The days when companies would provide pensions for their employees are rapidly dwindling. Today, workers are primarily responsible for saving enough money for their retirements. The good news? Workers can choose from many retirement plans, from 401(k) plans to IRAs to Simplified Employee Pensions. However, no matter what plan your company offers — or whatever you invest in if you are a self-employed worker — your job is to maximize your retirement savings during your working years. Maximizing Your Retirement Savings Richard Lichtig, a partner with accounting firm Eisner Amper, recommends that employees take advantage of two investing strategies: dollar-cost averaging and maximizing an employer’s matching contribution. In dollar-cost averaging, workers buy a fixed dollar amount of a particular investment on a set schedule, no matter what that investment’s share price happens to be. That gives employees the chance to buy more shares when the price per share of an asset is low and a smaller amount of shares when the price per share is higher. That reduces the chance that employees will make a substantial purchase when that investment is at its highest point. Another sound investment technique for employees to consider is matching their employer’s contribution to the 401(k) plan. As Lichtig writes, employers allow their workers to invest 15% of their salary in 401(k) plans. The employers will then match half of the first 5% of what their employees contribute. Employees could cost themselves money by selecting a contribution method that fully funds their 401(k) plans as early as possible. Lichtig provides a compelling example. He cites an employee with a salary of $330,000 a year who wants to contribute $16,500 to the employer’s 401(k) plan. If the employee contributes is at a 15% rate, the employee will have maxed out the $16,500 contribution in April. They would have invested $4,125 (or 15% of their monthly salary) from each paycheck from January through April. The employer will have made $2,750 in matching contributions. However, if the employee contributes 5% of their monthly salary (or $1,375) to the plan, they would have contributed the same $16,500. However, in this case, the employer would have added matching contributions totaling a much higher $8,250. Of course, this strategy works best for employees with higher salaries. Contribution Limits In 2025, workers can contribute $23,500 throughout the year in their 401(k) and 403(b) plans. The catch-up contribution limit for those 50 or older is $7,500. It is essential, too, for workers who directly deposit funds into their 401(k) plans from their paychecks to change their direct deposits to adjust to annual changes in the contribution limit. But, again, the key is for workers to ask their employer’s payroll department to remove the maximum contribution from each paycheck. Obviously, not every worker will be able to contribute the maximum each year, so you are far from being alone if you are unable to do so. However, what is essential is for workers to contribute enough to capture any 401(k) match offered by their companies.

Reviewing Your Retirement Plan

View Resource Reviewing Your Retirement Plan
Unless you are an employee of a tax-exempt organization, like a public school, you may be unfamiliar with a 403(b). A 403(b) is a type of retirement account explicitly designed for employees of public schools, like teachers and other tax-exempt organizations. This article will discuss what a 403(b) plan is, how it works, and how to maintain it. What is a 403(b) Plan? A 403(b) plan, also referred to as a tax-sheltered annuity plan or TSA plan, is a retirement plan offered by tax-exempt organizations, mainly public schools, and charities, for certain employees. Eligible employees work at: 403(b) plans are similar to 401(k) retirement plans. Both 403(b) and 401(k) allow employees to defer a portion of their salary into a retirement account. Also, employers may match a part of the employees’ contributions. The funds invested in a 403(b) don’t face taxes until withdrawal, which reduces your taxable income. However, 403(b) plans may also offer Roth accounts. Roth accounts differ from Traditional plans in that Roth funds are taxed before contribution. As a result, the funds grow tax-free (including earnings) with no tax payments required when the money is withdrawn and distributed. Understanding Your 403(b) Plan The 403(b) and 401(k) share the same limits on yearly contributions. The contribution limit for the 2025 tax year is $23,500. Also, like the 401(k), the 403(b) plan offers catch-up contributions for anyone 50 years of age or older. Catch-up contributions are $7,500, meaning that if you are 50 or older, you can contribute an additional $7,500 for a total of $31,000 for 2025. The sum of employee and employer contributions is limited to $70,000 (for 2025) or 100% of the employee’s yearly salary, whichever one is less. In addition, if your employer offers a 401(k) and a 403(b), you may contribute to both. Still, the total must be no more than the annual contribution limit. Like any retirement plan, there are clear advantages and disadvantages to the 403(b) plan: Maintaining Your 403(b) Plan If you are an employer providing a 403(b) plan, here is how you maintain and operate it: Takeaway Like any retirement plan, if you are eligible for a 403(b), you should decide whether it is right for you. If the program has low administrative costs and employer matching, it may significantly increase your retirement funds over the years. However, if the plan has limited investment options and high fees, you may be better off without it.

Are You Eligible for a 403(b) Plan?

View Resource Are You Eligible for a 403(b) Plan?
You are ready to make the jump from renting to buying a home. That is good news. The National Association of Realtors’ latest report for 2023 states that the median sales price of existing homes across the country stood at $387,600, which is a 0.03% percent decrease from the year prior. At the same time, borrowing money to finance a home is getting more costly, too. In December 2023, Mortgage News Daily reported that the average interest rate on a 30-year fixed-rate mortgage rose to 6.64 percent, which is a 0.26 point bump compared to the year prior. Homes have become less affordable, primarily due to rising interest rates, among other factors. However, you can still afford to buy your dream home within your ideal neighborhood. Before you buy a home, you want to make sure that you can afford the monthly mortgage payment. If you cannot, you will struggle to make your payments on time. Moreover, you could even end up losing your home to foreclosure. Can You Afford It? In general, mortgage lenders recommend that you purchase a home that is no more than 2.5 times your gross annual income, your income before any tax deductions. In general, if you make $50,000 a year, you would be able to afford a home that costs from $100,000 to $150,000. Of course, that is a relatively simple formula that doesn’t consider other factors. For example, you might make $50,000 but have few other debts. Maybe you do not have any credit card debt and are not burdened with student loan debt. You will be in a much better position to afford a more expensive home than someone making the same amount of money as you, but with overwhelming student loans and auto payments, and high credit card bills. What Your Lenders Will Give You Mortgage lenders will look at your entire financial picture to determine how much money to lend you. That includes both your monthly income and your monthly debts. Lenders rely on two ratios — the front-end and back-end ratios — to determine how large of a mortgage payment you can afford. The front-end ratio determines how much of your monthly income your mortgage payment — including principal, taxes, and insurance — takes up. Lenders want your mortgage payment to take up no more than 28 percent of your monthly income. The back-end ratio considers all of your debts, everything from your mortgage payment to your credit card debt to your student loans. Lenders want your monthly debt obligations to total no more than 36 percent of your gross monthly income. The Down Payment Of course, you can increase the affordability of your mortgage loan by coming up with a more substantial down payment. The more money you can put into a down payment, the smaller your mortgage loan will be, and the lower your monthly payment. Most conventional lenders today require that you put down at least 5 percent of your home’s purchase price. However, down payment requirements will vary based on your credit history and other factors. According to the National Association of Realtors, statistics for 2023 indicate that with more and more first-time homebuyers entering the market, down payments percentages have decreased, with home buyers putting down an average of 8 percent. For a house with a $200,000 purchase price, that would come out to a down payment of $16,000. If you take out a mortgage loan insured by the Federal Housing Administration, though, you will need a down payment of just 3.5 percent, depending on your credit score. For a house with a $200,000 purchase price, that comes out to a down payment of $7,000. Your Credit Of course, even if you can afford a specific house and have the money for a down payment, you might not qualify for a mortgage loan. That is because lenders today rely heavily on your three-digit credit score when determining who gets mortgage money and at what interest rate. Your credit score will drop if you have a credit history filled with missing credit card payments and auto loan payments. In addition, if you have filed for bankruptcy or suffered through a housing foreclosure, your credit score will plummet. Your score will also suffer if you have mountains of credit card debt. However, if you make wise financial decisions and pay your bills on time, your credit score should be solid. In general, lenders reserve their best interest rates for borrowers with FICO credit scores of 740 or higher. That is important when it comes to affordability. Your monthly mortgage payment will be lower if you have a lower interest rate. The best way to get a low rate is to go to your lender with a healthy credit score.

Home Affordability

View Resource Home Affordability

The idea of buying a first home is exciting. However, coming up with a sizable down payment can feel like an impossible task. That is especially true when many lenders desire 20 percent or more as a down payment. According to the National Association of Realtors, for Q3 2022, the median home price in the U.S. is $398,500.

Putting together a 20 percent down payment for even that average home would require substantial savings. Fortunately, just like you, there are options to help people make the necessary down payment to get the home you are dreaming of calling your own.

Low Down Payment Loans

The idea of buying a first home is exciting. However, coming up with a sizable down payment can feel like an impossible task. That is especially true when many lenders desire 20 percent or more as a down payment. According to the National Association of Realtors, for Q3 2023, the median home price in the U.S. is $387,600.

Putting together a 20 percent down payment for even that average home would require substantial savings. Fortunately, just like you, there are options to help people make the necessary down payment to get the home you are dreaming of calling your own.

Low Down Payment Loans

Quite a few government-secured loans are available that offer lower down payment options to consumers. They can help make the home-buying process more achievable for the average family. The three major low down payment loan programs available include:

Some borrowers may also qualify for conventional loans that allow them to purchase homes with as little as three percent down if they have sufficiently good credit scores. However, convention loans are not government-backed loans and often require higher credit scores than government-backed loans.

These lower down payment loans allow you to get into your home sooner, though there are a few drawbacks to consider before choosing this route as part of your down payment strategy.

  1. Mortgage Insurance
  2. Higher Interest Rates

Private mortgage insurance is specialized insurance designed explicitly for conventional mortgages. Its purpose is to protect lenders from defaults if you cannot make your monthly payments. With many traditional lenders, you can ask to cancel your PMI once you’ve reached 20 percent equity in your home.

For FHA loans, the mortgage insurance premium (MIP) is something you will pay for the life of the loan. However, many borrowers consider it a small price to pay for the benefit of homeownership years sooner, in many cases, than would have been possible otherwise.

Sources of Down Payment Funds

Depending on the lender, you have a wide range of opportunities to develop the down payment funds you need to buy your home. Ideally, it would come from savings, but with housing prices rising, more people need help to make more substantial down payments. For most loan programs, you can use any of the following resources to fund your down payment:

  1. Cash savings
  2. Money borrowed from or gifted by friends and family
  3. Borrow or withdraw from your 401(k)

While the last one has significant drawbacks in the form of penalties, fees, and taxes (not to mention the loss of that lump sum from your retirement savings),

Available Assistance Programs

In addition to low down payment loans, there are assistance programs that can help you get the down payment they need. Many of these occur on state and local levels combining substantial grants, zero-interest loans, and a combination of tax benefits and even lower interest rates.

The downside of the state and local down payment assistance programs often involves limited availability, maximum sales prices, and income limits for borrowers.

There are also programs available through non-profit organizations, employers, community foundations, and other resources that can assist you in making your down payment.

Takeaway

Ideally, you will have 20 percent to put down on the home you intend to buy. But, unfortunately, that isn’t always possible in today’s crowded and competitive real estate marketplace or if you are a first-time homebuyer. If you cannot save considerable sums of money to make a down payment, there are loan options and assistance programs geared to help. They include federal government-backed loans, state and local down payment assistance programs, friends, family, and your retirement fund. Use them wisely to get your dream home today.

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Down Payment Strategies for First-Time Home Buyers

View Resource Down Payment Strategies for First-Time Home Buyers
Does it make more sense to rent than to buy? That has been a long-running debate in this country. However, the question is flawed: There is no correct answer. There may be times in your life when it does make more sense to rent. However, there will also be times when buying is financially sound. The key is to look at your situation and the housing and rental markets before deciding which option is best for you. The fact remains, though, that most U.S. residents prefer owning. It sounds corny, but owning a home largely remains part of the American dream. According to the November 2022 Home Purchase Sentiment Index conducted by Fannie Mae, 57.3 percent of respondents think owning a home makes more sense. They cite protection against rent increases and the long-term investment value of a home purchase as important reasons.

The Markets

The fortunes of the housing and apartment markets are constantly in flux. One year, the housing market might see rising prices. Next, apartment rents might skyrocket. Before deciding whether it makes more financial sense for you to own or rent, make sure to consider market factors. The National Association of Realtors’ latest report states that the median sales price of existing homes stood at $389,500 towards the end of 2022. That is a 8.58 percent bump from the prior year. At the same time, mortgage interest rates have risen significantly. According to Mortgage News Daily, the average interest rate on a 30-year fixed-rate mortgage loan was at 6.13 percent at the end of 2022. The prior year rate was 3.26 percent. Meanwhile, apartment rents have been rising fairly steadily since 2011. At the end of 2022, the U.S. Median Asking Rent was at $1,334. A minor increase from the prior year’s median asking rent of $1,203. The average prices of owning a home and renting an apartment are vital factors to consider. Depending on where they stand, you might be more inclined to lean toward owning or renting.

Pros And Cons Of Renting

When does it make sense to rent? You might be better off renting an apartment when you are just entering the workforce or not having much ready cash. Renting makes sense for people who are more likely to move in a short period. That is often the case with people who are just starting their careers — they may be assigned a job in a new part of town or find a better position in another part of the country. In either case, you want to be able to move in a hurry. If you own a home, you will have to sell it. Selling a home can take months. However, you can move at the end of your lease if you rent. Renting also makes sense if you do not have much available cash. Most conventional mortgage lenders require a down payment of at least 5 percent of a home’s purchase price for those with excellent credit. A moderately-priced house of $200,000 will have a down payment of $10,000. That is a lot of cash to scrape together. So it might make sense to rent until you can save that down payment money. Renting might also be a better option when you have a low credit score. Lenders depend on your credit score for loan approval and interest rate determinations. If you have a history of missed payments and high credit card debt, your credit score might be low. Lenders reserve their best interest rates for borrowers with FICO credit scores of 740 or higher. If yours is far lower than that, you might not qualify for a loan. Moreover, it will be at a high-interest rate if you do. Then, it might make sense to rent until you can boost that score by practicing good financial habits. Renting also makes sense if you prefer the freedom of not maintaining your lawn or home. When the heat goes out when you rent, you call your landlord. When it goes out when you own a home, you call a contractor, which could cost a bit of cash. There are some disadvantages to renting, however. First, you are at the mercy of the landlord, who can steadily raise your rent each year. You will also never know if you rent an apartment directly under the noisiest family in your building. You also often have restrictions on painting and decorating your apartment. In addition, you will never build up equity when you continuously rent either.

Pros And Cons Of Owning

Owning a home also comes with its pros and cons. On the pro side, you build up equity when you own a home. As you pay down your mortgage loan, you gain access to your home’s equity. You can tap into that equity, often at low-interest rates, to pay down credit card bills, help cover your children’s college costs or fund a home renovation. Then, when it is time to downsize, you can sell your home and take the profits from the sale to buy either a less expensive, smaller house or condo or make a trip around the globe. Owning gives you that financial freedom. Owning also comes with tax benefits. Each year you can deduct the interest you pay on your mortgage loan. That brings a hefty deduction each tax season. While this is true for most home purchases, the 2017 Tax Cuts and Jobs Act altered individual income tax by lowering the mortgage deduction limit from $1 million to $750,000. When you own, you can do what you would like with your house. For example, you can paint your bedroom red, add a third bathroom or convert the space above your garage into a home office. The choice is yours. Owning, though, is not all positives. Depending on where you live, you will have to pay hefty property taxes. You will also be responsible for any repairs that pop up. With the possibility of leaking roofs, burst pipes, and sinking foundations, you can count on spending money on home repairs just about every year you own your residence. In addition, if housing values go down, you might end up owing more on your mortgage loan than what your house is worth. The decision to buy or rent is a big one. It is essential to look at your own financial and personal situations to make the right choice.

Buying vs Renting a Home

View Resource Buying vs Renting a Home
Between supplies, books, clothing and other back-to-school items, beginning a new school year can be hard on your budget. Although you plan for it, the cost of these school items can add up. Not to mention, each year it seems like schools are offering more programs to their curriculum that requires parents to spend more money on supplies. Although we want only the best for our children, there is no denying that the costs of going back to school can get expensive. Below are ways you can keep those costs down. According to Deloitte’s 2023 Back-to-School survey, parents spent an average of $597 on back-to-school items for the 2022-2023 school year. That’s a 10% decrease from the 2021-2022 school year, mostly due to parents prioritizing necessities and weighing overall costs. However, these figures represent the cost for just one student and parents with multiple students will spend more. If you have a college-age student, the costs will skyrocket even further. Before you begin your school shopping, review your budget and figure out how much you can spend on back-to-school supplies. Once you have created your back-to-school budget, you will know ahead of time the amount of money you have available. Your next step is to stick with this budget. Next, go throughout your home and take inventory of the supplies and clothing you already have that you can reuse this school year. You might think it is a good idea to stock up on supplies you believe your child will need during back-to-school sales, but it is best to wait until the school supply list comes out to avoid buying things you already have or that aren’t necessary. As children get into higher grades, they will want to keep up with the latest trends in name-brand clothing, backpacks, and binders. These types of items are unnecessary and can hurt your school budget. They may not be made to last either. You can get your kids a couple of items that are trendy on their list but explain to them your budgetary limits. Teach your children about the value of money and how some things are not worth the price tag. Educate them on differences in quality and that a logo alone does not necessarily make an item well made. Finding deals can go a long way in saving money on back-to-school supplies. A few ideas include: You can check out inserts from office-supply stores and mass retailers to find deals and back-to-school specials they have. Typically, their sales begin a week or two before school starts. Discount stores like Ross, TJ Maxx, and Marshalls have well-made items for a reasonable price. It can be time-consuming hunting around for bargains. Fortunately, these days you have phone apps that do the work for you. Apps like ShopSavvy or RedLaser find the deals, and you identify an item you want with their app and the app finds which stores have it at the better price. There are some other ways you can save money on school items. In many classes, the instructors allow students to download and use virtual books. These online books are usually cheaper than paper copies. Like the name says, everything at this store is just $1.00. That makes it a great place to get your kid’s notebooks, pens and pencils, paper, index cards, rulers, and other essential supplies. You can find gently used sporting goods, clothing, and backpacks in abundance at discounted prices at thrift stores. These stores are also a great place to pick up supplies, such as kitchenware and furniture, for your college student who is going away to school and will be living in an apartment. Back to school rushes tend to occur in August and again when kids go back to school in January after the winter holiday. You may wish to wait until after the rush to get items on sale and avoid the peak times. School items often get marked down as much as 75 percent at the end of the selling season. Either waiting until those sales begin or using them to stockpile supplies in advance of the next back-to-school season can save you a significant amount of money. Although your selections will be limited, this time is a great time to stock up on supplies your kids will use the whole school year. As you can see, obtaining back-to-school necessities does not have to drain your wallet. With a little bargain hunting and limit setting, you can get your child what they need to begin their new school year without creating a financial burden for yourself.

Saving on Back-to-School

View Resource Saving on Back-to-School
It has become a big worry for most parents: How can they save enough money to help pay for their children’s college education? Students today can take advantage of many loans, grants, and scholarship opportunities to help them cover higher education costs. However, even with these financial tools, paying for college can be overwhelming. Simply put, college tuition continues to rise, far outpacing inflation. Also, many college students who have to rely too heavily on student loans leave college burdened with tens of thousands of dollars — or more — worth of debt. Fortunately, parents can take some measures to ease the financial stress that their children will face when starting college. It all comes down to creating a college savings plan early. College Costs Just how costly is college? The numbers are staggering. According to the College Board, a moderate budget — which includes tuition, fees, and room-and-board — for an in-state public university for the 2023-24 academic year came in at an average of $24,030. That is high. However, consider the moderate average cost of a private college simultaneously: That figure clocked in at $56,190. Those are the prices now. Depending on how long your children have before they reach college age, you can bet that the costs of attending college will have risen even higher. College tuition and fees are not falling. According to CollegeBoard.org, over the last 30 years (1993-94 and 2023-24) published in-state tuition and fees at public four-year institutions increased from $5,380 to $11,260, and private four-year universities increased from $23,300 to $41,540. According to the College Boards Trends in College Pricing 2023, for the 2023-24 school year, average annual cost increases varied based the type of institution: Should those trends continue, if your child has three years before they are ready for college, you can expect tuition to increase by a factor of 1.074. So, if the yearly tuition at your child’s favorite college stands at $20,000 today, you can expect it to rise to $21,474 in three years. Moreover, if your children will not be ready for college until ten years from now, you can expect that $20,000 tuition to rise to $25,353. Of course, this assumes that college costs will continue to rise at their current rates. That might or might not happen. However, as a parent, you must consider that college costs will continue to soar. It is the only way to ensure that your children will not be overburdened with student loan debt when they graduate. According to EducationData.org, the average student loan debt for the Class of 2023 was $37,338. It is not easy for graduates to get started on their new lives with those high student loan bills. Many will struggle to find jobs or work entry-level positions that don’t pay much. Moreover, it is a good recipe for long-term debt problems. Fortunately, saving for college does not have to be impossible for most parents. Start Early The key is for parents to start saving for college as early as possible. That way, parents will not have to put too much away every month. If your children are still in elementary school, for example, you can get away with stashing as little as $50 a month in a savings account devoted to your children’s college education. You can also take advantage of savings vehicles designed to help parents save for college. Some of these programs include the Coverdell Education Savings Account program and 529 College Savings Plans. Where do you find that extra money for college? Maybe you can cut back on eating out. If you take a lunch to work each day rather than hit the local fast-food restaurant, you could save $40 or so a week. Those are dollars that can go to your children’s college education. Maybe you can give up that gourmet coffee on the way to work or cancel subscriptions to magazines that you no longer read. You might also give up or reduce your cable-TV service. It is also never too early to begin researching potential scholarships and grants. These programs can take a hefty bite out of the cost of a college education. Scholarships today are not only available for sports or athletic achievements. Students can receive scholarships based on their skills in foreign languages, community service, or writing talents. Parents just have to research to find a scholarship program that fits their children. These seem like small steps, but they can add significant savings. The key is to start taking these small steps as early as possible. Saving for your children’s college education too late can make the task seem financially overwhelming. art taking these small steps as early as possible. Saving for your children’s college education too late can make the task seem financially overwhelming.

Saving for Your College of Choice

View Resource Saving for Your College of Choice
The sticker price of a college education can be shocking. Moreover, this sticker price is increasing every year. The College Board says that students enrolled at a private college during the 2023-24 school year will pay, on average, $41,540 in tuition and fees. Public, in-state students will pay $11,260. That is enough to frighten any parent. However, did you know that there’s a difference between the sticker price of a college education and the net amount that most students pay? Students with financial challenges can often dramatically reduce the cost of a college education. Even those students who do not fit in the low- or moderate-income range can significantly reduce their college costs by making less expensive choices. Net Price When it comes to paying for college, the net price is what matters. Net price is what students pay. Sticker prices are the tuition and fees that colleges advertise publicly. The difference usually comes from the automatic aid many colleges offer to low- or moderate-income students. Here are two examples. The sticker price for Stanford University for tuition, books, and living expenses comes to about $87,833 for the 2023-24 year, according to Stanford’s website. At the same time, a more “affordable” public university, Cal State Long Beach, advertises a sticker price of $28,396 for California residents. Both of those figures would price many families out of those schools. However, those figures are not the net prices. Once you factor in available financial aid packages, the net price of attendance can drop dramatically. For example, Stanford’s website reports that Stanford’s average Freshmen financial aid package is $61,793, making the net cost $26,040. On the other hand, Cal State Long Beach, according to CollegeData.com, has an average Freshmen financial aid package of $14,143. That means the net price for CSULB is $14,253. Too many parents do not understand the difference between the sticker and net prices. Unfortunately, The American Enterprise Institute reports that six in 10 families rule out some colleges because of their high sticker prices yet never take the time to inquire about these schools’ net prices. If you want to give your children a chance to attend the widest variety of colleges or universities possible, you will have to explore the actual net prices of these schools, not just their sticker prices. Saving Money by Making Different Choices Students can also save money on tuition and expenses by making different education choices. It might not make sense, for instance, for students to choose the ritziest private school available, not when it is possible to receive a quality education at other less-heralded universities or colleges. For instance, College Board estimates that students who enrolled at private colleges in 2023-24 would pay $56,190 in tuition, fees, and room and board. They also estimate that students enrolled at in-state public universities in 2023-24 would pay $24,030 in tuition, fees, and room and board. That is a considerable price difference. College Board shows how it is also possible for students to get a private college experience at a far lower price. Students just have to be creative. For instance, students who enrolled in a local community college in 2023-24 would pay $3,990 in tuition for the year. Many of these students will move on to attend a private college for their final two years. That is pricey, but it is far lower than these students would pay for four years of a private college. Parental Guidance Parents should offer advice to their children as they contemplate college. That is because tuition and fees are not getting any lower. College tuition and fees are not falling. According to CollegeBoard.org, over the last 30 years (1993-94 and 2023-24), in-state tuition and fees at public four-year institutions increased by $5,880, while private four-year institutions increased by $18,240. The board’s numbers also point to another fact: Parents who want to help their children pay for college need to start saving early. The sooner parents start socking away money for their children’s college education, the less painful the process will be. Also, the sooner parents and their children start researching financial aid, grant, and scholarship opportunities, the more likely they will be to save for college without falling deeply into debt.

The True Cost of a College Education

View Resource The True Cost of a College Education

When mortgage rates are high — and in December 2023, the rate for a 30-year mortgage loan was at 6.66 percent, while the 15-year fixed-rate mortgage loan was at 6.06 percent — it might be best to refinance to a shorter-term mortgage so you can save tens of thousands of dollars.

When rates are high, just make sure that you can afford a higher monthly payment that fits within your budget.

The Burden of Mortgage Interest

Much of your payment goes toward interest when you pay your mortgage bill each month. In fact, during the earlier years of your mortgage, most of your monthly payments will be for interest.

Interest is essential and serves as the basis of the mortgage-lending industry. It is how mortgage lenders make their money and cover their risk when lending hundreds of thousands of dollars to homeowners.

However, mortgage interest can also cost homeowners hundreds of thousands of dollars during the life of their mortgage. For example, if you have a $200,000 fixed-rate 30-year mortgage with an interest rate of 6.66 percent, you will pay $262,691 in interest alone if you take a full 30 years to pay off the loan.

That is a lot of money spent on interest. However, if you took that same 6.66 percent loan and changed it from a 30-year to a 15-year term, you would pay just $104,957 in interest over the 15-year repayment period. That is a saving of more than $157,734 in interest payments.

The Challenge

Of course, the challenge of taking out a 15-year fixed-rate mortgage comes in the form of a higher monthly payment. Because the payback period for a 15-year loan is shorter than a 30-year loan, you will pay more each month. For instance, with a $200,000 15-year fixed-rate mortgage loan at an interest rate of 6.06 percent, you would pay about $2,064 a month. However, if you took that same $200,000 loan but a 30-year term, you would pay just $1,655 a month.

For many homeowners, the higher monthly payment that comes with a 15-year fixed-rate mortgage will price it out of their budgets, despite the interest savings such a loan brings.

However, the equation changes when mortgage interest rates are low from a historical perspective. For example, depending on your 30-year fixed-rate mortgage rate, you could refinance to a 15-year fixed-rate loan and enjoy the savings in interest while making a monthly payment that isn’t that much higher than your current one.

Low Interest Rates

Consider the 30-year fixed-rate mortgage for $200,000 at an interest rate of 6.66 percent. Again, the monthly payment for that loan comes to about $1,655. If you took that same amount and refinanced it to a 15-year loan with a rate of 6.06 percent — the average rate in late December 2023 –, your payment would be $2,064 a month.

That is just $409 more a month, or $4,908 more a year than you would have paid with your 30-year fixed-rate loan. That might seem like a lot but consider the interest savings. The 15-year fixed-rate loan at an interest rate of 6.06 percent would require you to pay a total of about $104,957 in interest if you took a full 15 years to pay back the loan. That is a lot less than the $262,691 worth of interest payments you would make with the 30-year fixed-rate loan at 6.66 percent interest.

If you want to reduce the amount of interest you will pay during the life of your mortgage, maybe it is time to investigate the benefits that come from refinancing to a shorter-term home loan. True, you will have to make a more substantial monthly mortgage payment. You will also have to review your household budget to determine if that mortgage payment will fit. However, you stand to save potentially tens of thousands of dollars in mortgage interest if it does.

While it is true that mortgage interest is how mortgage lenders and banks make their money, you should look to minimize what you pay out regarding interest payments. Crunch the numbers to see if a shorter-term mortgage loan makes sense for you.

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Should You Refinance Into a Shorter Term Mortgage?

View Resource Should You Refinance Into a Shorter Term Mortgage?

What makes more sense financially for you, a 15-year fixed-rate mortgage or a 30-year fixed-rate mortgage? Both loan types come with their positives and negatives. So how do you determine which loan type is best for you and your family? It is all about taking a close look at your finances.

The Differences

As their names suggest, the main difference between a 15-year and 30-year fixed-rate mortgage is its duration. If you make your regular monthly loan payments on time every month, you will pay off a 15-year fixed-rate mortgage loan in 15 years. You will pay off a 30-year fixed-rate loan in 30.

Another big difference comes with these loans: The average mortgage interest rate on a 15-year loan is smaller than it is on a 30-year loan. According to Mortgage News Daily, the average interest rate on a 15-year fixed-rate mortgage loan stood at 6.06 percent in December 2023. The average rate on a 30-year fixed-rate mortgage loan stood at 6.66 percent during the same period. Both rates faced large increases this year compared to the year prior due to inflation. However, you’ll note the rate on the 15-year loan is lower than the 30-year rate.

Does that mean that a 15-year fixed-rate loan is the best financial choice? Not necessarily.

Pros And Cons

The main benefit of a 15-year mortgage loan is that you will pay far less interest during the life of the mortgage. That can save you hundreds of thousands of dollars if you pay off your loan.

For example, if you take out a 30-year fixed-rate $200,000 mortgage with an interest rate of 6.66 percent, you will pay $262,691 during the life of your loan in interest. If you take out the same loan at the same rate, but for just 15 years, you will pay only $104,957 in interest over the life of the loan.

That saves $157,734 if you would have taken out the 15-year fixed-rate loan.

Again, though, that does not mean that the 15-year loan is necessarily the best choice for you and your family. Even though a 15-year mortgage comes with a lower interest rate, your monthly payment for such a loan will be higher than it would be with a 30-year fixed-rate loan. The reason? In a 30-year loan, the monthly payments are for an extended period.

Here’s an example: For that 15-year fixed-rate loan of $200,000 at an interest rate of 6.06 percent, you would face a monthly mortgage payment of $2,064 If you instead took out a 30-year fixed-rate mortgage loan of $200,000 at an interest rate of 6.66 percent, you would pay $1,655 a month.

The question, then, comes down to this: Can you comfortably afford the monthly payment that comes with a 15-year fixed-rate loan? If so, taking out one of these loans might be a better choice because you will waste less money on interest. However, if you cannot stretch your household budget to cover that 15-year monthly payment, a 30-year fixed-rate mortgage loan might be a better choice.

Experience the Difference of Banking Local

At First Mutual Bank, we understand your unique needs. Whether you’re looking for personalized banking solutions, competitive loan rates, or expert financial advice, we have what you need!

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15-Year vs 30-Year Mortgages

View Resource 15-Year vs 30-Year Mortgages