Nov
10
2023
What Is a Margin Loan? Definition & Examples

Margin Loans: Definition, Examples, Pros & Cons

By | Growing Wealth, invest, Investing | Comments Off on Margin Loans: Definition, Examples, Pros & Cons

Margin loans are a type of loan that an investor takes out from a brokerage to buy investments. An investor typically borrows from a brokerage if they don’t have the cash balance in their trading account to cover the cost of a trade or investment – so, they use credit from their brokerage to cover the costs.

While there are risks associated with using margin and margin loans, they can also increase an investor’s purchasing power and bolster potential returns.

What Is a Margin Loan?

A margin loan is a loan from your brokerage to pay for securities that you can’t cover with cash. Similar to any other loan, you must apply for the account and be approved before you can borrow funds; and your brokerage will charge interest on any funds you borrow.

Having a margin account by definition enables you to take out a margin loan (the two are synonymous in many ways). Having the flexibility to buy securities on margin gives many traders the ability to take positions they might not have been able to afford otherwise. In fact, margin loans are a cornerstone to putting together effective day trading strategies, for advanced investors.


💡 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.

Understanding Margin Loans

Understanding margin trading can be tricky, but for the average investor, all you really need to know is that a margin loan is essentially a short-term financing solution. If you want to buy securities, but don’t have the cash in your account, your brokerage may allow you to buy those securities using credit. It’s similar to a line of credit, in that way.

So, that’s what margin debt is: The result of a margin loan, in which a trader borrows money to buy securities.

How Margin Loans Work

While we’ve mostly been discussing margin loans in terms of trading and investing, they could be used for any purpose. But almost always, a margin loan is used to buy securities.

As for the process of how they actually work: A margin loan is more or less like any other loan. To get one, you’ll need to apply and qualify for margin on your brokerage account (typically called a “margin account”).

Margin Accounts and How They Work

Like other forms of lending, margin loans have strict criteria. In addition, these accounts are governed by industry regulations as well as the policies of individual institutions, so be sure to understand how your desired margin account works. Each brokerage has different rules and eligibility requirements, and FINRA, for example, also requires you to deposit a minimum of $2,000 or 100% of the security’s purchase price, whichever is less. This is the “minimum margin.” Some firms may require you to deposit more than $2,000.

If you’re approved for a margin account, you’re able to trade using a margin loan — up to a certain amount. According to Regulation T of the Federal Reserve Board, you may borrow up to 50% of the purchase price of securities that can be purchased on margin.

This is known as the “initial margin.” Some firms require you to deposit more than 50 percent of the purchase price. (Also be aware that not all securities can be purchased on margin. Only those deemed “marginable” can be traded on margin.)

If you have $5,000 in your brokerage account, and you want to buy Stock X, which is valued at $50 per share, with a 50% margin you could buy 50% more than your cash balance: 200 shares instead of 100. But half of those (100 shares) would’ve been purchased on margin — so, you’d need to settle up your account at some point, if or when you decide to sell your shares (hopefully for a profit).

Increase your buying power with a margin loan from SoFi.

Borrow against your current investments at just 11%* and start margin trading.

*For full margin details, see terms.

How Margin Interest Works

The other important thing to remember about margin loans is that they are, like pretty much all loans, subject to interest charges. Your brokerage is going to charge you for the money you borrow.

Margin interest is a big topic unto itself, but the key takeaway is to know that you’ll be on the hook for paying your brokerage back for the money you borrow, plus interest charges.

You’re probably thinking: “Can I avoid paying margin interest?” The answer is that it depends on how fast you can pay your margin balance back. Most brokerages will charge interest by the day and add the charges to your account monthly. So, if you have cash or can sell securities and pay your balance off before interest accrues, it’s possible.


💡 Quick Tip: How do you decide if a certain trading platform or app is right for you? Ideally, the investment platform you choose offers the features that you need for your investment goals or strategy, e.g., an easy-to-use interface, data analysis, educational tools.

Margin Loan Pros and Cons

Marginal loans can be highly useful for traders and investors. But like almost any financial instrument, margin loans have their pros and cons.

The biggest upside of margin is that it can open up a new swath of investing choices for traders. That means increasing their buying power, and allowing them to buy securities that may have otherwise been too expensive. This can increase potential profitability, too.

Conversely, traders who aren’t careful can’t quickly find themselves in debt if one of their trades backfires.

There are also interest charges to consider, as discussed. And if things really go sideways, some traders may experience a “margin call,” which is when your brokerage sells your assets without warning to settle up or get your account balance back within its requirements.

Here’s a quick rundown:

Margin Loans: Pros & Cons

Pros

 Cons
Increased trading capacity Traders can accumulate debt
Traders can buy pricier securities Interest charges
Increased potential gains Potential margin calls

Typical Margin Loan Rates

Margin loan rates, or, the interest rate charged by a brokerage for using margin, vary. Brokerages make the information available to traders and investors, so finding what types of margin loan rates you’re subjected to usually just requires a little research (or a call to your broker).

As mentioned, a brokerage will probably charge different interest rates depending on your overall margin balance, and how much you’ve borrowed. Lower balances are typically charged higher interest rates.

Here are some hypothetical examples: Let’s say Brokerage ABC’s margin interest rates vary between 4% and 8%, depending on the trader’s balance. Traders using up to $24,999 in margin will be subject to the highest interest rate (8%), whereas traders with more than $1 million in margin debit are subject to the 4% rate.

Brokerage B, however, has a different scale, with traders in margin debt up to $24,999 subject to 8.5% interest, and those with balances between $500,000 and $999,999 subject to 6.5%.

So, while brokerages do vary in what they charge for margin loan rates, they tend to be similar. To know your exact rate, contact your brokerage, or look up the current rate schedule on the company’s website.

The Takeaway

Margin loans are similar to any other type of loan, but are typically used for the purpose of buying stocks or other securities. Once you’ve applied for and been approved for a margin account, which is akin to adding a line of credit to your existing brokerage account, you’ll have the flexibility to buy more investments than if you were relying only on cash.

That said, you’re on the hook for repaying the money you’ve borrowed, with interest. If you’ve made a profitable investment, this shouldn’t be a problem. But if you invest in Stock X on margin, say, and the price drops, you would still owe the full amount you’d borrowed to buy the stock, plus interest.

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).

For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.

FAQ

Can you withdraw a margin loan?

Yes, it’s possible to withdraw a margin loan, although the specifics will depend on an individual brokerage, as will any applicable interest charges.

Are margin loans a good idea?

Margin loans can be useful for many investors and traders, and whether or not they’re a good idea will depend on the specific individual considering taking one out. They do have risks, but upsides, too.

How do I pay back my margin loan?

The simplest ways to pay back margin loans are to either deposit cash into your brokerage account to get the balance back to zero, or to sell holdings that will result in a positive or neutral balance.

How much collateral is required for a margin loan?

The collateral required to take out a margin loan depends on a specific brokerage, but it’s not uncommon for brokerages to require somewhere between 30%, 40%, or 50%.

What happens if you can’t pay back a margin loan?

If you can’t pay back a margin loan, the brokerage will likely reach out to see what can be done, or lock you out of your account. Further, it could end up liquidating securities in your portfolio in order to cover the debt.

Photo credit: iStock/Sergey Nazarov

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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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Nov
10
2023
Understanding the Parent Plus Loan Forgiveness Program

Understanding Parent Plus Loan Forgiveness

By | Fresh Out of School, Going to College, Student Loans, student_loan | Comments Off on Understanding Parent Plus Loan Forgiveness

Parent PLUS loan forgiveness provides financial relief to parents who borrowed money to cover the cost of their children’s college or career school. It isn’t always a quick fix, but there are certain federal and private programs that might offer the financial assistance needed to help them get on track.

Keep reading to learn more about what the available student loan forgiveness possibilities are for Parent PLUS loans.

Are Parent Plus Loans Eligible for Student Loan Forgiveness?

Parent PLUS loans are eligible for several of the same student loan forgiveness programs as federal student loans for students, including:

•   Borrower Defense Loan Discharge

•   Total and Permanent Disability (TPD) Discharge

•   Public Service Loan Forgiveness (PSLF)

That said, Parent PLUS loans generally have fewer repayment options. The Parent PLUS loans do not qualify for the SAVE program or other income-driven plans. And guidelines are strict for the few programs that parent loans are eligible for.

Refinancing is another option for Parent PLUS loan borrowers — applying for a new private student loan with an, ideally, lower interest rate. That said, some lenders offer less flexibility for repayment and the fine print can be lengthy, so there’s an inherent risk associated with refinancing Parent PLUS loans.

It’s worth noting that refinancing a PLUS loan will eliminate it from any federal repayment plans and benefits.


💡 Quick Tip: Some student loan refinance lenders offer no fees, saving borrowers money.

Parent Student Loan Forgiveness Program

Parents who are on the hook for student loan debt can also qualify for student loan forgiveness. A Parent PLUS loan may be eligible for Parent Student Loan Forgiveness through federal programs that include Income-Contingent Repayment and Public Service Loan Forgiveness. Other forgiveness options may also be available through the state.

Income-Contingent Repayment (ICR)

An Income-Contingent Repayment plan, or ICR plan, is the only income-driven repayment plan that’s available for Parent PLUS borrowers. In order to qualify, parent borrowers must first consolidate their loans into a Direct Consolidation Loan, then repay that loan under the ICR plan.

Bear in mind:

•   A Parent PLUS loan that’s included in a Direct Consolidation Loan could be eligible for Income-Contingent Repayment.

•   A Parent PLUS loan that’s included in the Federal Direct Loan Program or the Federal Family Education Loan Program (FFELP) is also eligible for ICR if it’s included in the Federal Direct Consolidation Loan.

The ICR plan is a repayment plan for Direct loans. Monthly payments are the lesser of (1) what you would pay on a repayment plan with a fixed monthly payment over 12 years, adjusted based on your income, or (2) 20% of your discretionary income.

Typically, the IRS considers canceled debt a form of taxable income, but the American Rescue Plan Act of 2021 made all student loan forgiveness tax-free through 2025 on federal returns. Some states will tax student loan forgiveness amounts; check with your accountant to be sure.

Public Service Loan Forgiveness (PSLF)

Borrowers with Parent PLUS loans may be eligible for the Public Service Loan Forgiveness Program. In order to pursue that option, they must first consolidate the Parent PLUS loan into a Direct Consolidation Loan.

Then, after they’ve made 120 qualifying payments (10 years’ worth), borrowers become eligible for the PSLF. The parent borrower (not the student) must be employed full-time in a qualifying public service job. PSLF also has strict requirements such as certifying employment, so it’s important to follow instructions closely if pursuing this option.

Student Loan Forgiveness for Death of Parent

Federal student loans qualify for loan “discharge” when the borrower dies. In the case of Parent PLUS loans, they are also discharged if the student who received the borrowed funds dies.

In order to qualify for federal loan discharge due to death, borrowers must provide a copy of a death certificate to either the U.S. Department of Education or the loan servicer.

Some, but not all, private lenders discharge student loans after the student or loan holder dies.

Recommended: Can Student Loans Be Discharged?

State Parent PLUS Student Loan Forgiveness Programs

Many individual states offer some sort of student loan repayment assistance or student loan forgiveness programs for Parent PLUS loan borrowers.

For an overview of options available in different states, you can take a look at The College Investor’s State-by-State Guide to Student Loan Forgiveness . For information on student loan and aid available take a look at the SoFi guide on state-by-state student aid available for borrowers.

Disability

In the event of the borrower becoming totally and permanently disabled, a Parent PLUS loan may be discharged. To qualify for a Total and Permanent Disability (TPD) discharge , borrowers must complete and submit a TPD discharge application, as well as documentation showing that they meet the requirements for being considered totally and permanently disabled.

Note that in order to qualify for TPD, the parent borrower must be considered disabled. This type of forgiveness does not apply to Parent PLUS loans in the event that the student becomes disabled.

Bankruptcy

If a borrower can demonstrate undue financial hardship upon repaying the student loan, they might be able to discharge their Parent PLUS loan. Note: Having student loans discharged in bankruptcy is uncommon. Proving “undue hardship” varies depending on the court that’s granting it, but most rulings abide by the Brunner test, which requires the debtor to meet all three of these criteria in order to discharge the student loan:

•   Poverty. Maintaining a minimal standard of living for the borrower and their dependents is deemed impossible if they’re forced to repay their student loans.

•   Persistence. The borrower’s current financial situation will likely continue for the majority of the repayment period.

•   Good faith. The borrower has made a “good faith” effort to repay their student loans.

Closed School Discharge

For parent borrowers whose children attended a school that closed while they were enrolled or who withdrew from the school during a “lookback period” of 120 days before its closure, a Closed School Discharge is another available form of student loan forgiveness.

If your child’s school closes on or after July 1, 2023, and you meet the eligibility requirements for a closed school discharge of your loans obtained to attend the closed school, you will generally receive an automatic closed school discharge one year after the date the DOE establishes as the school’s official closure date. This discharge will be initiated by DOE, and you will be notified by your loan servicer.

Although this closed school loan discharge is granted automatically after one year has passed since the school’s closure, you can always apply for and receive a closed school discharge as soon as the school’s official closure date is confirmed by the U.S. Department of Education. If your child 1) attended a school that closed less than one year ago, 2) meet the eligibility requirements for a closed school discharge, and 3) want your loans discharged, contact your loan servicer about applying for a closed school discharge now instead of waiting for one year to receive an automatic closed school discharge.

Borrower Defense

Borrower Defense Loan Discharge is available to Parent PLUS borrowers whose children were misled by their college or university or whose college or university engaged in certain forms of misconduct or violation of state laws.

To make a case for borrower defense, the Parent PLUS borrower must be able to demonstrate that their school violated a state law directly related to their federal student loan.


💡 Quick Tip: Federal parent PLUS loans might be a good candidate for refinancing to a lower rate.

Alternatives to Parent Plus Student Loan Forgiveness

When it comes to Parent PLUS loans, there are a few ways to get out of student loan debt legally, including the scenarios outlined below.

Refinance Parent Plus Loans

Refinancing a Parent PLUS loan is another option that could provide some financial relief. In doing so, you’ll lose the government benefits associated with your federal loans, as briefly mentioned above, such as:

•   Forbearance options or options to defer your student loans

•   Choice of repayment options

•   Student loan forgiveness

Refinancing a Parent PLUS loan into the dependent’s name is another option, which some borrowers opt for once their child has graduated and started working. Not all loan servicers are willing to offer this type of refinancing option, though.

Transfer Parent Plus Student Loan to Student

Transferring Parent PLUS loans to a student can be complicated. There isn’t a federal loan program available that will conduct this exchange, and, as mentioned above, some private lenders won’t offer this option.

Some private lenders, like SoFi, allow dependents to take out a refinanced student loan and use it to pay off the PLUS loan of their parent.

Explore Private Student Loan Options for Parents

Banks, credit unions, state loan agencies and other lenders typically offer private student loans for parents who want to help their children pay for college and refinancing options for parents and students.

Refinancing options will vary by lenders and some may be willing to refinance a Parent PLUS loan into a private refinanced loan in the student’s name. In addition to competitive interest rates and member benefits, SoFi does allow students to take over their parent’s loan during the refinancing process. Interest rates and terms may vary based on individual criteria such as income, credit score, and history.

The Takeaway

Parent PLUS Loan forgiveness offers financial relief to parents who borrowed money to help their child pay for college. To receive federal relief for Parent PLUS loans, parent borrowers can enroll in an Income-Contingent Repayment plan, pursue Public Service Loan Forgiveness, transfer their student loan to another student, take advantage of a state Parent PLUS student loan forgiveness program, or opt for private student loan assistance or refinancing.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.


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Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

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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.

Photo credit: iStock/DragonImages
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Nov
10
2023

Pets and the Holidays: How America Spends

By | Budgeting & Goals, Family Finances, money | Comments Off on Pets and the Holidays: How America Spends

It’s not your imagination: America is pet-crazy. Two out of three households have a pet, and as the holidays roll in, these furbabies are increasingly part of the planning.

Perhaps they occupy the center of the holiday card (wearing a cute Xmas sweater… or an ugly one), travel with their pet parent to Grandma’s house, or receive a pile of presents.

Consider these pet spending statistics: Last year, consumers spent almost $137 billion year-round on their animals, an increase of 11% year over year. Could this spending soar still higher as the winter holidays unfold?

To learn more about this trend, SoFi surveyed 1,200 pet-owning adults from coast to coast in October 2023. Here, you’ll learn more about how animals are making the season more magical and memorable… and how they are being gifted with holiday goodies.

For starters, did you know the following pet spending statistics?

•   70% of people typically buy their pets gifts. Of those, more than a quarter (27%) spend more than $100 on gifts.

•   89% plan to dip into their wallet in some way to maximize their pets’ holiday joy.

Read on to learn the full story on pet owners’ habits and their holiday spending statistics. You may be surprised!

Holiday Joy: Pets Play a Major Role

The holidays are all about togetherness, whether that means watching a game, baking holiday treats, or watching “A Charlie Brown Christmas” on heavy repeat. But SoFi’s survey revealed that people love sharing the season with their pets.

In fact, more than one in four respondents (27%) say they can’t stand the idea of spending the holiday season without their pet by their side. If they can’t take their four-legged friend with them, over the river and through the woods, they might even wish they could just stay home!

So, how do pet owners celebrate the holidays with their pets? Besides getting them gifts, including pets in holiday photos is a popular choice for many (58%), as is putting up decorations, such as stockings, personalized for their pet (47%).

“Why include pets in holiday traditions? It’s simple — these traditions create bonding moments,” says Chris Allen, founder of Oodle Life, a pet blog . “One year, Max actually unwrapped his own gift, a squeaky toy, and the joy on his face was priceless. It not only made our day but also made us feel more connected as a family, furbaby included.”

How Pet Owners Include Their Pets in Their Holiday Celebrations

Here’s are respondents’ favorite ways to include pets in their holiday celebrations:

•   70% get holiday pet gifts.

•   58% include pets in their holiday photos.

•   47% have personalized holiday decor for their pet (such as a stocking or ornament).

•   45% make a special holiday meal for their pet.

•   40% dress up their pets in holiday attire (such as sweaters and hats).

•   40% let their pet be a taste-tester when cooking or baking holiday meals.

•   30% take their pets to holiday events.

•   28% bake holiday treats for their pets.

It just may be that the pet owners who forgo gifts for their critters are taking the extra time to bake holiday biscuits for them.

Including pets can help bond a family. “Our furry friends are integral family members, and holidays just aren’t complete without their spirited participation,” says Dr. Mollie Newton, DVM, founder of pet care resource site, PetMeTwice, “My own whiskered sidekick has his own stocking, which hangs proudly beside the family’s every December.”

Pets Dress the Part for the Holidays

Is there anything cuter than a grumpy cat in a Santa hat? Or a pooch dressed up to look like Max from “How the Grinch Stole Christmas?” Not really! And when pet people party, you can bet most will deck their pet out in special garb: 68% dress up their pet for holiday celebrations.

So let’s take a closer look at exactly how pet people like to deck out their dogs, felines, and other beloved pets for the holidays.

Most Popular Holiday Pet Outfits

Of the pet owners who dress up their pets, here are the most popular ‘fits:

•   71% bought their pet a holiday sweater.

•   61% put a holiday-themed collar/harness on their pet during the holidays.

•   59% made their pet wear a holiday hat (think Santa hats, antlers, and elf ears).

•   47% bought their pet snow and cold-weather gear (such as snow jackets or boots).

•   35% bought themselves and their pet matching pajamas.

“Every Christmas, we put a little reindeer antler headband or Santa hat on our Labradoodle, Max,” says Oodle Life’s Allen, “He struts around, and it’s like he knows he’s the center of attention!”

What better way, after all, to prepare for a pet family’s holiday photo than donning matching hats or pajamas!

💡 Quick Tip: Help your money earn more money! Opening a bank account online often gets you higher-than-average rates.

Pet Owners Go Big for Holiday Gifts

The vast majority of pet owners will likely go holiday gift shopping for their furry companion, and we wouldn’t be surprised if they wrapped the present and put it under the tree. After all, owners want pets’ holidays to be jolly and joyful, too.

Pet Holiday Wish Lists

About those presents: Many of these aren’t just random impulse purchases. Nearly half of pet owners (46%) say their pet has a holiday wish list. And almost one in five (18%) say their pet’s list is longer than their own!

The SoFi survey revealed that 70% of people typically buy their pets gifts. Wondering how much people spend on their pets? Consider this: Of those who dip into their wallets, more than a quarter (27%) spend more than $100. Talk about pampered pets! This year, 75% of pet owners plan to buy their pets gifts, so the numbers appear to be growing.

Overall, two key factors are likely to impact how much people spend on pets: their earning power and whether or not they have kids.

Household Income Plays a Bigger Role in Pet Gifting

According to SoFi’s research, the more financial means a person has, the more likely they are to go big on gifts for their pets. Perhaps if they are used to buying themselves more luxurious items, they may be more inclined to do the same for their animal. There are designer dog clothes, for instance, costing hundreds of dollars per garment.

Who Spends More Than $100 on Gifts for Their Pets?

In short, as income rises, so too does spending on gifts for our furry friends:

•   42% of respondents with a household income of $100,000 and up spend more than $100 on pet gifts.

•   Only 12% of respondents with a household income under $100,000 spend more than $100 on pet gifts.

39% of Dual-Income Families With Kids Plunk Down $100+ on Pet Presents

Among pet owners, you might think that dual income families who don’t have kids would spend the most, overall, on holiday gifts for their pets. Think again. The SoFi survey uncovered surprising stats on pet gifting:

Dual-income families with kids actually spend more on pet gifts than those families with no kids.

•   39% of dual-income families with kids spend more than $100 on pet gifts.

•   21% of dual-income families with no kids (DINKs) spend more than $100 on pet gifts.

Perhaps seeing how much joy pets bring kids has an impact: It might encourage parents to dip into their wallets more deeply.

Overall, Families With Kids Spend More on Their Pets

Nearly everyone aims to celebrate the holidays affordably, but a much-loved pet may encourage people to spend more freely during the festive season.

More than eight out of 10 (82%) pet owners spend at least $25 more than usual on their pets during the holidays. Some spend still more freely, with 34% of SoFi survey respondents doling out at least $100 more than their norm.

Families With Kids Spend More on Their Pets

Just as kids inspire families to splurge on pet gifts, they also appear to inspire holiday pet spending overall.

Pet owners with kids tend to spend more on their pets during the holidays:

•   46% of dual-income families with kids spend at least $100 more.

•   35% of single-income families with kids spend at least $100 more.

•   30% of dual-income, no kids households (DINKS) spend at least $100 more.

•   23% of single-income, no kids households spend at least $100 more.

While 43% of pet owners say: “My pet is spoiled so I splurge on them during the holidays,” it probably comes as no surprise that those with kids say this most often:

•   78% of families with kids agree with this statement.

•   22% of families with no kids relate to this statement.

Nearly Half Budget Ahead of Time for Holiday Pet Spending

When the holidays approach, many pet parents assess how much they have to spend for the holidays. Whatever type of budget they use, there’s a good chance it includes funds to make the season special for their animals.

Interestingly, nearly half know how much they will spend on their pets for the holidays and sock that money away in advance — that’s good financial planning in action. Here are the details:

•   49% say “Yes, I know how much I’ll spend on my pets and put that money aside for holiday spending.”

•   51% say “No, I don’t plan for how much I’ll spend on my pet during the holidays.”

Note: No word on how much pets are planning to spend on their parents….

Generally, pet parents take a number of different pet-related costs into consideration during the holidays. It’s not just about squeaky toys and catnip, after all. It’s about photos with, say, Molly, the beloved guinea pig, front and center. Yes, nearly half of our respondents budget for holiday photos with their pet. And more than one out of three pet owners account for the cost of getting their pet groomed for the season. Got to look sleek for those pictures, right?

What Holiday Expenses Do Pet Owners Budget For?

Take a closer look at where the dollars go. Aside from holiday gifts, pet owners told SoFi that they plan for the following costs:

•   45% budget for taking holiday photos.

•   38% budget for getting their pet groomed for the holidays.

•   38% budget for seasonal veterinary needs.

•   35% budget for bringing their pets along when they travel for the holidays.

•   33% budget for buying holiday attire for their pet(s).

•   26% budget for boarding or care for pets because they’re booking holiday travel without their animal.

How to Spoil Your Pet… Without the Debt

Just because many SoFi survey respondents may spend lavishly on their pets over the holidays (as many Americans do), that doesn’t mean they abandon their financial savvy and become bad with money. They apply the same money-smart tactics for their pet purchases as they do for their own gear. Coupon clipping? Check. Signing up for emails that might bring rewards? You bet.

How Pet Owners Save on Pet Holiday Spending

Here’s how they make the most of their cash during the holidays:

•   62% say they use coupons to help save money on holiday spending for their pets.

•   48% say they subscribe to pet company marketing emails to scan for deals.

•   40% get money-saving tips from friends and family.

•   24% say they follow influencer recommendations (yes, petfluencers can really have pull).

Recommended: How to Make a Budget: A Beginner’s Guide

Sometimes Naughty, Always Loved

Much as people adore their kitties, rabbits, and dogs, let’s face it: The answer to “Who’s a good boy?” is not always “You are!” Pets can be rascals — chewing shoes, shredding upholstery to ribbons, and leaving muddy pawprints.

Indeed, while many pet parents will be rewarding their good boys (and girls) this season, not all critters may deserve their gifts.

In fact, 22% of pet owners surveyed by SoFi say they’d put their pet on the naughty list.

What Pet Owners Dread the Most During the Holidays

What’s more, the holiday season gives animals ample occasion to run wild. You know the drill: cats deciding to climb the Christmas tree, or a dog dragging lovingly prepared food off the table (Remember how “A Christmas Story” ended?).

Here’s what the SoFi survey respondents had to say on this aspect of the holidays with pets.

What do pet owners dread most during the holidays?

•   37% of respondents say it’s their pet knocking over the Christmas tree or knocking ornaments off the tree.

•   27% say it’s their pet tearing open gifts early.

•   26% say it’s their pet stealing food from the table or counter.

•   24% say it’s their pet misbehaving around family and friends at gatherings.

•   17% say it’s untangling their pet from holiday lights.

Holiday Pet Safety Also a Concern

Amid all the revelry, pet parents are also focused on keeping their animals safe. After all, most people know facts like poinsettia being mildly toxic to dogs. Here’s how SoFi survey respondents feel about protecting their critters, because happy holiday pets are healthy holiday pets.

Almost one in four (23%) worry about needing to use pet-safe holiday decorations. The same percentage fear their pooch might get sick because friends and family overfeed them or slip them slices of forbidden foods just because, hey, it’s the holidays.

Here’s another source of anxiety for pet parents: being separated from their animal companion during the season. Nearly one-third of them worry about having to travel without their pet. They want to make sure wherever they are over the holidays, they have their furbaby right by their side… or in their lap.

“Involving our pets in our holiday celebrations helps us all feel a little more connected during the holiday seasons,” says Devin Stagg, Marketing Manager at dog-training provider, Pupford. “While I think they enjoy the treats and toys, I believe the greatest benefit is to the pup parent!”

Recommended: Tips to Cut Costs When Traveling With Pets

Pets Inspire the Spirit of Giving

If anyone needs further proof that pets are really and truly part of the family, take note. Pets have a way of inspiring gift giving across the generations. Few can resist giving them a little treat, whether that’s a fancy organic dog biscuit or a cat teaser.

61% say their kids give gifts to their pets far the holidays

According to SoFi’s survey, among families with children, 61% say their kids give gifts to the pet. And grandparents love their grand-furbabies, with almost one in three putting a pet present under the tree.

Pets themselves are often a favorite gift, too: 39% of pet owners say they’ve given someone else a pet as a holiday gift. Of those, 36% say they spent more than $100 on the pet, and 5% say they spent more than $1,000.

Takeaway

It’s no secret that Americans love their pets, and so when the holidays roll around, those animals get lavished with love, gifts, and special treatment. SoFi’s survey of 1,200 pet owners in October 2023 uncovered just how much people splurge on their furbabies, what they buy, why, and how pets can leave their imprint (or pawprint) on the holiday season.

When budgeting for the holidays — whether shopping for people, pets, or any other seasonal expense — having the right banking partner can make a difference. A solid financial institution can help give you the tools to make the most of your money.

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 4.00% APY on SoFi Checking and Savings.

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2024 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
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SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. 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 (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer 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 Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% 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 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 a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% 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 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 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 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 Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% 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 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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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Nov
09
2023
What are the different types of debt?

What Are the Different Types of Debt?

By | Credit, Debt Payoff, relay | Comments Off on What Are the Different Types of Debt?

Debt may seem like something you want to avoid. But having some debt can actually be a good thing, provided you can comfortably afford to make your payments each month.

A good payment history shows lenders that you can be responsible with borrowed money, and it will make them feel better about lending to you when the time comes for you to make a big purchase, like a home.

But not all debt is created equal. Consumer debt can generally be broken down into two main categories: secured and unsecured. Those two categories can then be subdivided into installment and revolving debt. Each type of debt is structured differently and can affect your credit score in a different way.

Here are some helpful things to know about the different types of debt, plus how you may want to prioritize paying down various balances you may already have accumulated.

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Secured vs Unsecured Debt

The first distinction between types of debt is whether it’s secured or unsecured. This indicates your level of liability in the event you fall behind on payments and go into default on the loan or credit card.

Secured Debt

Secured debt means you’ve offered some type of collateral or asset to the lender or creditor in exchange for the ability to borrow funds. There are many types of secured debt. Auto loans and mortgages are common examples.

The benefit is that you improve your odds for approval by offering collateral, and you may also receive a better interest rate compared to unsecured debt. But if you go into default on the loan, the lender is typically allowed to seize the asset that’s securing the debt and sell it to offset the loan balance.

If that happens, not only is your property repossessed, your credit score can also be severely damaged. This could make it difficult to qualify for any type of financing in the near future.

A foreclosure, for instance, generally stays on your credit report for seven years, beginning with the first mortgage payment you skipped.

Unsecured Debt

Unsecured debt comes with much less personal risk than secured debt since you don’t have to use any property or assets as collateral.

Common types of unsecured debt include credit cards, student loans, some personal loans, and medical debt. Since you don’t have to put up any type of collateral, there may be stricter requirements in order to qualify. Your lender will likely check your credit score and potentially verify your income.

With unsecured debt, you are bound by a contractual agreement to repay the funds, and if there is a default, the lender can go to court to reclaim any money owed. However, doing so comes at a great cost to the lender. For this reason, unsecured debt generally comes with a higher interest rate than secured debt, which can pile up quickly if you’re not careful.


💡 Quick Tip: We love a good spreadsheet, but not everyone feels the same. An online budget planner can give you the same insight into your budgeting and spending at a glance, without the extra effort.

Installment vs Revolving Debt

The difference between secured and unsecured debt is one way to classify financing options, but it’s not the only way.

Both secured and unsecured debt can be broken down further into two additional categories: installment debt and revolving debt.

Installment Debt

Installment debt is usually a type of loan that gives you a lump sum payment at the beginning of the agreement. You then pay it back over time, or in installments, before a certain date.

Once you’ve paid the loan off, it’s gone, and you don’t get any more funds to spend. Examples of this type of debt include a car loan, student loan, or mortgage.

There are a number of ways an installment loan can be structured. In many cases, your regular payments are made each month, with money going towards both principal and interest.

Less frequently, an installment loan could be structured to only include interest payments throughout the term, then end with a large payment due at the end. This is called a balloon payment. Balloon payments are more frequently found with interest-only mortgages. Rather than actually making that large payment at the end of the loan term, borrowers typically refinance the loan to a more traditional mortgage.

Installment loans can have either a fixed or adjustable interest rate. If your loan has a fixed rate, your payments should stay the same over your entire term, as long as you pay your bill on time.

A loan with an adjustable rate will change based on the index rate it’s attached to. Your loan terms tell you how frequently your interest rate will adjust.

Provided you make your payments on time, having a mortgage, student loan, or auto loan can often help your credit scores because it shows you’re a responsible borrower. In addition, having some installment debt can help diversify your credit portfolio, which can also help your scores.

Revolving Debt

Unlike installment debt, revolving debt is an open line of credit. It gives you an amount of available credit that you can draw on and repay continually.

Both credit cards and lines of credit are common examples of revolving credit. Instead of getting a lump sum at one time (as you would with installment debt), you only use what you need — and you only pay interest on the amount you’ve drawn.

Your available credit decreases as you borrow funds, but it’s replenished once you pay off your balance.

Revolving debt can be unsecured, as in the instance of a credit card, or it can be secured, such as on a home equity line of credit.

One downside of revolving credit is that there’s no fixed payment schedule. You typically only have to make minimum payments on your revolving credit, but your interest continues to accrue.

That can result in a much higher balance than the original purchases you made with the funds. And if you miss a payment, you’ll likely owe late fees on top of everything else.

Because it’s easier to get caught in a cycle of debt, having large revolving debt balances can hurt your credit score. A balance of both revolving and installment debt can give you a healthier credit mix, and potentially a better credit score.


💡 Quick Tip: Check your credit report at least once a year to ensure there are no errors that can damage your credit score.

Debt Payoff Strategies

Whatever kind of debt you carry, the key to avoiding a negative debt spiral — and maintaining good credit — is to pay installment debt (such as your student loan and mortgage) on time, and try to avoid carrying high balances on your revolving debt.

While everyone’s financial circumstances are different, here are some debt payoff strategies that can help you prioritize your payments.

Paying off the Highest Interest Debt First

If your primary goal is to save money over the life of your loans, you may want to start by paying off your highest interest rate loan first, while making just the minimum payments on everything else.

You can then move on to the next highest and next highest until your debts are paid off. This payoff approach is often referred to as the “avalanche” approach.

Paying off the Debt with the Smallest Balance First

Paying down debt can feel never-ending, so it can be nice to feel like you’re making progress. By focusing on your smallest debts first (and paying the minimum on everything else), you can cross individual loans off your balance sheet, while quickly eliminating monthly payments from your budget.

Once paid off, you can then reroute those payments to make extra payments on larger loans, an approach often referred to as the “snowball” method.

Considering Debt Consolidation

If you don’t see a clear strategy for paying off your debt, you might consider debt consolidation. This involves taking out a single personal loan to consolidate your other balances. If your credit score has increased, this may be a good way to decrease your overall interest rate. But at a minimum, this move can help streamline your payments.

Being Wary of Debt Settlement Companies

If you’re feeling overwhelmed by debt, you may look for a shortcut with a debt settlement company.

Debt settlement is a service typically offered by third-party companies that allows you to pay a lump sum that’s typically less than the amount you owe to resolve, or “settle,” your debt. These companies claim to reduce your debt by negotiating a settlement with your creditor.

Paying off a debt for less than you owe may sound great at first, but debt settlement can be risky.

For one reason, there is no guarantee that the debt settlement company will be able to successfully reach a settlement for all your debts. And you may be charged fees even if your whole debt isn’t settled.

Also, if you stop making payments on a debt, you can end up paying late fees or interest, and even face collection efforts or a lawsuit filed by a creditor or debt collector.

The Takeaway

At some point in your life you may be juggling one or more of these different kinds of debt. Understanding the various types of debts and maintaining a varied mix of loans (including secured, unsecured, installment, and revolving) can help you increase your creditworthiness.

You can also improve your credit by making all of your debt payments on time, and keeping balances on revolving credit (like credit cards) low.

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.

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

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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Nov
08
2023
wooden house on green background

Is Buying a Home a Good Investment?

By | Family Finances, Home Ownership, mortgage | No Comments

Many people consider homeownership a rite of passage, a part of the American Dream, and a key way to build wealth. But recently, as home prices and mortgage interest rates have risen, some may wonder, “Is buying a home a good investment, no matter what?”

It can be challenging to gather enough funds for a down payment, qualify for a mortgage, and then afford all of the costs that go along with homeownership, such as property taxes, maintenance expenditures, and utilities. But to live in a place you love while building equity can be a win-win.

So if you’re wondering “Is buying a house a good investment?” vs. say, investing your money, you’ll have to take a closer look at how homeownership relates to your personal financial situation. Read on to learn how to evaluate what will be the right decision for you, starting with important questions to contemplate.

Is It a Good Investment to Buy a House?

In order to determine if buying a home is a good investment for you, you’ll need to estimate the amount of time you plan to own the house and the real estate marketplace dynamics.

•   If you don’t plan to own the house for at least five years, you may not break even when you sell the home. When you buy a home, you pay for more than just the house and those costs can add up. You’re often paying for appraisals, mortgage application fees, inspections, movers, real estate agent fees, and that can add up to thousands of dollars.

In order to recoup all those fees, conventional wisdom says you need to wait at least five years for your home to appreciate before selling it. If you plan to live somewhere for less than five years, it could make the most financial sense just to rent property.

•   You may also want to consider other aspects of whether it’s a good time to buy a house. For example, is it a hot or cool market? Are you likely to wind up in a bidding war (and possibly overpay) because there isn’t enough supply to meet demand? Are interest rates likely to fall over the next year? These dynamics can impact whether now is the right time to jump into the housing market.


💡 Quick Tip: With SoFi, it takes just minutes to view your rate for a home loan online.

Do You Have Sufficient Savings to Buy a House?

In order to buy a home, you’ll generally have to take out a mortgage to finance your home purchase. Before that’s not the only expense. These costs must also be covered:

•   Before you even get to the mortgage stage, you’ll have to save for a down payment (which is often anywhere between 3% and 20% of the property’s purchase price) and closing costs, which are typically 3% to 6% of the loan amount. This can mean a significant chunk of change.

•   There are continuing costs you’ll have to account for, such as home insurance, property taxes, general maintenance, and emergency home repairs.

When you are renting, if the kitchen sink springs a leak, your landlord will take care of it. But when you own a home, those repairs will be entirely your responsibility. Having an emergency fund saved up will help you deal with unexpected costs associated with homeownership.

Also, if you are purchasing a house as an investment vs. using it as a primary residence, can you afford to buy a house while still renting? That is a situation in which you will want to map out your cash flow and make sure you are prepared if you can’t flip or rent the property as quickly as anticipated. An emergency fund could also be invaluable in that scenario.

Are You Confident in the Housing Market?

The housing market rises and falls; take a close look to evaluate current trends. Home prices skyrocketed during the Covid pandemic and have continued to rise recently. This can make it difficult for first-time homebuyers to find a suitable home that is in their price range. It’s important to be prepared as you start to look at homes. Understand your budget and make sure you have saved enough money to make a down payment on the property.

Also be sure that you understand how mortgage rates can impact the affordability of housing and what your home shopping budget looks like.

💡 Quick Tip: If you refinance your mortgage and shorten your loan term, you could save a substantial amount in interest over the lifetime of the loan.

Are You Ready for the Responsibility?

When you own your own home, you have a lot of freedom to make the space completely your own. With all of this flexibility comes a lot of responsibility. If the house has a yard, you’ll be responsible for regular maintenance and upkeep.

Will you need to pay for a new roof soon? Buy a lawn mower? If you live in an area with harsh winters, will you need to get a snow blower or hire someone to clear the driveway after each snow storm? These costs can add up.

So make sure you are ready for the financial responsibility that comes with owning a home before you make the purchase. You’ll have to account for repairs, improvements, general upkeep, insurance, and taxes. Not only does all of this cost money, it will take your time and attention as well, which isn’t necessarily the case when you rent. If you’re not ready to always be “on call” for your property’s needs, it could be a homebuying mistake to purchase.

Recommended: Should I Sell My House?

Are You Willing to Live with a Long-Term Loan?

Buying a home can mean you’re taking on a loan for perhaps 15 or 30 years. That’s a major undertaking. Part of the process of learning how to buy a house is educating yourself on how mortgages work and the different types available. Generally, there are two types: fixed rate and adjustable-rate mortgages.

•   A fixed-rate mortgage keeps your payment level over time, typically 15 or 30 years, because the interest rate remains stable.

•   The interest rate on an adjustable-rate mortgage loan fluctuates over time. They usually start out lower than a fixed-rate loan but often rise in later years.

To see what a mortgage could mean for your finances, take a look at an online mortgage calculator to compare different types of loans and see what your costs might look like. If a loan could be part of your life for three decades, you want to make sure you’re comfortable with it.

Remember that while it may seem daunting to take on a 30-year obligation, a mortgage helps you build equity in an asset that generally increases in value as time passes. Is a house a good investment? Historically, yes, if you take the long view.

Over the years, homeowners build up equity in the house as they methodically pay off more and more principal with less monthly payments on each loan payment. Many smart borrowers pay extra each month toward the principal to pay off the mortgage sooner.

Recommended: Quiz: Should You Buy or Rent a Home?

Pros and Cons of Buying a Home as an Investment

Before a major financial move, it’s important to consider the benefits and downsides. You’ll want to know what are the pros and cons of buying a starter home or a subsequent property. Consider these points.

Pros of Buying a House

Here are some of the upsides of buying and owning a home:

•   You will build equity in your home over time, which can help you grow your wealth. Your home value may appreciate as well.

•   There may be tax advantages to homeownership, such as deducting mortgage interest.

•   Paying your mortgage payments on time can help build your credit.

•   You can renovate the property as you see fit, unlike the case with rental units.

•   You likely have a good idea of your monthly housing costs for the long term. If you are renting, you could face significant fluctuations.

•   There’s a feeling of security for many people when they know they own their home.

Cons of Buying a House

Next, it’s wise to consider the disadvantages of buying a home:

•   You typically need to pay for the down payment and closing costs, which can be a significant financial hurdle.

•   You are likely locking into long-term debt, and it can take a while to build equity.

•   There is no guarantee that your home’s value will grow over time.

•   The costs related to owning a home can be significant. This includes expenses like property taxes and insurance, as well as home repairs.

•   You will have less flexibility if you need to move for a job, say, or want to relocate to be closer to friends and family. Selling a house can involve time, energy, and money.

Ready to Buy? Consider a SoFi Mortgage

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

Is it wise to buy a house as an investment?

Whether it’s wise to buy a house as an investment will depend on many factors, such as your personal finances and current economic and real estate trends, as well as whether the property is a place that’s a good home for you to live in for at least several years.

Is buying a house worth it in 2023?

Buying a house in 2023 can be challenging because home prices and mortgage rates have been rising. However, if you can afford the monthly mortgage payments, plus the down payment and ongoing costs of homeownership, it may still be the right move for you.

Is owning a home an asset?

In general, a home is considered an asset. Yes, you typically have a mortgage, which is a liability, but on the plus side, you are building equity while having a place you enjoy living.


*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.

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.

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.

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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Terms and conditions apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or other eligible status, be residing in the U.S., and meet SoFi's underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates reserved for the most creditworthy borrowers. If approved, your actual rate will be within the range of rates at the time of application and will depend on a variety of factors, including term of loan, evaluation of your creditworthiness, income, and other factors. If SoFi is unable to offer you a loan but matches you for a loan with a participating bank, then your rate may be outside the range of rates listed above. Rates and Terms are subject to change at any time without notice. SoFi Personal Loans can be used for any lawful personal, family, or household purposes and may not be used for post-secondary education expenses. Minimum loan amount is $5,000. The average of SoFi Personal Loans funded in 2023 was around $33K. Information current as of 2/26/24. SoFi Personal Loans originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org). See SoFi.com/legal for state-specific license details. See SoFi.com/eligibility for details and state restrictions.

✝ To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

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