How to Save Money on Streaming Services

How to Save Money on Streaming Services

Streaming services deliver addictive TV (or movies, articles, or audio) that we all can’t stop talking about. If the content is good, we’ll willingly pay a fee every month to consume it. Who wants to be bored, or left out of the cultural conversations?

But now that the average viewer has four to five streaming services, the monthly price tag is on the rise. In 2024, Americans spent $61 a month on streaming services, which is up from $48 in 2023, according to Deloitte’s Digital Media Trends report.

Wondering how to save money on streaming video services, short of just canceling them all? We’ve got 12 tips for cutting costs without cutting (all) the content. Read on to learn about the different techniques, and see which are right for you.

13 Ways to Cut the Costs of Streaming

Monthly subscriptions to Netflix, Hulu, Disney+, Amazon Prime, and HBO Max — not to mention music subscriptions like Spotify, Apple Music, and Pandora — expose us to more content and more choice in terms of entertainment and education.

But the cost of streaming services is on the rise. In an age of higher prices, many of us want to protect our money from inflation. Cutting costs and sticking to a budget can be especially important.

Those are good reasons to examine how to save money on subscriptions. Here are 13 ways you might be able to save some cash on your streaming habits:

1. Paying Annually Over Monthly

Some streaming services allow you to pay a lump sum once a year instead of monthly payments. This can make it more challenging to build streaming services into a line item budget, but the reward could be worth it. Usually when you pay for a year in advance, streaming services offer you a discounted rate.

If you don’t plan to keep the service for a year — say, you only want Netflix the month that your favorite show releases a new season — paying the annual fee might not make sense. Instead, it could be more cost-effective to pay the monthly fee for one or two months a year when you want to use the service.This could be one way to be better with money.

2. Setting Renewal Reminders

Whether you pay once a year or month to month, it’s a good idea to know when your card will be charged again. If you set a reminder in your phone or on your digital calendar, you can receive an alert before paying for another month.

When you get the alert and think about how much you and your family used the streaming service over the last pay period, you might realize that it’s not worth it to keep paying. If that’s the case, consider canceling to add money back into your monthly budget.

3. Finding Streaming Bundle Deals

Many streaming services offer bundle deals that allow you to save. If you already plan on subscribing to two separate services, it is a good idea to explore discounts for bundles. For example, if your family wants Hulu and Disney+, you might be able to save money by bundling the two together.

However, if you don’t want one of the services in the bundle, calculating the cost of individual services vs. the bundle could also be helpful. If you are motivated to save money, opting out of a bundle that includes services you don’t really need could be a way to free up funds.

You could then use the money you save to open a savings account and start an emergency fund, or you might choose to put your freed-up funds into retirement savings. Every bit helps.

4. Utilizing Free Trials Before Paying for a Plan

Several major streaming platforms, including Hulu, Apple TV+, and Amazon Prime, allow you to try out their content before committing. Some people who only want to watch a specific movie or TV series that is released in a certain month might take advantage of free trials — signing up to watch their desired content and then canceling the service before it renews and charges their card.

Even if you aren’t utilizing free trials to game the system, they do get you a month of content without having to worry about fees. It’s a good idea to set a reminder at the end of the free trial to cancel the service if you don’t want to keep it; otherwise, your account may be charged.

5. Determining If You Really Need the Services — And Canceling What You Don’t Need

Regularly analyzing your budget is a good idea, especially as the cost of living increases. While reviewing your average monthly expenses, you might want to consider if you really need each of the streaming services to which you are subscribed.

If your family has any services that they rarely use, you can consider canceling those subscriptions to save money each month.

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6. Seeing if a Phone Plan Comes With a Subscription Deal

When’s the last time you changed your phone plan? If you are thinking about upgrading to a new phone or a new plan, you might want to shop around to see what streaming deals phone carriers are offering.

Promotions are subject to change, but often, carriers like T-Mobile, Verizon, and AT&T offer free subscriptions to popular streaming platforms like Netflix, Apple TV+, and Paramount+. These are often for a year but sometimes for as long as you keep your phone contract.

Recommended: The Importance of Saving Money for the Future

7. Choosing Plans with Ads

Today, Streaming services typically offer viewers ad-free experiences that allow them to consume content unhindered. But increasingly, that comes at a cost. To save money on monthly subscription services, many families opt in for the lower-tier, less expensive “with ads” plans.

Streaming services like Hulu and Netflix offer their content at discounted rates if you opt into the “with ads” plan, and even streaming giant Netflix has announced its intentions to roll out a cheaper, ad-supported plan.

If you don’t mind watching ads in between your favorite shows and movies, downgrading to a cheaper, ad-supported subscription could save you money.

Recommended: How to Save Money From Your Salary Each Month

8. Downgrading to a Cheaper Plan if You Can

Ad-supported plans aren’t the only downgrade you can consider to save money on streaming services. Some services, like Hulu, have top-tier plans with live TV options. Others, like Netflix, allow you to pay more so that you can utilize additional screens at the same time.

Here’s another way to save money on streaming services: Consider whether you are fully utilizing every aspect of a service. (This is a good moment to tap your financial discipline.) If you aren’t truly using a service or realize you can pare down, it’s wise to explore what alternatives the platforms offer that could save you money.

Downgrading your plan could free up cash that you could funnel towards growing your emergency fund or saving for a vacation, or into your checking and savings account.

9. Sharing the Account With Your Household

Some streaming services allow you to share your account with friends and family, typically within the same household. Rather than maintaining separate accounts, you might be able to save money by sharing services with roommates.

If you opt to save money this way, you may find that streaming services even allow you to create separate, personalized profiles within your account as long as you are in the same residence.

10. Using Free Alternative Streaming Services

Not all content requires a subscription. If you have a smart TV or other internet-connected device, you can connect to free services like the Roku Channel and Pluto TV. While this may not give you access to the hot new shows everyone is talking about, it can definitely give you plenty of options for viewing.

11. Rotating Streaming Services Instead of Having Them All at Once

Most consumers have four to five streaming services in a given month, according to the Deloitte Digital Trends report. Depending on how much TV and music you consume, it’s possible to utilize that many services fully. But for many families, that might be too many. Just watching a few episodes of a show every month may not justify the expense.

If you find that you don’t regularly watch all your services, it could be a good idea to rotate them. For example, you could pay for two in the spring because they’ve got new shows you like, then switch to another two during summer vacation because they’ve got great content for kids, and then switch again in the fall and winter because you enjoy their holiday programming.

12. Using a Cash Back Credit Card

Earning money by spending money can make monthly expenses a little more manageable. For example, say you have a cash-back card that allows you to earn up to 3% back on qualifying purchases. While it might not sound like much, that’s 30 cents cash back for every $10 streaming service each month. It can add up.

Some cash back credit cards are actually designed for people who like streaming services; they might offer special cash back rates specifically for subscription services like Prime Video and Spotify.

13. Swapping Down on Resolution

Some people are obsessed with having the latest, most crystal-clear image as they view their shows; others, not so much. If you fall into the latter category, you might be able to score a cheaper subscription for lesser resolution. For instance, Netflix currently charges $15.49 for a monthly subscription without HD; a standard plan with HD is $15.49 (with perhaps other perks as well); and $22.99 for a premium one with Ultra HD available.

Banking With SoFi

Looking for more ways to lighten your monthly budget? Choosing the right bank account could help save you money. For instance, you might want to consider a high-yield bank account or one with low or no fees. Explore the options to see what makes the most sense for you.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.


Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 3.80% APY on SoFi Checking and Savings.

FAQ

Are streaming services continuing to increase in price?

Many streaming services have increased their prices in recent years. How their pricing will evolve depends on many factors, but we are at a moment of high inflation with price hikes likely. To save money on monthly subscriptions, consumers might want to cut back on the number of streaming services, look for ad-supported plans, and consider streaming bundles.

Is cable cheaper than streaming?

The Deloitte Digital Media Trends report found that the average American uses between four and five streaming services, with an average monthly bill of $61. While higher than it was pre-pandemic, Monthly spending on streaming services is still lower than the average cable bill, which is $113, according to a 2023 J.D.Powers study. Of course, you can find much cheaper basic cable packages, but you can also have a single streaming service to cut costs.

What streaming services have bundle deals?

You can find bundles with multiple streaming services, such as Hulu, Disney+, and ESPN+. Amazon Prime members get access to video content plus Prime shipping deals on Amazon.com; they can also take advantage of bundles with platforms like AMC+ and Paramount+. Bundle deals might not always be available, so it’s a good idea to research before signing up.


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3.80% APY
SoFi members with Eligible Direct Deposit activity can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below).

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning 3.80% APY, we encourage you to check your APY Details page the day after your Eligible Direct Deposit arrives. If your APY is not showing as 3.80%, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning 3.80% APY from the date you contact SoFi for the rest of the current 30-day Evaluation Period. You will also be eligible for 3.80% APY on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi members with Eligible Direct Deposit are eligible for other SoFi Plus benefits.

As an alternative to Direct Deposit, SoFi members with Qualifying Deposits can earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Eligible Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving an Eligible Direct Deposit or receipt of $5,000 in Qualifying Deposits to your account, you will begin earning 3.80% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Eligible Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Eligible Direct Deposit or Qualifying Deposits until SoFi Bank recognizes Eligible Direct Deposit activity or receives $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Eligible Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Eligible Direct Deposit.

Separately, SoFi members who enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days can also earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. For additional details, see the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.

Members without either Eligible Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, or who do not enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days, will earn 1.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 1/24/25. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.
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Student Loan Terminology Cheat Sheet

There are so many upsides to investing in your education — the personal enrichment and possibility of a bright and fruitful future being the most obvious. But, there are also some potential downsides that are hard to ignore, one of the main ones being the debt you may accrue.

If you’re a student loan borrower, you’ve probably noticed that your loans have a language all their own. Getting a grasp on terms like interest rate vs. APR, subsidized vs. unsubsidized loans, and fixed vs. variable interest rates can help you make more informed, confident decisions.

Instead of enrolling in Student Loan Language 101, you can use our quick reference guide to find some answers without information overload. Borrowing money can have long-term financial consequences, so it’s important to fully understand the fees and interest rates that will affect the amount of money you owe.

Here are a few of the most important terms to understand before you take out a student loan:

Common Student Loan Terminology

Academic Year

An academic year is one complete school year at the same school. If you transfer, it is considered two half-years at different schools.

Accrued Interest

Accrued interest is the amount of interest that has accumulated on a loan since your last payment. You can keep student loan accrued interest in check by making your payments on time each month. However, after a period of missed or reduced payments, accrued interest may be “capitalized,” which essentially means you have to pay interest on the interest!

Adjusted Gross Income (AGI)

AGI is an individual’s gross income, less any payroll deductions or adjustments. Income includes things like wages, salary, any interest or dividends you may earn, and any other sources of income. You can find your AGI on your federal income tax returns.

Aggregate Loan Limit

The aggregate loan limit is the maximum amount of federal student loan debt a borrower can have when graduating from school. The aggregate loan limits vary depending on whether you are a dependent or independent student.

Recommended: What Is the Maximum Student Loan Amount for a Lifetime?

Amortization

Amortization refers to the amount of loan principal and interest you pay off incrementally over your loan term. Each student loan payment is a fixed amount that contributes to both interest and principal. Early in the life of the loan, the majority of each payment goes toward interest. But over time as you pay down your loan balance, the ratio shifts and most of the payment goes toward the principal.

Annual Percentage Rate (APR)

APR is the annual rate that is charged for borrowing, expressed as an annual a percentage. APR is a standardized calculation that allows you to make a more fair comparison of different loans. Consider the difference between interest vs. APR — APR reflects the cost of any fees charged on the loan, in addition to the basic interest rate. Generally speaking, the lower your APR, the less you’ll spend on interest over the life of the loan.

Annual Loan Limit

The yearly borrowing limit set for federal student loans.

Automated Clearing House (ACH)

An electronic funds transfer is sent through the Automated Clearing House system. The ACH is an electronic funds transfer system that helps your loan payment transfer directly from your bank account to your lender or loan servicer each month.

The benefits of ACH are two-fold — not only can automatic payments keep you from forgetting to pay your bill, but many lenders also offer interest rate discounts for enrolling in an ACH program.

Award Letter

An award letter is sent from your school and details the types and amounts of financial aid you are eligible to receive. This will include information on grants, scholarships, federal student loans, and work-study. You will receive an award letter for each year you are in school and apply for financial aid.

Award Year

The academic year that financial aid is applied to.

Borrower

The borrower is the person who took out a loan. In doing so, they agreed to repay the loan.

Campus-Based Aid

Some financial aid programs are administered by specific financial institutions, such as the federal work-study program. Generally, schools receive a certain amount of campus-based aid annually from the federal government. The schools are then able to award these funds to students who demonstrate financial need.

Recommended: Am I Eligible for Work-Study?

Cancellation

This refers to the cancellation of a borrower’s requirement to repay all or a portion of their student loans. Loan forgiveness and discharge are two other types of loan cancellation.

Capitalization

Capitalization is when unpaid interest is added to the principal value of the student loan. This generally occurs after a period of non-payment such as forbearance. Moving forward, the interest will be calculated based on this new amount.

Capitalized Interest

Accrued interest is added to your loan’s principal balance, typically after a period of non-payment such as forbearance. When the interest is tacked onto your principal balance, your interest is now calculated on that new amount.

Most student loans begin accruing interest as soon as you borrow them. While you are often not responsible for repaying your student loans while you are in school or during a grace period or forbearance, interest will still accrue during these periods. At the end of said period, the interest is then capitalized, or added to the principal of the loan.

When interest is capitalized, it increases your loan’s principal. Since interest is charged as a percent of principal, the more often interest is capitalized, the more total interest you’ll pay. This is a good reason to use forbearance only in emergency situations, and end the forbearance period as quickly as possible.

Cosigner

A cosigner is a third party, such as a parent, who contractually agrees to accept equal responsibility in repaying your loan(s). A student loan cosigner, also known as an endorser, can be valuable if your credit score or financial history are not sufficient enough to allow you to borrow on your own.

With a cosigner, you are still responsible for paying back the loan, but the cosigner must step in if you are unable to make payments. A co-borrower applies for the loan with you and is equally responsible for paying back the loan according to the loan terms on a month-to-month basis

Consolidation (through the Direct Loan Consolidation Program)

Student loan consolidation is the act of combining two or more loans into one loan with a single interest rate and term. The resulting interest rate is a weighted average of the original loan rates — rounded up to the nearest one-eighth of a percentage point.

Only certain federal loans are eligible for the Direct Consolidation Program. Consolidating can make your life simpler with one monthly bill, but it may not actually save you any money. You may be able to reduce your monthly payments by increasing the loan term, but this means you’ll pay more interest over the life of the loan.

Consolidation (through a Private Lender)

Consolidation is the act of combining two or more loans into one single loan with a single interest rate and term. When you consolidate loans with a private lender, you do so through the act of refinancing, so you’re given a new (hopefully lower) interest rate or lower payments with a longer term.

By refinancing, you may be able to lower your monthly payments or shorten your payment term. (Note: You may pay more interest over the life of the loan if you refinance with an extended term.)

Recommended: What Is a Direct Consolidation Loan?

Cost of Attendance

Cost of attendance is the estimated total cost for attending a college based on the cost of tuition, room and board, books, supplies, transportation, loan fees, and miscellaneous expenses. Schools are required to publish the cost of attendance.

Credit Report

Credit reports detail an individual’s bill payment history, loans, and other financial information. These reports are used by lenders to evaluate your creditworthiness.

Default

Default is failure to repay a loan according to the terms agreed to in the promissory note. Defaulting on your student loans can have serious consequences, such as additional fees, wage garnishment, and a significant negative impact on your credit. It’s always better to talk to your lender about potential hardship repayment options, such as deferment or forbearance, before defaulting on a loan.

Deferment

Deferment is the temporary postponement of loan repayment, during which time you may not be responsible for paying interest that accrues (on certain types of loans). Student loan deferment can be useful if you think you’ll be in a better place to pay your loans at a later date. However, deferment is usually only available for certain federal loans. To potentially cut down on interest, it may be wise to weigh your deferment options.

Delinquency

When you miss a student loan payment, the loan becomes delinquent. The loan will be considered delinquent until a payment is made on the loan. If the loan remains in delinquency for a specified period of time (which varies for federal vs. private student loans), it may enter default.

Direct Loan

The Direct Loan program is administered via the U.S. Department of Education. There are four main types of direct loans including Direct Subsidized Loans, Direct Unsubsidized Loans, Direct PLUS Loans, and Direct Consolidation Loans.

Direct PLUS Loan

Direct PLUS Loans are types of federal loans that are made to graduate or professional student borrowers or to the parents of undergraduate students. Direct PLUS Loans made to parents may be referred to as Parent PLUS Loans.

Disbursement

When funds for a loan are paid out by the lender.

Discharge

Student loan discharge occurs when you are no longer required to make payments on your loans. Typically, student loan discharge occurs when there are extenuating circumstances, such as the borrower has experienced a total and permanent disability or the school at which you received your loans has closed.

Discretionary Income

Discretionary income is the money remaining after you pay for necessary expenses. An individual’s discretionary income is used to help determine their loan payments on an income-driven repayment plan.

Enrollment Status

Determined by the school you attend, your enrollment status is a reflection of where you stand with the school. It includes full-time, half-time, withdrawn, and graduated.

Expected Family Contribution (EFC)

Now known as the Student Aid Index (SAI), it’s an estimation of the amount of money a student and their family is expected to pay out of pocket toward tuition and other college expenses.

Federal Work-Study

A type of financial aid, students who demonstrate financial aid may qualify for the federal work-study program, where they work part-time to earn funds to help pay for college expenses.

Financial Aid

Financial aid is funds to help pay for college. Financial aid includes grants, scholarships, work-study, and federal student loans.

Financial Aid Package

An overview of the types of financial aid you are eligible to receive for college, financial aid packages provide information on all types of federal financial aid and college-specific aid such as scholarships, grants, work-study, and federal student loans.

Financial Need

Some types of financial aid are determined by financial need. Financial need is determined by the Free Application for Federal Student Aid (FAFSA®).

Fixed Interest Rate

Fixed interest rates remain the same for the life of the loan. The interest rate does not fluctuate.

Forbearance

Forbearance is the temporary postponement of loan repayment, during which time interest typically continues to accrue on all types of federal student loans. If your student loan is in forbearance, you can either pay off the interest as it accrues or you can allow the interest to accrue and it will be capitalized at the end of your forbearance.

Use forbearance wisely, because interest that accrues during the forbearance period is typically capitalized, making your loan more expensive. If you can afford to make even small payments during forbearance, it can help keep interest costs down.

You will usually have to apply for student loan forbearance with your loan holder and will sometimes be required to provide documentation proving you meet the criteria for forbearance. For a loan to be eligible for forbearance, there must be some unexpected temporary financial difficulty.

Forgiveness

Loan forgiveness is another situation in which you are no longer responsible for repaying all or a portion of your student loans. Public Service Loan Forgiveness and Teacher Loan Forgiveness are two types of loan forgiveness programs in which your loans are forgiven after meeting specific requirements, such as working in a qualifying job and making qualifying loan payments.

In August 2022, President Biden announced a loan forgiveness plan for borrowers with student loan debt. Under this plan, borrowers earning up to $125,000 (when filing taxes as single) may qualify for up to $10,000 in student loan forgiveness. He also announced that Pell Grant recipients may qualify to have up to $20,000 of their loans forgiven.

Free Application for Federal Student Aid (FAFSA)

This is the application students use to apply for all types of federal student aid, including federal loans, work-study, grants, and scholarships. The FAFSA must be completed for each year a student wishes to apply for financial aid.

Recommended: FAFSA Guide

Grace Period

The grace period is a period of time after you graduate, leave school, or drop below half-time during which you’re not required to make payments on certain loans. Some loans continue to accumulate interest during the grace period, and that interest is typically capitalized, making your loan more expensive.

Grad PLUS Loans

Another term to refer to a Direct PLUS loan, specifically one borrowed by a graduate or professional student.

Graduate or Professional Student

A student who is pursuing educational opportunities beyond a bachelor’s degree. Graduate and professional programs include master’s and doctoral programs.

Graduated Repayment Plan

A type of repayment plan available for federal student loan borrowers. On this repayment plan, loan payments begin low and increase every two years. This plan may make sense for borrowers who expect their income to increase over time.

Grant

Grants are a type of financial aid that does not need to be repaid. Grants are often awarded based on financial need or merit-based.

Recommended: The Differences Between Grants, Scholarships, and Loans

In-School Deferment

Students who are enrolled at least half-time in school are eligible to defer their federal student loans. This type of deferment is generally automatic for federal student loans. Note that unless you have a subsidized student loan, interest will continue to accrue during in-school deferment.

Interest

Interest is the cost of borrowing money. It is money paid to the lender and is calculated as a percentage of the unpaid principal.

Interest Deduction

A tax deduction that allows you to deduct the student loan interest you paid on a qualified student loan for the tax year. Interest paid on both private and federal student loans qualifies for the student loan interest deduction.

Lender

The financial institution that lends funds to an individual borrower.

Loan Period

A loan period is the academic year for which a student loan is requested.

Loan Servicer

A loan servicer is a company your lender may partner with to administer your loan and collect payments. For questions about your student loan payments or administrative details such as account information, you should contact your student loan servicer.

Origination Fee

Some lenders charge an origination fee for processing a loan application, or in lieu of upfront interest. To minimize incremental costs on your loan, look for lenders that offer no or low fees.

Part-Time Enrollment

Students who are enrolled in school less than full-time are generally considered part-time students. The number of credit hours required for part-time enrollment are determined by your school.

Pell Grant

Pell Grant is awarded by the federal government to undergraduate students who demonstrate exceptional financial need.

Perkins Loan

Perkins Loans were a type of federal loan available to undergraduate and graduate students who demonstrated exceptional financial need. The Perkins Loan program ended in 2017.

PLUS Loans

Another way to describe Direct PLUS Loans, PLUS Loans are federal loans available for graduate and professional students or the parents of undergraduate students.

Prepayment

Prepayment is paying off the loan early or making more than the minimum payment. All education loans, including private and federal loans, allow for penalty-free prepayment, which means you can pay more than the monthly minimum or make extra payments without incurring a fee. The faster you pay off your loan, the less you’ll spend on interest.

Prime Rate

Prime rate is the interest rate that commercial banks charge their most creditworthy customers. The basis of the prime rate is the federal funds overnight rate. The federal funds overnight rate is the interest rate that banks use when lending to each other. The prime rate can be used as a benchmark for interest rates on other types of lending.

Principal

Principal is the original loan amount you borrowed. For example, if you take out one $100,000 loan for grad school, that loan’s principal is $100,000.

Private Student Loan

A private student loan is lent by a private financial institution such as a bank, credit union, or online lender. These loans can be used to pay for college and educational expenses, but are not a part of the Federal Direct Loan Program. These loans don’t offer the same borrower protections available to federal student loans — like income-driven repayment plans or deferment options.

Promissory Note

A promissory note is a contract that says you’ll repay a loan under certain agreed-upon terms. This document legally controls your borrowing arrangement, so read it carefully. If you don’t fully understand the agreement, contact your lender before you sign.

Repayment

Repayment is repaying a loan plus interest.

Repayment Period

The agreed upon term in which loan repayment will take place.

Scholarship

A scholarship is a type of financial aid which typically doesn’t need to be repaid. Scholarships can be awarded based on merit.

Secured Overnight Financing Rate (SOFR)

The Secured Overnight Financing Rate is an interest rate benchmark that is commonly used by banks and other lenders to set interest rates for loans. The SOFR is the cost of borrowing money overnight collateralized by Treasury securities. Starting in June 2023, the SOFR will begin replacing the LIBOR as a benchmark interest rate.

Stafford Loans

Stafford loans were a type of federal student loan made under the Federal Family Education Loan Program. Beginning in 2010, all federal student loans were loaned directly through the William D. Ford Federal Direct Loan Program.

Standard Repayment Plan

The Standard Repayment Plan is one of the repayment plans available for federal student loan borrowers. This repayment plan consists of fixed payments made over a 10 year period.

Student Aid Report

After submitting the FAFSA, you will receive a student aid report (SAR). The SAR is a summary of the information you provided when filling out the FAFSA.

Student Loan Refinancing

Student loan refinancing is using a new loan from a private lender to pay off existing student loans. This allows you to secure a new (ideally lower) interest rate or adjust your loan terms.

Subsidized Loan

A Direct Subsidized Loan is a type of federal loan available to undergraduate students where the government covers the interest that accrues while the student is enrolled at least half-time, during the grace period, and other qualifying periods of deferment.

Term

Term is the expected amount of time the loan will be in repayment. Generally speaking, a longer term will mean lower monthly payments but higher interest over the life of the loan, while a shorter term will mean the opposite. Loan terms vary by lender, and if you have a federal loan, you are usually able to select your student loan repayment plan.

Tuition

The cost of classes and instruction.

Undergraduate Student

A college student who is enrolled in a course of study, typically lasting four years, with the goal of receiving a bachelor’s degree.

Unsubsidized Loan

A Direct Unsubsidized Loan is a type of federal loan available to undergraduate or graduate students. The major difference between subsidized vs. unsubsidized loans is that the interest on unsubsidized loans is not paid for by the federal government.

Variable Interest Rate

Unlike a fixed interest rate, a variable interest rate fluctuates over the life of a loan. Changes in interest rates are tied to a prevailing interest rate.

The Takeaway

Understanding key terms is essential for navigating student borrowing. Prioritizing sources of financial aid that don’t need to be repaid like scholarships and grants can be helpful. But these don’t always meet a student’s financial needs. 

Federal student loans have low-interest rates and, for the most part, don’t require a credit check. Plus they have borrower protections in place, like income-driven repayment plans and deferment options, that make them the first choice for most students looking to borrow money to pay for college.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.


Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.

FAQ

What are common student loan terms?

Common student loan terms include the principal (the original borrowed amount), interest rate (the cost of borrowing), and repayment term (the length of time to repay the loan). Other terms involve grace periods (time before payments start after graduation), deferment, forbearance (temporary relief from payments), and fixed or variable interest rates.

What are the most important loan terms to understand?

It’s important to understand terms associated with borrowing because you’ll be required to repay the loan. Understand the interest rate and any fees associated with the loan.

What does APR mean in relation to student loans?

APR stands for annual percentage rate. It’s a reflection of the interest rate on the loan in addition to any other fees associated with borrowing. APR helps make it easier to compare loans from different lenders.

SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student loans are not a substitute for federal loans, grants, and work-study programs. We encourage you to evaluate all your federal student aid options before you consider any private loans, including ours. Read our FAQs.

Terms and Conditions Apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. SoFi Private Student loans are subject to program terms and restrictions, such as completion of a loan application and self-certification form, verification of application information, the student's at least half-time enrollment in a degree program at a SoFi-participating school, and, if applicable, a co-signer. In addition, borrowers must be U.S. citizens or other eligible status, be residing in the U.S., and must meet SoFi’s underwriting requirements, including verification of sufficient income to support your ability to repay. Minimum loan amount is $1,000. See SoFi.com/eligibility for more information. Lowest rates reserved for the most creditworthy borrowers. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. This information is current as of 04/24/2024 and is subject to change. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org).

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.


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.


Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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ESG, SRI, and Impact Investing Strategies: How Are They Different?

Impact investing is a broad category that includes a wide range of strategies; among them are two that are focused on the environment as well as social and governance issues: ESG (for environmental, social, and governance issues) and SRI (for socially responsible investing).

Investors who are interested in making an impact with their investing dollars may want to consider funds that embrace ESG or SRI strategies, but impact investing can include other goals as well (e.g., investing in or avoiding certain industries or sectors, or goals).

While there are ways in which these three strategies overlap, it’s important to understand the distinctions as they pertain to your own investing goals.

Key Points

•   Impact investing refers to strategies that focus on having a measurable impact on certain companies, industries, or sectors.

•   Impact investing is a broad category that can include a range of strategies, including ESG (environmental, social, and governance) and SRI (socially responsible investing), as well as others.

•   As investor interest in ESG and SRI strategies has grown, so have inflows to funds that adhere to certain standards.

•   Despite investor interest, standards and metrics vary widely when it comes to ESG, SRI, or any other type of impact investing.

Understanding ESG, SRI, and Impact Investing

These days, numerous companies seek to meet certain ethical, social, environmental, or other standards. While some criteria have been inspired by the United Nations’ Principles for Responsible Investment, or the U.N.’s 17 Sustainable Development Goals, investors need to bear in mind that the definition of ESG, SRI, and impact investing can vary from company to company, from country to country.

Nonetheless, investor interest in these strategies continues to grow. In fact, 67% of asset owners (e.g. institutional investors) say that over the last five years ESG standards have become even more critical to the investment process, according to a 2023 survey by Morningstar, the fund research and rating company.

As a result a number of companies have developed proprietary screening tools and scoring methods to help investors assess different investments, including stocks, bonds, ETFs, and more.

Defining ESG, SRI, and Impact Investing

That being said, the lack of clearcut ESG and SRI standards dates back to the very beginnings of these strategies.

As early as the 18th century, religious groups like the Methodists would take a financial stand against certain societal problems (e.g., the slave trade or alcohol and tobacco manufacturing) by not investing in related organizations. This values-based approach became known over time as impact investing.

Today, ESG and SRI investing can be considered modern offshoots of that philosophy — but typically with a focus on investing proactively in certain companies or sectors with the goal of supporting specific changes or outcomes.

It’s still possible to invest in ESG and SRI strategies that explicitly avoid certain industries, companies, or types of products (e.g., avoiding companies known to use child labor).

Impact investing tends to be used interchangeably with the term values investing, as well as ESG and SRI investing, but again these strategies have different aims and standards.

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Impact Investing

The goal of impact investing is for investments to have a positive, measurable impact in a given area. That might mean avoiding industries (e.g. alcohol or weapons), or investing directly in social, environmental, political, or other concerns.

Some mutual funds or exchange-traded funds (ETFs) may utilize impact investing strategies, but impact investing may also involve private funds, such as closed-end private equity and venture capital funds. This is partly because some public companies have to prioritize financial goals to meet shareholder expectations or earnings forecasts, and impact goals alone may not suffice (more on profitability below).

Following are some examples of impact investing categories:

Impact Category

Metrics

Environmental

•   Trees planted

•   Solar panels installed

•   Greenhouse gas emissions limited or reduced

Women’s Empowerment

•   Female founders supported

•   Number of female employees

Jobs and Education

•   Jobs created

•   Income creation

•   Access and enrollment targets

Affordable Housing

•   People housed

•   Number of units built

Essential Services

•   Individuals in need of bank accounts

•   Patients served in medical facilities

ESG Investing

ESG stands for environmental, social, and governance factors. It’s a set of criteria that can help investors evaluate companies according to how well they uphold or meet relevant criteria, in addition to financial concerns.

ESG investing is considered a form of sustainable or impact investing, but companies that embrace this term theoretically must focus on positive results in those three areas.

When ESG strategies started gaining more attention in the 1960s, some investors assumed ESG investing was primarily about values and ethics. Over time investors come to realize that ESG strategies may also impact a company’s financials. For example, ESG reporting can help illuminate potential risks to company performance, not only progress toward sustainability goals.

Still, adoption of ESG reporting and analysis has been slow owing to a lack of consistency around standards and metrics for meeting these criteria. While the SEC adopted new rules in early 2024 to help “standardize climate-related disclosures by public companies and in public offerings,” it soon stayed those rules when a number of groups filed petitions for review in multiple courts of appeals.

Overall, there is still quite a bit of variance in these standards.

However, the table below shows some common ways to assess a company’s adherence to ESG standards:

Environmental

Social

Governance

Energy consumption Community engagement and support Diversity in the board of directors
Waste and pollution Human and labor rights Management performance
Climate change mitigation and adaptation Health and safety impacts on products, local areas, etc. Executive compensation
Conservation and protection of biodiversity Shareholder relations Corruption
Resource management, such as water usage and sanitation Employee relations Disclosures and transparency

SRI

Socially responsible investing, or SRI, is another impact investing category that focuses on social and ethical issues. SRI mutual funds were among the first values-based investment products on the market.

While SRI is similar to ESG, it’s more broadly defined. Unlike ESG investing, which revolves around a set of standards, SRI doesn’t have clearly defined criteria, and investment strategies vary depending on the company.

SRI-focused investors might choose to avoid certain investments or industries, or choose companies that specifically work on or donate to certain causes. Investors may need to evaluate companies and funds based on their own criteria.
SRI investing strategies can include a focus on one or more of the following:

•   Alternatives to fossil fuels (e.g., clean energy like wind or solar technologies)

•   Avoiding so-called vice industries like alcohol, tobacco, cannabis, gambling

•   Investing in female or minority-led companies, or companies with a social justice mission

•   Avoiding companies relating to arms manufacturing and the military

•   Investing in companies that adhere to human rights standards

•   Supporting specific environmental outcomes, e.g. mitigating air and water pollution, safer agricultural practices, and so on

Is Sustainable Investing Different from ESG, SRI, and Impact Strategies?

Sustainable investing strategies can encompass SRI as well as ESG strategies. And while some investors use sustainable investing and impact investing interchangeably, it’s important to remember that not all impact investing is sustainable in nature.

Can SRI or ESG Investing Be Profitable?

The performance of SRI and ESG strategies versus their conventional peers have long been subject to debate. Nonetheless, the value of assets allocated to ETFs with an ESG focus has grown steadily in the last two decades. As of November 2023, according to data from Statista, the value of global assets in ESG funds was $480 billion — a substantial jump from $5 billion in 2006.

Investors interested in SRI and ESG strategies may want to examine the FTSE4Good Index Series: a compilation of stock indexes that track companies that seek to meet certain criteria or achieve certain environmental, social, or corporate governance goals. Morningstar has also developed a sustainability rating system, in use since 2016.

The Takeaway

Investors may want to bear in mind that, with the steady growth of ESG and SRI strategies in the last couple of decades, investment opportunities that focus on having an impact on the world are likely to expand.

In addition, the underlying goal of these strategies is to make a difference and potentially see a profit as well. That said, impact strategies overall don’t reduce investment risk factors; all types of impact investing, including ESG and SRI strategies, are subject to the same economic and market risk factors as conventional strategies.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).


Invest with as little as $5 with a SoFi Active Investing account.


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

SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.
For a full listing of the fees associated with Sofi Invest please view our fee schedule.

Exchange Traded Funds (ETFs): 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 by email customer service at https://sofi.app.link/investchat. Please read the prospectus carefully prior to investing.
Shares of ETFs must be bought and sold at market price, which can vary significantly from the Fund’s net asset value (NAV). Investment returns are subject to market volatility and shares may be worth more or less their original value when redeemed. The diversification of an ETF will not protect against loss. An ETF 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.

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40-Year Mortgage: What You Need to Know

40-year mortgages aren’t exactly what you think they are, and we’re here to clear up the confusion. Yes, a 40-year mortgage is only 10 years longer than the traditional 30-year mortgage, but the increased time to amortize interest makes it significantly more expensive. Though it may seem more affordable on a month-to-month basis, the increased amount of interest you’ll pay over the entire loan makes it hard to pay off the principal and build equity.

Additionally, 40-year mortgages are not backed by the federal government, so it can be hard to find a lender that originates them.

Here’s a deep dive on exactly what they are, how to qualify for one, how much they cost, how they compare with other loan terms, and what factors you’ll want to consider if you’re thinking about a 40-year mortgage.

Understanding a 40-Year Mortgage

To understand a 40-year mortgage, it’s important to look at how the mortgage market works and where a 40-year mortgage fits. With a traditional 30-year mortgage, the loan is typically sold on the secondary mortgage market to be bundled into securities by government-sponsored enterprises Fannie Mae and Freddie Mac.

To be eligible for sale, the loan must meet certain criteria to be considered a “qualified” mortgage. One of these criteria is that the loan term must not be longer than 30 years (the average mortgage term length in the U.S. is three decades). So a 40-year loan isn’t considered a qualified mortgage. You might also see it referred to as a “nonconforming loan.”

Because a 40-year mortgage can’t be backed by the government, it’s harder and more expensive to originate. As a result, this type of mortgage often doesn’t make sense for borrowers or lenders.

Recommended: What Is Mortgage Curtailment?

How a 40-Year Mortgage Works

When lenders do offer 40-year mortgages, there are a number of different ways these loans can be structured.

•  ARM: The 40-year mortgages can be adjustable-rate mortgages (ARMs) where the interest rate adjusts every five or ten years.

•  Interest-only for 10 years + 30-year term: They can also operate like a 10-year interest-only loan tacked on to the front of a traditional 30-year mortgage.

•  Fixed 40-year term: They can also work as a 40-year fixed loan, much like a 30-year fixed-rate loan.

Most 40-year loans require that the property be owner occupied. But the biggest hurdle you’ll encounter in the mortgage process is finding a lender that offers 40-year mortgages. Qualification works as it does with a 30-year loan, but because the lender has to keep the loan on its books, it will be extra judicious about lending when it comes to a 40-year mortgage.

40-year Loan Modification

If you’re reading up on 40-year mortgages, you may run across the term as it relates to home loan modifications. Borrowers with FHA loans (from the Federal Housing Administration) who got into financial trouble during the COVID-19 pandemic may have the opportunity to have their loans modified (or “recast”) into 40-year loans.

Advantages and Disadvantages

With a typical 40-year mortgage, it’s clear what the advantage is because there’s only one: a lower monthly payment. A lower monthly payment may make buying a home possible for some borrowers, so it’s tempting to look at a 40-year mortgage despite the drawbacks.

The lone pro, as well as the risks and drawbacks of a 40-year mortgage, can be summarized as follows:

Pros

Cons

Lower monthly payment Pay more in interest over a 40-year term
May have a higher interest rate
Builds equity more slowly
Hard to find a lender who offers this loan type

Qualifying for a 40-Year Mortgage

Qualifying for a 40-year mortgage is similar to qualifying for other types of mortgages. In addition to the loan type and interest rate the lender can offer you, other mortgage qualification factors may include:

•  Credit score. There is no minimum score required specifically for 40-year mortgages but generally, the better the score, the better your rate.

•  Income verification. The lender will examine your employment history and how reliable your source of income is.

•  Debt-to-income ratio. How much debt you have affects how large a mortgage you can take on. Higher debt equals less borrowing power.

•  Down payment. The down payment affects the loan-to-value ratio, which affects how much the lender is willing to lend and what rate it will offer.

Recommended: How to Get a Home Loan

Comparing 40-Year Mortgage to Other Loan Terms

When you look at the costs on a 40-year mortgage, it becomes very clear what the tradeoff is. Here is an example using interest rates available in August 2024. Note that the 40-year example has a rate that adjusts every five years, so the total interest paid is an estimate.

Mortgage amount

Interest rate

Monthly payment (principal and interest only)

Total interest paid over the term

40-year 5/5 adjustable rate mortgage $450,000 6.625% $2,674.73 $833,870.52
30-year fixed mortgage $450,000 6.500% $2,844.31 $573,950.20
15-year fixed mortgage $450,000 6.250% $3,858.40 $244,512.52

For a 40-year loan, you’ll pay $833,870.52 in interest for a $450,000 mortgage. In total, that’s $1,283,870.52 you’ll pay for the $450,000 loan.

The monthly payment on a 40-year mortgage is only about $200 less for a $450,000 mortgage. All told, you would save nearly $300,000 by choosing a mortgage term of 30 years vs. a 40-year mortgage. Borrowers who opt for the lowest payment with an idea that they would pay off the mortgage early would be wise to make sure they understand whether there are prepayment penalties before signing on the loan.

Factors to Consider with a 40-Year Mortgage

Because of how much more you’ll pay for a 40-year mortgage vs. 30-year mortgage, a 40-year loan comes with some serious considerations.

Long Repayment Period

A 40-year mortgage loan will take much longer to pay off. And because you’re paying a greater percentage of interest in the beginning of your loan, it will be hard to pay down the principal for quite some time.

Building Equity Is Difficult

As noted above, a 40-year mortgage loan makes building equity more difficult because of the increased interest costs. Difficulty building equity can make it harder to move because you may not have adequate profits from the home sale to make a down payment on your next home. It can also make refinancing challenging.

Interest Costs Are High

When you look at a mortgage calculator, you may be quite shocked at how much more interest you’ll pay on a 40-year mortgage when compared to a 30-year mortgage, as illustrated previously.

When a 40-Year Mortgage Makes Sense

A 40-year mortgage could make sense if:

•  You plan to refinance to a different mortgage term in the future. If you need to keep monthly costs as low as possible and refinance at a later date, such as when you’re renovating your home, then you may want to consider a 40-year mortgage.

•  It makes a difference in home affordability. If the difference between buying a home and not buying a home is a 40-year mortgage, you’re probably thinking about the 40-year mortgage. Hopefully, you could refinance down the line and save yourself a large chunk of money.

As mentioned previously, the high cost of a 40-year mortgage is a major drawback. The total amount of the mortgage works out to be hundreds of thousands more when compared with a traditional 30-year mortgage. Be sure you’re aware of the increased costs and risks before committing to a 40-year mortgage.

Note: SoFi does not offer a 40-year mortgage. However, SoFi does offer conventional mortgage loan options.

The Takeaway

The 40-year mortgage isn’t common and there are few scenarios where it makes sense. When you compare a 30-year mortgage with a 40-year mortgage, you’ll only pay a couple hundred dollars more per month on a 30-year mortgage, but you’ll save hundreds of thousands of dollars over the life of the loan. If you’re considering a 40-year mortgage, consult a lender you trust. They will have many tools at their disposal for helping you afford a home of your own.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

SoFi Mortgages: simple, smart, and so affordable.

FAQ

Are 40-year mortgages widely available?

No, 40-year mortgages are not common because they aren’t considered conforming, qualified mortgages. Qualified mortgages follow guidelines set by the government so they’re less risky and able to be bought by Fannie Mae and Freddie Mac. A 40-year mortgage falls outside the maximum allowable 30-year term for a qualified mortgage.

Can I refinance a 40-year mortgage later?

Yes, you can refinance a 40-year mortgage at a later date, provided you can qualify for the new loan you’re applying for.

Is a 40-year mortgage a good option for first-time homebuyers?

There are serious downsides to a 40-year mortgage. It may have a more affordable monthly payment than a 15- or 30-year mortgage, but you’ll have a hard time building equity (which is important for first-time homebuyers) and you’ll pay much more in interest over 40 years than you would 30 years.


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SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.


SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.


*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
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.
¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.

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How Much Is the Down Payment for a $500K House for First-Time Homebuyers?

Half a million dollars may seem like a lot, even for a nice house — but in many American cities these days, it’s close to the norm. For example, in Portland, Oregon in July 2024, the average home value hovered around $540,000. The good news? These days many mortgage programs allow qualified first-time homebuyers to put down as little as 3%, which means your down payment could be a relatively reasonable $15,000 on a $500,000 home.

Below, we’ll dive into the details about how to afford a $500,000 house.

How Much Income Do I Need to Afford a $500K Home?

Before you start to think about saving up a down payment, you may be wondering — do I make enough money to make the mortgage payments in the first place? Spoiler alert: There’s not one easy answer to the question, “How much should I be making to afford a $500,000 house?” But there is some quick math we can do to help figure out your ballpark.

For starters, keep in mind that many financial experts recommend spending no more than 30% of your gross monthly income — the amount you make before taxes are deducted — on housing. That’s about a third.

With that in mind, you can use a mortgage payment calculator to get a sense of what your monthly mortgage payments might look like. If you put $15,000 down on a $500,000 house for a 30-year home loan at a 7% interest rate, you’d pay about $3,200 per month toward your mortgage. That means you’d want to be making about three times that amount, or $9,600 per month, to comfortably afford the mortgage. That’s a yearly income of about $115,000.

Keep in mind that the $3,200 per month figure does not include expenses like mortgage insurance, homeowners insurance, or property taxes. So you would probably need a higher annual income to fully support your home purchase. If you apply the 28/36 rule, which states that your annual housing costs should be no more than 28% of your annual income, you would have about $3,500 to apply to housing. Assuming you don’t have a lot of debt eating away at your paycheck, you would need to earn around $150,000 each year to afford a $485,000 mortgage on a $500,000 home when insurance and taxes are factored in.

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.

Questions? Call (844)-763-4466.


Recommended: The Average Monthly Expenses for One Person

How Much Is the Down Payment for a $500K House?

How much of a down payment you’ll be required to put down on a $500,000 house depends on what kind of mortgage you take out — and your creditworthiness as a borrower. The lowest down payment a first-time homebuyer would likely be able to get away with is 3%, or $15,000, while a full 20% down payment would be $100,000. That’s quite a range!

What Are the Down Payment Options for a Home Worth $500K?

Here’s the breakdown of the various down payment options for a home worth $500,000, depending on the type of mortgage you look into (and qualify for as a first-time homebuyer).

•   Those taking out a conventional home loan and wanting to avoid paying mortgage insurance would need to come up with $100,000 for a 20% down payment.

•   However, these days, qualified borrowers can get a conventional mortgage with a down payment as low as 3%, or $15,000 in this case. Other buyers may need to pony up 5%, or $25,000.

•   Government-backed FHA loans (Federal Housing Administration loans) are specifically designed for first-time homebuyers, and their minimum down payment is 3.5%, which works out to $17,500 for a $500,000 house.

•   Those who qualify for loans backed by the U.S. Department of Veterans Affairs (VA loans) may be able to buy a home without any required down payment at all, though putting down something can help you build equity faster. You can also look into down payment assistance programs.

What Does the Monthly Mortgage Payment Look Like for a $500K Home?

There’s not one set formula for what your specific monthly mortgage payment will look like for a $500,000 home — because each loan is individually written based on your credit score, debt-to-income ratio (DTI), and other pieces of your financial profile. The size of your down payment, the length of the loan’s term, and other factors will also influence the final figure.

That said, if you put down $15,000 toward a $500,000 home on a 30-year fixed-interest home loan at 7.00%, you could expect to make monthly payments of about $3,200. Given that the median household income in the U.S. is just over $75,000, that payment may be tough for many Americans to make. If your income can’t support a $500,000 home, you could consider looking for more affordable places to live in the US.

On the other hand, if you were able to save up the full $100,000 down payment, the $500,000 house would cost closer to $2,700 per month. Or if you could score an interest rate just one percentage point lower, your payments would be $2,900 per month — even if you put down only the same $15,000.

What to Do Before You Apply for a $500K Home Mortgage?

A mortgage on a $500,000 home is a substantial amount of debt to go into. You stand to save a lot of money by ensuring you get the very best loan terms you possibly can.

That’s why it’s a good idea to ensure you’re in the best financial standing possible before you put in your application. That means lowering your overall debt level (focusing especially on high-interest debt like credit card balances), carefully tending your credit score, and ensuring your income is both ample and reliable.

Should I Get Preapproved Before Applying for a Mortgage?

Getting preapproved for a mortgage gives you a leg up in a busy housing market. If you see a home you like and you’ve already got a preapproval letter in hand, you’ll be better able to swoop in before other prospective buyers.

That said, the mortgage preapproval process does usually entail a “hard” credit check (unlike a prequalification), so this step is best left for those who are very serious and ready to move if the right house shows up.

How to Get a $500K Home Mortgage

Applying for a mortgage — even a big one — is easy. Most of it can be done from the comfort of your home, online. You’ll be required to upload documentation proving your income and assets, but once you’ve gathered all the materials, the actual application is unlikely to take more than an hour to complete.

However, given the potential cost of a mortgage on a $500,000 home — whose interest could easily add up to hundreds of thousands of dollars over its three-decade term — it’s worth shopping around to ensure you’re getting the very best deal you can. Even just half a percentage point of interest can make a big difference over such a long span of time.

Recommended: The Cost of Living by State

The Takeaway

The full 20% down payment for a $500,000 home comes out to $100,000. That said, depending on your creditworthiness, you may be able to get away with putting down a much lower payment — as little as $15,000 if you’re a first-time homebuyer.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

SoFi Mortgages: simple, smart, and so affordable.

FAQ

How much should I make to afford a $500,000 house?

You need an income of $115,000 per year to cover the costs of a mortgage and closer to $150,000 to afford a mortgage plus expenses such as mortgage insurance and property taxes on a $500,000 house. The more debt you have, such as a car payment or student loan, the greater your income will need to be. The size of your down payment is also a factor. The greater the down payment, the lower your income would need to be to cover your monthly costs.

What credit score is needed to buy a $500,000 house?

Each mortgage lender has its own algorithm for qualifying borrowers. That said, many mortgage lenders look for a score of at least 620, and if you’re taking out a larger mortgage, the higher your score, the better the terms you’ll likely qualify for.

How much is a $500K mortgage per month?

The answer to this question depends on the loan’s term and the interest rate you qualify for. For those with a lower interest rate, the payment might be about $2,700 per month, while for those with a higher interest rate, the mortgage might top $3,200. Remember this is for principal and interest only. After homeowners insurance, mortgage insurance, and property taxes your expenses will be higher.


Photo Credit: iStock/ Credit:Eleganza

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*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
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.

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.
¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency. Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency.

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