Money Management

You might have a chance to benefit from swapping your current home loan for a new one. 

There’s a reason so many homeowners rushed to refinance their mortgages back in 2020 and 2021. At that point, mortgage rates were extremely competitive, and many homeowners were in a solid position to reap savings on their mortgages by refinancing them.

But things are looking very different as of early 2023. A year ago, a good 7 million borrowers stood to benefit from a refinance, according to data firm Black Knight. But at this point, that number has been whittled down to just 270,000 — even though mortgage rates are a bit lower today than they were in the fall of 2022.

Now it may be the case that most homeowners won’t benefit much from a refinance today. But here’s how to know if you’re an exception to that rule.

When the numbers make sense

Generally speaking, for a refinance to make sense, you need to be looking at an interest rate that’s around 1% lower than what you’re currently paying on your mortgage or more. And the reason for that boils down to the cost of a refinance.

One thing homeowners tend to forget when they look to refinance is that swapping an existing mortgage for a new one comes at a price. Refinance lenders commonly charge closing costs, the same way those fees apply to a regular mortgage. And closing costs can easily amount to 2% to 5% of the loan you’re refinancing.

So, let’s say you owe $300,000 on your mortgage. In the course of a refinance, you might end up having to pay fees ranging from $6,000 to $15,000, depending on the lender you decide to work with. And so you’ll need to eke out enough savings on your mortgage rate to make a refinance worthwhile.

Another reason to refinance today

If you can shave 1% or more off of your current mortgage’s interest rate, then that alone is a good reason to move forward with a refinance, even if today’s borrowing rates are far from the lowest they’ve been in years. But even if you can’t lower your mortgage’s interest rate by 1% or more, there might still be a case for refinancing — and it’s wanting to take cash out of your home.

These days, homeowners are sitting on a decent amount of equity due to the fact that home values are still up on a national level. So if you’re looking to tap that equity by taking cash out of your home, then refinancing could actually end up being your most cost-effective way to borrow.

All told, today’s mortgage rates aren’t low enough for refinancing to appeal to, or be appropriate for, the majority of homeowners. But you might be an exception, so it could be worth it to crunch the numbers and see if a refinance makes sense for you.

If you do decide to refinance, make sure to shop around with different lenders. That way, you can compare rates and closing costs to see which offer is worth moving forward with.

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Renting a car through Costco is just one way to reduce your travel costs. 

Costco members enjoy savings on a huge variety of items, making it easy to shop for the things you need while still keeping more cash in your bank account. But it’s not just cereal and toiletries that you can save on with your Costco membership. The warehouse club gives you the chance to book travel as well — often at a great price.

Before you break out the credit cards and sign up for your next trip through Costco, you should read these tips to make sure you actually get the maximum savings possible on your vacation.

1. Compare prices to make sure Costco really is the cheapest option

Costco’s prices are often cheaper than you will find elsewhere — but that’s not a given.

Before you book a vacation package, hotel, rental car, or cruise through Costco, you should do some comparison shopping elsewhere. By taking a look at prices competitors are offering and checking those against the warehouse store’s online travel deals, you can make sure you really are getting the most favorable price.

2. Be flexible with your destination

If you just want to get away and you don’t have a strong preference for where you go, you can get some really great bargains by checking out Costco Travel’s limited-time deals. For example, as of the time of this writing, you could get a daily resort fee waived by booking a particular Hawaii trip or score a $100 resort credit at a classic California hotel.

3. Book your rental car through Costco

Costco has especially great prices on rental cars, even though you may not think of booking this through the warehouse club. Check out its offerings whenever you’re renting a car to see if you can reduce the price you pay for your vehicle.

4. Get your theme park tickets through Costco

If you’re planning to visit a theme park, you don’t have to buy your tickets at the door. Costco offers members tickets to many of the biggest theme parks in the country, as well as access to some specialty vacation options.

5. Consider becoming a Costco executive member

If you are a Costco executive member, you will get a 2% reward when you book and complete travel through Costco. This can add up very quickly if you are purchasing an entire vacation through Costco — especially since the 2% back is on top of any credit card rewards you would also be entitled to when you pay for your trip.

Costco executive membership does cost more than the standard membership. Currently, it’s $120 compared to $60. But if you shop frequently at the store — and especially if you are buying big-ticket items like travel — then you can more than cover this added cost and end up with extra cash back.

By trying out these five tips, hopefully you can get a great deal on your next vacation as an added perk of your warehouse club membership. Hopefully you can also enjoy a special vacation with some extra benefits and with more money in your pocket to spend at your destination.

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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.Christy Bieber 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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Don’t put your retirement at risk by making this big error. 

A 401(k) is a great retirement account for many people. Unlike an IRA account, which is a retirement account you open with a brokerage firm of your choosing, your employer manages your 401(k) account (although you do pick the investments within it). You have contributions taken directly from your paycheck, which are made with pre-tax dollars, so a 401(k) is a very convenient way to invest for the future.

However, finance expert Suze Orman has warned that unfortunately, many people are making a big mistake when it comes to this type of investment account.

Are you making this 401(k) mistake?

According to Orman, many people are unknowingly making an error with their 401(k) through no fault of their own, which unfortunately leaves their retirement account balance lower than it should be.

“If you changed jobs recently and just relied on your plan to ‘auto-enroll’ you, there’s a good chance you are leaving money on the table,” Orman explained. “It’s not your fault! Your plan automatically chose a starting contribution rate that is too low to qualify for the maximum match. Grrrrr. Call up HR and find out what your contribution rate needs to be to qualify for the max match. Make the switch ASAP.”

Orman said as many as one in four workers could potentially be unknowingly making this mistake. But the good news is, once you are aware of it, it’s not difficult to correct it.

How to avoid this error and make the most of your 401(k)

The best way to avoid leaving money on the table is to find out exactly what the rules are for earning your full employer matching contribution.

A matching contribution is money your company puts into your 401(k) when you make a contribution. Different companies have their own rules for how they work. For example, some companies match 100% of contributions up to 4% of your salary, or 50% of contributions up to 6% of your salary, or some similar breakdown.

Once you have found out exactly how your company contributes, you can sign up to contribute enough to earn the full match.

So, for example, if your employer matched contributions up to 4% of your salary, you’d want to be sure you were investing at least that much in your retirement account. You may want to invest more, since most experts recommend saving 10% to 15% of your income for retirement Or you may opt to invest only enough to earn the full match and then put the rest of your retirement money in another type of tax-advantaged account. But you’d want to be sure you were maxing out that match before doing anything else first.

Changing your contribution amount is usually a simple matter of filing out some forms or making an adjustment in your online account; you can ask HR or your 401(k) administrator how to do it. It’s a task you should tackle ASAP so you don’t leave free money on the table that your employer would otherwise provide to help you have a more secure future.

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You could seriously end up hurting your returns in the long run. 

Your goal in opening a brokerage account and investing your money is to grow wealth — maybe even a lot of it. And investing consistently, and over a long period of time, is a good way to make that happen.

But one thing you don’t want to do in the course of investing is try to time the market. If you do, you might lose out financially in a very big way.

What is timing the market?

When we talk about timing the market, we’re referring to trying to buy stocks at their lowest price in the hopes of selling at a much higher price. It’s a strategy that might seem to make sense in theory, but often doesn’t work out in practice.

Let’s say you’ve been tracking a given company whose share price has been hovering around $100. If the broad market starts to decline, that company’s share price might drop to $82. You might hesitate to buy that stock at $82 thinking it will go lower. But if you hold out for a lower price and then it suddenly increases to $92, guess what? You’ll have lost out on a great opportunity.

Now, imagine you’ve adopted that strategy not just in the context of a single stock, but every stock or ETF purchase you make. At that point, you’re talking about potentially losing out on thousands upon thousands of dollars in the course of your investing career.

A better approach to investing

How much might you lose if you try to time the market? In a recent recent tweet, financial guru

Graham Stephan illustrated using the following example:

“The market returned 7.2% per year from 1997-2017. But Morningstar found that missing just the 10 best days would take your returns down to 3.5%. And if you missed the 50 best days, you would have lost 4.5%! Timing the market isn’t worth it. Stay invested and beat the rest.”

So, let’s say you have $10,000 invested over 30 years at an average annual 7.2% return. That means you’d end up growing your $10,000 into about $80,500. But if you were to try to time the market, fail, and knock your average annual return down to 3.5%, you’d be looking at just $28,000 after 30 years instead. That’s a huge difference.

That’s why rather than try to time the market, you should instead plan on investing your money steadily and consistently. And a good approach to take in that regard is dollar-cost averaging.

With dollar-cost averaging, you commit to investing a specific amount at preset intervals. For example, you might land on a bunch of stocks to buy and say you’re going to put $500 into them on the 15th of every month, regardless of how the market is doing that day and what price those shares are trading at.

The logic is that if you might pay a higher share price some of the time and a lower price other times. But all in, you’re likely to pay a lower price per share than you would by timing the market.

Scoring solid returns in your investment portfolio could make it so you’re able to meet your various financial goals, whether it’s putting your children through college or being able to enjoy your retirement without financial worry. Trying to time the market could backfire on you and make it harder to meet your goals. So rather than take that chance, commit to investing regularly, and take comfort in the fact that you’re pumping money into the stock market consistently.

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You may be able to benefit financially from that situation. 

Investing in cryptocurrency isn’t for the faint of heart. As volatile as the stock market can be, the crypto market can be even more volatile. And last year, it certainly saw its share of swings. So if you lost money on crypto in 2022, you may be in good company.

Of course, it’s never a great thing to lose money on an investment, since that’s the opposite of what you’re trying to achieve by putting your cash to work. But if you took an actual loss on crypto in 2022, you may be able to use that to your benefit when you file your taxes this year.

A tough year for investors on a whole

It’s fair to say that 2022 was a rocky one for investors by and large. Not only did stock values drop, but crypto absolutely plunged. In fact, it’s estimated that Bitcoin alone lost over 60% of its value in 2022, so if that’s an asset you held, it may have impacted you.

Now one thing you should know is that any time you take a loss on an investment, it can serve as a tax break. So if you lost, say, $5,000 in crypto in 2022, you can use that $5,000 loss to offset capital gains. And if you don’t have a full $5,000 in capital gains, you can use some of that loss to offset your ordinary income.

To be clear, though, you can only claim a capital loss on your taxes if you actually went and sold off assets at a price that’s lower than what you paid for them. So, let’s say you bought stocks in your brokerage account for $4,000 that you sold for $3,000. That means you can claim a $1,000 loss. But if the value of those stocks dropped to $3,000 but you haven’t sold them, you’re not looking at an actual loss — and so there’s no tax break to be had.

The same applies to crypto. Maybe your portfolio is down significantly due to the hit the crypto market took in 2022. But if you didn’t sell your digital currencies at a lower price than what you paid for them, you won’t be eligible to claim a loss.

To put it another way, the IRS only lets you claim actual losses on your taxes, not hypothetical ones. But if you didn’t sell your assets when they were down, your portfolio could still recover. So you can’t claim a loss in that scenario.

Know the rules

Writing off capital losses could serve as a major tax break. But it’s important to do so with accuracy. That’s why it’s a good idea to engage the services of a tax professional when you’re dealing with capital losses. They can help you navigate the rules and make sure you’re taking advantage of the tax breaks that are available to you. They can also help ensure that you don’t accidentally claim a tax break you aren’t entitled to.

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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 Bitcoin. The Motley Fool has a disclosure policy.

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It may not be by much, but payments are dropping around the country. 

If you’ve just received a job transfer or must move for some other reason, it may be a wee bit easier to afford a house this year than it was last year. Now, to be clear: Housing prices and interest rates remain challenging in most markets. However, there are signs that both are softening.

Where monthly mortgage payments are dropping fastest tends to be in areas where they rose most dramatically. Here, we’re going to look at where the housing market appears to be coming back to Earth and examine why it’s happening.

Where monthly payments are inching toward normal

According to Redfin, since October 2022, the monthly median house payment has dropped by 7%. The most significant drops have been in San Francisco, Pittsburgh, Seattle, and Oakland.

Monthly payments ultimately come down to the amount a buyer pays for a property. Here, RE/MAX provides an illustration of how much median prices dropped in major markets between December 2021 and December 2022:

Impact of a price drop

Granted, if you’re on a budget, the difference between paying $430,000 and $415,000 may seem negligible. But here’s what it means in terms of monthly payment, even if interest rates remained the same.

Let’s say you put 20% down and the interest rate on a 30-year fixed mortgage is 6.7%.

Paying $430,000 for the property would require a down payment of $86,000, leaving you with $344,000 to finance. Principal and interest payments on the house would run $2,220 per month, and you would pay a total of $455,112 in interest over the life of the loan.Paying $415,000 instead would require a down payment of $83,000, and leave you with $332,000 to finance. Principal and interest payments would now run $2,142, and you would pay a total of $439,236 in interest by the time the loan is paid in full.

The slight softening in price would save you nearly $16,000 in interest.

Add a drop in interest rate

To be sure, there have been no dramatic drops in housing prices, although interest rates have inched down over the past few months. Since hitting their recent peak in May 2022, interest rates have fallen ever so slowly. Again, an interest rate reduction of 1% may not seem like anything to write home about, but it can make all the difference in a monthly mortgage payment, particularly when coupled with a slightly lower home price.

Here’s the difference in monthly payments after a reduction in both price and interest rate:

By paying $15,000 less for a home and snagging an interest rate 1% lower, the buyer will save roughly $300 per month and more than $95,000 in total interest.

Two more factors

At least two other factors have crept into play. They are:

1. Inventory

Home sales are driven by supply and demand. Red-hot sales were due, in part, to high demand and low inventory. That appears to be turning around, at least in some markets. These examples compare a month’s supply of inventory in December 2021 to a month’s supply in December 2022.

Salt Lake City, Utah: Inventory increased by 532.3% year over year.Raleigh, North Carolina: Inventory increased by 530%.Nashville, Tennessee: Inventory jumped by 377.1%.

2. Days on market

For months, homes scarcely had time to hit the market before they were sold. Today, they are lingering a bit longer. For example:

Tampa, Florida: In December 2021, the average home in Tampa was on the market for 20 days. By December 2022, it had stretched to 55 days.Bozeman, Montana: The average home was snapped up in 31 days in 2021. By the end of 2022, it was 75 days.Denver, Colorado: Days on market more than doubled in one year, from 21 days to 44 days.

There’s no getting around reality. Homes are still more expensive than they were prior to COVID-19 and monthly payments remain too high for many households to manage. Still, if we’re looking for the subtle signs of a cooling market, slightly lower mortgage payments fit the bill.

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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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