Money Management

When I look for a mortgage loan, a prepayment penalty is a dealbreaker. Here’s why I’d steer clear of a mortgage that has one. 

I have taken out several mortgage loans in my life. Each time I buy a home, I shop around carefully to find the right mortgage lender. Of course, I consider factors like the interest rate and the origination fee. But there’s also something I look out for as well — and it’s a dealbreaker.

Avoid mortgages that come with this fee

When I’m shopping for a mortgage, I would never agree to take out a home loan that has a prepayment penalty.

Prepayment penalties are fees you would get stuck paying if you decided to pay off your loan ahead of schedule. They could apply if you pay off all or part of your loan early, although usually they end up applying only if you pay off the full balance early. And, in most cases, they apply when you make a large lump sum payment, but you don’t get hit with them if you tack on a small extra principal payment above and beyond your minimum monthly payment.

Prepayment penalties must be disclosed upfront, and any mortgage lender that includes one of these penalties in the loan agreement is a lender I am absolutely not willing to work with.

Here’s why I’d never want a home loan with a prepayment penalty

There’s a simple, important reason why I would never commit to a mortgage that I could not pay off early. I don’t want to be stuck with huge extra costs if I want to sell or refinance my home.

See, one of the biggest benefits of a mortgage loan is that you get a fixed guaranteed rate so your costs can’t go up — but you also have the option to refinance your loan if rates go down. This means you can make your housing costs cheaper over time if rates drop and you’re able to qualify for a more affordable loan.

If you have a home loan with a prepayment penalty, you lose this big benefit. You can’t just refinance your home loan to take advantage of a more favorable rate environment because if you do, you’ll get stuck paying a large fee that reduces or eliminates the savings that refinancing can provide to you.

Since you’ll have your home loan for a long time, why would you want to commit yourself to not being able to take advantage of any rate drops over the next 30 years?

The other big issue is that you’d get hit with this prepayment penalty if you decided to sell your home as you must pay off your home loan before you can transfer the property to a buyer. If you have an added fee to pay your mortgage lender because you have to pay a prepayment penalty, there’s a greater chance you won’t be able to sell your house for enough to make a profit — or even to break even.

There are lots of mortgage lenders out there that will not charge you a prepayment penalty if you want to pay off your loan ahead of schedule. Do not take a loan from a lender that wants to limit your future options with this unnecessary fee.

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Online banking means getting to do everything without visiting a bank branch. Learn whether switching to an online bank is a good idea for you. 

Many years ago, I switched to an online bank. I wanted to make the change because I was tired of maintaining a certain minimum daily balance in my checking account to avoid paying a monthly maintenance fee.

Once I opened my account, though, I found that there was one really huge advantage to online-only banks that made my life easier.

I appreciated the all-digital experience

To me, the biggest advantage of changing to an online bank is that the financial institution does not have a physical location so I can do everything virtually. Plus, the bank’s online services are much more robust than what my traditional bank had offered.

There are a few big reasons the all-digital experience works really well for me.

I was able to deposit larger sums of money via my mobile app. I previously had my money with a bank that only allowed me to deposit checks of up to $2,500 and that imposed a monthly $5,000 limit on the amount of mobile deposits I could make. I often had checks for more than this amount, and I would end up having to visit the bank to deposit them. My new bank allows me to deposit up to $50,000 per day and $250,000 per 30 days. That means I don’t really run into the problem of not being able to deposit my checks anymore.I was able to get virtual customer service. With my old bank, I was often told I had to go into the bank branch to deal with various issues that I had with my account. Since my new bank simply does not have physical branches, this isn’t an option. I’ve gotten great virtual customer service, with people answering telephones 24/7 and even calling me about wire transfer requests made on a Sunday.

The reality is, I do not want to go into a bank, and I have no real need for a physical branch to visit. I prefer to do things from the comfort of my own home without having to go out into the world and speak to someone about my banking needs. With an online bank, the entire business model is geared toward people like me who are happy handling their financial issues in the virtual world — this is a big difference between online and brick-and-mortar banks.

Is an online bank right for you?

An online bank not only typically provides a better virtual experience, but you will likely also get fewer fees and higher rates on savings accounts. Of course, the downside is that you don’t get that access to in-person customer service, which some people might prefer.

If you don’t need to meet with someone in person to deal with problems or questions that may arise, you should look into your online banking options to see if an all-digital bank account could be a better fit for your needs.

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If building financial security is important to you, there are a few key moves you should make. Learn how to improve your money outlook. 

One of the most important ways we can take care of ourselves as women is to make improving our finances a priority. Here are three ways to do just that and come out ahead in the process.

1. Invest in yourself

While you might assume the term “investing” only refers to putting money into stocks, real estate, or other tangible money-generating assets, investing in yourself is one of the best ways to maximize your financial growth as a woman. Sad to say, we’re already at a disadvantage thanks to the gender pay gap. Last year, Pew Research found that women earned an average of just $0.82 for every $1 earned by a man — and this rate only increased by $0.02 between 2002 and 2022.

What’s the solution? Well, we’ve got to level the playing field, and that starts with you. You can invest in yourself by adding to your job skills. Check out courses available on sites like LinkedIn, or consider trying out online learning platforms like Skillshare. No matter your field, you can likely become better at all the bits and pieces that make up your job. For example, if you’re a graphic designer, taking in-depth courses about InDesign and Photoshop can help you hone your skills and give you the power to increase your pay as a result.

Another crucial way to invest in yourself is to spend time learning about how to better manage your money. The Ascent has wonderful personal finance resources that can teach you how to budget, stay out of debt, and more. I also recommend chatting with a financial professional — it can be life-changing.

2. Pay yourself first

You likely already know how crucial it is to save money for future goals, emergencies, and to invest for your future, so I won’t retread this ground. The hard part for many people is finding the money to save. If you don’t earn enough to begin with, the best way to get ahead of the curve is to increase your income (be that via a side hustle or higher pay at your main job — you might also consider changing careers altogether). If you’re on sturdier financial ground and are still having a hard time sending money to your savings account or IRA every month, it’s time to start paying yourself first.

What’s that mean? Rather than leaving your savings or retirement account contributions for last (the ol’ “I’ll just save whatever’s left at the end of the month” move), start taking that money out of your pay first thing. As an example, I’m a full-time freelance worker, so if I want to avoid trouble with the IRS, I have to actively plan for my quarterly tax payments. I do that by taking a set percentage right off the top of every paycheck I receive. While I’m at it, I also take out set amounts for savings goals (more on those below). That money all goes directly to my high-yield savings account, where it is safe and growing with interest.

If this all sounds like too much to remember, a lot of people have found success by automating their savings. You can set up automatic transfers from your checking account to other financial accounts to happen right after you get paid — if the money moves automatically, you won’t forget to save, and you also won’t have the chance to spend it.

3. Set goals for the future

My last tip for maximizing your financial growth is a bit less tangible. Namely, you need to sit down and pick some goals for yourself. Life is complicated and overwhelming, and it can be so easy to get sucked into the intricacies of day-to-day tasks and obligations. So it’s 100% worth doing a little thinking and deciding what you want out of life — you know, big-picture stuff. Do you want to retire early with $2 million in the bank? Want to pay for your kids’ college education (or your own)? Or, like me, do you dream about buying a modest home that you can turn into your own slice of paradise?

The first step in taking it from dream to reality is to decide what you want. Then you can make a plan. If I can do this, so can you — I recently completed a huge savings goal (to get ready to buy that little slice of paradise). Before I started saving, I ran the numbers to decide how much to put away, and I broke the big savings target down into smaller weekly goals. I couldn’t have done it without taking the time to set goals and think about how I want my life to look. You can do the same, and then let it inform the steps you take to get there.

As women, if we want to get better with money management, achieve our dreams, and earn more, we’ve got to do the work. The methods above can help.

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I’ve resented having to buy title insurance in the past because it’s expensive and I didn’t see the point. Learn why I’ve changed my mind about it. 

I’ve bought several houses throughout my life, and each time I buy a house, I have been mildly annoyed at the fact that I have had to pay for title insurance. Title insurance is required by mortgage lenders. It’s a policy that protects against competing claims on a home.

See, when you buy a property, you can only get the ownership interest that the people selling it to you have. If there’s a problem with their ownership — such as an easement on the property they don’t disclose that reduces its value — you would inherit that issue.

Now, companies that provide title insurance do a title search and check for competing claims before they give you a title insurance policy. And in this day and age of digital records, I thought that should be sufficient and that it was silly to get stuck paying several thousand dollars for a title insurance policy when it was so unlikely that there would be a surprise claim.

However, that all changed with the home I’m in the process of buying.

Here’s why I now believe title insurance is really important

I am currently involved in a long process of buying a home from some investors who purchased it in foreclosure. The home closing has been held up multiple times, as the sellers are having a hard time getting liens off the property. That’s not what made me glad for title insurance though, since the title company identified all of these claims and is requiring the sellers to clear them up before the purchase can be finalized.

The thing that made me glad I have title insurance was when the former owner of the property showed up. Our sellers are allowing us to stay at the house before closing since it’s their fault we’re delayed, and we were outside our home one day when the former owner came by.

She claimed she still owned the home and was involved in a lawsuit to get it back — and that this had worked for her several times before. A review of court records showed that she had, in fact, had several foreclosure auctions canceled — although the most recent one was a final sale and she didn’t own the house anymore.

The issue, though, is that if she did make a claim, we could be stuck potentially defending it or losing money. But having title insurance would protect us against those losses. Remember, a home is a very expensive purchase. You simply can’t take a chance of something unexpected happening with your ownership rights and not have insurance to protect you in case that occurs.

While it looks like that shouldn’t happen in our case (since the people selling us our house have taken care of the issue), there’s always a chance of a problem after closing, and I’m glad title insurance will protect us if the worst happens.

Do not go without title insurance

Mortgage lenders require that you buy a lender’s title insurance policy. However, buying an owner’s title insurance policy is usually considered to be optional. While it is optional, though, the reality is that you never know when something could go wrong. And if it does, you don’t want to get stuck with legal fees or paying someone else’s debt.

So if you’re in the process of buying a home, make sure you look over your home-buying budget ahead of time so you know you can afford this expense. While paying a few hundred or a few thousand dollars for a title insurance policy may be a bummer, it’s a whole lot better than being at risk of losing much more money than that after getting a mortgage loan and completing your home purchase.

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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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Six out of 10 Americans live paycheck to paycheck. If you’re among that 60%, here are five steps to turn things around. 

Living paycheck to paycheck means using the entirety of your paycheck to cover basic living expenses, like housing, food, and daycare for the kids. It can also mean sleepless nights and wondering if you’ll ever get off the hamster wheel.

I spent years on that wheel. Sometimes, it was due to bad luck, and sometimes, it was due to bad decisions. Either way, I knew it was not a pattern I wanted to spend the rest of my life repeating. The following five alterations to my thought process helped me escape, and they could help you too.

1. There’s nothing like being miserable

My husband and I were teenagers when we married (do not attempt this at home). As kids, we were too inexperienced to understand how little we knew about anything, including personal finances. Neither of us grew up around a lot of money, and many of the people in our lives were also living paycheck to paycheck. It was stressful but almost seemed natural. We rarely had money left over to save or a dime to invest.

In our early twenties, we were working our way through college. With two baby boys, juggling school schedules, and a mortgage to pay, we were stretched so thin it felt like we might snap.

We didn’t snap, but something big did happen. We realized how miserable we were. I’d like to say that deciding to turn things around immediately worked wonders. It did not. However, it was the beginning of a multi-year process that allowed us to get where we wanted to be.

For you: If you’re unhappy with your financial situation, make a change. It doesn’t have to be anything huge. The point is to move in the direction you want to go.

2. Save money

One of the first things we did was find a way to save money. Take my word for it, though; it wasn’t much. I switched from name-brand diapers to generic, and when we needed a car, we bought an old hoopty. Then, rather than meet friends out for dinner, we took turns cooking at home for each other. It wasn’t always pretty, but it was an efficient way to save money.

I recall sitting on the sofa in our living room, working on the monthly budget, and being so pleased because we found a way to save $25 a week.

It had been so easy to pull out a credit card or rob Peter to pay Paul when we had to replace a broken window or pay a medical copay. Having an emergency savings account (albeit small) meant having money to cover minor emergencies without resorting to credit.

For you: If you can’t imagine squeezing another dollar out of your weekly budget, begin by tossing spare change in a jar. You may be surprised how quickly those coins add up.

3. Get on the same page

Love the guy to pieces, but my husband and I can argue about anything — from which famous rocker wrote Manfred Mann’s “Blinded by the Light” to whether Cheerios are better than Raisin Bran. When it comes to money, though, nothing put us on the same page faster than feeling broke all the time.

Once we realized we could put a little money away each month, it felt like we were on a roll. We felt confident enough to create a realistic budget and set financial goals. One was to contribute pre-tax dollars to his 401(k), and the other was to get to a place where we could live off one of our salaries. Neither happened right away, but at least we shared those goals.

For you: If you share your household budget with another person, talk to them about your concerns. Most of all, encourage them to share their ideas and help you set goals.

4. Whittle away debt

We slowly whittled away at our debt, careful not to create new debt. While we made it a point to pay more than the minimum each month, it was often only a few dollars more. It wasn’t until we landed higher-paying jobs that we could ramp up the amount we paid.

If you’re in debt, this thought may be familiar to you, “I’m not sure why I’m even trying because I’ll never get out of debt.” Of course, you will. It may just take a little longer than you thought it would.

For you: It took us years to dig our way out of debt, but eventually, those balances did go down. If you believe you’ll never get out of debt, do yourself a favor: Give it 12 months. Once you see your balances drop, you may just be surprised by the emotional turbo-boost.

5. We changed our minds

It took time, but we finally hit those two big goals: We maxed out 401(k)s and learned to live far enough below our means to allow one of us to cover bills if the other lost their job. Granted, it took years (and many setbacks), but we got there.

What’s been most remarkable is how much our view of money has changed. There was a time when every raise or unexpected bonus was spent. Some of it went toward bills, but there were also questionable decisions made, like buying NFL season tickets before we were out of debt.

Slowly, we created new money habits. Here’s how it works:

We consider buying a new hot tub, but decide to save the money instead.We both feel good about the decision.Our brains recognize the connection between the action (saving money) and the satisfaction we feel, and store that information away.Because saving money lights up the reward center of our brains, saving becomes our new habit.

For you: Don’t be frustrated if things don’t happen overnight. If your goal is to live below your means, it’s okay to start slow. Again, the goal is to move in the right direction.

We’re continually bombarded with messages designed to make us empty our bank accounts on the things we’re told we need. If giving in to those messages no longer makes you happy, that’s a good sign it’s time for change.

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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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