Money Management

I think I’ve found the perfect house to buy, but I’ve thought that before. Here’s why you can’t always count on your “forever” home to actually be forever. 

Soon, I will be moving into a new home. I’ve been officially cleared to close on my mortgage loan and I’m just waiting for the closing date to arrive so I can move in.

I spent a long time looking for the right property when I opted to buy a house again, focusing on many factors to find the perfect location and a home I would love. I hope this property will be my forever home and I will never have to sell it. But, I’m not counting on it.

Here’s why.

It’s hard to predict where you’ll want to live forever

Although I have every intention of making this new house my forever home, this is not the first time I’ve bought a property intending to stay for the long haul. I have done it twice before.

The first time, I ended up leaving my “forever” home behind because flood insurance costs went through the roof, and I realized I couldn’t stand having neighbors to my rear even if they were across an intercoastal waterway from our house.

Then, I ended up leaving my second forever home because we decided to have kids and the house was not conducive to that family arrangement. It had a narrow and dangerous stairway and a poor layout, with only two small guest bedrooms upstairs that were way across the house from our room.

I couldn’t have predicted either of these changes when we bought homes we meant to stay in for the long haul. And while I really hope I’ll be happy in my new house permanently, I know from experience I simply can’t count on that to be the case.

Should you look for your forever home?

While the idea of a forever home where you can set down roots has become normalized and many home buyers want to find their permanent place, the reality is that this is often an unrealistic goal.

According to the U.S. Census Bureau, the average person in the U.S. moves around 11.4 times in their lifetime, with moves tending to increase as you get older. For example, while the average 18-year-old has just two moves under their belt, the average 30-year-old has six. People move for lots of different reasons, from a change of jobs to a change in family structure to simply a desire for more space or a different living arrangement.

Since you can’t predict with 100% certainty what you’ll want in two years or five years, much less 10, 20, or 30 years down the line, you shouldn’t necessarily waste time or energy trying to buy a home you feel like you’d be happy with for eternity. Doing so could lead you to make silly mistakes like overspending on a home you fall in love with because you don’t want to move again.

You could also end up putting off homeownership in your quest for the “perfect” place and miss out on the chance to start building equity.

Instead of trying to find a “forever” home, look for a place that’s going to be right for you for the foreseeable future. You don’t want to move until at least two to five years have passed because otherwise, you’re likely to lose money due to transaction costs. But if you can see yourself being happy for at least that long and buying a house won’t derail your personal finances, don’t pass it up just because you may not see yourself there when you’re 70.

You may just find that your “good enough” home is a place where you’re happy to set down roots. Or you may decide to join me in packing up a few times even when you thought you never would, until you find a place that just happens to be where you spend your life.

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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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Adjustable-rate mortgages can save you on interest for the first few years of your mortgage loan. Read on to learn why one writer opted for one. 

Recently, I applied for a mortgage loan to purchase a new home. When I did, I was given a choice of two different mortgage loan options: A 7/6 adjustable-rate mortgage or a 30-year fixed-rate loan.

A 30-year fixed-rate loan would have come with an interest rate that remained the same for the entire life of the loan. My payments and interest rate would never have changed. The 7/6 ARM, on the other hand, has a rate that’s fixed for seven years. After that, the rate can change every six months (hence the name 7/6 ARM).

While the 30-year fixed-rate mortgage would have provided me with more predictable payments, I ultimately went with the 7/6 ARM instead. Here’s why.

The interest rate was lower

One huge deciding factor for me was that the 7/6 ARM had a lower interest rate than the fixed-rate loan. Here were my two options:

A 30-year loan with a rate of 6.375% and mortgage points equal to 0.087% of the loan amountA 7/6 ARM with a rate of 6.25% and no points

The 7/6 ARM provided a much lower monthly payment for me. Exactly how big was the difference? For each $100,000 borrowed, the 30-year loan would have cost me $499 in principal and interest per month. I would have also had to pay $87 per $100,000 of the loan value upfront to get that rate.

But, with the 6.25% rate, I would have a starting monthly payment of $493. Comparing interest over the life of the loan is not possible since I don’t know which way rates will adjust, but from the start, the ARM is definitely noticeably cheaper since I’m borrowing more than $100,000. And I wanted to keep my monthly payment costs down since mortgage rates are high right now.

I plan to refinance my mortgage ASAP

Now, there is a risk of buying a home with an ARM. The loan cost often starts out cheaper, but since the interest rate is variable, payments could increase over time.

However, I did not mind taking that risk in this particular situation because interest rates are so high right now compared to where they have been in recent years. Rates are higher than they have been since the mid-2000s in part due to the Federal Reserve repeatedly raising interest rates since March 2022.

I believe rates are inevitably going to come down in the next seven years as the high rates have reduced demand for mortgage loans right now. Since I plan to refinance my loan anyway as soon as rates come down, I likely won’t still have the loan when the initial seven-year period expires and my interest rate begins adjusting.

It made sense to me to take the chance of rates going up in exchange for getting the lowest possible payment now and avoiding the upfront cost of points, since I don’t plan to keep the loan for the long term anyway.

Is an ARM right for you?

If you’re in my situation and can get a cheaper loan by opting for an adjustable-rate mortgage, it may be worth doing as long a few things are true:

You don’t believe interest rates are likely to keep rising. There’s no crystal ball that can tell you this. But you should look at the historical rates and read some expert commentary on how mortgage rates are likely to trend to make an informed choice.You can afford the monthly payments even if your rate adjusts up the maximum amount. Your lender must disclose how high your rate and payment could go. If that rate would be unaffordable for you, you can’t take a chance on having to pay it. Even if that chance is slim, you don’t want to be foreclosed on because you can’t make your mortgage payments.There’s no obvious reason you won’t be able to refinance. For example, if you have reason to believe property values may fall and your home will be worth less than what you paid for it, you may not qualify to refinance.

By considering these issues, you can decide if an ARM is right for you as it was for me. Just be sure to give the decision careful thought, as your mortgage loan is going to be with you for a long time to come.

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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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Nine in 10 banking customers care strongly about interest rates. Do you? Read on for the best reasons to open a new account. 

I’ve opened and closed two bank accounts in the last two months. I can’t seem to get what I need, and boy, is it frustrating. Sometimes, I want to give up and just stick to what I already have. And maybe I should — but probably not. More on that later.

There’s more to bank accounts than savings accounts. You’ve got checking accounts, money market accounts, and certificates of deposit (CDs). They’ve each got their perks, and some will pay you for plopping money into an account and leaving it there.

But opening more than one account can be a drag. They take time and effort to manage. How do you know if you should open another account? It’s a valid question. Let’s break it down.

1. Your bank account pays too little interest

Interest rates matter. According to research from The Ascent, about 9 out of 10 Americans care a lot about how much money they get paid by their bank. Right now, average rates are higher than they’ve been in years. Here are good rates for the most popular types of accounts:

Savings: The best high-yield savings accounts offer interest rates above 4%.CDs: The best CD rates offer 4% to 5% returns on investments.Money market: The best money market accounts offer up to 5% annual returns.

Is a top-tier interest rate important to you? If so, check out the above accounts to make as much as $5 for every $100 invested. Online banks typically offer the highest rates. You can open an account by filling out a new account application on the bank’s website.

2. Your bank account fails to meet your needs

Your bank account should meet your needs. Some folks want mobile access. Others don’t care about that — they just want somewhere super safe to store their money. Not sure what to look for? Start with the following considerations:

Is your bank secure? The most secure banks are FDIC insured.Is the customer service high-quality? Google customer service reviews.Does your bank offer online or mobile access? Many banks provide online access.

If your bank account doesn’t meet your needs, it may be time to open another account. You can open a new account at the same bank or switch banks entirely.

You can close your old account to keep things simple, or you can keep both to meet different needs. For example, you may want to open both a checking account for short-term expenses and a savings account for your permanent emergency fund.

3. Your bank account becomes unmanageable

If you’re getting mired in customer service, that’s a red flag. If it happens more than once, you may want to consider switching to another bank. I’ve struggled to transfer funds into multiple freshly opened savings accounts. I thought the struggle was mandatory.

I was wrong. I could’ve skipped the hassle entirely by investing in a savings account offered by a company I already do business with. It made my unmanageable funds manageable. I’m relieved I didn’t settle for less.

It shouldn’t be hard to move money around. If you find yourself struggling to manage your account, do yourself a favor and examine better alternatives. They exist.

MORE: The Ascent’s 2023 Bank and Bank Accounts Awards

When you should not open another bank account

Banking should be simple. If you struggle to manage your accounts right now, opening a new one will only make things harder for you. At best, your stress goes up. At worst, you lose track of your finances and end up paying for what should be profitable.

Do not open a bank account if it overcomplicates your personal finances. But if you do open a new account, consider downloading a budgeting app. These track your money across all bank accounts — some do it automatically. It makes managing multiple accounts easier.

Bottom line: There are three ways to know if you should open another bank account: your interest payments are too low, your account fails to meet your needs, or your account becomes too hard to manage. Keep banking simple and affordable to make the most of your funds.

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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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