incentive to refinance. If your current mortgage has a variable interest rate -- which means it could periodically adjust with the market -- 2022 may be a wise time to consider switching to a fixed rate mortgage.  

2.) Focused on saving? Shop around  

In recent years we saw the personal saving rate in this country reach record highs - and for good reason. The uncertainties and life shifts brought upon us from the pandemic led those of us fortunate to still have income streams to save more. The stimulus checks also helped in some cases.

Now, if inflation continues to rear its head as it has in recent months, we may need our savings to pay for the increases in groceries, gas, homes and cars. Mapping out a budget for the new year to factor in some of these price hikes can prove essential, as could parking a little more money in the bank if you've yet to build up savings.  

"If you do not have an emergency fund, aim to save at least three to six months of necessary living expenses in a high-yield savings account," recommends Cindy Zuniga-Sanchez, founder of Zero-Based Budget Coaching LLC in New York. "The emergency fund serves as your financial cushion in the event of a job loss, decrease in income or other life change." 

Start with as little as you can but commit to saving consistently. An app like Digit is popular for helping users save small amounts incrementally. It uses machine learning to figure out the easiest amount you can save here and there and makes the transfers for you. Digit's website says the average user saves $2,200 a year through its app. Membership is $5 per month after a free 30-day trial.

And it's a good time to save, theoretically. While rising rates can spell bad news for those carrying debt, it's typically encouraging for those looking to earn more than the near zero percent rate or return they've been accustomed to in their bank accounts. And as more digital-only financial institutions with higher savings rates enter the marketplace vying for our deposits, more consumers may be incentivized to switch banks.

3.) Behind on retirement savings? Bank on new contribution limits  

If 2022 is the year you want to bump up your retirement savings, good news: In November the IRS announced that savers can set aside an extra $1,000 in their workplace retirement account. This includes the 401(k), 403(b), most 457 plans and Thrift Savings Plans. The new contribution limit - which is tax deductible - will be $20,500.

As a reminder to those who may have taken advantage of the CARES Act and taken a coronavirus-related withdrawal from their retirement plan in 2020 at no penalty, you can repay the full amount in 2022 and claim a refund on the taxes you paid. If you haven't done so already, remember that this may be the last eligible year to repay your retirement account to earn back the taxes you may have paid. 

4.) Eyeing a new house? Avoid knee-jerk reactions to rising rates

Prospective homeowners concerned about rising interest rates may be inclined to either sit back on the sidelines or speed up a purchase. But, as always when considering what's probably going to be the biggest financial purchase of your life, consider all of your expenses - and have some perspective. 

"Rates will tick up," says Kathy Braddock, Managing Director of William Raveis NYC. "But most younger buyers need to know that in the late 1970s and early 1980s, rates were close to 20 percent and people still bought homes."  

Braddock's advice to homebuyers is to first do the math to see which move - renting or buying - offers more financial and lifestyle benefits. If you do decide to buy in 2022, it's all the more important to have a strong credit score to bank on the best possible rate. Shop around for a quality loan, and to help ride out market fluctuations, lock your rate and have at least a three-year commitment to staying in the home before needing to sell, says Braddock. Our CNET mortgage calculator can also help you better determine how much house you can afford.

If it's any comfort, the National Realtors Association predicts more housing supply in the next year based on expectations of new construction and the expiration of the mortgage forbearance program prompting some owners to sell. This could help to reduce the rising pace of home prices in the previous year and lessen the sting of rising rates.

5.) Want to make more money? Engage your employer

With 2021's Great Resignation leaving some companies scrambling for new talent, the new year may be a fertile time for you to finally get that promotion or raise. That is, assuming you've been adding value and plan to stay with your company. 

While higher pay may be top of mind, don't forget that there are other financial benefits your employer may be able to address. Financial wellness programs that provide credit counseling and help workers budget and save are increasingly becoming a valuable employer benefit that prospective workers are seeking out. In fact, close to 70 percent of workers say it's their employer's responsibility to help them become financially healthy and secure, according to a 2021 survey by the Employee Benefit Research Institute.  

If you have student loan debt or are considering going back to school, remember that a lesser-known provision in the CARES Act temporarily allows employers to provide up to $5,250 in tax-exempt student loan repayment contributions or tuition assistance each year, through the end of 2025. "With four full years remaining, it's the perfect time for employees to be proactive by asking if their employers are aware of their ability to offer this financial wellness benefit and whether they are willing to do so," says Patricia Roberts, financial aid expert and author of Route 529.   

In summary, 2022 poses some unique financial challenges and opportunities led by the likelihood of inflation and rising interest rates. They're worth considering, as we aim to manage our money well and achieve our short and long-term goals. If you've yet to knock down high-interest credit card debt, start there, then focus on bulking up your emergency fund. Rising mortgage rates may fuel more anxiety in the housing market, but prospective homeowners should have a long-term view and consider all their expenses. Finally, if you're hoping to make more money or get some financial assistance, don't forget: talking to your employer may be a great place to start. 

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Compare 15-Year Mortgage Rates for August 2022

Compare 15-Year Mortgage Rates for August 2022

Buying a home is a major financial decision, and interest rate levels have a major impact on how much your mortgage will cost you over the years. When you become a homeowner, you'll want to secure the right type of mortgage at the lowest possible rate. If you can manage a higher monthly payment, a 15-year mortgage is an attractive option if you're looking to pay off your home loan sooner while saving on interest.

Current 15-year mortgage rate trends

Rates for the 15-year mortgage are currently in the mid-to-upper 4% range, having dropped slightly since the Federal Reserve's most recent interest rate hike to combat inflation. Although rates had been steadily increasing since the beginning of 2022, they dropped because the Fed's increase was in line with market expectations. Interest rates typically go up when inflation soars, and the pressure on rates and prices has been most apparent in the real estate industry.

Even though mortgage rates dipped slightly, home prices will remain high in 2022. The more expensive homes get, the bigger the mortgage you'll need to afford that home. Make sure you shop around for mortgage lenders that can make worthwhile rates available to you. You should always meet with multiple lenders to figure out which loan offers make the most sense for your personal financial situation. 

Here's what you need to know to lock in the best mortgage rate possible for a new home.

The pros of a 15-year fixed mortgage

• Shorter loan term: The obvious benefit of a 15-year fixed mortgage is that it takes half the length of time to pay off compared to a 30-year mortgage. You will have higher monthly payments, but you'll pay this home loan off twice as fast, resulting in less interest over time. 
• Lower interest rates: Usually, 15-year fixed interest rates are lower than 30-year rates because the lender does not have to predict rates for an additional 15 years into the future, like they do for a 30-year loan. 
• Build equity in your home much faster: A 15-year fixed mortgage allows you to build more equity in your home faster. This means you can enjoy some of the advantages of homeownership, such as refinancing your home loan when rates go down again, sooner. Typically, to get a good refi rate, lenders like to see at least 20% in home equity.

The cons of a 15-year fixed mortgage

• Higher monthly payments: One downside to a 15-year mortgage is that you're stuck with high monthly payments for the duration of the home loan. For example, say you make a 20% down payment on a $500,000 mortgage at a 4% interest rate with a 15-year fixed mortgage, your monthly payment will be about $3,350, compared to just $2,300 with a 30-year fixed mortgage.
• The maximum mortgage amount you can borrow is smaller: Since you're making high payments every month, lenders will offer you a smaller mortgage amount than they might with a 30-year loan. This reduces the risk to the lender that you will default on the loan.
• Less financial flexibility overall: If you put all of your eggs into a 15-year mortgage, it could limit your opportunity to spend your money in other ways. For example, you may have less available to contribute to investment or retirement accounts. You may also have less of a financial cushion to fall back on if you run into difficulties.

Something to consider 

If you like the idea of paying off your mortgage sooner, but are worried about committing to higher monthly payments, there's an alternative to consider. If you choose a 30-year mortgage over a 15-year mortgage, you can make additional payments throughout the year, which will help shorten your loan term. This allows you to effectively pay off your 30-year mortgage sooner, without locking yourself into the higher monthly payments that are attached to a 15-year mortgage.

Current mortgage and refinance rates

We use information collected by Bankrate, which is owned by the same parent company as CNET, to track daily mortgage rate trends. The above table summarizes the average rates offered by lenders across the country. 

FAQs

What is a 15-year fixed mortgage?

A 15-year fixed mortgage is a loan to buy a house that you will pay off over 15 years with a set interest rate. Since it has a shorter loan term than a 30-year mortgage, the monthly payments are much higher than with a fixed 30-year loan.

Who can qualify for a 15-year mortgage?

You must be able to afford higher monthly payments to qualify for a 15-year loan and confirm your ability to pay. That means your salary, credit score and debt-to-income ratio -- that is, how much debt you carry each month divided by your monthly income before taxes -- play a bigger role in a 15-year mortgage than they do for a 30-year mortgage. So if you have high-interest debt you're trying to pay down, a lender will factor in those payments when considering approving you for the loan.

What is the difference between a 15-year mortgage and a 30-year mortgage?

The main difference between a 15-year mortgage and a 30-year mortgage is that a 15-year mortgage will ultimately cost you less by saving you up to tens of thousands of dollars over the lifetime of the loan. You also pay a lower interest rate for a shorter amount of time, thereby lessening the overall cost of your loan. But paying off the loan in half the time means that your monthly payments can be almost double what they are for a 30-year loan.

More mortgage tools and resources

You can use CNET's mortgage calculator to help determine how much you can afford for a house and work out how to manage financially. The tool takes into account your monthly income, expenses and debt payments. In addition to those factors, your mortgage rate will depend on your credit score and the zip code where you are looking to buy a house.

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Millions can't pay their car loans. Here's what to do if you're one of them

Millions can't pay their car loans. Here's what to do if you're one of them

If you've skipped a car payment or two recently -- or you worry you might have to miss an upcoming one -- you're not alone. Due to the coronavirus recession and record levels of unemployment, over 7% of all car loans in the US are currently in some sort of deferment program, according to recent data released by credit reporting agency TransUnion.

Typically, missing a car payment can damage your credit score or even lead to the bank repossessing your vehicle. However, in the wake of the recent economic turmoil brought on by the coronavirus pandemic, most lenders have streamlined their financial hardship programs and are willing to be a bit forgiving if you just ask for help.

But just like the help available with rent payments and unemployment benefits, you do have to ask. The worst thing you can do is ignore the problem and assume it'll work itself out on its own. (Scroll to the end for what else you should absolutely not do.)

Here's a look at the most current information and resources we could locate to help you deal with your car payment. We'll continue to update this story as new details emerge.

First, see what assistance your lender has to offer

You'll want to know what kinds of programs your bank, credit union or other auto loan provider may have available to you. Also, if there are any state laws that might offer some protections against repossession, you'll want to find out about those, too. 

Here are the most comprehensive resources we've been able to turn up to help with both. (If you don't see your lender on any of those lists, try contacting the company directly through its website or app.)

As businesses like this soda and candy shop in Asheville, North Carolina, start to reopen, you can bet repossession companies will be back to work, too.

Sarah Tew/CNET

Most repos occur after two or three months of no payments

If you've fallen behind (or you think you're going to fall behind) on your car payment for 90 days or longer, you may very well be at risk of having your car repossessed. Your lender may be more lenient if you've never missed a payment before, but the more often you've been late in the past, the sooner they might attempt repossession. 

One way around this, however, is a deferment or forbearance program.

What are auto loan deferment programs and how do they work?

Under normal circumstances, most lenders will report a late payment to the credit bureaus once it's at least 30 days overdue, and they'll typically come to take your vehicle away after you've missed three or more payments in a row. 

A deferment or forbearance allows you to skip between one and three payments with no late fees or penalties. After the deferment period ends, either your monthly payment will either go up slightly or your loan will be extended by about the same amount of time as the deferment.  

On the downside, interest will continue to accrue during the months you skip your payment, so you'll end up paying more for your vehicle in the long run. But on the plus side, your missed payments will not show up as negative marks on your credit report, so your credit score shouldn't take a hit.

How to talk to your bank about your options 

Most lenders' programs have been streamlined to be pretty simple to apply for. Fill out a form, possibly attach some documentation (termination letter, layoff notice, etc.), send it off to your lender and wait for an approval confirmation. If your bank doesn't have it set up that easy and you have no idea where to begin, the legal services website DoNotPay has a chatbot that can help you draft a letter to your lender.

That said, you can probably handle this on your own. Just be honest and forthcoming about your situation and realistic about how much time you'll need to get back on your feet. Generally speaking, banks would rather work with you and retain you as a customer than leave you stranded without a vehicle.

Ford is currently offering to pay six months' worth of new vehicle payments when you purchase a new car from the company.

Wayne Cunningham/CNET

What normally happens when you miss a car payment?

In most states, a lender, like your bank, can start the repossession process the day after you miss even just one payment, but most companies give their customers a grace period. Often the lender won't even charge a late fee until the payment is at least 10 days late, and most won't report it to the three major credit bureaus until it's over 30 days late. 

If you go past 30 days delinquent -- and especially if you miss the next two payments in your loan cycle as well -- that's where you start treading into repossession, or repo, territory. 

How repossession works 

In most cases, your lender will contract with a third-party agency that specializes in repossessions. That company will use whatever information it can get -- your home and work addresses, for example -- to track down the vehicle and tow it to a secured, usually gated lot. It does not need your car keys to take your car. 

The repo company will then charge your bank for towing the vehicle, as well as a daily storage fee, usually around $25 to $75 per day. Unless you happened to have left your keys in the car, the repo company will also contract a locksmith to make a new set of keys -- then charge your bank for that service, too. When all is said and done, you'll owe anywhere from a few hundred to over a thousand dollars in charges, which you'll still be liable for whether you get your car out of repo or not. 

If you quit paying your car payment, eventually a vehicle recovery service will come tow your car.

Andrew Hoyle/CNET

Are car repossession companies even open right now?

The auto repossession industry never quite figured out whether repo companies, many of which laid off dozens of employees early on in the pandemic, were even allowed to operate in areas under strict shelter-in-place orders. The Association of Credit and Collection Professionals, a lobbying group for debt collectors, has argued that debt collection is an essential service, but lawmakers have yet to chime in.

However, as most US cities are far along in the process of reopening and orders shuttering nonessential businesses have mostly been lifted, you can probably bet that repo companies will be up and running as soon as they can be.

Your rights vs. the bank's rights 

In pretty much every instance your bank does not need a court order to attempt to repossess your car. You can view a list of every state's specific automobile repossession laws here, but generally speaking, your lending institution (or a company it hires) has the right to come onto your property and take the car so long as no one commits a "breach of the peace."

That means its representatives can't break into a locked garage, through a locked gate or otherwise use physical force against you or your property to take possession of your vehicle. They can, however, follow you to work, for example, or the grocery store, and wait until you leave your car unattended. 

How to get your car out of repo -- and what happens if you don't 

What if it's too late and your car has already been repoed? Many states have laws on the books about how long and under what conditions lenders must allow you the opportunity to get your vehicle back, but the terms aren't exactly favorable, especially if you're in the kind of financial situation that led to repo in the first place.

Generally, the law only compels lenders to release your car if you pay off the loan plus any towing and storage charges that have accrued. In practice, however, most lenders are willing to give your car back if you can at least catch up with your late payments (and, of course, even up with the repo company as well). 

One option if you're struggling to pay your car payment is to try and sell your car for cash to pay off the loan, but that won't work if you owe more than the car is worth.

Sarah Tew/CNET

If you leave your vehicle in repo, either because you can't afford to get it out or you just decide it's not worth it, you're still not completely off the hook. The bank will likely auction off your car to the highest bidder, then apply the revenue from that sale to your remaining balance, including repossession charges. If that doesn't cover your entire debt, the bank can come after you for the remainder, including handing your account over to a collection agency and reporting the delinquency to the credit bureaus. 

You have a few wild-card options as well 

If you're at risk of having your car or truck repossessed, there are other options available besides deferment, but none quite as simple or easy. You could do what's called a "voluntary repossession," where you contact your lender and indicate your desire to turn your vehicle over to it. Your credit will take a hit and you'll be liable for any outstanding debt the bank fails to recoup at auction, but the overall impact to both your credit score and pocketbook will be less than if you wait for the bank to forcibly repo your car.

You can refinance your car for a lengthier loan term with a lower monthly payment, but that will only work if you've already paid off a substantial amount of the principal. If you've only had your car loan for a year or two, you might actually still owe more than it's worth. Also, your credit has to be good enough for a bank to underwrite a new loan for you, which may or may not be the case anymore. 

You could also try to sell your car on the open market, or trade it in for something less expensive, but again, with the economy now in a full-blown recession, neither of these options seems very compelling.

What you absolutely should not do 

Whatever you do, don't try to hide your car from your bank or the repo company. For one, you're probably not going to beat them at their own game, and the longer it takes to find it (and the more difficult you make it), the more they're going to charge you for their services in the end. 

Stop! Don't just sit back and wait until the bank repos your car. Be proactive and ask and your lender may be able to help.

Shara Tibken/CNET

And don't just stop paying your loan and hope for the best. Whether or not lawmakers decide the repo industry performs an "essential" function, or if the repo man has to wait for a treatment or vaccine like the rest of us before getting back to work, eventually your delinquency will catch up with you. With banks demonstrating some compassion right now for those who've suffered financial hardship, you might as well take advantage of one of their relief programs while you can. 

Chances are if you're worried about making your car payment, you have other bills keeping you up at night, too. Here's what you need to know about rent relief during the pandemic, as well as what assistance is available if you have a mortgage. For taxes, credit cards and everything else, here's what other financial help is available.

The editorial content on this page is based solely on objective, independent assessments by our writers and is not influenced by advertising or partnerships. It has not been provided or commissioned by any third party. However, we may receive compensation when you click on links to products or services offered by our partners.

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Refinance Rates for Aug. 23, 2022: All Rates Jump

Refinance Rates for Aug. 23, 2022: All Rates Jump

Both 15-year fixed and 30-year fixed refinances saw their mean rates go up. The average rate on 10-year fixed refinance also saw an increase.

Like mortgage rates, refinance rates fluctuate on a daily basis. With inflation at a 40-year high, the Federal Reserve has hiked the federal funds rate four times this year and is poised to do so again in 2022 to try to slow rampant inflation. Though mortgage rates are not set by the central bank, these federal rate hikes increase the cost of borrowing money. Whether refinance rates will continue to rise or fall will depend on what happens next with inflation. If inflation begins to cool, rates will likely follow suit. But if inflation remains high, we could see refinance rates maintain an upward trajectory. If rates for a refi are currently lower than your existing mortgage rate, you could save money by locking in a rate now. As always, consider your goals and circumstances, and compare rates and fees to find a mortgage lender who can meet your needs.

30-year fixed-rate refinance

The current average interest rate for a 30-year refinance is 5.81%, an increase of 36 basis points over this time last week. (A basis point is equivalent to 0.01%.) A 30-year fixed refinance will typically have lower monthly payments than a 15-year or 10-year refinance. This makes 30-year refinances good for people who are having difficulties making their monthly payments or simply want a bit more breathing room. Be aware, though, that interest rates will typically be higher compared to a 15-year or 10-year refinance, and you'll pay off your loan at a slower rate.

15-year fixed-rate refinance

For 15-year fixed refinances, the average rate is currently at 5.06%, an increase of 27 basis points from what we saw the previous week. A 15-year fixed refinance will most likely raise your monthly payment compared to a 30-year loan. On the other hand, you'll save money on interest, since you'll pay off the loan sooner. You'll also typically get lower interest rates compared to a 30-year loan. This can help you save even more in the long run.

10-year fixed-rate refinance

For 10-year fixed refinances, the average rate is currently at 5.14%, an increase of 22 basis points over last week. Compared to a 30-year and 15-year refinance, a 10-year refinance will usually have a lower interest rate but higher monthly payment. A 10-year refinance can help you pay off your house much quicker and save on interest. Just be sure to carefully consider your budget and current financial situation to make sure that you can afford a higher monthly payment.

Where rates are headed

At the start of the pandemic, refinance rates dropped to historic lows, but they have been mostly climbing since the beginning of this year. Refinance rates rose due to inflation, which is at its highest level in four decades, as well as actions taken by the Federal Reserve. The Fed recently raised interest rates by another 0.75 percentage points and is prepared to raise rates again this year to slow the economy. Still, it's unclear exactly what will happen next in the market. If inflation continues to rise, rates are likely to climb. But if inflation starts to cool, rates could level off and begin to decline.

We track refinance rate trends using information collected by Bankrate, which is owned by CNET's parent company. Here's a table with the average refinance rates reported by lenders across the US:

Average refinance interest rates

Product	Rate	A week ago	Change
30-year fixed refi	5.81%	5.45%	+0.36
15-year fixed refi	5.06%	4.79%	+0.27
10-year fixed refi	5.14%	4.92%	+0.22

Rates as of Aug 23, 2022.

How to find personalized refinance rates

It's important to understand that the rates advertised online may not apply to you. Your interest rate will be influenced by market conditions as well as your credit history and application.

Having a high credit score, low credit utilization ratio and a history of consistent and on-time payments will generally help you get the best interest rates. You can get a good feel for average interest rates online, but make sure to speak with a mortgage professional in order to see the specific rates you qualify for. To get the best refinance rates, you'll first want to make your application as strong as possible. The best way to improve your credit ratings is to get your finances in order, use credit responsibly and monitor your credit regularly. Don't forget to speak with multiple lenders and shop around.

Refinancing can be a great move if you get a good rate or can pay off your loan sooner -- but consider carefully whether it's the right choice for you at the moment.

When should I refinance?

In order for a refinance to make sense, you'll generally want to get a lower interest rate than your current rate. Aside from interest rates, changing your loan term is another reason to refinance.When deciding whether to refinance, be sure to take into account other factors besides market interest rates, including how long you plan to stay in your current home, the length of your loan term and the amount of your monthly payment. And don't forget about fees and closing costs, which can add up.

As interest rates have rather steadily increased since the beginning of the year, the pool of people eligible for refinancing has shrunk significantly. If you bought your house when interest rates were lower than current rates, you may likely not gain any financial benefit from refinancing your mortgage.

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Buying a Home or Refinancing? Here's How to Find the Right Home Loan

Buying a Home or Refinancing? Here's How to Find the Right Home Loan

Navigating the world of home-buying could be an Olympic sport. There are so many different regulations, guidelines and fees to keep track of -- and by the time you master one part, there are new rules to learn. And, with mortgage rates predicted to continue rising, particularly as the Fed looks to increase rates as early as March, locking in a rate sooner rather than later may save you tens of thousands in interest.

When searching for the right home loan, you're bound to come across many options. But not every mortgage is right for every person -- you'll want to learn more about the different types of home loans to decide which one is right for you. This guide will help break down several of the most common home loan types, while explaining what's required for approval and who each type is best for.

Read more: Mortgages, Credit Scores and Down Payments: 5 Things to Know Before Buying a Home

1. Conventional loan

What it is: A conventional loan is a loan that isn't backed by a government agency. These are the most common type of loan. Conventional loan terms come in 10-, 15-, 20- and 30-year terms, with 30-year terms being the most popular option.

What you need: You can get a conventional loan with as little as 3% down payment and a 620 credit score. But the lower your credit score, the more money you might need for a down payment.

Who it's good for: The majority of home loans -- around 75% -- are conventional loans, so it's good for most people. You can use it for your first home, second home and even investment properties.

Who should skip it: Borrowers who don't have the minimum credit score requirements or need payment assistance.

2. FHA loan

What it is: An FHA loan is backed by the Federal Housing Administration, which provides mortgage insurance to lenders who provide FHA loans. It's the largest mortgage insurer in the world. Loans are administered by FHA-approved lenders. This can be local banks, credit unions and online lenders. Loans come in 15- and 30-year terms.

What you need: To secure a 3.5% down payment rate, your credit score will need to be 580 or above. If it's below 580, you can still qualify, but you'll need at least a 10% down payment. For down payments of less than 20%, your loan will require private mortgage insurance. PMI protects the lender just in case you default on your loan. PMI will get removed from your mortgage payments once you have at least 20% equity in your home.

Who it's good for: Borrowers who don't have strong enough credit to qualify for a conventional loan. FHA loans also offer down payment loans and grants through federal, state and local programs whereas conventional loans don't.

Who should skip it: If you have good or excellent credit that would qualify you for a conventional loan.

Check out our full guide to FHA loans.

3. VA loan

What it is: VA loans are offered through the US Department of Veterans Affairs. Military veterans, those in active duty or in the reserves qualify for VA loans. 

What you need: There's no down payment or minimum credit score requirement to get a VA loan.

Who it's good for: Those who serve or have served in the military.

Who should skip it: Borrowers who aren't in the military, obviously. VA loans are only good on primary residences so if you need funding for a second home or investment property, you'll need to look at other options.

Check out our full guide to VA loans.

4. USDA loans

What it is: USDA loans are funded by the US Department of Agriculture. They're available in specific regions across the country. They're made for borrowers in mostly rural areas who might not otherwise qualify for a traditional loan. Loans are backed by USDA-approved lenders (similar to FHA-backed loans). You can check to see if you'd qualify by checking the eligibility site.

What you need: There's no down payment required for a USDA loan. Most lenders require at least a fair credit score.

Who it's good for: Families in rural areas as long as you meet income and location limits.

Who should skip it: Those who don't meet the location and income requirements. If you qualify for one and not the other, you also might want to look into alternative loan options.

Check out our full guide to USDA loans.

Other loan types to know about

As well as being based on a government (or nongovernment) program, mortgages can be categorized by interest rates and how much the home price is. Those are:

• Fixed-rate loans: These are the most common type of loan within a conventional mortgage. Fixed-rate loans means you'll pay the same interest rate every month for the life of the loan. The only time your interest rate will change is if you refinance your mortgage.

• Adjustable-rate mortgages: ARMs have a fixed interest rate for a set amount of time and then the interest rate fluctuates periodically. They usually start out lower than standard fixed-rate mortgages but can change over time based on a benchmark. A 5/1 ARM means the first five years have a fixed rate and then a variable interest rate that changes every year after that.

• Jumbo loans: This is a mortgage that finances a property that's too expensive for a traditional loan. The qualifications for jumbo loans tend to be more strict. For most lenders, you'll need a credit score of at least 700 and usually a 20% down payment. Jumbo loans start where conforming loans end, which is different depending on where you are. Jumbo loans can have fixed or adjustable rates. 

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