Money Management

It can be tempting to buy, even with a high interest rate, and think you can refinance later. Keep reading to learn why you should think twice. 

It’s been a wild couple of years for the housing market, and whether you were a seller, a buyer, or a mere spectator, chances are you were surprised by what you saw. Unfortunately for wannabe home buyers, the rock-bottom interest rates of 2021 are now behind us, and rates increased from an average of 3.22% for a 30-year fixed-rate mortgage loan in the first week of 2022 to a downright painful 6.42% for the same mortgage by year’s end, per Freddie Mac.

As of the week ending May 18, 2023, that rate was sitting at 6.39%, and rates have been stuck in the 6% range so far this year. If you’ve been saving your down payment and watching the market, hoping for the right opportunity to apply, you might be tired of waiting and just assume it’s best to just buy at such a rate and accept higher payments for now, because you can always refinance later. Is this a good idea, though?

Who’s to say when rates will drop?

While you might hope you can refinance sooner rather than later, thereby saving yourself years of mortgage payments at 6% interest or more, there’s no way to tell when or if mortgage rates actually will fall. And unfortunately, we are still coping with higher inflation (although thankfully lower than during 2022) and corresponding Federal Reserve interest rate hikes. The Federal Reserve doesn’t set consumer interest rates, but its actions do have an impact, and borrowing rates are up across the board as a result of the 10 straight rate hikes since March 2022.

No one can say with any certainty where rates are going in the near term. One of the more optimistic predictions comes from the Mortgage Bankers Association, as reported by USA Today, which forecasts a downward trend and an end to 2023 at about 5.2%. That’s certainly better than 6.39%, but again — it’s only a prediction.

Will you qualify for a refinance?

Even if rates drop significantly in the near future, will you qualify to refinance your home if you bought at a higher rate? Much like when you got your original mortgage, a refinance lender will need to check your credit score, debt-to-income ratio, and other financial details about you to determine if you qualify, and what rate to give you if you do. You’re also generally required to have at least 20% equity in your home, which may not be a problem if you put at least that much down when you bought. But if you made a lower down payment, or your home value has dropped (which can happen), you may not make the cut.

Will you be able to afford to refinance?

Finally, it’s important to note that refinancing your mortgage isn’t free. You’ll also have to pay closing costs for a refinance. These will include such expenses as an application fee, a home appraisal, an inspection, and a flood certification. All told, you could pay in the neighborhood of 2%-6% of the amount you’re borrowing in the form of a new mortgage to take the place of the old.

If you’re ready to buy a home now and tired of renting, you may decide the time is right, regardless of the interest rate you’ll get. But don’t make that decision based on an assumption you can just refinance later, especially if you’ll be stretching your budget to afford those mortgage payments. As you’ve just seen, a refinance may not be as easy (or happen as soon) as you’re hoping.

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Aldi and Walmart are both known for their low prices and good deals, but which one is better overall? Read on to find out! 

As we all know, grocery shopping is one of the most essential things in our daily lives. But with prices skyrocketing the past couple of years, many consumers have had to adjust their budgets and shopping habits. Grocery shopping can chip away at our checking account balance if we are not careful about what we buy and where we buy it from. Aldi and Walmart are two popular retail giants that offer a wide variety of products at competitive prices. Both are known for their low prices and good deals, but which one is a less costly choice?

What is Aldi?

Aldi is a Germany-based discount retailer with close to 2,000 store locations in 36 states.

Aldi claims its prices are 50% less than traditional supermarkets. Independent research in markets like Houston and Chicago revealed that Aldi’s prices are around 15% cheaper than Walmart.

As a result of its lower prices, Aldi was the fastest-growing grocery chain in the U.S. last year and it became the third-largest grocery retailer by store count. Walmart and Kroger hold the No. 1 and No. 2 spots, respectively. In terms of sales, Aldi is ranked 4th with revenue around $135 billion, according to the National Retail Federation.

How Aldi keeps its prices low

Aldi is known for its privately-branded, low-cost items. More than 90% of the grocery products Aldi sells are Aldi-exclusive products. Aldi’s in-house private label eliminates the extra expenses associated with big name brands like advertising and marketing.

In addition to avoiding brand names, Aldi cuts expenses by stripping down the shopping experience, similar to a Trader Joes. Aldi only stocks around 1,400 items. This is even less than Costco, which typically carries about 4,000. This means the stores are smaller, keeping the cost of rent and labor down. In comparison the average supermarket carries around 40,000 items and Walmart supercenters carry more than 100,000.

Aldi displays products in their original cardboard shipping boxes instead of individually stacking them. This saves employees time spent stocking shelves. Aldi also doesn’t advertise as much as its competitors, and customers have to bring their own bags and even rent their shopping carts. These savings are passed on to customers, keeping prices low.

What is Walmart?

Walmart is the world’s largest retailer with about 10,000 stores and 600 Sam’s Club locations in 20 countries. Walmart is also the world’s largest private employer, with 2.1 million associates around the world and about 1.6 million in the U.S. alone.

In 2022 Walmart’s total revenue was approximately $538 billion, nearly four times that of Aldi, which brought in about $135 billion. Walmart also carries its own private label items, found under the brand names Great Value, Member’s Mark, Marketside, Freshness Guaranteed, Ol’ Roy, Parents Choice, and more.

Walmart is known for its large supercenters that stock pretty much everything, 70 times more than Aldi. A Walmart Supercenter is also about 15 times larger, at 178,000 square feet, than Aldi, which averages 12,000 square feet. (For comparison’s sake, Costco warehouses average around 145,000 square feet.)

Walmart is able to offer low prices due to its massive size and volume of sales allowing the retailer to purchase products in bulk. Additionally, Walmart has invested heavily in technologies that help it streamline operations, reduce waste, and improve efficiency. Ultimately, Walmart’s ability to offer competitive pricing is due to expertise in logistics and supply chain operations.

Price comparison

Here is a price comparison of different grocery items online in the Los Angeles area. To get a true comparison, the prices reflect the private label brands from each store. Prices vary based on region.

The verdict

When adding up the by-unit cost of these specific items, Aldi was about 10.4% cheaper than Walmart. However, the savings depended on the product. Aldi was cheaper for produce and certain meats, as compared to pantry items. Aldi’s low prices also tend to be consistent, so you can expect to save every time you shop there.

However, even though Aldi might be cheaper than Walmart for many of its items, Walmart often offers discounts on its products. This means that if you are savvy and take advantage of these deals, you could end up saving more money at Walmart. Additionally, Walmart is known for having a wider variety of products compared to Aldi. So, if you’re looking for something specific that Aldi doesn’t carry, Walmart could potentially be your best choice.

When it comes to shopping at Aldi and Walmart, both places come with their pros and cons. One major difference between the two is the shopping experience. Aldi stores are smaller, and it has a no-frills shopping experience. This is because Aldi aims to keep costs down. Walmart, on the other hand, has larger stores, a wider variety of products, and a more traditional supermarket shopping experience. All this, while still providing products at an affordable cost.

While Aldi and Walmart both are great options for grocery shopping, it ultimately comes down to personal preferences and what you value the most. If you are looking to stock more in your savings account, Aldi may be the better option, thanks to its low prices and consistent quality. However, Walmart may still be the better choice when it comes to finding a wide variety of products and taking advantage of discounts. Additionally, when it comes to the overall shopping experience, Walmart provides a more traditional ambiance, whereas Aldi offers a bare-bones shopping experience. Ultimately, choose a store that aligns with your needs and budget, while still providing quality products at an affordable price.

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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 positions in and recommends Apple, Costco Wholesale, and Walmart. The Motley Fool has a disclosure policy.

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Increasing your credit score is often possible if you make the right moves. Here’s what to focus on ahead of seeking a mortgage pre-approval. 

Your credit score can have a direct impact on your mortgage interest rate, and thus on your total cost of borrowing when you buy a home.

For example, as of May 18, 2023, a person with a credit score of between 760 and 850 who was borrowing $300,000 would be offered a mortgage with an average APR of 6.445% and would have an average monthly payment of $1,885. But, someone with a score between 620 and 639 would be offered an average rate of 8.034%, which would come with a monthly payment of $2,208. That’s a notable difference.

Since you will end up paying a lot more with a lower score, it’s worth trying to boost your credit prior to the time you actually apply for a mortgage loan. Fortunately, taking these four steps can help you to do that.

1. Pay down your debt

Your credit utilization ratio is the second most important factor when your credit score is determined, after payment history. The amount you owe, relative to credit available to you, accounts for about 30% of your credit score.

Since this is such an important factor in your score determination, paying down what you owe can make a big impact on your credit score and your ability to get an affordable mortgage loan. Ideally, you should try to get your debt down to a point where you are using less than 30% of the credit that is available to you, but even lower is best.

Paying down debt also helps your debt-to-income ratio, which is your debt relative to your income. Mortgage lenders also like your DTI ratio to be as low as possible (typically below 36%, including your new home loan payment), so you’ll get a double benefit from debt paydown.

2. Request credit limit increases

You can also improve your credit utilization ratio by asking for a credit line increase. For example, say you owe $500 on a credit card with a $1,000 limit. You have a 50% credit utilization ratio, which is considered too high and which will hurt your score. But if you requested a credit limit increase and your new limit was bumped to $2,000, you would have just a 25% utilization ratio — which is below the recommended 30% maximum.

This can be a quick way to improve your utilization ratio and thus your credit score.

3. Write a goodwill letter

If you have black marks on your credit record, like a late payment, this can really hurt your credit score and make it harder for you to get approved for an affordable home loan. Sometimes, your creditor may be willing to remove this record of a past problem if you simply ask them to — especially if you have been a good customer. You can write a goodwill letter asking for this favor and see if your creditor is willing to help you out.

4. Become an authorized user

Finally, you may be able to piggyback off someone else’s good credit to improve your own credit score. If you have a family member or friend who has a credit card with a high credit limit, low utilization ratio and on-time payment history, ask if they will make you an authorized user.

When you become an authorized user, you’re added to the account without a credit check on your part and the account shows up on your credit history. You benefit from this positive account being reported on your record. You also get the ability to use the card, but you won’t want to do that as you wouldn’t want the person who added you as an authorized user to get stuck footing the bill for your charges.

By taking these four steps, you may be able to make a noticeable improvement in your credit score. This will help you get a more affordable mortgage loan and make becoming a homeowner easier.

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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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