Money Management

Homeowners insurance provides important protection, but there may be times when it makes sense to switch insurance companies. Learn when to consider it. 

Homeowners need to buy homeowners insurance. This is essential to protect their assets. Without coverage, a disaster like a fire could force them to empty their checking accounts to rebuild and replace their home and possessions.

Many people buy homeowners insurance once and stick with the same company for years thereafter. While this can sometimes make sense, it’s not always the right move. In fact, there are four potential reasons why property owners may wish to consider changing their home insurance coverage.

1. Your premiums are too high

There’s a lot of variation in prices between home insurance companies. Unfortunately, homeowners would have no way of knowing that if they do not compare their options regularly.

Homeowners should get quotes from several insurers each year to see what the difference is in the cost of a policy. Shopping around could provide savings of as much as $500 to $1,500 annually, depending on the situation. In fact, when I personally shopped around for insurance last year, I was able to find a different company that would provide a policy for $350 less than I had been paying per year.

As long as the insurer offering the lower-priced coverage is offering the same protections and has a decent reputation, there is no reason not to make a switch from the company charging more. To find out if premiums are too high, every homeowner should get three or four coverage quotes each year — or should work with an independent insurance agent who can help them shop around.

2. Your insurer isn’t responsive

Home insurance coverage provides protection in case something goes wrong with a policyholder’s house. The last thing a property owner needs when they experience a disaster at home is to have to fight with an insurance company to process a claim and get paid.

If an insurer has provided poor customer service when a policyholder has questions, that doesn’t bode well for the future. Likewise, if a homeowner discovers an insurer has experienced a lot of complaints to the National Association of Insurance Commissioners or has a below-average customer satisfaction rating with J.D. Power, then it might be a good idea to change companies.

It’s best to have a trusted insurer with a good customer service reputation in place before disaster happens, so any homeowner dealing with an unresponsive insurer should make switching companies a priority.

3. You’ve made changes to your home

Changes to a home, such as putting in a swimming pool, building an addition on the house, or adding safety features such as an upgraded roof or hurricane-proof windows could change the costs of insurance or the coverage that’s needed.

Whenever a change is made, it’s a good idea to get several quotes from different insurers to see which company will provide the best coverage based on the current condition of the home and updated insurance needs.

4. You’re thinking about bundling coverage

Finally, the last reason to potentially switch is to bundle coverage. A policyholder who has a home insurance policy with one company and an auto insurance policy with a different one may find that changing could help them score a discount of 10% to 25% on premiums.

In this case, it makes sense to compare what either the home or auto insurer would offer if the policies were bundled to make an informed choice about which insurer to stick with.

If any of these reasons apply, homeowners should explore their options to see how they can get better coverage at a better price to meet their needs.

Our picks for best homeowners insurance companies

There are many homeowners insurance companies to choose from. We’ve researched dozens of options and short-listed our favorites here. Looking for a green build discount or easy bundle policies? Want an easy-to-use interface? Read our free expert review and get a quote today.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Discover Financial Services is an advertising partner of The Ascent, a Motley Fool company. Christy Bieber has no position in any of the stocks mentioned. The Motley Fool recommends Discover Financial Services. The Motley Fool has a disclosure policy.

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When getting a mortgage, make sure it’s a loan you can afford for the long haul. Keep reading to learn how to tell if your mortgage could be a mistake. 

A mortgage loan is a major long-term financial commitment. And the stakes are high because if you get the wrong mortgage when you buy a home, you could struggle to pay it for years to come or even find yourself getting foreclosed on.

To make sure you don’t make a serious mistake when taking on a huge debt, watch out for these three red flags that could suggest you’re setting yourself up for financial trouble.

1. Your mortgage is too high a percentage of your income

When you apply for a home loan, your mortgage lender looks at your credit score and also your debt-to-income (DTI) ratio. Your DTI is a measure of your total monthly payments relative to your income.

Some lenders will give you a loan if your DTI is as high as 57%. This would mean that more than half of all of your income would be devoted to covering your borrowing costs, including your mortgage and other debts such as credit cards and car payments.

Unfortunately, if you borrow as much as your lender allows and you have a very high debt-to-income ratio, this could leave you constantly struggling and with no money for other important expenses like retirement savings or even fun spending. You do not want to condemn yourself to 30 years of being house poor and constantly struggling to make ends meet.

To make sure you leave yourself plenty of money left over, you should aim to keep your total housing costs to no more than 25% to 30% of your income — regardless of whether a lender is willing to give you a larger loan than that.

READ MORE: Mortgage Calculator

2. Your rate is adjustable

You have a choice of a fixed or adjustable-rate mortgage when you apply for a home loan. With a fixed-rate loan, you know exactly what your payment will be for the life of the loan. With an adjustable-rate loan, your rate and payment are only guaranteed for a period of time, such as five, seven, or 10 years. After that, they can change (often once per year).

When your rate adjusts, it might go up — and this could lead to payments increasing. Depending on how much your rate can rise, your payments could go up by thousands of dollars. Say, for example, you borrowed $500,000 on a 30-year mortgage with a starting interest rate of 7.00% that was guaranteed for 60 months and your rate could adjust upward by 0.25% every 12 months after that.

Your starting payment in this scenario would be $3,326.50. And the table below shows what could happen if your payment actually increased by that 0.25% for each payment thereafter.

It’s important to understand just how high your payment could go, as you can’t assume you’ll always be able to refinance or move before it begins adjusting. While it may not increase by the maximum allowed every time, and it could even go down, you have to plan as if it will climb and make sure the mortgage would be affordable in a worst-case scenario before you move forward.

3. You have a balloon payment

Finally, some mortgages have a balloon payment. This means you typically make fixed payments for a period of time, such as five or 10 years, at the end of which you owe the entire balance on your home loan.

Typically, people take these types of mortgages to get lower starting payments on the assumption they will move or refinance before the balloon payment comes due. But there’s no guarantee that will happen or that rates will be affordable when they do need to get a new loan, so there’s just too much risk involved.

If you spot any of these three red flags, you should seriously consider whether moving forward with your loan is the right choice. You don’t want to commit to a loan that will leave you facing foreclosure or financial hardships over time.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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You don’t have to be good at picking stocks to invest. You can choose ETFs and can gain exposure to the market with minimal risk. Find out how. 

Opening a brokerage account and investing money is very important if you want to build wealth. Unfortunately, some people are afraid to invest money because they don’t know how to pick stocks. And that’s understandable, as it can be really intimidating to learn the ins and outs of what makes a particular company a good investment.

The good news is, there is no reason for you to buy shares of individual companies if you don’t want to — and your concern about your investing abilities should not stop you from getting your money into the market and taking a real chance at growing your net worth. That’s because there’s a very simple alternative that anyone can do.

Here’s what you can do if you don’t know how to pick stocks

If you don’t know how to pick stocks, you can get your money into the market very easily by buying shares of an ETF instead.

“ETF” stands for “exchange-traded fund.” These are traded like stocks, but your money is pooled with tons of other investors and used to invest in a group of different investments. There are lots of different ETFs, including some that track specific industries. But there are also many that track the performance of the stock market as a whole, or that track the S&P 500. This is a financial index of around 500 of the largest U.S. companies that has consistently produced 10% average annual returns.

Brokerage firms have ETF screeners that can help you find ETFs based on what you want to invest in. If you want to invest in the market as a whole or the S&P 500, you can find an ETF that does that and charges low fees. Or if you want to invest in small companies or healthcare stocks or the cannabis industry, you can find an ETF that does that, too.

Using your brokerage firm’s tools, you can narrow down the type of ETF you want and quickly check fees and past performance to find one that’s right for you with essentially no specialized investment knowledge at all. That’s especially true if you simply invest in a financial index like the S&P.

Get started investing today

You can’t afford to wait to invest. The returns you’d earn from a savings account simply are not substantial enough to help you build wealth.

In fact, consider what would happen if you invested $100 a month in a high-yield savings account at 4% versus if you invested that same amount in a brokerage account and earned a 10% average annual return by putting the funds into an S&P 500 index fund.

Do not let your fear of investing cost you hundreds of thousands of dollars. Just sign up for a brokerage account, use its ETF screener to find an ETF that’s right for you (or invest in the S&P 500 to keep things simple), and get started on growing the investment account balance you deserve.

Our best stock brokers

We pored over the data and user reviews to find the select rare picks that landed a spot on our list of the best stock brokers. Some of these best-in-class picks pack in valuable perks, including $0 stock and ETF commissions. Get started and review our best stock brokers.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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Ditching your job can be the best feeling in the world — but you have to make sure your finances are protected. Keep reading to learn what to expect in this situation. 

I quit my last W-2 job first thing in the morning, on the first work day of the year (after my former company resumed operations after the holidays). Before putting in my notice, I had been carefully plotting my exit for more than three months, and I was so ready that the anticipation was unbearable.

I knew that I could support myself with my side hustle, and I also enjoyed the work I was doing, so quitting a job that was not serving me was a logical move. But doing so definitely had an impact on my finances. Here’s what I experienced — and what you can expect if you also decide to become self-employed.

Taxes will attain new importance in your life

If you have an employee job, where you receive a W-2 summarizing your earnings every year, you probably don’t think about paying taxes too terribly often — likely just once a year, around April 15. But if you quit that job and enter the world of self-employment by making your side hustle your main gig, taxes are going to become a lot more vital.

For one thing, you could be on the hook for more taxes than ever before if your side hustle has taken off and you’re earning more than you used to. Plus, you get to pay taxes as both employer and employee. And self-employed folks owe estimated tax payments four times per year: Jan. 15, April 15, June 15, and Sept. 15. It’s on you to ensure you send those payments to the IRS (and your state’s government, if you live in a state that collects income taxes). I recommend finding a good accountant who can keep you on track, and get in the habit of taking your tax money right off the top of every paycheck you receive.

You’ll have to pay for your own benefits

Give up your W-2 job, and you’ll suddenly be responsible for setting up (and paying for) benefits like health insurance and a retirement plan. If your health benefits were heavily subsidized by your old employer, you’re likely to encounter some sticker shock when you hop on over to HealthCare.gov or your state’s health insurance marketplace and check out the plans on offer. The good news is that you can write off your insurance costs on your taxes.

You’ll have new options for retirement plans, too. Self-employed workers have access to different plans than W-2 workers. One good choice for you might be a Solo 401(k) — you can contribute money to one as both employer and employee, meaning you can save and invest a lot more money. Check out our list of the best brokerage firms to see what your options are.

One drawback of being self-employed is that you no longer get paid vacation or sick time. If you want paid time off, you’ll have to pay for it yourself. Consider tacking a little extra time onto your work days, and saving the money you earn for those hours to pay yourself for future days off.

Savings becomes even more important

I’d argue that having a W-2 job doesn’t actually give you a more secure employment situation in these days of at-will employment and mass layoffs. But I do think it’s even more important to have a solid emergency fund if you’re self-employed, if only to mitigate the potential for clients paying you late and suddenly losing a steady client that used to give you a lot of work. Plus, your income could be inconsistent week to week or month to month.

The common recommendation for an emergency fund is having three to six months’ worth of bills, but if you’re quitting your job, you might want to have more stashed in a savings account — just in case.

You might end up happier, with more financial flexibility

Just in case you thought self-employed finances were all gloom and doom, taxes and high health insurance premiums, don’t worry — they’re not. You get to control your own working hours and working life now! For me, the flexibility I gained by becoming a full-time freelancer has been the best part. I can work anywhere I want — most of the time, I work from home, but I’ve also worked from other countries I was visiting, as well as hotels, airports, and commuter trains.

That flexibility also extends to my working hours. I’ve spent 2023 putting money away to buy a home next year, and having the ability to work more to make my dream a reality is something I never experienced with salaried jobs. Similarly, I’ve had the opportunity to learn new skills and become a more well-rounded professional, which can only be beneficial for my future earning potential.

If you’re considering ditching your job and leaning into your side hustle, I’m rooting for you. Just be sure to consider all these financial ramifications to make the right choice.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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If you have a delayed closing, you could end up with your rate lock expiring, which can cost you extra. Read on to learn how this can impact your finances. 

When you buy a house, chances are good you’ll get a mortgage. When getting a mortgage loan, most people lock in their rate. This means the mortgage lender assesses their financial credentials, quotes their mortgage interest rate, and they are guaranteed that rate for a period of time.

The problem can come, however, if you need to extend closing. Here’s how that can affect your home purchase.

Why a delayed closing could lead to some huge added costs

The big issue associated with a delayed closing may have to do with your rate lock potentially expiring.

When you lock in your mortgage rate, you will usually be able to keep that rate for 30, 45, or 60 days. After that period of time, one of two things happen:

You may be able to pay a fee to extend the rate lock. This fee varies by loan amount, lender, and how rates have changed in the meantime.You may have to just let your rate go to the market rate. This could be a huge problem if rates have gone up since you originally locked yours in.

I recently had this happen as my home purchase, which was supposed to be completed in mid-September, has had to be repeatedly extended due to an issue the sellers are having with getting some liens removed from the property.

The costs to extend my loan rate twice have added up to several thousand dollars, but I’ve been unable to let the rate lock expire since mortgage rates have gone up 1.3% since I first locked in.

How can you deal with this issue if it arises?

Dealing with this situation can be really difficult. How you’ll cope as a buyer depends on the reasons for the delay, as well as what the sellers are able to do.

One option is to ask the sellers to cover the costs if the delay is their fault. When the sellers delay closing, you’ll need to do an addendum to your sales contract and could negotiate for them to pay the added loan costs as part of this contract. But the sellers would need to agree and have the money to do that, which isn’t always the case. We chose this route, but the sellers agreed to cover only part of the costs.

We could sue (and you could, too, if the sellers don’t agree to pay). But in order to do that, you’d have to let them default on the contract by not closing on time and pursue a claim for damages. We don’t want to do that both because we want the house and because we don’t think we’d end up getting paid in the end due to a lack of assets — and that’s always a big downside to pursuing a lawsuit. That’s why we ended up accepting their terms and splitting the expense.

You could also walk away from the house purchase. You’d be out any money you already spent on the appraisal ordered by your mortgage lender, unless you sued for that cash. And you’d still be in bad shape because you’d have to get a new loan to buy whatever house you find later — and it would be at the higher rate.

You could also just pay the lock extension yourself or accept that your loan rate will increase. This is an undesirable option, but if the seller won’t or can’t pay and you don’t want to walk away, it may be your only choice.

None of these are good options, so it’s best to try to avoid these situations by doing your due diligence in the first place and asking your real estate agent to find out if there’s any obvious issues (like liens on a property) that could delay closing. If you take this step, ideally you can avoid getting stuck in a bad situation where you have to pay higher loan costs due to a seller’s delay.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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Is your home long overdue for a good cleaning and decluttering session? Here are some ways you can improve your finances through decluttering. 

When was the last time you thoroughly decluttered your home? If it’s been a while, you might consider carving time out of your schedule to do it. Decluttering can help you improve the look of your home and make your space more functional. But did you know decluttering can also be a win for your finances? Discover how decluttering can benefit your wallet.

1. Save money on unnecessary purchases

By taking time to declutter your home, you’ll get a more accurate picture of what belongings you already own. When life gets busy, clutter can quickly collect around your home, and you may not realize what you have or where everything you own is located.

Going through your possessions can help you avoid overspending on unnecessary purchases in the future. For example, you may end up finding a few clothing items that you always loved but assumed you no longer had. Getting organized could help you avoid wasting money on unnecessary clothing purchases in the coming months, which is a win for your bank account.

2. Find extra cash and unused gift cards

As you declutter the rooms in your home, you’ll likely find a collection of things that have been long forgotten. This could include receipts, family photos, old mail, and cat toys. But you might also find coins and cash. Any extra money found during the decluttering process can serve as a reward for your hard work — and you can use it to boost your savings account balance.

Don’t forget to check coat pockets, drawers, wallets, and purses you haven’t used recently. As you look for extra coins and cash, you should also look for gift cards. You may have partially used or unused gift cards. If you do, make sure you spend them so they don’t go to waste.

3. Sell unwanted items

Another way decluttering can benefit your wallet is it can help you find items you no longer need that are worth selling. Whether it’s electronics, clothes, or household goods, you can collect the items you no longer need and sell them to boost your income. You might consider hosting a yard sale or selling unwanted items in community social media groups. It’s a win-win idea, because you can earn more money and get your home more organized.

4. Encouragement to organize your finances better

Finally, decluttering your home could encourage you to organize your finances better. If you have a lot of paperwork collecting around the house, you might find bank statements, credit card bills, and other important financial documents. It’s best to keep all of your financial documents in one organized place so you’re in the know about where your finances stand.

If you don’t yet have a solid organizational system for your essential financial matters, now is a perfect time to get all of your affairs in order. Consider finding a safe and organized place to store your important documents so they’re readily available when needed.

If you prefer a digital system, you can sign up for paperless billing with your billers and financial institutions to reduce future clutter. You might also consider a digital approach to managing your everyday financial affairs. Using one of the best budgeting apps is a great strategy to reduce unnecessary spending and learn new spending habits.

It pays to get organized

Decluttering your home can reduce stress, increase your livable space, and improve your mood. But decluttering can also benefit your wallet. If it’s been some time since you’ve deep cleaned your home, let this be the inspiration you need to start. Looking for other ways to improve your finances? Check out our free personal finance resources to learn more.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Discover Financial Services is an advertising partner of The Ascent, a Motley Fool company. Natasha Gabrielle has no position in any of the stocks mentioned. The Motley Fool recommends Discover Financial Services. The Motley Fool has a disclosure policy.

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