Financial Topics Archives

Jun

2025

Complete Guide to the Moving Average Convergence Divergence (MACD) indicator

What Is MACD?

By Colin Dodds | Financial Independence, Growing Wealth, invest, Investing | Comments Off

The moving average convergence divergence (MACD) is an indicator that shows the momentum in equity markets. It’s especially popular with traders, who use it to help them rapidly identify short-term momentum swings in a stock.

A moving average can help investors see past the noise of daily market movements to find securities trending up or down. The MACD offers another way to focus on such stocks, by showing the relationship between two moving averages.

Key Points

• Moving averages smooth price data, which may help investors identify trends and shifts in momentum.

• MACD calculates the difference between 26-day and 12-day moving averages.

• Positive MACD values indicate upward momentum; negative values suggest downward trends.

• Divergences show increasing momentum, while convergences signal potential overbought or oversold conditions.

• MACD’s lagging nature can lead to false signals in volatile markets.

Understanding the Moving Average

The moving average convergence divergence may sound complex, so it makes sense to start with the first part: the moving average (MA), also called the exponential moving average, or EMA. This is a very common metric with stocks, used to make sense of ever-fluctuating price data by replacing it with a regularly updated average price. This moving average can give investors a clearer idea of where a stock is trading than one that’s updated second by second.

Because the moving average reflects past prices, it is a lagging indicator. But how much the past prices factor in depends on the person setting the average. Most commonly, investors look at moving averages of 15, 20, 30, 50, 100, and 200 days, with the 50- and 200-day averages being the most widely used.

A moving average with a shorter time span will be more sensitive to price changes, while moving averages with longer time spans will fluctuate less dramatically. Generally, active traders with strategy focused on market-timing favor shorter-duration moving averages.

To perform the MACD calculation, traders take the 26-day moving average of a stock and subtract it from that stock’s 12-day moving average. This calculation offers a quick temperature-check of a stock’s momentum.

While the 12-day and 26-day time spans are standard for the MACD, investors can also create their own custom MACD measurements with time spans that better fit their own particular trading tactics and investment strategies.

💡 Quick Tip: Before opening any investment account, consider what level of risk you are comfortable with. If you’re not sure, start with more conservative investments, and then adjust your portfolio as you learn more.

How to Read MACD

If a stock’s MACD is positive, that means its short-term average is higher than its long-term average, which could be a bullish indicator that stock is on an upswing. A higher MACD indicates more pronounced momentum in that upswing. Conversely, a negative MACD indicates that a stock is trending downward.

If the positive or negative difference between the shorter-term and longer-term moving averages expands, that’s considered the MACD divergence, or the “D” in MACD. If they get closer, that’s considered a convergence, the “C” in MACD.

When the two moving averages converge, they meet at a place between the positive and negative MACD, called the zero line, or the centerline. For many traders, this MACD crossover is the sign they wait for to jump into a stock, which after losing value, is suddenly gaining value. Conversely, a stock crossing the zero line of the MACD is often taken to mean that the good times are over, leading many traders to sell at that point.

The MACD is a vital concept in technical analysis, a popular approach investors use to try to forecast the ways a stock might perform based on its current data and past movements. It involves a wide range of data and trend indicators, such as a stock’s price and trading volume, to locate opportunities and risks.

Technical analysis does not look at underlying companies, their industries, or any macroeconomic trends that might drive their success or failure. Rather, it solely analyzes the stock’s performance to find patterns and trends.

Recommended: The Pros and Cons of Momentum Trading

The MACD as a Trading Indicator

For traders, a rising MACD is a sign that a stock is being bid up. The MACD shows how quickly that’s happening.

As the short-term average rises above the longer-term average, and the two figures diverge more widely, the MACD expresses this in a simple number. When a stock is sinking, investors also want to know how fast it’s falling, as well as whether its decline is speeding up or slowing down, which they can find quickly by looking at the divergence.

A convergence is also a key indicator for many traders. As the long-term and short-term moving averages get closer to one another, it can be a sign that a given stock is either overbought or oversold for the moment. If they hold the stock, it may be time to sell the stock. But if they like the stock, and are waiting for a bargain-basement price at which to buy it, then the convergence of the two averages on the zero line may mean it’s time to start buying.

By using the MACD, traders can also compare a stock to competitors in its sector, and to the broader market, to decide whether its current price reflects its value and whether they should buy, sell, or short a stock.

Because the MACD is priced out in dollars, many traders will use the percentage price oscillator, or PPO. It uses the same calculation as the MACD, but delivers its results in the form of a percentage difference between the shorter- and longer-term moving averages. As such, it allows for quicker, cleaner comparisons.

💡 Quick Tip: How to manage potential risk factors in a self directed investment account? Doing your research and employing strategies like dollar-cost averaging and diversification may help mitigate financial risk when trading stocks.

The Pros and Cons of the MACD

The MACD indicator has benefits for traders. It’s a convenient gauge of a stock’s momentum for an active, short-term trader. But it can also help a long-term investor who’s looking for the right moment to buy or sell a stock. Once an investor understands the MACD, it’s an easily interpreted data point to incorporate into their trading strategy.

But the MACD does have its drawbacks and does not account for certain types of investment risk. Because the MACD is a lagging indicator, it can lead to a trader staying too long in a position that’s since begun to swoon. Or, alternately, it can indicate a turnaround that’s already run the bulk of its course.

This is especially dangerous in volatile markets, when stocks can “whipsaw.” This term – named for the push-and-pull of the saw when it’s used to chop down a tree – describes the phenomenon of a stock whose price is moving in one direction, and suddenly goes sharply in the opposite direction. Whether that whipsaw movement is up or down, it can prove highly disruptive for a trader who relies too heavily on the MACD.

The Takeaway

The MACD can be a helpful metric for traders to understand and to use, in conjunction with other tools to help formulate their investing strategy. The MACD indicator has benefits for traders. It’s a convenient gauge of a stock’s momentum for active traders.

But it can also help long-term investors, too, determine when to buy and sell. It’s also a lagging indicator, which can make it tricky to use for inexperienced traders. As always, it’s best to consult with a financial professional if you’re feeling like you’re in over your head.

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¹Opening and funding an Active Invest account gives you the opportunity to get up to $3,000 in the stock of your choice.

FAQ

What does MACD stand for?

In investing, MACD stands for “moving average convergence divergence,” and it is an indicator that shows momentum in equity markets.

What does MACD signal for stock traders?

MACD is an indicator that can be used by traders or investors to signal that a stock is being bid up, and it can give them an idea of how quickly that is occurring.

Can MACD be used by long-term traders?

Yes, though MACD is an indicator typically used by short-term or day-traders, long-term traders may use it to get a sense of the best time to purchase a security.

Photo credit: iStock/visualspace

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SOIN-Q225-133

Jun

2025

What Are Hedge Funds and How Do They Work?

By Laurel Tincher | Financial Independence, Growing Wealth, invest, Investing | Comments Off

A hedge fund is a private fund, often not registered with the SEC, which invests in publicly traded securities and other assets with the aim of delivering higher-than-average returns.

Hedge funds are pooled investment funds, similar to mutual funds, but they are typically accessible only to high-net-worth, accredited, or institutional investors. They are not available to retail investors. Hedge funds have high investment minimums, often in the millions, and they rely on high-risk strategies with significant fees.

Unlike registered investment companies and open-end funds, hedge funds don’t have to follow regulations that govern most mutual funds and ETFs, including restrictions on the use of leverage, disclosure requirements around asset value and share pricing, and more.

In short, while hedge fund returns can be high, losses can be just as steep, and investors who qualify to invest in these vehicles need to understand the risks involved.

Key Points

• Hedge funds are similar to mutual funds and ETFs in that they are a type of pooled investment fund, but they are private funds not open to retail investors.

• Unlike most mutual funds and ETFs, hedge funds employ high-risk strategies to achieve higher-than-average returns.

• Owing to their potential to deliver big profits, hedge funds charge significant fees and require high investment minimums.

• While some hedge fund managers must register with the SEC, many hedge funds are unregistered, and are not subject to certain regulations — one of the reasons retail investors typically don’t have access to these funds.

• While hedge fund returns may be high, so is the potential for steep losses.

What Is a Hedge Fund?

Hedge funds are set up by a registered investment advisor or money manager, often as a limited liability company (LLC) or a limited partnership (LP). They differ from mutual funds in that they have more investment freedom — meaning, they’re not subject to standard SEC regulations — so they’re able to make riskier investments.

How Hedge Funds Work

By using aggressive investing tactics, such as short-selling, leverage, and alternative investment strategies, hedge funds can potentially deliver higher-than-market returns. But they also come with higher risks than other types of investments.

In addition to traditional asset classes, hedge funds can include a diverse array of alternative assets, including art, real estate, and currencies.

Hedge funds tend to seek out short-term investments rather than long-term investments. Of course assets that have significant short-term growth potential can also have greater short-term losses.

Historically, hedge funds have not performed as well as somewhat safer investments, such as index funds. However, investors also use hedge funds to provide growth during all phases of market growth and decline, providing diversification to a portfolio that also contains stocks, cash, and other investments.

Generally speaking, only qualified investors and institutional investors are able to invest in hedge funds, due to their risks and the high fees that get paid to fund managers — typically 20% of profits. In addition, the redemption rules around hedge funds — including a typical one-year lock-up period — can be complex as well as costly.

Types of Hedge Funds

Each hedge fund has a different investing philosophy and invests in different types of assets. Some different hedge fund strategies include:

• Real estate investing

• Junk bond investing

• Specialized asset class investing such as art, music, or patents

• Long-only equity investing (no short selling)

• Private equity investing, in which the fund only invests in privately-held businesses. In some cases the hedge fund gets involved in the business operations and helps to take the company public.

What Is a Hedge Fund Manager?

Hedge funds are run by investment managers who manage the fund’s investment strategy. If a hedge fund is profitable, the hedge fund manager can make a significant amount of money, often up to 20% of the profits.

Before selecting and investing in a hedge fund, it’s important to look into the fund manager’s history as well as their investing strategy and fees. This information can be found on the manager’s Form ADV, which you can find on the fund’s website as well as through the Security and Exchange Commission’s (SEC) website.

Who Can Invest in a Hedge Fund?

Hedge funds are not open to retail investors, who can buy stocks online, and there are several requirements to be able to invest in hedge funds.

In order for an individual to invest, they must be an accredited investor. This means that they either:

• Have an individual annual income of $200,000 or more. If married, investors must have a combined income of $300,000 per year or more. They must have had this level of income for at least two consecutive years and expect to continue to earn this level of income.

• Or, the investor must have an individual or combined net worth of $1 million or more, excluding their primary residence.

If the investor is an entity rather than an individual, they must:

• Be a trust with a net worth of at least $5 million. The trust can’t have been formed solely for the purpose of investing, and must be run by a “sophisticated” investor, defined by the SEC as someone with sufficient knowledge and experience with investing and the potential risks involved.

• Or, the entity can be a group of accredited investors.

How to Invest in a Hedge Fund

Investing in hedge funds is risky and involves a deep understanding of financial markets. Before investing, there are several things to consider:

The Fund’s Investing Strategy

Start by researching the hedge fund manager and their history in the industry. Look at the types of assets the fund invests in, read the fund’s prospectus and other materials to understand the opportunity cost and risk. Generally speaking, the higher the risk, the higher potential returns.

In addition, you need to understand how the fund evaluates potential investments. If the fund invests in alternative assets, these may be difficult to value and may also have lower liquidity.

Understand the Minimums

Investment requirements can range between $100,000 to $2 million or more. Hedge funds have less liquidity than stocks or bonds, and it’s also common for there to be lock-up periods for funds — and/or for there to only be certain times of year when funds can be withdrawn.

Confirm You Can Make the Investment

Make sure that the fund you’re interested in is an open fund, meaning that it accepts new investors. Financial professionals can help with this research process. Each hedge fund will evaluate an individual’s accreditation status using their own methods. They may require personal information about income, debt, and assets.

Understand the Fees

Usually hedge funds charge an asset management fee of 1-2% of invested assets, as well as a performance fee of 20% of the hedge fund’s profits.

The Takeaway

Hedge funds offer accredited and institutional investors the chance to invest in funds that are usually high-risk, but offer high potential returns. There are many rules surrounding hedge funds, and many investors may not even consider them as a part of an investing strategy.

For accredited investors, investing in a hedge fund may be one part of a diversified portfolio, although it depends on the investor’s risk tolerance, time horizon, and investing goals. If you’re not an accredited investor, or you’re worried about the risks associated with hedge funds, it may make more sense for you to consider other types of investments or to stick with ETFs, mutual funds, or funds of funds that emulate hedge fund strategies.

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Invest in alts to take your portfolio beyond stocks and bonds.

FAQ

What is a hedge fund in simple terms?

A hedge fund is a loosely regulated pooled investment fund that employs high-risk strategies in order to deliver returns.

How do you make money from a hedge fund?

Hedge funds typically invest in high-risk assets in order to deliver better-than-market returns. But there are no guarantees, and the combination of risk and high fees can lead to steeper-than-average losses.

How rich do you have to be to invest in a hedge fund?

Current SEC regulations require that most hedge funds accept only accredited investors, i.e., individuals with a net worth of $1 million or more, excluding their primary residence. In addition, minimum investment levels can start in the millions.

Photo credit: iStock/gece33

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.

For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.

An investor should consider the investment objectives, risks, charges, and expenses of the Fund carefully before investing. This and other important information are contained in the Fund’s prospectus. For a current prospectus, please click the Prospectus link on the Fund’s respective page. The prospectus should be read carefully prior to investing.
Alternative investments, including funds that invest in alternative investments, are risky and may not be suitable for all investors. Alternative investments often employ leveraging and other speculative practices that increase an investor's risk of loss to include complete loss of investment, often charge high fees, and can be highly illiquid and volatile. Alternative investments may lack diversification, involve complex tax structures and have delays in reporting important tax information. Registered and unregistered alternative investments are not subject to the same regulatory requirements as mutual funds.
Please note that Interval Funds are illiquid instruments, hence the ability to trade on your timeline may be restricted. Investors should review the fee schedule for Interval Funds via the prospectus.

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If you invest in Exchange Traded Funds (ETFs) through SoFi Invest (either by buying them yourself or via investing in SoFi Invest’s automated investments, formerly SoFi Wealth), these funds will have their own management fees. These fees are not paid directly by you, but rather by the fund itself. these fees do reduce the fund’s returns. Check out each fund’s prospectus for details. SoFi Invest does not receive sales commissions, 12b-1 fees, or other fees from ETFs for investing such funds on behalf of advisory clients, though if SoFi Invest creates its own funds, it could earn management fees there.
SoFi Invest may waive all, or part of any of these fees, permanently or for a period of time, at its sole discretion for any reason. Fees are subject to change at any time. The current fee schedule will always be available in your Account Documents section of SoFi Invest.

Mutual Funds (MFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or clicking the prospectus link on the fund's respective page at sofi.com. You may also contact customer service at: 1.855.456.7634. Please read the prospectus carefully prior to investing.Mutual Funds must be bought and sold at NAV (Net Asset Value); unless otherwise noted in the prospectus, trades are only done once per day after the markets close. Investment returns are subject to risk, include the risk of loss. Shares may be worth more or less their original value when redeemed. The diversification of a mutual fund will not protect against loss. A mutual fund may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.

Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOIN-Q225-050

Jun

2025

HELOC Requirements: How to Get a HELOC

By Rebecca Lake | Home Ownership, mortgage | Comments Off

A home equity line of credit (HELOC) is a revolving credit line secured by your home. HELOCs give you access to cash that you can use to make improvements or repairs, consolidate debts, or cover large expenses.1

Lenders set HELOC requirements to determine who qualifies, but you’ll typically need a minimum amount of equity, good credit, and a steady income. Read on to learn how to get a HELOC and what you can expect during the application process.

Key Points

• To qualify for a HELOC, one must have good credit, a low debt-to-income ratio, and sufficient home equity, with an LTV ratio not exceeding 85%.

• The HELOC application process involves selecting a lender, submitting an application, providing required documents, and completing underwriting and a home appraisal.

• When applying for a HELOC, it is important to check your credit score, gather financial documents, ensure adequate home equity, compare lenders, and plan your budget.

• For a smoother HELOC approval, reduce debt, take good care of credit, and have all necessary documents ready before applying.

• Common HELOC mistakes include overborrowing, not exploring other options, and failing to compare lender offers.

What Is a HELOC?

A home equity line of credit is an open-ended line of credit that allows you to borrow against your home equity. Equity is the difference between what you owe on your home and its fair market value.

HELOCs have an initial draw period, during which you can access your credit line. You can borrow what you need when you need it, up to a preset credit limit. You can even make payments to pay down your balance and then borrow up to the credit line again. The draw period may last five to 15 years, and your lender might only require you to make interest payments toward the principal you’ve borrowed during that time. Once the draw period ends, you’ll repay the principal amount, plus interest.

Interest rates on a HELOC are typically variable, meaning they can go up or down over time following movements in a benchmark rate. That means your payment can increase or decrease. Some lenders offer fixed-rate HELOCs, though that’s less common.1 Incidentally, a HELOC isn’t the only type of home equity loan. There’s also a standard home equity loan, in which a lender loans you a lump sum that you begin repaying immediately.

How the HELOC Application Process Works

The HELOC approval process is fairly straightforward. You’ll need to:

• Choose a lender and apply for a HELOC

• Provide the lender with required supporting documents

• Complete underwriting

Underwriting is a process in which a lender verifies certain information about you and your home to assess your creditworthiness and decide whether to approve you for a HELOC.

During underwriting, the lender will check your credit, review your income and debt, and assess your home’s value. That last step is particularly important as you’ll need to have sufficient equity in the home to qualify for a HELOC.

How long does it take to get a HELOC? It varies, but a typical time frame for approval is two to six weeks from the date you submit your application.

HELOC Requirements

Knowing how to qualify for a HELOC can help you gauge whether you’re a good candidate and help you narrow down which lender to work with. HELOC requirements vary by lender but generally include:

• Good credit

• A low debt-to-income (DTI) ratio

• Sufficient home equity

A “good” credit score on the FICO® scale is a score of 670 or better, and as a general rule, lenders like a score in the upper 600s. FICO credit scores are used by 90% of top lenders for credit decisions.

Your DTI ratio measures how much of your gross income goes to debt repayment each month. Lenders look at your DTI ratio to determine how much money you have available each month to make HELOC payments. Home equity lenders generally look for a DTI below 50%, but the lower, the better.

Perhaps most importantly, lenders want to know how much equity you have in your home. This is where your loan-to-value (LTV) ratio comes into play. This ratio measures how much you want to finance versus your home’s appraised value. Typically, lenders look for an LTV of no more than 85%, meaning you have at least 15% equity in the home.

HELOC Approval Tips

There’s no special secret to how to get a HELOC; you’ll just need to find the right lender to work with and meet their approval requirements. With that being said, here are a few tips that could smooth the path to HELOC approval.

• Reduce debt. Paying down some of your existing debt could improve your DTI ratio, potentially making you more attractive to lenders.

• Check your credit. Checking your credit reports and scores is an opportunity to learn what lenders will see and address any errors or mistakes that could be hurting your score. If you find an error, you can dispute it with the credit bureaus to have it removed or corrected.

• Calculate your equity and LTV. If you don’t know these numbers, take a minute to figure them out. Here’s how to calculate home equity: subtract what you owe on your primary mortgage from your estimated home value. To find your LTV, divide your mortgage balance by your home’s estimated value.

You could also get preapproved for an equity loan. HELOC preapproval means that a lender has done a cursory check of your credit and finances to conditionally approve you.

Preapproval for a HELOC can give you an idea of what loan terms you’re likely to qualify for. Keep in mind that you’ll still need to submit a full application and complete underwriting to get a HELOC.

Common HELOC Mistakes to Avoid

You want to know how to get a HELOC, but it’s just as important to understand what could hurt your application. Here are a few HELOC mistakes to avoid as you navigate the approval process.

• Don’t overborrow. HELOCs only charge interest on the amount of your credit line you use. However, that’s no reason to get a larger line of credit than you need. If you only need $50,000 for a home improvement project, for instance, but get a $100,000 HELOC because a lender is willing to approve you for that amount, you could end up with more debt to repay than you’d planned on.

• Don’t assume a HELOC is your only option. There are so many ways to use a HELOC, but you may find that a different type of loan makes more sense. Weigh the benefits of a HELOC vs. a home equity loan or a personal line of credit vs. a HELOC to decide which borrowing option to pursue.

• Don’t apply without comparing options. With so many HELOC lenders to choose from, it makes sense to do some comparison shopping. Study HELOC rates and compare lenders’ draw periods, repayment terms, fees, and approval requirements to see which lender is the best fit for your needs.

• Don’t forget to plan your budget. Missing payments on a HELOC could put your home at risk, since it secures the loan. Calculating how much you can afford to pay in the draw period and repayment period can help you avoid a scenario where you’re in danger of losing your home to foreclosure because your HELOC payments are too steep.

• Don’t miss out on tax breaks. Here’s a tip about HELOCs and taxes: if you use the money to pay for home improvements, the interest is tax-deductible. If you’re getting a HELOC to handle major or minor home upgrades, keep your receipts so you can write the interest off at tax time. Right now, this benefit is good through the 2025 tax year; consult a tax advisor for the latest updates.

How to Apply for a HELOC

Ready to apply for a home equity line of credit? It’s not an overwhelming process if you know what you’ll need to do and what you can expect from the lender. Here’s how to apply for a HELOC, step by step.

1. Check Your Home Equity and Credit Score

If you haven’t calculated your equity or checked your credit scores yet, now’s the time to do that.

You can use a home equity calculator and a loan-to-value calculator to find your equity amount and LTV. You can pull copies of your credit reports for free through AnnualCreditReport.com. You can also log in to your credit card accounts to see if free FICO score access is a card benefit. SoFi offers free access to your VantageScore, which is an alternative to FICO.

Note that checking your credit reports or scores yourself won’t impact you in any way. However, hard pulls (which happen when a lender checks your credit) will show up on your credit reports and take points away from your scores.9

2. Gather Required Documents

You’ll need some documentation to complete your HELOC application. The good news is that it’s more or less the same as what you needed to apply for the loan you used to buy the home.

A lender may ask for copies of your:

• Driver’s license or government-issued ID

• Bank account statements

• Investment account statements

• W-2s

• Tax returns

• Profit and loss statement and cash flow statement if you’re self-employed

Gathering these documents beforehand can save you time and potentially speed up your HELOC approval.

3. Submit your HELOC Application

If you’ve chosen a lender and you’ve got your documents, you’re ready to apply for a HELOC. Many lenders allow you to do this online. You’ll just need to complete all required sections, then upload the requested documents.

Review your application carefully before you hit submit to check for errors and look for any questions that you accidentally left blank. If everything looks good, you can move ahead with submitting your application.

4. Underwriting and Home Appraisal Process

Once the lender receives your application, they’ll move forward with underwriting. The lender will check your credit and schedule an appraisal, which you’ll be expected to pay for up front.

Lenders may schedule an in-person appraisal, a drive-by appraisal, or a desktop appraisal. The in-person appraisal requires a professional appraiser to come to the home and look over the property to determine a valuation. A drive-by appraisal doesn’t require the appraiser to enter the home, while a desktop appraisal is done remotely using home valuation software.

What if the appraisal comes in too low? That could keep you from getting approved for a HELOC. You can ask the lender to reconsider or schedule a new appraisal with a different appraiser. You’ll have to pay any additional appraisal fees.

5. HELOC Approval and Closing Process

If all goes well and you’re approved for a HELOC, closing is the final step. You’ll sign all of the HELOC documents and pay closing costs, unless the lender is allowing you to roll them into the loan.

Once you’ve closed on your HELOC, the lender will make your line of credit available to you. That can take a few business days. Once your HELOC account is set up, you may be able to access your credit line using a special credit card or debit card, or paper checks. If you got your HELOC through a local bank, you could also visit a branch to make withdrawals.

The Takeaway

Doing some research can help you decide if getting a HELOC makes sense for you, and once you’re set on a HELOC, a little more research can help you determine which lender will offer the best rate and terms. HELOC approval is ultimately up to the lender, but you can make yourself more creditworthy by paying down debt and taking good care of your credit profile before you apply.

SoFi now partners with Spring EQ to offer flexible HELOCs. Our HELOC options allow you to access up to 90% of your home’s value, or $500,000, at competitively lower rates. And the application process is quick and convenient.

Unlock your home’s value with a home equity line of credit from SoFi, brokered through Spring EQ.

FAQ

How long does it take to get a HELOC?

The exact timing varies, but generally, it can take between two and six weeks to get approved for a HELOC. Factors that affect the speed of HELOC approval can include your choice of lender, your financial situation, and the results of your home appraisal.

Can I get a HELOC with bad credit?

It’s possible to find lenders who will offer HELOCs for bad credit, though there are some caveats to know. A lower credit score can add more obstacles to approval overall. If you are approved, you’ll likely pay a higher interest rate or more fees to make up for the higher degree of risk the lender is taking on.

Does a HELOC require an appraisal?

Lenders generally require an appraisal for a HELOC because they need to know how much your home is worth. Without an appraisal, they can’t determine how much equity you have and whether you have a sufficient LTV to qualify for a HELOC.

How hard is it to get a HELOC?

How hard — or easy — it is to get a HELOC depends on your financial situation. For example, getting a HELOC may be a breeze if you’ve got near-perfect credit, make a six-figure income, and are sitting on a pile of equity. If everything isn’t universally rosy, you can still qualify. It’s up to each individual lender to decide whom to approve, so if you don’t qualify the first time you apply, you may still be able to borrow.

What are the requirements for a HELOC?

Getting a HELOC is similar to getting a mortgage to buy a home. You’ll need to show a lender that you have sufficient income to repay a HELOC and that you have a history of responsible credit use, which means paying back what you borrow on time. You may also need to undergo a home appraisal to determine the value of your property, and thus your equity amount.

What disqualifies you for a HELOC?

Lack of a credit history, lack of income, lack of adequate equity, or overwhelming debt could all be barriers to getting approved for a HELOC.

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Jun

2025

2025 Tax Calculator Table with Examples

By Kim Franke-Folstad | Budgeting & Goals, Financial Independence, relay | Comments Off

The amount you’ll end up paying in income taxes doesn’t have to remain a mystery until you complete your federal return.

With a fundamental understanding of how taxes work and some basic information about your household, you may be able to estimate what your tax liability or refund will be. And with that knowledge, you can better plan your finances for 2025 and 2026.

Read on for a look at what your 2025 taxes might look like, and how your income, filing status, and other factors can impact your bottom line.

Key Points

• To estimate 2025 federal income tax, calculate gross income, determine AGI, subtract deductions, apply tax rates, and use tax credits.

• Standard deductions for 2025 are $15,000 for single, $22,500 for head of household, and $30,000 for married filing jointly.

• Tax brackets for 2025 range from 10% to 37%, with higher rates applying to higher income levels.

• Adjustments to gross income include alimony, student loan interest, and health insurance premiums for the self-employed.

• Tax credits reduce tax liability dollar-for-dollar, affecting the final tax owed or refund amount.

What Is an Income Tax Calculator?

A federal tax calculator for 2025 can help you estimate the federal tax you may owe on the income you earn this year. It isn’t meant to replace the tax service or software you usually use to complete your return. But it could help you plan ahead and make informed choices as you prepare for a potential tax bill, or refund, when you file in 2026.

Historical Tax Rates, Compared

Most people think taxes are too high now, but they could be — and have been — much higher. In 2025, the top tax rate is 37% for individuals whose taxable income is over $626,350 ($751,600 for married couples filing jointly). But in 1944, the highest rate — for anyone who made over $200,000 — was 94%. It wasn’t until 1987 that the top rate dropped below 40%.

The current rates, dictated by the Tax Cuts and Jobs Act of 2017, are set to end on December 31, 2025. It’s up to lawmakers to decide if those rates will be extended into 2026 and beyond. The tax code, officially called the Internal Revenue Code, is interpreted and implemented by the U.S. Treasury Department and the Internal Revenue Service (IRS), but tax laws are written by Congress.

How Is the Tax Rate Decided?

Currently, there are seven federal income tax rates: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The more taxable income you have, the more you can expect to pay.

That’s because in the U.S., income tax rates are graduated, which means each of these progressively higher tax rates is assigned to a specific income range, rather than a household’s entire taxable income. Each time your taxable income reaches a new level, you’ll pay a higher rate, but only on the portion that’s in that range.

The ranges, or brackets, differ depending on a taxpayer’s filing status (single, married filing jointly, married filing separately, or head of household), as seen in the table below.

Income Tax Rates and Brackets for 2025 Tax Year

Tax Rate	Single Filers	Married Filing Jointly	Married Filing Separately	Head of Household
10%	$0 to $11,925	$0 to $23,850	$0 to $11,925	$0 to $17,000
12%	$11,926 to $48,475	$23,851 to $96,950	$11,926 to $48,475	$17,001 to $64,850
22%	$48,476 to $103,350	$96,951 to $206,700	$48,476 to $103,350	$64,851 to $103,350
24%	$103,351 to $197,300	$206,701 to $394,600	$103,351 to $197,300	$103,351 to $197,300
32%	$197,301 to $250,525	$394,601 to $501,050	$197,301 to $250,525	$197,301 to $250,500
35%	$250,526 to $626,350	$501,051 to $751,600	$250,526 to $375,800	$250,526 to $626,350
37%	$626,351 or more	$751,601 or more	$375,801 or more	$626,351 or more

Source: Internal Revenue Service

If you’re a single filer with $60,000 in taxable income in 2025, for example, you won’t pay your highest tax rate (22%) on that entire amount. You’ll pay 10% on up to $11,925 of your taxable income; 12% on the amount between $11,926 and $48,475 ($36,550); and 22% on the amount between $48,476 and your taxable income of $60,000 ($11,525).

How to Calculate Federal Taxes in 2025-2026

Determining your income tax each year is, of course, much more complicated than simply applying the various tax rates to the money you’ve earned.

Depending on the complexity of your return, it may take several calculations to come up with the final amount you owe — or what you’ve overpaid and can expect to be refunded. Whether you’re filing taxes for the first time or you’ve been paying income taxes for years, here’s a quick summary of the basic steps that may go into figuring out your federal taxes in 2025-26:

1. Calculate Your Gross Income

This is the total of all the money you made for the year. Think income from your job, including tips; business income; dividend and interest income; etc.

2. Determine Your Adjusted Gross Income (AGI)

Once you know your gross income, you can subtract certain adjustments, such as alimony payments, student loan interest, health insurance premiums (if you’re self-employed), some retirement contributions, and more to determine your AGI.

3. Subtract Applicable Deductions

A tax deduction is an amount you can subtract from your AGI to further reduce your income and lower your tax. You can either choose to list, or itemize, all the tax deductions that apply to you, or you can take the standard deduction. Most taxpayers go with the standard deduction, which for tax year 2025 is:

• $15,000 for single filers and married individuals filing separately;

• $22,500 for heads of households; and

• $30,000 for married couples who file jointly.

However, you may want to run the numbers to see if it makes sense to go with itemized deductions. Some common deductions that must be itemized but could help further reduce your tax burden include mortgage interest, charitable contributions, and medical and dental expenses. But there are many more options to choose from.

4. Apply the Appropriate Tax Rates from the Table

Once you’ve calculated your taxable income, you can apply the 2025 tax rates. Remember, your entire taxable income won’t be taxed at the same rate; the tax rate goes up at various levels, or brackets.

5. Use Any Applicable Tax Credits

Unlike tax deductions, which reduce how much of your income is subject to taxes, tax credits directly reduce dollar-for-dollar the amount of tax you owe. When you’re preparing for tax season, your tax professional or tax software can help you find your applicable tax credits.

Some common credits include the Child Tax Credit, education credits, the Saver’s Credit for retirement savings contributions, and the premium tax credit that helps eligible individuals and families cover the premiums for their health insurance purchased through the federal marketplace.

6. Don’t Forget What You’ve Already Paid

Keep in mind that you’ve likely had money withheld from your paychecks throughout the year to put toward your federal income tax. Or, if you’re self-employed, you may have been making quarterly estimated tax payments. Once you know what you owe (after applying tax credits), you can subtract what you’ve already paid to get a final tax amount. If the number is positive, you can expect to owe the IRS. If it’s negative, and your calculations are correct, you can expect to get a refund.

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How Much Does the Average American Pay in Taxes?

A Tax Foundation analysis of the most recent available data from the IRS (2022) found that the average tax rate for all U.S. taxpayers was 14.5%, and the average amount of income taxes paid was $13,890. The highest-earning Americans paid an effective average tax rate of 26%, while the bottom 40% paid about 4% of their income to the IRS.

Of course, there are other types of taxes you may also have to pay, including sales tax, property tax, state and local taxes, estate tax, and more. And this means taxes can eat up a hefty portion of your hard-earned money.

Need help managing your finances? A money tracker can help you keep tabs on where your money is coming and going.

Example Tax Scenarios

Your federal income tax bill each year will depend on several factors, including your gross income, your filing status, the deductions and credits you can use to lower the amount you owe, and what you’ve already paid during the year. Here are two basic examples of how taxes might be calculated in 2025 for a single filer with a salary of $80,000 and a married couple with a gross household income of $120,000.

Joe, the Single Filer

Joe has a salary of $80,000 in 2025, so his gross income is $80,000.

He decides to go with the standard deduction in 2025, which is $15,000 for a single filer. This brings his taxable income to $65,000.

Joe then uses the applicable tax brackets.

• The first layer of Joe’s taxable income, up to $11,925, is taxed at 10%, which comes to $1,192.50.

• The next layer of Joe’s taxable income, from $11,926 to $48,475, is taxed at 12%, which comes to $4,386.

• The next layer of Joe’s taxable income, from $48,476 to $65,000 is taxed at 22%, which comes to $3,635.50.

Joe would have a total federal income tax of $9,214.

Joe finds a couple of credits he can apply that take another $1,000 off of his tax bill. And he figures out that he will have paid $7,000 in federal income tax withholding for the year.

Joe estimates that he’ll owe $1,214 when he files his taxes 2026, and he’s building that into his budget so that he’s prepared when it’s time to pay. (Tip: An online budget planner can take the guesswork out of budgeting.)

Mary and Sam, Married Filing Jointly

Mary and Sam’s combined salaries in 2025 equal $120,000, so their gross income is $120,000.

They don’t have any kids yet, and they haven’t yet purchased a house. So, they decide to use the standard deduction in 2025, which is $30,000. This brings their taxable income to $90,000.

According to the applicable tax brackets:

• The first layer of their taxable income, up to $23,850, is taxed at 10%, which comes to $2,385.

• The next layer of their taxable income, from $23,851 to $96,950, is taxed at 12%, which comes to $7,938.

Mary and Sam would have a total federal income tax of $10,323.

Mary and Sam think they’re eligible for $2,000 in tax credits that they can take off their tax bill. And between them they will have paid $10,000 in federal withholding in 2025.

Mary and Sam estimate that they’ll get a refund of $1,677 when they file their 2025 tax return, and they plan to put that refund toward a down payment on a house in 2026.

Recommended: What Tax Bracket Am I In?

How Federal Taxes Impact You

The U.S. tax system is the federal government’s single largest source of revenue, and compliance with federal tax laws is mandatory. The money taxes bring in is meant to finance various public services, including veterans’ benefits, Social Security, health programs, national defense, education, transportation, and more.

That said, there’s a popular quote from an old Morgan Stanley ad that says: “You must pay taxes. But there’s no law that says you gotta leave a tip.”

For high earners, especially, taxes may be one of the most significant expenses they encounter each year and over their lifetime. But all taxpayers can benefit from understanding how taxes work and from the type of proactive planning that can help them legally hold on to more of their money. Staying on top of any changes can also help you avoid common tax filing mistakes, as many deductions, credits, and income thresholds are adjusted annually for inflation.

The Takeaway

If you have an idea of how much you’ll bring in from various income streams this year, and you’re aware of some of the basic deductions and credits that might reduce the amount you’ll owe, you can use the 2025 brackets to calculate a pretty good tax estimate.

Whether you expect to pay when you file your return or you think you’ll get a refund, calculating your tax bill in advance can help you budget appropriately. And you may even find some additional savings in 2025 and beyond.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

See exactly how your money comes and goes at a glance.

FAQ

What will the tax brackets be for 2025?

The IRS has already published the 2025 tax rate table for single filers, married couples filing jointly, married couples filing separately, and heads of household. Each bracket has been adjusted slightly to reflect inflation.

How can you calculate estimated tax payments for 2025?

To calculate your estimated tax, you must figure your expected adjusted gross income, taxable income, deductions, and credits for the year.

Will tax returns be bigger in 2025?

Some taxpayers may qualify for a larger refund on their 2025 return (due in April 2026), thanks to inflation-related adjustments to the tax brackets and standard deduction amounts. Changes to the tax laws are expected to impact 2026 returns (due in April 2027), so it’s harder to predict what tax bills will look like at that time.

How much is the standard deduction for 2025?

The standard deduction amount depends on your filing status. In 2025, the standard deduction will be $15,000 for single filers and married individuals filing separately; $22,500 for heads of household; and $30,000 for married couples who file jointly.

What is the tax offset for 2025?

A taxpayer’s offset amount can vary depending on the type of debt that is owed.

What is the filing deadline for 2025 federal tax returns?

Federal income tax returns for 2025 are due on Wednesday, April 15, 2026.

Photo credit: iStock/Anastasiia Makarevich

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Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Jun

2025

2025 Tax Refund Calculator Table with Examples

By Lauren Ward | relay, Tools & Calculators | Comments Off

A tax refund can come as welcome news when it’s time to file your return. But how much can you expect to get back each year? A tax refund calculator can help you figure that out.

Learn how a tax refund calculator works, plus what details impact whether or not you’re overpaying the federal government.

Key Points

• A tax refund calculator compares your tax withholding to the amount you owe.

• When you pay too much in taxes throughout the year, the government sends you the excess as a refund.

• You can start tracking your refund in as little as 24 hours when you e-file.

• Tax deductions and credits may contribute to your refund.

• The average American tax refund in 2025 is $2,945.

What Is a Tax Refund Calculator?

A federal tax refund calculator looks at your gross income for the year — that’s the amount you earned before any tax withholdings from your paycheck. Then it factors in deductions, including standard or itemized deductions, eligible retirement account contributions, HSA contributions, and any applicable tax credits.

Next, it applies the appropriate tax bracket to your final taxable income to determine how much you owe for the year. Finally, it will subtract any tax payments you made throughout the year, such as those through paychecks or estimated tax payments, from your owed amount. If you overpaid, you’ll be repaid the difference in the form of a tax refund.

How to Track Your Tax Refund

As you prepare for tax season, it helps to understand how long it will take to receive your refund after you file taxes. That way you can account for the funds in your online budget planner for the right time frame, rather than incorrectly assuming when you’ll have that extra cash in the bank.

You can check your federal refund through the IRS website. The information is available more quickly when you e-file your tax return. You can start tracking within 24 hours for a current tax year return or up to four days after e-filing a previous year’s return. If you file a paper return, it can take as long as four weeks to see your refund status.

When you visit the IRS website, be prepared to provide a few basic pieces of personal information: your Social Security number or individual taxpayer ID number; filing status; and the exact refund amount from your return. One of the most common tax filing mistakes is to input the wrong Social Security number, so check your return and refund request carefully before submitting.

How to Calculate Federal Tax Refunds in 2025-2026

Your actual refund amount may vary every year based on changes in your income, eligible deductions, and IRS changes to income tax rates and brackets. So only use a 2024 tax refund calculator for that year’s return, then look for a tax refund calculator for 2025 for this year.

The actual calculation depends on the complexity of your income. For instance, it’s much simpler if you only have W2 income that you’ve already paid taxes on. It can get a little more complicated if you also have things like taxable investment income and self-employment income.

Start with the IRS tax refund calculator to estimate the correct federal income tax withholding. Then you can determine whether or not you’ll get a refund based on how much you’ve already paid throughout the year.

Recommended: 13 Steps to Prepare for Tax Season

How Is the Tax Refund Determined?

The size of your tax refund is determined by the amount of taxes already withheld and the actual tax you owe. If you’ve overpaid throughout the year, the government issues a refund. This applies to several types of taxes, including income taxes and capital gains tax.

On the IRS tax refund calculator for 2024-2025, you’ll need to provide information such as:

• Tax filing status

• Eligible tax deductions or credits

• Sources of income

• Salary or wages

• Tax withholdings

• Estimated tax payments

Once you enter in all of the information, you’ll see your expected tax withholding, how much you will likely owe in taxes, and your projected refund.

Average American Tax Refund

Here is the average federal tax refund by year, using IRS data from late April each year.

Year	Average Federal Tax Refund
2025	$2,945
2024	$2,852
2023	$2,777
2022	$3,019
2021	$2,870

More than 90 million taxpayers received refunds as of April 2025, for a grand total of $265.6 billion. The vast majority is refunded via direct deposit.

The average tax refund varies by location. Here’s a comparison of what the average taxpayer in each state received as a refund in 2022.

State	Average Federal Tax Refund
Alabama	$3,357
Alaska	$3,206
Arizona	$3,179
Arkansas	$3,224
California	$3,344
Colorado	$3,142
Connecticut	$3,362
Delaware	$3,048
Florida	$3,852
Georgia	$3,574
Hawaii	$3,011
Idaho	$3,040
Illinois	$3,394
Indiana	$3,028
Iowa	$2,924
Kansas	$3,000
Kentucky	$2,922
Louisiana	$3,577
Maine	$2,656
Maryland	$3,242
Massachusetts	$3,327
Michigan	$3,047
Minnesota	$2,838
Mississippi	$3,491
Missouri	$2,991
Montana	$2,870
Nebraska	$2,935
Nevada	$3,643
New Hampshire	$3,091
New Jersey	$3,317
New Mexico	$2,912
New York	$3,339
North Carolina	$3,077
North Dakota	$3,063
Ohio	$2,874
Oklahoma	$3,213
Oregon	$2,772
Pennsylvania	$3,011
Rhode Island	$2,871
South Carolina	$3,020
South Dakota	$3,004
Tennessee	$3,192
Texas	$3,774
Utah	$3,210
Vermont	$2,816
Virginia	$3,217
Washington	$3,310
West Virginia	$2,834
Wisconsin	$2,737
Wyoming	$3,720

Source: IRS

Example Tax Refund Scenarios

There are several scenarios in which your withholding total is more than you actually end up owing on your tax return. This is usually due to tax deductions and credits. Here are some examples:

• Tax credits: There are several tax credits that can lower the amount you owe, including the child tax credit and the earned income tax credit. For instance, the child tax credit allows eligible taxpayers to deduct up to $2,000 per child who is 16 years or younger. Up to $1,700 can be taken as a refund. So for a family with two kids, that could add as much as $3,400 to your refund (if not already accounted for in your withholding).

• Tax deductions: Some 90% of taxpayers take the standard deduction instead of itemizing eligible deductions. In 2025, the standard deduction is $15,000 for single taxpayers, and $30,000 for those who are married and filing jointly. That can greatly reduce the amount of taxable income you have — and could even drop you into a lower tax bracket.

Another example of a refund is paying taxes when you don’t actually earn enough to owe. There’s a minimum for how much you have to make to file taxes for each filing status.

How Tax Refunds Impact You

It’s usually good news to find out you’re getting a tax refund instead of owing more on your federal return, especially if you’re filing taxes for the first time or recently increased your income. However, it’s also important to consider that when you get a refund every year, you’re essentially overpaying your taxes. Instead of getting a large lump sum after filing, you could adjust your withholding to enjoy a larger paycheck each month.

When you do get a tax refund, resist the urge to immediately spend it and instead make a strategic plan for the extra funds. One potential money move to make is to pay off high-interest debt like credit card balances. A credit monitoring service can show you your current credit score and what actions can improve it. If you have a lot of outstanding revolving credit, using your tax refund to pay off a chunk could boost your score.

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Recommended: 10 Personal Finance Basics

The Takeaway

A tax refund calculator can be a helpful tool in figuring out if you can expect any money back after filing your taxes. But keep in mind that you’ll need a smart financial plan anytime you get a windfall amount of cash.

See exactly how your money comes and goes at a glance.

FAQ

When can I expect my tax refund 2025 IRS?

Most federal tax refunds are sent within 21 calendar days of filing your return. The fastest way to get your refund is to e-file and choose direct deposit.

Will tax refunds be bigger in 2025?

You could get a bigger tax refund in 2025 if your income doesn’t increase. That’s because deductions and tax bracket incomes increase each year in order to account for inflation.

Are we getting a Child Tax Credit in 2025?

Yes, the Child Tax Credit is still in place for 2025.

Why is my refund so low in 2025?

There are a few different reasons why your refund could be low in 2025. You may not have withheld enough, or some of your deduction and credit eligibility may have changed. If you earned more for the year, you may owe more taxes on that income, resulting in a lower refund.

How long is it taking to get tax refunds in 2025 with a child?

The typical refund timeline for the IRS is 21 days or less, regardless of whether you have a child dependent.

What is the tax offset for 2025?

If you owe any money to the federal government but have a tax refund, they may withhold that money as an offset to put towards the existing debt. This can include things like past-due child support, federal agency nontax debt, and even state income tax debt.

Photo credit: iStock/urbazon

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