May
05
2023

How Much Will a 200K Mortgage Cost Per Month?

By | Family Finances, Home Ownership, mortgage | Comments Off on How Much Will a 200K Mortgage Cost Per Month?

As far as the simple math goes, a $200,000 home loan at a 7% interest rate on a 30-year term will give you a $1,330.60 monthly payment.

That $200K monthly mortgage payment includes the principal and interest. But here’s where options become evident: How much your interest will cost you each month is determined by your mortgage term and interest rate. You might pay a lower or higher annual percentage rate (or APR), and you might opt for a variable rate loan or a different term (say, 15 years).

Understanding what your total mortgage will cost vs. just the payments on a $200K mortgage can be a smart way to look at your finances when you’re buying a home. If you want to know the full cost of a $200K mortgage, read on for the breakdown so you can make the best decision for your home purchase.

Total Cost of a 200K Mortgage

The total cost of a $200,000 mortgage may surprise you. Beyond the principal, there are upfront costs to acquire the mortgage as well as long-term costs that come from paying years of interest. Here’s a closer look.

Key Points

•   A $200,000 mortgage can cost around $1,000 per month, depending on the interest rate and loan term.

•   Factors that affect the monthly cost of a mortgage include the loan amount, interest rate, loan term, and property taxes.

•   Private mortgage insurance (PMI) may be required if the down payment is less than 20% of the home’s value.

•   Homeowners insurance and property taxes are additional costs to consider when budgeting for a mortgage.

•   It’s important to carefully consider your budget and financial goals before taking on a mortgage to ensure you can comfortably afford the monthly payments.

Upfront Costs

These expenses can include the following:

•   Closing costs: What you pay to secure a mortgage for the property you want. They include fees for appraisals, title insurance, government taxes, prepaid expenses, and mortgage origination fees.

The average closing cost on a new home is between 3% and 6% of the loan amount. This works out to be between $6,000 and $12,000 for a 200K mortgage.

•   Downpayment: While the average down payment on a home is around 13%, you can often elect to put down an amount that works for your financial situation. This is cash you put down vs. the amount you borrow for your mortgage. Some of the most common amounts for a down payment on a $200,000 house can be:

◦   20% down payment: $40,000

◦   10% down payment: $20,000

◦   5% down payment: $10,000

◦   3.5% down payment: $7,000

◦   3% down payment: $6,000

Long-Term Costs

The total cost for a 200K mortgage at today’s interest rates is almost half a million dollars. Over the course of the 30-year loan on a $200K mortgage at 7% APR, you will pay $279,017.80 in interest for a total cost of $479,017.80.

It’s a bit of a surprise to most borrowers that the amount they will pay in interest exceeds the price of the home. After all, $279,000 in interest costs for a $200,000 home doesn’t seem like it would come from a 7% APR, but that’s how mortgage APR works.

By choosing a mortgage term that’s 15 years, you substantially decrease the total 200K mortgage cost. The monthly payment on a 15-year loan at 7% APR increases to $1,797.66 from $1,330.60 for a 30-year mortgage. But 15 years of interest will cost $123,578.18 with a 7% APR, bringing the total cost of the principal plus interest to $323,578.18.

To compare the 15-year vs. 30-year mortgage that costs $479,017.80, that’s a savings of $155,439.62. In short, if you’re able to pay another $450 on your mortgage every month, you’ll save over $100,000 during the course of your loan.

“Really look at your budget and work your way backwards,” explains Brian Walsh, CFP® at SoFi, on planning for a home mortgage.

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

​

Estimated Monthly Payments of a 200K Mortgage

Since interest costs can vary so much, here’s a handy table to help you estimate what your monthly home mortgage loan costs would be for a $200,000 mortgage. The APR can vary considerably, depending on the lender, whether you choose variable or fixed rate, and other loan specifics.

APR

 15-year loan payments

 30-year loan payments
3.5% $1,429.77 $898.09
4% $1,479.38 $954.83
4.5% $1,529.99 $1,013.37
5% $1,581.59 $1,073.64
5.5% $1,634.17 $1,135.58
6% $1,687.71 $1,199.10
6.5% $1,742.21 $1,264.14
7% $1,797.66 $1,330.60
7.5% $1,854.02 $1,398.43
8% $1,911.30 $1,467.53
8.5% $1,969.48 $1,537.83
9% $2,028.53 $1,609.25
9.5% $2,088.45 $1,681.71
10% $2,149.21 $1,755.14

Recommended: First-Time Home Buyer Guide

Monthly Payment Breakdown by APR and Term


The APR makes a huge difference in your monthly payment. When your monthly payment is increased because of a higher interest rate, you’ll pay hundreds of dollars more each month as well as tens, if not hundreds, of thousands more over the course of the loan.

Here’s what your monthly $200K mortgage payment and total loan cost will look like in 15-year and 30-year loan terms with different APRs.

APR

 15-year loan payments

 Total loan cost (200K + interest)

 30-year loan payments

 Total loan cost (200K + interest)
3.5% $1,429.77 $257,357.71 $898.09 $323,312.18
4% $1,479.38 $266,287.65 $954.83 $343,739.01
4.5% $1,529.99 $275,397.58 $1,013.37 $364,813.42
5% $1,581.59 $284,685.71 $1,073.64 $386,511.57
5.5% $1,634.17 $294,150.04 $1,135.58 $408,808.08
6% $1,687.71 $303,788.46 $1,199.10 $431,676.38
6.5% $1,742.21 $313,598.65 $1,264.14 $455,088.98
7% $1,797.66 $323,578.18 $1,330.60 $479,017.80
7.5% $1,854.02 $333,724.45 $1,398.43 $503,434.45
8% $1,911.30 $344,034.75 $1,467.53 $528,310.49
8.5% $1,969.48 $354,506.24 $1,537.83 $553,617.71
9% $2,028.53 $365,135.97 $1,609.25 $579,328.28
9.5% $2,088.45 $375,920.89 $1,681.71 $605,415.03
10% $2,149.21 $386,857.84 $1,755.14 $631,851.53

Again, it’s pretty shocking to see that a $200K mortgage could possibly cost over $600,000 with a 10% interest rate on a 30-year loan. If you want to play around with different numbers, this mortgage payment calculator can help.

200K Mortgage Amortization Breakdown

Amortization shows you how much of your monthly payment is applied to the original loan amount, or principal.

Loans are amortized so that most of your monthly payment goes toward interest each month when you’re just starting to repay your loan. When you’re toward the end of your loan term, most of the money goes toward the principal.

In the example below, of $200K mortgage payments and balances, you’ll see that over the course of the first year, the borrower made $15,967.20 in payments ($1,330.60 per month for 12 months). Of this, $13,935.65 is applied to interest and only $2,031.55 to the principal.

Year

 Mortgage Payment

 Beginning Balance

 Total Amount Paid for the Year

 Interest Paid During the Year

 Principal Paid During the Year

 Ending Balance
1 $1,330.60 $200,000.00 $15,967.20 $13,935.65 $2,031.55 $197,968.38
2 $1,330.60 $197,968.38 $15,967.20 $13,788.78 $2,178.42 $195,789.89
3 $1,330.60 $195,789.89 $15,967.20 $13,631.29 $2,335.91 $193,453.93
4 $1,330.60 $193,453.93 $15,967.20 $13,462.42 $2,504.78 $190,949.09
5 $1,330.60 $190,949.09 $15,967.20 $13,281.34 $2,685.86 $188,263.18
6 $1,330.60 $188,263.18 $15,967.20 $13,087.17 $2,880.03 $185,383.10
7 $1,330.60 $185,383.10 $15,967.20 $12,879.00 $3,088.20 $182,294.83
8 $1,330.60 $182,294.83 $15,967.20 $12,655.74 $3,311.46 $178,983.30
9 $1,330.60 $178,983.30 $15,967.20 $12,416.34 $3,550.86 $175,432.38
10 $1,330.60 $175,432.38 $15,967.20 $12,159.64 $3,807.56 $171,624.77
11 $1,330.60 $171,624.77 $15,967.20 $11,884.38 $4,082.82 $167,541.90
12 $1,330.60 $167,541.90 $15,967.20 $11,589.24 $4,377.96 $163,163.88
13 $1,330.60 $163,163.88 $15,967.20 $11,272.76 $4,694.44 $158,469.38
14 $1,330.60 $158,469.38 $15,967.20 $10,933.39 $5,033.81 $153,435.50
15 $1,330.60 $153,435.50 $15,967.20 $10,569.48 $5,397.72 $148,037.73
16 $1,330.60 $148,037.73 $15,967.20 $10,179.28 $5,787.92 $142,249.76
17 $1,330.60 $142,249.76 $15,967.20 $9,760.87 $6,206.33 $136,043.37
18 $1,330.60 $136,043.37 $15,967.20 $9,312.20 $6,655.00 $129,388.32
19 $1,330.60 $129,388.32 $15,967.20 $8,831.13 $7,136.07 $122,252.17
20 $1,330.60 $122,252.17 $15,967.20 $8,315.25 $7,651.95 $114,600.16
21 $1,330.60 $114,600.16 $15,967.20 $7,762.08 $8,205.12 $106,394.98
22 $1,330.60 $106,394.98 $15,967.20 $7,168.93 $8,798.27 $97,596.64
23 $1,330.60 $97,596.64 $15,967.20 $6,532.88 $9,434.32 $88,162.27
24 $1,330.60 $88,162.27 $15,967.20 $5,850.89 $10,116.31 $78,045.90
25 $1,330.60 $78,045.90 $15,967.20 $5,119.56 $10,847.64 $67,198.20
26 $1,330.60 $67,198.20 $15,967.20 $4,335.40 $11,631.80 $55,566.33
27 $1,330.60 $55,566.33 $15,967.20 $3,494.53 $12,472.67 $43,093.59
28 $1,330.60 $43,093.59 $15,967.20 $2,592.86 $13,374.34 $29,719.19
29 $1,330.60 $29,719.19 $15,967.20 $1,626.01 $14,341.19 $15,377.96
30 $1,330.60 $15,377.96 $15,967.20 $589.31 $15,377.89 $0.00

Recommended: Understanding the Different Types of Mortgage Loans

What Is Required to Get a 200K Mortgage?

To qualify for any mortgage, you will need to show that you can afford a down payment, have a solid credit score, and have a consistent work history, among other factors.

One key qualification is your ability to afford the loan you are applying for. An example: For a $200,000 mortgage with a $1,330.60 payment, lenders look for your housing expenses to be between 25% and 28% of your gross income. That means your monthly income should be at least $4,752.14 for the $1,330.60 payment to meet that guideline. That’s just over $57,000 per year if you have no other debts.

Another way lenders look at how much house you can afford is your debt-to-income ratio (aka your DTI). Lenders look for your total debt expenses (including the new housing payment) to be no more than 36% of your gross monthly income. For a borrower making $10,000 per month, for example, debts should not exceed $3,600 per month, including the new housing payment.


To find your debt-to-income ratio, multiply your monthly income by .36. Set that number aside. Next, add up all of your debt obligations, including car payments, credit cards, hospital bills, etc. Then, add in your new mortgage payment to your existing debt payments.

As a formula, it looks like this:

•   Monthly income X .36 = Max debt-to-income ratio.

•   Mortgage payment + debts = Total debts

•   Max debt-to-income ratio > total debts

Compare the two numbers to see where you stand with the maximum DTI versus your total debts. If you’re not in the desired range, know that some lenders will allow a higher percentage; you might shop around if your DTI is above the 36% mark. However, the terms might not be as desirable. It can be wise to explore your options with a mortgage professional or look online at a home loan help center.

This is an example of why you always hear the advice to pay down debt to qualify for a better, bigger mortgage. The amount of debt you have directly affects how much mortgage you’re able to qualify for.

How Much House Can You Afford Quiz

The Takeaway

Understanding the monthly and total cost of a $200K mortgage can help you understand the options available for financing a home purchase, as well as understand the implications on your long-term financial situation. You can then assess what’s possible and make decisions about the best way to finance a $200K mortgage.

With any mortgage, you’ll want a lender on your side. SoFi Mortgage Loans have dedicated loan officers waiting to help. Competitive interest rates, low down payment options, and a wide range of loan terms can help you make a mortgage for your home possible.

See how smart, flexible, and simple a SoFi Mortgage Loan can be.

FAQ

How much is a down payment on a 200K house?

A 20% down payment on a 200K house is $40,000. A 5% down payment is $10,000, and a 3.5% is $7,000. Talk with various lenders to see what you might qualify for.

How can I pay a 200K mortgage in 5 years?

Making extra payments or larger lump-sum payments can help you pay off your mortgage faster. For a $200K mortgage amortized over 5 years, you’ll need to pay the original loan amount of $200K, plus five years of interest payments. If you look at the full 30-year amortization chart (above), that’s $68,099.48 in interest and a total of $268,099.48 you’ll need to pay back to the lender.

Over five years and 60 equal payments, this works out to $4,468.32 each month to pay off your mortgage in five years. (Quick side note: the amount of interest you’ll pay in an accelerated five-year repayment plan won’t nearly be this much because your extra payments to the principal will decrease the amount of interest you pay every year.)

How much mortgage can I qualify for on a 200K salary?

How much mortgage you qualify for depends on your income, debt levels, down payment, loan program, and credit score, among other factors. As a rule of thumb, you may be able to qualify for homes between 2 and 3 times your gross annual salary. For a $200K salary, you may be looking for homes in the $400K to $600K range.

Photo credit: iStock/AnnaStills

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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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May
04
2023
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What Is an Accredited Investor?

By | Growing Wealth, invest, Investing, Terminology | Comments Off on What Is an Accredited Investor?

An accredited investor is either a person or an institution, like a bank, qualified to invest in certain private investments, like a hedge fund or a venture capital fund.

Individuals must meet specific financial criteria, or have the necessary industry experience to be accredited.

First, many hedge funds have high minimums in order to invest. Investment minimums like $100,000 or even $1 million may immediately preclude the average retail investor from participating.

Further, some private investment firms may follow legal guidelines that allow only the participation of accredited investors, those who meet certain net worth or income criteria as determined by the Securities and Exchange Commission.

The Accredited Investor Defined

There are two major categories of accredited investors: individuals and legal entities, which can include trusts, limited liability companies, and businesses.

Businesses like banks, investment broker-dealers, insurance companies, and pension or retirement plans are common examples of accredited investors.

Many private placement investment firms — some of which may take on a high level of risk, use complicated investment products and strategies, or change strategies rapidly — require investors to be accredited in order to circumvent the SEC’s legal requirements.

“One reason these offerings are limited to accredited investors is to ensure that all participating investors are financially sophisticated and able to fend for themselves or sustain the risk of loss, thus rendering unnecessary the protections that come from a registered offering,” according to the SEC’s Office of Investor Education and Advocacy.

If an investment firm sells its product only to accredited investors, it may avoid the SEC’s many rules and regulations.

When an investment is sold to the public, it is under the regulatory authority of the SEC. (For example, a mutual fund that is sold to retail investors falls under the purview of the SEC.) This includes certain disclosures and extensive reporting requirements to the SEC.

Why might an investment firm choose this route? For one, adhering to the SEC regulations can be an expensive and labor-intensive process. So private investment companies are able to circumvent the arduous filing and disclosure requirements by selling only to accredited investors.

In the eyes of the law, accredited investors are savvier or have the means to take on the risk that such investment opportunities produce.

Who Qualifies as an Accredited Investor?

For individuals to qualify as accredited investors, they must prove that they have the means necessary to take the risk involved in such investments. This can be done in one of a few ways:

First, the individual must have earned income that exceeded $200,000 (or $300,000 if married) in each of the prior two years, and reasonably expects the same for the current year.

Or they must have a net worth over $1 million, either alone or with a spouse or spousal equivalent. That does not include the value of their primary residence.

On Aug. 26, 2020, the SEC updated the qualification criteria. Individuals who have Series 7, Series 65, or Series 82 licenses in good standing can now be considered accredited investors.

The SEC said this was done to allow those with knowledge and expertise to invest in private investment markets even if they do not yet meet the financial qualifications.

General partners, directors, and executives with the private fund also qualify as accredited investors.

With the recent expansion of the qualification parameters, “knowledgeable employees” of the investment fund also now qualify as accredited investors.

Get up to $1,000 in stock when you fund a new Active Invest account.*

Access stock trading, options, alternative investments, IRAs, and more. Get started in just a few minutes.

*Probability of Member receiving $1,000 is a probability of 0.028%.

For a trust to qualify as an accredited investor, assets must total more than $5 million, and the trust cannot have been formed specifically to purchase the investment.

The trust must also be directed by a “sophisticated” person — someone who the investment company reasonably believes has the requisite experience and ability to understand the risks associated with the investment.

As of the most recent changes, LLCs with assets of over $5 million may also qualify.

Alternatively, an entity can qualify as an accredited investor when all of the equity owners are individually accredited investors.

Because this is not reporting that is siphoned through the SEC, investment companies typically collect the information necessary to confirm that a person is an accredited investor, or may require that potential customers sign off that they are accredited investors.

The Net Worth Requirement

One of the qualifications for being an accredited investor is to have a net worth of $1 million. How do you calculate your net worth?

Generally, individual net worth is calculated by taking a person’s assets and subtracting liabilities.

Assets are things of value that a person owns, and liabilities are debts owed.

For example, imagine a person has the following assets: a primary residence, a checking account, a 401(k) account, and a car.

They also have a mortgage loan and two student loans — those are their liabilities.

To determine their net worth, they would first total the value of the assets and then the liabilities, and subtract the value of the latter from the former.

That said, the SEC has a few specific rules about what is counted in a net worth calculation.

As mentioned, a primary residence is not to be included in the person’s net worth calculation.

A mortgage on a primary residence is also not to count in the net worth calculation, unless the value of the mortgage is greater than the value of the home.

If the mortgage is “under water,” then the amount of the loan that exceeds the fair market value of the home should be included.

When considering other real estate holdings with a spouse or spouse equivalent, it is not necessary that they be held under both names. For example, a property held by just one of the two parties would count.

How Can Non-Accredited Investors Invest?

You don’t need to be an accredited investor to begin building wealth for the future.

There are plenty of opportunities for investors of every level to get involved and earn returns in the stock exchange.

It’s important to understand that all investments carry some amount of risk. Otherwise, there would be no opportunity to earn a rate of return.

It’s always a good idea for investors to familiarize themselves with the risks involved with their desired investments.

To start, investors can open an account at a brokerage or with an online trading platform to buy and sell securities like stocks and exchange-traded funds (ETFs).

New investors will want to be mindful of investing fees, as those will reduce any potential investment returns. This includes account fees, trading commissions, and the fees built into the funds themselves, called expense ratios.

The Takeaway

An accredited investor — a person or an entity — is qualified to invest in certain private investments like a hedge fund or a venture capital fund. Individuals must meet a substantial financial bar or have industry expertise to be accredited.

The rules for accredited investors can be seen as both protections for those investing, as well as advantageous for private investment firms.

Ready to invest in your goals? It’s easy to get started when you open an Active Invest account with SoFi invest. You can invest in stocks, exchange-traded funds (ETFs), and more. SoFi doesn’t charge commissions, and other fees apply (full fee disclosure here). Members can access complimentary financial advice from a professional.

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.

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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.

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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04
2023
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Vesting Schedule: Important Things to Know

By | Growing Wealth, invest, Investing, Life & Career | Comments Off on Vesting Schedule: Important Things to Know

Employers may contribute matching retirement funds, shares of company profit, or stock options as part of an employee’s compensation package, based on a certain cadence known as a vesting schedule.

The vesting schedule is a set of requirements employees must meet in order to become “vested” and gain ownership of the assets the employer is providing. These usually include a certain amount of time at the company, but hitting specific performance benchmarks may also be a part of the vesting contract.

An employee is fully vested when they receive ownership of a portion of, or all of, the assets their employer offers. If the employee were to leave the company before the assets were fully vested, they would lose out on some or all of those contributions/profits/stock options.

What Is a Vesting Schedule?

A vesting schedule is essentially a way to incentivize employees to stay with a company for a period of time, and penalize those who break their contract early. The reward for remaining with the company may include stock options or restricted stock units, retirement plan contributions (also known as the employer match), or other rewards.

So how does an individual know when they are partially or fully vested? They can ask their employer for a vesting schedule, which tells them the conditions they must meet or the dates that must be reached before vesting begins.

Employees who are partially vested may not be entitled to the full amount of the assets. These employees may not meet certain requirements, such as years spent with the company or hours worked during the year, for example. Those who are not “vested” are typically not entitled to any assets at all.

Three Types of Vesting Schedules

Vesting schedules may come in a few different varieties: immediate, graded, and cliff vesting.

Immediate Vesting

Immediate vesting schedules give employees full ownership of assets as soon as the assets hit their accounts. That means employees are 100% vested when their employer makes a contribution.

For example, under an immediate vesting schedule, if an employer makes a matching contribution to a retirement account, that contribution belongs to the employee regardless of any other conditions. The employee is now free to do what they will with the contribution.

Graded Vesting

A graded vesting schedule increases the portion of vested assets over time. Typically as an employee’s tenure at a company increases, the amount of vested assets gradually increases — until the employee eventually owns 100% of the assets.

If the employee should leave the company before the vesting period is over, they will only be entitled to the portion of the assets in which they are already vested.

Graded vesting schedules are usually no longer than six years for retirement plans, according to federal guidelines, though employers may choose to use a shorter vesting schedule. With a hypothetical six-year vesting schedule, an employee might be 0% vested for their first two years of employment and 20% vested every year after that.

Cliff Vesting

This type of vesting schedule transfers 100% of assets to employees after a certain amount of time has passed. For example, an employee may need to work at their job for two years before they are fully vested. If they separate from employment for any reason before that period is up, they aren’t entitled to any of the assets.

Cliff vesting schedules for retirement accounts are three years at most, according to federal guidelines, but may be shorter.

Vesting and IRAs

Most people might be familiar with traditional IRAs and Roth IRAs, which individuals can set up and contribute to themselves. But there are a couple of IRA options that employers can contribute to as well, including SEP and SIMPLE IRAs.

Employers may offer SIMPLE IRAs in place of a 401(k). They can then offer funds that match employee contributions, or they can make non-elective contributions, money they put in an employee’s account regardless of how much that employee has contributed themselves.

A SEP IRA is a retirement plan available to self-employed workers and small business owners. Unlike with other IRA plans, with a SEP IRA employees do not make contributions. Employers, including the self-employed, make contributions for them. Self-employed individuals act as their own employer and employee.

By law, required employer contributions to SEP IRAs and SIMPLE IRAs are immediately vested. This goes for any other IRA-based plan as well.

Vesting and 401(k)s

When you contribute to your 401(k), your employer may offer matching contributions to incentivize you to save at least enough to make the match.

While your own contributions to your 401(k) are 100% yours immediately, your employer may decide to give you ownership of the employer match funds according to a vesting schedule.

It’s important to know the difference between your vested 401(k) balance and your overall balance. Your 401(k) may offer a variety of different vesting schedules, the terms of which are laid out in the plan document. Some plans offer immediate vesting, while others may offer cliff vesting after up to three years of service, or a graded vesting system in which an employee’s vested percentage grows over time.

When Must Employees Be 100% Vested

A retirement plan’s “normal retirement age” is the age set by the plan at which an employee is eligible to receive their full accrued benefits. In the case of annuity payments or other installment payments, this is the date employees can begin receiving payments. According to government rules, employees must be 100% vested by the time they reach normal retirement age.

Additionally, employees must be immediately 100% vested in their accrued benefits if an employer decides to terminate a plan, including for the following reasons: voluntarily; as part of bankruptcy proceedings; when the company is sold; or because of a switch to another retirement plan. At such a point, employer matching contributions and any profit sharing is fully vested regardless of any previous vesting schedule.

Sometimes employers will terminate only part of a retirement plan — for example, if a factory closure forces 25% of the company workforce to be laid off. In this case, workers affected by the partial termination have the same vesting rights as those affected by a full plan termination.

Vesting Stock Options

Employee stock options offer employees the chance to buy company stock at a predetermined price, and are often offered on a vesting schedule as well. Employees are often not allowed to buy the stock — also known as exercising their option — until they are vested.

As with other types of compensation, vesting can follow a number of schedules, including graded scheduling, which allows employees to exercise their stock option gradually, and cliff scheduling. In some cases employees may be granted stock options that are immediately vested.

Once a stock option vests and an employee exercises it, they can sell the stock or hang on to it and hope the value appreciates.

Restricted stock units (RSUs) are another form of compensation in which employees are promised a specific amount of stock at a later date. While there are some differences between ESOs and RSUs, one similarity is that both may follow a vesting schedule and don’t belong to the employee until they are vested.

Employees who receive RSUs from a private company — a company whose shares don’t trade on the open market — may not be able to sell them until the company goes public in an initial public offering.

Why Companies Choose to Use Vesting

The different vesting schedules and the rules around them can get complicated. So why would an employer go through all that trouble? By using vesting schedules, employers are trying to align employees’ incentives with their own. It can be time consuming and costly to find new employees, so when an employer finds someone they like, they want them to stick around. Vesting schedules are one way employers can tempt employees to stay with the company for a certain period of time.

Some types of compensation, such as stock options, add another layer of incentive to the mix. That’s because as a company flourishes, that company’s stock should theoretically become more valuable, incentivizing workers to work hard to keep the company successful.

Additionally, having some time before an employee is fully vested in their benefits allows companies a bit of a trial period. If a new hire doesn’t work out, the company can let them go without owing them additional benefits.

How to Find out About Your Vesting Schedule

It’s critical to know how and when employer contributions to retirement accounts vest. That way, individuals can make informed decisions about when to leave their jobs while minimizing the amount of money they’re leaving on the table. For example, to make the most of their benefits, an employee with 12 months to go before they are fully vested may want to hang on to their job for another year before they start looking for a new one.

To fully understand an employer’s vesting policies, employees can speak with a representative in their human resources department. They may also get details of their retirement plan by reading the summary plan description, which lays out how it operates and what it provides. Individuals may also check their annual benefits statement. This statement should reflect an employee’s accrued and vested assets, and it may lay out what assets an employee will forfeit upon termination.

The Takeaway

Vesting schedules are a tool used by employers to entice employees to stay with the company by offering full monetary or stock contributions after a certain period of employment. There are three different types of vesting: immediate, cliff, and graded.

For employees, it’s important to understand the vesting schedule of one’s retirement plan, stock options, or RSUs. This information can help guide career decisions as well as investment decisions.

Ready to invest in your goals? It’s easy to get started when you open an Active Invest account with SoFi invest. You can invest in stocks, exchange-traded funds (ETFs), and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here). Members can access complimentary financial advice from a professional.

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.

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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.

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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2023

11 Tips for Cleaning Up Your Finances

By | Budgeting & Goals, money | Comments Off on 11 Tips for Cleaning Up Your Finances

If you’re feeling financially disorganized, making a few key moves can help you restore order and take charge of your money. You’ll learn to live within a budget, pay down debt, and start saving so you can work toward a successful financial future.

Here’s what you need to do to clean up your finances.

Ways to Clean Up Your Finances

1. Look at the Big Picture

The first step is to look at your entire financial situation. Review your bank statements, credit card statements, bills, and paychecks. It might feel a little overwhelming at first, but seeing your income and debt all at once, and comparing the two, can help you understand exactly what you own and what you owe.

Make the process easier with a money management tool that can help you track your accounts in one place.

2. Set a Practical Budget

Setting a budget can be a great way to organize your spending and saving. One way to do it is by using the 50/30/20 method. This process can help simplify your money by dividing it into three categories.

To start, 50% of your income goes to necessities, such as housing, utilities, groceries, and other essential bills. Next, 30% is for discretionary spending, like entertainment or eating out. The remaining 20% is for your financial goals, such as savings and retirement.

As a final step in the budgeting process, take a look at your savings account. You may want to consider opening a high-yield online bank account where your money could earn more for you.

3. Make Payments On-Time

One surefire way to make sure your bills are paid by the due date is to automate your finances by setting up autopay. Since payment history affects approximately 35% of your FICO® score, consistent on-time payments could potentially benefit your score.

Plus, many financial institutions may offer a discount for setting up automatic payments. You can also go paperless and get notifications delivered straight to your email inbox.

4. Cancel Unused Subscriptions

As you’re evaluating your spending habits and budget, be sure to look for subscription services you can cancel.

Whether it’s an unused Netflix subscription or an underused gym membership, canceling what you don’t use could save you a substantial sum over the course of a year.

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5. Make a Plan for Your Debt

If you’re working on paying off multiple loans, you could explore the idea of consolidating your debt with a personal loan. If you have debt built up across multiple credit cards, for example, the different interest rates and due dates can lead to confusion and missed payments.

One possibility to help simplify things is a debt consolidation loan. You could choose a new repayment term, possibly with a lower interest rate, if you qualify.

If you have private student loans to repay, you might also want to consider refinancing your student loans. You may be able to get a lower interest rate that could help you save money. Evaluate the options to see what might work for you and what you can qualify for.

6. Review Your Current Investments

If you’ve had multiple jobs, you may want to consolidate your investment accounts, too. Having several 401(k) accounts from past jobs could be tough to keep track of and might not help you make the most of your money in the long run.

Rolling over your old 401(k) accounts and combining them into one IRA account, for example, could be one option to consider.

You can also check with your current employer to see if you can roll over your previous accounts to your new plan. Be sure to compare the different investment choices of each account to make an informed decision.

7. Commit to Regular Maintenance

Streamlining your finances in the present is just the first step. From now on, commit to doing a regular financial checkup. Review your finances monthly, and adjust your budget and financial strategies as needed.

8. Stay on Top of Your Credit Report

While you’re at it, check your credit report and review it to make sure it’s correct. If you spot any errors, notify the credit bureaus. You can get a free copy of your report from AnnualCreditReport.com.

In addition, you may be able to check your credit score for free through your credit card or bank. You can see how your score changes over time and what may be impacting it the most. Then you’ll know what you need to work on to strengthen your score.

9. Review Insurance Policies

If you have life insurance policies or other benefits with beneficiaries, review those designations at least once a year. With big life changes, you’ll want to make sure your beneficiaries are up to date.

If you get married or remarried and change your name (or your spouse’s name changes), you’ll need to add that information to the policies as well.

10. Update Your Tax Withholding

Take a look at your most recent tax return. Did you end up with a big refund? Or maybe you owed way more than you planned for. Your withholding may be too much or not enough.

Discuss your withholding information with a tax professional to make sure you’re having the correct amount taken out of your paychecks for taxes.

The goal is to free up more of your money month to month as you earn it so you can put it toward savings or paying off debt.

11. Maximize Account Benefits

Finally, as part of your financial cleanup, you should review the benefits and features of your bank accounts and see if a new account might benefit you more.

If you’re thinking about a high-yield savings account, for instance, check out SoFi Checking and Savings. You’ll earn a competitive APY, pay no account fees, and there’s no minimum balance.

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.

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.

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2024 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

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.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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04
2023

How to Split Bills With Roommates

By | Budgeting & Goals, money | Comments Off on How to Split Bills With Roommates

Having a roommate can be great; you have companionship and someone to split the bills with. But that sharing of expenses can sometimes get challenging and tense even. Roomies can wind up arguing over who is using up all the toilet paper or sending the electricity bill through the roof.

To help keep the peace and control costs, there are smart tactics you can use. Try some or all of these tips to keep your household as fun and argument-free as ever.

Creating Clear Guidelines on Which Bills to Split

One of the easiest ways to ensure everyone feels satisfied with how the household bills are handled is to be direct and upfront with financial expectations. And this means being straightforward about what those expectations are before anyone moves in.

When negotiating moving into a new home, consider asking how bills are handled now and how it will change when you or someone else moves in. Additional questions to wrangle can include:

•   Whose name is currently on the utilities?

•   Will I be expected to put my name on any utilities?

•   When is money collected to split the bills?

•   Are the bills divided equally, or by room size?

These can be helpful, because everyone can understand what’s expected. It also sets ground rules moving forward.

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Deciding How Everyone Wants to Split Bills

As for the best way to split bills, that may depend on the household situation. For example, if the home has two evenly-sized rooms and a shared bathroom, kitchen, and living area, it may be easiest to simply split the bills down the middle as everyone has an equal space. But, if one room is exponentially larger than the other and has its own en suite bath, the bills could be split proportionally to reflect the extra space for one roommate versus the other.

It is a good idea to tackle the grocery issue head on. For instance, address such questions as:

•   Is the house going to split groceries?

•   Is everyone going to enjoy one shared meal together at night?

•   Are the roommates going to split common goods like cleaner and toilet paper?

•   Or is each person going to fend for themselves?

Any way you choose to go about it is fine, as long as it’s all out in the open — before someone accidentally finishes someone else’s ice cream without asking.

Picking Who Is Responsible for Which Bill

Once it’s decided how a bill will be divided, one other idea may be assigning each roommate ownership of bills for things like the electricity, heating, gas, water, trash, cable and internet, and more, depending on the rental agreement. Perhaps you’re able to get a better deal based on a roommate’s existing account with a certain biller. That may be one way to decide and to lower expenses.

Or, another common method is to have the roommates divide up the bills evenly in order to distribute the responsibility. Doing things this way may also ensure everyone pays bills on time. Being late with bills can lead to fellow roommates being surprised with a service being interrupted and their credit being dinged if they are listed on the account that’s unpaid.

You might also look into changing the due date on bills; this can sometimes be accomplished and can ease cash flow.

Creating a Roommate Bills Contract

Once the lease has been negotiated, the bills have all been cleared up, and everyone is in agreement, you may be considering some sort of “roommate contract” spelling out exactly what was decided upon, which everyone reads and signs.

That way, no one can ever claim they were confused about the household budget and how bills are split, when money is owed, and who is responsible for what. It is recommended to share the fully executed contract electronically and then a printed out copy for all to review and retain.

Recommended: How to Rent an Apartment With No Credit

Sharing a Spreadsheet of Expenses

Settling into a new home and arrangement might be a good time to finish up the admin work by creating and sharing a monthly spreadsheet of expenses.

This spreadsheet could be kept in a common gathering area for easy reference and shared online as well. In the spreadsheet, each roommate can keep track of the expenses they are responsible for, as well as who has paid and what is outstanding.

This spreadsheet may also come in handy for adding in shared groceries and necessities like milk, eggs, toilet paper, and paper towels. That way, everyone can keep track of who bought the last batch to avoid an argument later. You’ll also see how much your household is spending on groceries per month and other expenses.

Recommended: Different Types of Budgeting Techniques

Sitting Down Together at the End of Each Month

It is said that one of the quickest ways to ruin a roommate relationship is for one person to get passive-aggressive about the bills. That’s why it’s recommended to avoid leaving little notes around the house about who owes what (or who hasn’t done the dishes in far too long) and instead face those issues head on.

At a good time for everyone, perhaps toward the end of each month, schedule a 10-minute roommate check-in. In this meeting, everyone can share household happenings, announcements, and any updates on household bills.

By sitting down in person, no one can avoid possible uncomfortable questions about money. You all can figure out potential sticky situations together.

As a bonus, roommates can also use this time to go over any other to-dos around the house. You might also discuss ways to economize, such as saving money on water bills.

Keeping Some Personal Purchases Separate

Though some may be tempted to fully invest in a roommate relationship by sharing the financial burden on just about everything, there are some items that are better left in a budget’s personal spending category.

That includes the purchase of any big-ticket items you’d like to take with you if you ever move out. These might include such items as a TV, couch, tables, glasses, or an expensive Crockpot purchased on a whim.

It may also be helpful to distinguish an area in cabinets and the fridge for each individual roommate to place specialty or expensive food items they do not want to share.

If one roommate has a pet they adopted on their own, it is a good idea to keep those bills completely separate.

Recommended: How to Save Money on Pets

Another common recommendation is for everyone to invest in their own renters insurance. This will protect all their items in case of a fire, flood, burglary, or more. This type of insurance could save everyone a lot of money and heartache if disaster strikes.

Using Modern Technology to Split Bills with Roommates

Fortunately, splitting bills with roommates is easier than ever, thanks to the advent of P2P transfers. You might all pay bills via PayPal, Venmo, or Zelle, and then one person transfers the appropriate amount to the payee. Your bank may also have tools you can use to quickly send funds to others.

It can be fast and free to transfer money this way and can make the bill-paying routine quick and simple.

The Takeaway

If you need flexible banking (whether or not you have roommates), consider what SoFi offers. With an online checking and savings account, you can not only access your money at any time from anywhere but also transfer money to pay bills directly online. Plus, you can complete peer-to-peer transfers between SoFi Checking and Savings members and non-members.

More perks: No account fees and a competitive annual percentage yield (APY) to help your money grow faster.

SoFi Checking and Savings: The smart, simple way to manage your money.

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2024 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

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.

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 .

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.

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