Money Management

A $300,000 home might cost you a lot now that mortgage rates are so high. Read on to learn more. 

Buying a home is not an easy thing to do these days. A glaring lack of inventory has left buyers with limited options, and elevated home prices are making it difficult for buyers to find a home they can afford.

In July, the median U.S. home sold for about $407,000, according to the National Association of Realtors. So if you’re in the market for a $300,000 home, you’re spending about 25% less than the typical buyer.

But that doesn’t mean you’re looking at an affordable mortgage payment. Because mortgage rates are up these days, even buying a $300,000 home with a decent-size down payment might leave you scrambling to pay your loan servicer every month.

What will a $300,000 home cost you on a monthly basis?

The average 30-year mortgage rate today is 7.18%, according to Freddie Mac, while the average 15-year mortgage rate is 6.51%. If you sign a 15-year mortgage, your monthly payments will be higher than with a 30-year loan, but you’ll rack up less interest on your mortgage loan overall.

Now let’s assume you’re able to make a 20% down payment on your $300,000 home, leaving you with a $240,000 mortgage balance. With a 30-year loan, based on today’s rates, you’re looking at a monthly payment of $1,625 for principal and interest. With a 15-year loan, you’re looking at a monthly payment of $2,091. Both numbers assume the rates mentioned above.

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As you can see, with a 15-year loan, you’ll be paying an extra $466 a month, which is a sum you may not be able to afford. However, you should also know that if you go with a 15-year loan, you’ll end up spending a total of $136,413 on interest in the course of paying off your home. If you go with a 30-year loan, you’ll end up spending $345,074 on interest. So while an extra $446 a month may be a stretch, if you can swing it, you stand to save yourself almost $209,000 on interest all in.

Can you afford a $300,000 home today?

As a general rule, your predictable housing costs should not exceed 30% of your take-home pay. Going beyond that limit could put you at risk of falling behind on your housing expenses or other bills.

But when we talk about housing costs in this context, we’re referring to expenses like homeowners insurance and property taxes as well as a mortgage. So, let’s say you’re looking at a $1,625 monthly mortgage payment, plus another $375 a month in property taxes and homeowners insurance costs. That brings your housing costs to $2,000 a month.

If you bring home $6,667 a month or more, then that’s generally a safe amount of housing expense to take on, provided your other bills aren’t above average. But if you only bring home $5,000 a month, then you may not be able to afford a $300,000 home today unless you make a down payment much larger than 20% or truly have minimal expenses outside of housing (for example, if you have zero debt, no childcare costs, and no car to pay for).

You’d think that $300,000 would be a reasonable amount of money to spend on a home. But because mortgage rates are so high, even a modestly priced home becomes expensive.

If you can’t afford a home in that price range right now, it could pay to wait a year or so and see if mortgage rates come down. Waiting will also allow you to save up more of a down payment, thereby lowering your monthly costs.

Of course, there’s also the option to look at a less expensive home if you’re eager to buy today. But given where home prices stand, you may be hard-pressed to find something below $300,000 in many parts of the country.

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WIC has managed to continue operations in previous government shutdowns. Find out why the USDA warns that this time may be different. 

There are just days to go to avoid a government shutdown. Without getting into the politics, lawmakers in Washington have until Sept. 30 to find a compromise and keep government funding flowing. In the meantime, various government agencies are starting to put contingency plans in place. This includes warning specific groups who may be impacted.

One such group is the millions of women and children who use WIC money to buy nutritious food. The Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) is designed to help women who are pregnant or breastfeeding, as well as infants and children under 5 years old. Secretary of Agriculture Tom Vilsack explained at a press briefing this week that a shutdown would quickly put WIC benefits on hold.

“In some cases, it would be literally within a matter of days after the shutdown,” he said. “In some cases, it may be — in some states, it may be literally in a matter of weeks. But clearly, during the course of a shutdown, millions of those moms, babies, and young children would see a lack of nutrition assistance.”

How a government shutdown would impact WIC recipients

If the government shuts down, many federal agencies would have to pause the majority of non-essential operations. Some programs, such as Social Security payments are mandatory, meaning the payments should continue. That said, not all mandatory payments are safe. SNAP food benefits are also mandatory, but they’re only authorized for 30 days, which means they could also stop if there’s a prolonged shutdown.

In contrast, WIC funding is discretionary. The money needs to be approved each year and then it gets allocated to individual states. It is exactly this type of funding that lawmakers are struggling to pass.

It’s worth noting that in the 2013 and 2018 government shutdowns, WIC managed to continue its operations. In both cases, funding was found to keep the service operational. However, today WIC is already facing funding challenges. This is why Vilsack warns the money may only last a few days in some parts of the country. In contrast, some states may have emergency funding and be able to hold out longer.

According to the latest WIC data, 6.7 million people participated in the program in June 2023. The average food cost per person was $55.83 and the total food cost for that month was $375 million. In addition to the food supplements, WIC provides health referrals as well as education and support on breastfeeding and nutrition. All of this would be in jeopardy if there was a government shutdown.

How WIC participants can prepare for a government shutdown

It’s one thing knowing you may not receive your WIC benefits next month, and quite another figuring out what to do about it. Particularly with so few days to go. If your bank account balance is already running low, there isn’t a lot of time to prepare. However, it’s important not to panic — here are some concrete steps you can take:

Contact your local WIC office to find out what’s happening in your state. You may have to persevere, as WIC staff will likely be inundated with calls. But in a few days, the offices may be closed and you may not be able to contact anyone. If your state is implementing a wait list, find out how to get your name on it. Work out how to cover the hole in your budget. After all the strains on your household spending in recent years, you may feel like there’s no more cuts you can make. But right now, any savings could help cover the missing WIC payments. You may also need to prepare for a worst case scenario in which your November SNAP benefits don’t arrive.Don’t forget about October’s SNAP increases. If your household receives SNAP food benefits, you will receive slightly more money next month because it’s the start of a new fiscal year. It isn’t a lot, but it might offset the missing WIC money, at least temporarily. Contact local food pantries and soup kitchens. Find out when your local food pantries are open and what documentation you might need to show if you’ve never been before. Call United Way at 211 for more information on local NGOs and food charities.

If it happens, a government shutdown, on top of a period of high inflation, on top of a global pandemic, wasn’t in many people’s predictions for the past few years. Unfortunately, that means many families don’t have cash in savings to fall back on, or have already used up their emergency cash. Try to hold on to the fact that you are not alone, and there is help available — even if it doesn’t come from Washington.

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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.Emma Newbery has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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It costs money to be able to shop at Costco. Read on to see why this member isn’t bothered by that. 

Usually, buying groceries or household essentials is a simple matter of driving to the supermarket, walking in, loading up a cart, and paying on your way out. You don’t need to show an ID or membership card at the door.

But Costco works differently. Costco charges a fee for access to its network of warehouse club stores. And for some people, that fee may not be worth paying.

Right now, a basic Costco membership costs $60 a year, while an Executive membership costs $120. The Executive membership costs double because it also gives you 2% cash back on Costco purchases. So if you run the numbers, you’ll see that if your annual Costco spending exceeds $3,000, it pays to upgrade to the Executive membership.

Some people I know refuse to join Costco because they think it’s ridiculous to have to pay a membership fee to get access to a place that, in turn, takes your money. I can see their point. But here’s why I don’t mind paying for a Costco membership one bit.

I more than make up that money

Costco is a business, and rest assured that it makes plenty of money on its membership fees. Last year, in fact, it raked in over $4 billion.

But Costco doesn’t just take the fees it collects and add that money to its balance sheet. Rather, Costco uses those fees to help offset its operating expenses. And the warehouse club giant then passes those savings onto consumers in the form of lower-priced goods. So if you’re someone like me who shops at Costco often, you might easily make back your membership fee and then some.

Now, the amount of money I save by shopping at Costco can vary based on the season, and based on the specific items I’m purchasing. But on average, I’d say I save about $15 to $20 each time I visit Costco when I compare the cost of buying groceries and essentials there to what I’d spend at my local supermarket.

Meanwhile, I shop at Costco almost every week. So if I’m saving $15 a week (the lower end of my estimated range) 50 times over, I’m spending $750 less on the items I need to put food on the table and keep my household running. Subtract the $120 I pay for my Executive membership, and I’m still up $630.

It’s a matter of how you’ll use your membership

I know some people who pay for a Costco membership and only visit the store a few times a year. Is that membership fee worth paying for them? Maybe, but maybe not — it depends on how much they’re purchasing each time they go and how much they’re saving.

If you don’t expect to visit Costco often, then you may be put off by the idea of spending $60 (or $120) on a membership, and understandably so. And in that case, it may not make sense to join.

But here’s one thing you may want to do before you make your decision. Tag along with a friend who has a Costco membership and jot down the cost of the items you buy on a regular basis. Then, compare those prices to the prices at your local supermarket. If there’s the potential to save a notable amount per visit, and you think you’ll get over to Costco often enough to make back your membership fee, then it could be worth it to join.

Remember, too, that Costco will allow you to cancel your membership at any time for a refund. So if you pay that fee in March and, come June, you haven’t really been able to get out to Costco, you can cancel and ask customer service for your money back.

It’s true that most stores don’t charge you a fee for the ability to go in and spend money. But that’s the way Costco’s business model works. And when you’re saving as much as I am, forking over that fee isn’t bothersome.

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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.Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.

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Tapping home equity by putting a HELOC in place might seem like a solid move. Read on to see why it’s a decision you might regret. 

You have different options you can explore when you need to borrow money. But if you have equity in your home, you may be tempted by a home equity line of credit, or HELOC.

A big reason consumers tend to be drawn to HELOCs is that they’re flexible. You can lock in a HELOC and get many years to tap it and pay it off. And if you have a lot of equity in your home, combined with good credit, then a HELOC may end up being fairly easy to qualify for.

In 2022, U.S. HELOC balances rose to almost $306 billion, reports Experian. That’s up 3.5% from 2021.

Given that homeowners today are sitting on $30 trillion in home equity, that increase in HELOC activity makes sense. But before you sign a HELOC, consider these drawbacks.

1. You could face early termination fees

You get a certain amount of time to pay back the money you borrow via a HELOC. But some lenders might charge an early termination fee if you pay off that line of credit ahead of schedule.

This isn’t guaranteed to happen, but it could. So before you sign a HELOC, read the fine print and see what fee, if any, you’ll be subject to for getting ahead of it. You can also try shopping around for lenders that don’t impose this sort of fee.

2. You could be charged a fee for not tapping your HELOC

The beauty of a HELOC is that you get the leeway to tap a portion of that line of credit or leave it alone completely. If you’re approved for a $50,000 HELOC but you only end up needing to borrow $45,000, you don’t have to withdraw the remaining $5,000 and rack up interest on it.

But if you don’t end up tapping your HELOC at all, you may be charged a fee by virtue of having less of a need to borrow money. So while you could end up saving on interest, some of that savings might be wiped out by a fee.

3. Your HELOC payments may be unpredictable

When you take out a home equity loan, you lock in a fixed interest rate on that debt, which means your monthly payments stay the same unless you refinance that loan. With a HELOC, the interest rate on your debt can be variable, which means your payments under that HELOC can change over time and become more costly.

Of course, falling behind on a HELOC could have serious consequences. It could, at the very least, damage your credit. And in a more extreme situation, it could result in the loss of your home. So you may want to stick to an installment loan, like a personal loan or home equity loan, instead. That way, you’ll know exactly what monthly payments you’re signing up for from the start.

A HELOC might seem like a convenient way to borrow. And for some people, it makes sense. But be aware of these pitfalls before you sign a HELOC, so you don’t end up regretting your decision to do so.

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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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