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If you’re looking for flexible funding, you can tap into your home equity with a home equity line of credit (HELOC). A HELOC is a revolving line of credit that uses your home as collateral. Using a HELOC can be risky, so homeowners typically use them for major life expenses, not daily expenses.

Let’s learn about the best and worst ways to use a HELOC, along with alternative credit options that might better fit your needs.

Best Ways To Use a HELOC

You can use a HELOC to help you improve your financial situation, like building equity or consolidating debt so you can pay it off faster or with lower interest. Here are some of the best ways to use a HELOC.

Home Improvements

One common way to use a HELOC is for home renovations and repairs. You draw on a HELOC whenever you need to and only pay interest on what you borrow. This gives you the flexibility to spread home improvement projects over years. You can also take advantage of tax deductions if you use HELOCs to substantially renovate your home.

Debt Consolidation

If you have multiple high-interest credit balances, you can use a HELOC to pay down your debt faster and reduce the interest you pay. With a HELOC you can consolidate credit card and personal loan payments at potentially lower interest rates. Using a HELOC to consolidate debt can make your debt easier to manage.

Higher Education

HELOCs can be used to cover the costs of a college education when federal student loans are not an option. Federal student loans have fixed, low-interest rates and offer benefits like loan deferment and loan forgiveness without putting your home at risk.

However, federal student loans have caps on the amount you can borrow. A HELOC may provide funding for tuition, housing, dining, and textbooks when you have maxed out your student loan options.

Emergency Fund

You can use a HELOC as an emergency fund for medical bills, car repairs, or other unexpected expenses. Having easily accessible funds can give you peace of mind when unexpected events, like losing your job, threaten your finances. And you won’t need to rely on credit cards or dip into your retirement savings.

Keep in mind that you’ll need to apply for a HELOC long before you need the money. HELOC applications can take weeks to process because they require a home appraisal and lenders need time to review your credit history.

Worst Ways To Use a HELOC

Your home is likely your most valuable asset. So, in many cases, like for unnecessary or smaller expenses, taking out a HELOC that uses your home as collateral is not worth the risk. Here are some examples of ways you want to avoid using a HELOC.

Luxury Purchases

Try to avoid using a HELOC for unnecessary expenses. Vacations, weddings, handbags, and other luxuries offer little to no long-term value, so they aren’t worth risking your home. Instead, consider saving toward your purchase goals and using cash, or using a credit card that provides rewards for luxury expenses.

Down Payment on a Home

You can use a HELOC as a down payment to buy a second home. While this has several advantages, like helping you preserve your savings, it also has disadvantages.

Buy a Car

Using a HELOC to buy a car can offer you negotiating power and lower interest rates, but it may not be ideal because of the length of the repayment terms. HELOC repayment periods are usually between 10 and 30 years, which is significantly longer than car loan repayment periods.

If you pay off your HELOC quickly with no penalty, it may provide a more affordable financing option for a car. However, if you sell or trade in your car during the HELOC repayment period, you could be making payments on a car for longer than you own it.

Retirement Fund

Many older Americans use their home equity to fund living expenses in retirement. In doing so, they miss out on the opportunity to increase their home’s equity and have additional savings. Depending on your financial situation, HELOCs can be more difficult to repay if your income is lower, as it is for many people in retirement.

Alternatives to HELOCs

HELOCs do tend to have lower interest rates, but there’s more to consider when choosing which type of loan is right for you. Here are some alternative credit options and why they could potentially be better suited for your needs.

Home Equity Loans

A home equity loan also uses your home as collateral, but it acts more like a regular installment loan. With a home equity loan, you receive the funds in a lump sum payment. You may use a lump sum to make a one-time payment upfront, like for a kitchen remodel.

Cash Out Refinance

If you’re looking for another way to borrow against your home equity, consider cash-out refinancing. A cash-out refinance allows you to pay off your existing mortgage with a larger loan and pocket the difference.

A HELOC does not change your first mortgage. So, you could miss out on lower interest rates that could come from a cash-out refinance, depending on the interest rate environment. Like a HELOC, you can use this extra money to pay for home upgrades, education, or emergency expenses.

Personal Loans

If you’re not willing to put your home up as collateral, a personal loan may be a better option for you. Personal loans can be unsecured and can be used for many of the same expenses as a HELOC, like debt consolidation and home improvements. Personal loans have relatively short terms in contrast to the 10-year draw period and 20-year repayment period common to HELOCs.

Credit Cards

Credit cards will have a higher interest rate than a HELOC, but they are a better alternative if you need quick access to funds for emergencies or daily expenses. They tend to be more accessible than HELOCs because you don’t need to own a home or go through a lengthy application process. Credit cards can also give you cash-back rewards on purchases.

Frequently Asked Questions (FAQs)

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Average 30- and 15-year mortgage rates climbed back toward their recent peaks, the latest in a series of up-and-down swings.

The average on a conventional 30-year fixed mortgage rose to 5.92% from 5.77% the previous business day. Last month it reached 6.19%, its highest point since at least 2019, and likely much farther back. (Our daily mortgage rate data only goes back to April 2021, but our data on yearly highs and lows dates back to 2020, so we know rates weren’t higher in 2020, and if other measures are any indicator, may have hit their highest point in over a decade.)

The average rate on a 15-year mortgage rose to 5.06% from 4.97% the previous business day. Its recent peak was 5.26%, also the highest since at least 2019.

Fixed mortgage rates tend to track the direction of 10-year Treasury yields, which usually rise with heightened inflation fears (and fall when those fears subside). Yields have generally spiked over the last two months—albeit with some up-and-down days—as inflation and the Federal Reserve’s effort to lower it with higher interest rates have intensified. Last week, the Fed announced a second rate hike of a half percentage point to its benchmark fed funds rate, double the size of its first increase in March.

During the pandemic, relatively low rates bolstered buying power, allowing house hunters to buy more expensive homes with the same monthly budget and helping to fuel a fiercely competitive residential real estate boom characterized by rapidly rising prices. But now that interest rates have spiked, the cost is increasingly putting homes out of reach for prospective buyers. Freddie Mac’s weekly measure of the average 30-year rate is at its highest point since 2009, although it’s still relatively low compared to the double-digits of the 1980s and early 1990s.

Borrowers pay discount points, or upfront fees, to obtain a lower interest rate, spending more initially to save in the long run. Whether or not you should pay points depends on how long you plan to keep the loan. Here’s how to calculate that.

30-Year Mortgage Rates Jump

A 30-year fixed mortgage is by far the most common type of mortgage because it offers a consistent and relatively low monthly payment. (Shorter-term fixed mortgages have higher payments because the borrowed money is paid back more quickly.)

Besides conventional 30-year mortgages, some are backed by the Federal Housing Authority or the Department of Veterans Affairs. FHA loans offer borrowers with lower credit scores or a smaller down payment a better deal than they might otherwise get; VA loans let current or past members of the military and their families skip a down payment.

• 30-year fixed: The average rate rose to 5.92%, up from 5.77% the previous business day. A week ago, it was 5.87%. For every $100,000 borrowed, monthly payments would cost about $594.42, or $3.20 more than a week ago.
• 30-year fixed (FHA): The average rate rose to 5.71%, up from 5.56% the previous business day. A week ago, it was 5.85%. For every $100,000 borrowed, monthly payments would cost about $581.03, or $8.91 less than a week ago.
• 30-year fixed (VA): The average rate rose to 5.68%, up from 5.46% the previous business day. A week ago, it was 5.88%. For every $100,000 borrowed, monthly payments will cost about $579.13, or $12.73 less than a week ago.

15-Year Mortgage Rate Rises

The best advantage of a 15-year fixed mortgage is that it offers a lower interest rate than the 30-year and you’re paying off your loan more quickly, so your total borrowing costs are far lower. But for the same reason—that the loan is paid back over a shorter time frame—the monthly payments will be higher.

• 15-year fixed: The average rate rose to 5.06%, up from 4.97% the previous business day. A week ago, it was 4.94%. For every $100,000 borrowed, monthly payments would cost about $793.92, or $6.25 more than a week ago.

Jumbo Mortgage Rates Climb or Hold Steady

Jumbo loans, which allow you to borrow bigger amounts for more expensive properties, tend to have slightly higher interest rates than loans for more standard amounts. Jumbo means over the limit that Fannie Mae and Freddie Mac are willing to buy from lenders, and that limit went up in 2022. For a single-family home, it’s now $647,200 (except in Hawaii, Alaska, and a few federally designated high- cost markets, where the limit is $970,800).

• Jumbo 30-year fixed: The average rate rose to 5.15% from 5.02% the previous business day. A week ago, it was 4.90%. For every $100,000 borrowed, monthly payments would cost about $546.03, or $15.30 more than a week ago.
• Jumbo 15-year fixed: The average rate was 5.02%, the same as the previous business day. A week ago, it was 4.90%. For every $100,000 borrowed, monthly payments would cost about $791.84, or $6.25 more than a week ago.

Refinance Rates Increase

Refinancing an existing mortgage tends to be slightly more expensive than getting a new one, especially in a low-rate environment.

• 30-year fixed: The average rate to refinance rose to 6.32% from 6.05% the previous business day. A week ago, it was 6.04%. For every $100,000 borrowed, monthly payments would cost about $620.28, or $18.16 more than a week ago.
• 15-year fixed: The average rate to refinance rose to 5.38% from 5.21% the previous business day. A week ago, it was 5.11%. For every $100,000 borrowed, monthly payments would cost about $810.73, or $14.19 more than a week ago.

Methodology

Our rates for “today” reflect national averages provided by more than 200 of the country’s top lenders one business day ago, and the “previous” is the rate provided the business day before that. Similarly, the week earlier references compare the data from five business days earlier (so bank holidays are excluded.) The rates assume a loan-to-value ratio of 80% and a borrower with a FICO credit score of 700 to 759—within the “good” to “very good” range. They’re representative of the rates customers would see in actual quotes from lenders, based on their qualifications, and may vary from advertised teaser rates.

Have a question, comment, or story to share? You can reach Diccon at dhyatt@thebalance.com.

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Reverse mortgages are special types of loans that give older homeowners a way to turn their home equity into a source of income they can use during retirement. When they move out or die, the lender usually takes and sells the home to repay the loan.

There are some benefits to reverse mortgages, but there are also some significant downsides to keep in mind. While they might not be a ripoff, reverse mortgages are not for everyone.

Pros and Cons of a Reverse Mortgage

Pros Explained

• You can keep living in your home while you have the mortgage: If you want to sell your home to get equity out of it, that usually means you can’t live in it anymore unless you rent from the new owners. Reverse mortgages let you stay in your home.
• No payments: Other ways to get equity out of your home, such as a home equity line of credit or loan, involve monthly payments. You only repay a reverse mortgage when you move out.
• Turn home equity into a source of cash or income: With a reverse mortgage, you can convert your home equity into a regular stream of income that you can use to pay other expenses.
• The income is tax-free: Because the money you get from a reverse mortgage is considered proceeds from a loan, you don’t pay taxes on it.
• Your risk is limited, in some cases: If you get a Federal Housing Administration (FHA)-insured reverse mortgage, your risk is limited. At the end of the loan, if the lender takes your home and it is not worth enough to pay off the outstanding balance, the government will cover the remainder.

Cons Explained

• Reverse mortgages come at a cost: It’s easy to forget that reverse mortgages are loans, which means interest will accrue over time. You also have to pay lender fees such as origination fees.
• May not get as much value out of your home: If getting the most value out of your home is the goal, reverse mortgages won’t help. The ongoing fees and interest typically mean you’ll get less than if you’d sold the home.
• Restrictions on what you can do with your home: When you obtain a reverse mortgage, the loan lasts for as long as you keep living in the home. If you want to move, spend a significant amount of time elsewhere, or need to go into a nursing home or care facility, you might be forced to sell the home.
• Risk of foreclosure: When you get a reverse mortgage, you agree to keep the house in good condition and pay required costs, such as property tax and insurance. If you fail to meet your end of the agreement, the lender could foreclose on you.

Spotting Reverse Mortgage Scams

Reverse mortgages are targeted at older homeowners. In fact, you have to be at least 62 to be eligible for an FHA-insured reverse mortgage.

Unfortunately, that means that reverse mortgage scammers looking to prey on the elderly are fairly common. It’s important to protect yourself from scams.

Some scams are easy to spot. Anyone using high-pressure sales tactics or trying to convince you to sign documents without letting you read them carefully or consult an attorney are likely scammers that you should avoid.

However, some scammers are less obvious.

It’s essential that you do your own research and due diligence, read documents carefully, and make sure you’re working with a trustworthy lender.

Should You Get a Reverse Mortgage?

Reverse mortgages can be a good idea for some homeowners, but they aren’t for everyone.

When It Makes Sense

Reverse mortgages can be a good choice for certain types of homeowners.

For example, if you plan to stay in your home for a long time and have no expectation of moving or spending large amounts of time in a second home, a reverse mortgage can be a good way to get cash out of your home.

This is especially true if you’re very tight on funds and can’t afford to make payments on something like a home equity loan—or just need more income to pay for necessities.

Reverse mortgages can also be a good choice for people with poor credit. They can be easier to qualify for than other types of loans that often require stronger credit scores.

When It Doesn’t Make Sense

Reverse mortgages might not be the right choice for some people.

One scenario where one would be a bad idea is if you own multiple homes and split time between them. You can only get a reverse mortgage on a primary residence. If it’s difficult to prove which of your homes is your primary residence, you might face foreclosure.

Further, you should avoid a reverse mortgage if someone other than your spouse lives with you. While qualifying spouses can stay in the home after you move out or pass away, other family members and roommates don’t get that protection if they’re not co-borrowers.

Alternatives to Reverse Mortgages

If a reverse mortgage isn’t right for you, there are other ways to get equity out of your home.

Home Equity Loan

A home equity loan uses the equity you’ve built to secure a loan. Like most typical loans, you get a one-time, lump-sum payment that you can use for almost any purpose. This makes these loans a good choice for people who have a one-off expense to cover but don’t need a stream of income.

Home Equity Line of Credit

Home equity lines of credit, or HELOCs, let you pull cash out of your home when you need it, up to a set limit. You only make payments and pay interest on the amount you’ve borrowed, similar to a credit card.

HELOCs can be useful for homeowners who might need multiple cash infusions because they let them avoid having to apply for a new loan each time they need cash.

Move to a Smaller Home

Many older homeowners are able to downsize their homes. For example, if you originally needed a larger home to house children who have grown up and moved out, you might have the option to move to a smaller house now.

If you sell your home and buy one that’s less expensive, you can use the extra proceeds to cover your expenses.

Frequently Asked Questions (FAQs)

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Definition and Example of the Fair Housing Act

The Fair Housing Act is a law enacted in 1968 and has been updated several times since its inception. The law is enforced by the US Department of Housing and Urban Development (HUD).

The Fair Housing Act prohibits lenders, landlords, sellers, and agents from discriminating against homebuyers and tenants on account of specific characteristics, including race, color, religion, sexual orientation, nationality, disability, or family status. For example, thanks to the Fair Housing Act, it is illegal to refuse to rent a home to someone because they practice a different religion.

Individual states and local governments can add to the law, providing more protections, but they can’t take away from it. According to the Policy Surveillance Program from Temple University’s Beasley School of Law, 49 states and the District of Columbia have adopted additional protections.

note

Examples of additional protections in certain states include ancestry, gender identity, source of income, military status, and pregnancy.

• Alternate name: Title VIII of Civil Rights Act of 1968

How Does the Fair Housing Act Work?

Under the Fair Housing Act, property owners cannot discriminate against people in protected classes. They cannot refuse to provide reasonable accommodation to people who need it, such as people with disabilities. A reasonable accommodation is a change to the policies and practices of a property that will allow an occupant to use and enjoy it.

Nor can the property owner prevent a tenant from making a reasonable modification, at the tenant’s expense, that will allow them to use and enjoy the property. To be reasonable, the changes must not cause harm or be an undue burden (financially or administratively) to the housing provider.

Enforcing the Fair Housing Act

Because the Fair Housing Act is a federal law, it’s enforced by HUD. If you believe you’ve been a victim of illegal housing discrimination, you can choose to file a lawsuit in state or federal court, or you can file a complaint directly with the HUD.

If you file a complaint with the federal agency and it finds there’s reasonable cause to believe your rights were violated under the act, it will prepare charges of discrimination. You’ll then have 30 days to decide whether to have the charge tried in a HUD administrative court or a federal court.

If you proceed with the former, you’ll be represented by HUD attorneys. This process typically goes more quickly than a federal trial with a judge or jury, but you’re only eligible for compensatory damages—punitive damages won’t be awarded. With a federal trial, you’ll be represented by attorneys from the US Department of Justice (DOJ), and you could receive both compensatory and punitive damages from the defendant.

note

The Fair Housing Act can be difficult to enforce because many forms of discrimination aren’t overt and, therefore, cannot be documented. However, if you have documentation of discrimination, such as recordings or written records, contact an attorney or local fair housing agency to understand your rights and next steps. When a formal complaint is filed, HUD will investigate the allegation.

If HUD finds a pattern or practice of discrimination or the defendant has discriminated against a group of people to the point that it’s an issue of general public importance, it may refer the matter to the DOJ, which may directly file a lawsuit against a defendant on on behalf of the victims.

Penalties for Violating the Fair Housing Act

Civil penalties for violating the Act range from $16,000 for a first offense to $65,000 if there have been two or more violations during the previous seven years. If the case is tried in federal district court and the plaintiff wins, the defendant may have to pay actual, punitive, and compensatory damages as well as legal fees.

Types of Discrimination

If you’re not sure what counts as discrimination under the Fair Housing Act, here are some examples:

• A seller refuses to work with a prospective buyer because of their race or color, or because they don’t fit the demographics of the neighborhood.
• A landlord makes an apartment available but tells a tenant it’s been taken when they find out the candidate is a member of the LGBTQ community, only to tell others that it’s still available.
• A mortgage lender charges a higher interest rate because the borrower’s name appears to be from another nationality.
• A condominium complex doesn’t comply with accessibility requirements, such that a prospective tenant who uses a wheelchair won’t be able to access the units or parking.
• A landlord refuses to rent to a single woman with children.
• A real estate agent directs a prospective homebuyer to a different locale when they find out the buyer’s religion doesn’t match the predominant one in the area.

What It Means for Your Family

The Fair Housing Act is designed to help protect certain classes of people who may experience discrimination when trying to buy or rent a place to live. Unfortunately, though, discrimination still occurs, and it’s not always obvious enough to document and prove.

If you’re concerned about a landlord, lender, seller, or agent violating your rights, try to keep all communication in writing and document your conversations. This way, you can refer back to these documents to provide the discrimination, if needed.

If you believe your rights have been violated, don’t hesitate to contact your local fair housing agency or an attorney to determine the next steps you should follow.

Key Takeaways

• The Fair Housing Act prohibits landlords, lenders, sellers, and agents from discriminating against prospective homebuyers and tenants based on race, color, religion, sexual orientation, nationality, disability, or family status.
• Many states have adopted additional protected classes on top of those detailed in the Fair Housing Act, but they cannot take away from the Act’s provisions.
• If you’re concerned about discrimination from a landlord, lender, seller, or real estate agent, plan communications in a way that makes it possible for you to retain records.
• If your rights have been violated according to the Fair Housing Act, you can pursue legal action against the perpetrator.

You can’t get a power of attorney to act for someone after they have died, and an existing power of attorney becomes invalid upon the death of the principal—the individual who gave you the right to take certain actions on their behalf.

Someone is still going to have to take care of their affairs after their death, but it won’t necessarily be the agent appointed in a power of attorney during their lifetime.

Does Power of Attorney Last After Death?

Perhaps your parent recently passed and you were named as their agent in a power of attorney (POA). You’re the individual they wanted to take care of certain personal business matters for them. The POA gave you the authority to act on their behalf in a number of financial situations, such as buying or selling a property for them or maybe just paying their bills.

You might think that you should continue paying those bills and settling their accounts after their death, but you should not and you can’t—at least not unless you’ve also been named as the executor of their estate in their will, or the court appoints you as the administrator of their estate if they didn’t leave a will.

Who Has Power of Attorney When There’s a Will?

People can no longer legally own property after they’re deceased, so probate is required to transfer their property to living heirs. Your parent’s will must, therefore, be filed with the probate court shortly after their death if they held a bank account or any other property in their sole name.

This begins the probate process to legally distribute their property to their living beneficiaries. The executor named in their will is responsible for doing so and guiding the estate through the probate process.

Who Has Power of Attorney When There’s No Will?

The deceased’s property must still pass through probate to accomplish the transfer of ownership, even if they did not leave a will. The major difference is that their property will pass according to state law rather than according to their wishes as explained in a will.

The court will appoint an administrator to settle the estate if the deceased did not leave a will. You can apply to the court to be appointed as administrator, and the court is likely to agree if the deceased left no surviving spouse, or if their surviving spouse and their other children agree that you should do the job.

Estate Executor vs. Power of Attorney Agent

In either case, with or without a will, the probate court will grant the authority to act on a deceased person’s estate to an individual who might or might not also be the agent under the power of attorney. The two roles are divided by the event of the death. In some cases, however, the agent in the POA might also be named as executor or administrator of the estate.

What Does Someone With Power of Attorney Do After a Death?

The POA you hold for your parents is useless and serves no purpose after their death. The deceased person no longer owns anything for you to handle for them because they can’t legally hold money or property.

The POA might authorize you to make financial transactions for them, but they technically no longer own the property or the money over which the POA placed you in charge. Their estate owns it, so only the executor or the administrator of their estate can deal with it during the probate process.

Some very small estates don’t require probate, or your parent might have used a living trust as an estate-planning method rather than a last will and testament so probate would not be required. A successor trustee would take over after the deceased’s death if they left a revocable living trust, but these exceptions are limited.

The POA becomes invalid in both cases anyway.

Power of Attorney and Rights of Survivorship

It can also change things if your parent’s bank account or other property is not included in their probate estate for some reason. Probate is only necessary for assets that your parent owns in their sole name. These assets require a legal process to transfer to living beneficiaries.

But if your parent lists you as co-owner of their bank account or even on the deed to their home, giving you “rights of survivorship,” the account or the property passes automatically and directly to you at their death. Probate of these assets would not be necessary.

You would retain control over these assets, but you would no longer be responsible for paying your parent’s debts from that money because probate also handles their final bills. You would be responsible for paying debts on which you co-signed with the deceased, just as you were during their lifetime.

Frequently Asked Questions (FAQs)

	Starter home	Forever home
Definition	A home you plan to own for a short period before buying another one	The only home you plan to buy
Home features	May have drawbacks in size, location, or other features	Must meet both current and future needs
Cost	Typically cheaper	Typically more expensive
Mortgage	May prefer an ARM	May prefer a fixed rate
Incentives	Last the life of the loan, but don’t carry over to the next loan	Last the life of the loan
Equity	Builds equity	Builds equity

Home Features

A starter home gets you out of renting and into ownership, with the expectation that you’ll eventually move on to another home. It might not be perfect—maybe it’s a little too far from work, it only has one bathroom, or is in dire need of upgrades. Since you aren’t planning on living in it permanently, those drawbacks might not be deal-breakers.

A forever home, meanwhile, is the only one you plan on buying. That means you’ll need to find a home that suits your current needs and all your future needs, too. If you plan to get married, have kids, or work from home, you should consider how these decisions will affect your need for features like outdoor space, more bedrooms, or nearby schools. While you can eventually renovate an outdated kitchen, you can’t change your home’s location.

Cost

The perspective described above plays into perhaps the biggest difference between a starter home and a forever home: the cost. Because starter homes typically need a little TLC, they’re often cheaper than newer, larger, or fancier homes in the same area. Homebuyers who only plan to stay for a few years may be more willing to overlook a few flaws or may have a plan to improve them.

Because a forever home needs to meet your future needs, it might be newer or larger than you need right now. For example, a couple might consider buying a four-bedroom forever home because they plan to have kids eventually, but they’ll likely spend more than they would on a home big enough for just the two of them.

Mortgage

If you plan on moving on from a starter home after a few years, an adjustable-rate mortgage (ARM) could be a good choice. An ARM typically starts with a low interest rate, which becomes variable after a certain period of time. If the length of the introductory rate lines up well with the amount of time you plan to own your starter home, an ARM could be a good choice since you can sell your property before the rate increases.

Those seeking a forever home may prefer to opt for a steady 30-year fixed mortgage, where rates won’t ever jump around. While this type of mortgage may come with a higher interest rate than the initial rate of an ARM, it’ll stay put over time—whereas the ARM’s rate has the potential to increase. If you plan to own your home for decades, you may prefer the predictability of a consistent payment.

Incentives

First-time homebuyer programs offer benefits like reduced down payments, down payment assistance, and special interest rates. Programs vary by state, and many have specific income and credit score requirements. In addition, many programs specify a maximum purchase price, so you may need to keep that in mind during your home search.

In many cases, the incentives last for the life of the loan. If you’re buying a forever home, that’s great news—you can continue to enjoy the benefits for years or decades. However, if you buy a starter home, you’ll lose the program’s advantage when you eventually sell it and move on to another property.

Equity

Perhaps most importantly, the money you pay toward your mortgage builds home equity. Whether you buy a starter or forever home, putting money toward your own property means you’re building your own equity instead of paying rent and building your landlord’s equity.

Equity isn’t just built by paying off your mortgage; it also builds as your home’s value increases. For example, 2021 had a historically high year-over-year increase in home prices, with homeowners selling their properties for a median of $85,000 over the price at which they purchased them. That $85,000 is equity, and this type of appreciation is one reason that real estate is often considered a good investment (although there’s always the chance that property values ​​could decrease).

The chance to start building equity sooner is one especially compelling reason to opt for a starter home rather than a forever home if it will take you much longer to save for the latter. Every year you wait before buying is a year you’re not building equity. And when you sell your first home, you can use your home equity to help finance the purchase of your next property. If you buy a starter home, you’ll take advantage of this option sooner than if you choose a forever home.

Starter Home vs. Forever Home: Which Is Right for You?

So how do you choose whether a starter home or a forever home is right for you? In the end, it’s a personal decision, and everyone’s situation is different. For example, one person might consider buying a downtown condo as a starter home, while another might see that condo as the perfect forever home. It all depends on your perspective and plans.

Let’s take a look at some factors that might help you choose one option over the other.

When a Starter Home Is the Best Choice

If you’re keen to begin building equity in your own investment as soon as possible, a starter home might be right for you. Since starter homes are typically more affordable, they might appeal to buyers who want to take advantage of low interest rates by buying sooner rather than later.

A starter home can also be a good option if you’re not sure what your life will look like in five or 10 years. For example, while you hope to eventually have several kids, you don’t have any now—so you don’t necessarily need those extra bedrooms right away. Or perhaps you love living in the city in your 20s but see yourself moving to the suburbs by the time you’re 40. Buying a starter home means you can focus on your current needs rather than trying to predict what you might want later.

When You Should Choose a Forever Home

Perhaps you don’t plan to have kids or your family is already complete, and you love the neighborhood where you plan to buy. Maybe you see yourself hosting gatherings in the same living room for the next 30 years. If you have a clearly defined vision of the future and little desire to move around, a forever home could be a good option.

It’ll likely be more expensive than a starter home, which is an important factor to consider, especially if you live in an area with a high cost of living. It may take you longer to save enough money to cover the down payment and closing costs. However, if this is your first purchase, you can take advantage of first-time homebuyer and down payment assistance programs. Plus, many programs last for the life of your home loan, so staying for the long term means you can make the most of them.

The Bottom Line

In the end, whether you end up buying a starter home or a forever home is your choice. There are plenty of reasons to decide on either option—and you might wind up choosing a combination strategy by purchasing a starter home and then moving to a forever home when you’re ready.

Frequently Asked Questions (FAQs)

Definition and Example of an Enhanced Life Estate Deed

An enhanced life estate deed is an estate-planning instrument that transfers real estate to one or more beneficiaries during the owner’s lifetime. This avoids the need for probate at the time of the owner’s death. You might bequeath your home to your adult child in this way in your later years with the understanding that you’re not moving out. You retain the right to live there and maintain control over the property until your death.

An enhanced life estate deed is sometimes called a “Lady Bird deed.” The Florida lawyer who created this type of deed in the 1980s arbitrarily named it after President Lyndon B. Johnson’s wife. There’s no evidence that the President ever transferred property to Lady Bird Johnson in this way.

This type of deed is recognized in five states as of 2022: Florida, Michigan, Texas, Vermont, and West Virginia.

How Does an Enhanced Life Estate Deed Work?

The initial owner of the real estate, referred to as the “life tenant,” retains control over the property during their lifetime. The life tenant retains the right to mortgage or sell the real estate without the consent of their beneficiaries or the remaindermen named in the deed. They haven’t actually given the home to them yet. The real estate doesn’t actually transfer until the life tenant’s death.

Life Estate vs. Enhanced Life Estate Deed

A standard life estate deed also transfers ownership of a property prior to death, but the owner cannot mortgage or sell the home without the permission and “joiner” of their remaindermen. This type of deed effectively gives the remaindermen the property in the present time. The owner merely retains a “life estate,” the right to remain living there until death. “Joinder” means that these individuals are parties to any mortgage or sale.

The deed must still be prepared, signed, and recorded in the county land records office just like any other deed. A property that’s transferred by either of these deeds would require probate if the remainder beneficiaries should die before the life tenant.

Life Estate Deed	Enhanced Life Estate Deed
Owner can continue living there	Owner can continue living there
Owner cannot sell or mortgage the property without permission of the beneficiaries	Owner can sell or mortgage the property without the consent of the beneficiaries

Consider asking an estate planning attorney to draft the deed if you’re thinking about using one as part of your estate plan. You might accidentally create a standard life estate deed instead of an enhanced life estate deed if you make a mistake and if you happen to live in a state that recognizes both.

Life Estate vs. Transfer-on-Death Deeds

You might want to consult with an attorney to consider another estate-planning mechanism if you don’t live in one of the five states that recognize Lady Bird deeds. Transfer-on-death deeds function in a manner similar to enhanced life estate deeds. They don’t take effect and transfer property to beneficiaries until after death, but the language in the deed must specifically state this.

The property doesn’t require probate. It doesn’t become part of the decedent’s probate estate because a mechanism—the deed—is already in place to transfer ownership from the deceased owner to one or more living beneficiaries. More than half of all states recognized transfer-on-death deeds in their statutes as of 2020:

• Alaska
• Arizona
• Arkansas
• California
• Colorado
• District of Columbia
• hawaii
• Illinois
• Indiana
• Kansas
• Maine
• Minnesota
• Mississippi
• Missouri
• Mountain
• Nebraska
• Snowfall
• new Mexico
• North Dakota
• Ohio
• Oklahoma
• Oregon
• South Dakota
• Texas
• Utah
• Virginia
• Washington
• West Virginia
• Wisconsin
• Wyoming

Enhanced Life Estate Deed	Transfer-on-Death Deed
Recognized in five states	Recognized in 27 states
Transfers property after death and avoids probate	Transfers property after death and avoids probate
Owner retains control while alive	Owner retains control while alive
Not subject to Medicaid “lookback” rules	Property can be seized at death to repay Medicaid

You can revoke a transfer-on-death deed to transfer the property back. A conventional deed would require that a new deed be created to supersede the first one.

The Effect on Medicaid

The government imposes a five-year “lookback” period on Medicaid eligibility if a time should come when you require long-term care and you apply for these benefits. This means that you can’t transfer ownership of assets within five years of making the application. Some people have done this in an effort to “spend down” their assets in order to become eligible for Medicaid assistance, which is needs-based.

note

Medicaid requires that you use your own assets to pay for care first before you can become eligible for benefits. It’s not uncommon for homeowners to attempt to transfer their property to their children to avoid this, thus the “lookback” rule.

The extent of your Medicaid eligibility depends on the value of assets you own at the time you apply. Less is more. Many people believe that they can simply give property away before applying, but that isn’t the case. Assets given away during this five-year time period can be “pulled back” into the value of your estate for qualifying purposes.

An enhanced life estate deed technically doesn’t count as a transfer. You retain control over the property. That control doesn’t transfer until your death. This isn’t generally the case with transfer-on-death deeds, but it depends on state law.

Your home might still be considered available to pay back your Medicaid benefits after death, however. Federal law mandates that all states have an “estate recovery program” in place to recover benefits, but some states will only take from probate estates. Your property would be spared in this case if you were to transfer it by Lady Bird deed. Otherwise, your remainder beneficiaries might be forced to sell the home.

Do I Need to Pay Estate Tax?

A home transferred via a Lady Bird deed contributes to the value of the homeowner’s estate for estate tax purposes. The property is considered to be an inheritance granted to your remainder beneficiaries. Only estates with values ​​in excess of $12.06 million are subject to the federal estate tax as of the 2022 tax year.

note

You won’t incur gift tax for transferring property this way, because you’re granting the home at your death, not during your lifetime.

Several states also have estate taxes, however. Some of their exemption thresholds are much lower.

Your beneficiaries will receive a “stepped up” basis for purposes of any capital gains tax that might come due if they sell the real estate after your death. Their basis in the property is its value at the time of your death, not its value at the time you originally acquired it, as would be the case if it were transferred to them during your lifetime. This can make a considerable tax difference.

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Definition and Example of a Stock Quote

Stock quotes give information about a particular stock’s recent trading activity on a given exchange. How close this data is to real time will depend on the exchange and where you are looking for the information. During the trading day, you can usually see both the prices buyers are willing to pay (bids) and the prices sellers are offering (asks), along with a range of other information. These quotes enable buyers and sellers to find each other and make trades.

For instance, if you wanted to know information about how shares of the Coca-Cola Company were trading, you’d look for the company’s stock quote. You’d see its ticker symbol, which is KO. You’d also see the price of each share, which was $64.74 on May 6, 2022. The stock quote shows you much more than just the current share price. It includes valuable data that you can use to evaluate the company’s shares as you decide whether to buy or sell.

How Stock Market Quotes Work

Both buyers and sellers require data about a particular stock to make a decision and execute a trade. At the very least, they’ll need the name of the stock, its ticker symbol, agreed upon price, and the number of shares they want to buy or sell.

Whether you’re trading on the New York Stock Exchange, the Nasdaq, or another stock exchange, a given stock quote will show some or all of the following information, often in an abbreviated format:

• Open: This is the stock’s opening price. This and all prices are quoted to a hundredth of a cent.
• 52-week high and low (or range): These two numbers record the highest and lowest prices at which the stock traded during the previous 52-week period, but they do not include the previous trading day. The numbers may be adjusted for stock payouts or large dividends.
• Stock symbol (SYM): This is the stock ticker symbol. You can find the symbol for a given company on many financial websites by simply typing the name of the company.
• Dividend (DIV): A dividend is a portion of profits paid to a company’s shareholders. Unless noted in a footnote, this reflects the annual price per share based on the last regular disclosure.
• Yield percentage (Yld%): The yield percentage expresses the dividends and any other disbursements paid to stockholders as a percentage of the stock’s price.
• Earnings per share (EPS): This is a company’s net earnings divided by its total number of shares. A higher number indicates greater profitability.
• Price-to-earnings ratio (P/E): The price-to-earnings ratio is the price of the stock divided by its EPS. This number helps investors compare stock prices more directly to those of other companies.
• Sales volume (Sales 100s): This shows the total amount of stock sold that day, expressed in hundreds. In other words, sales volume is expressed with two zeros missing. For example, if the number reported is 1,959, that means sales volume for that stock was 195,900 for the day.
• High: This is the highest price paid for the stock during the previous day.
• Low: This is the lowest price paid for the stock during the previous day.
• Last (or close): This is the last price at which the stock traded on that day. It does not mean that is the price at which the stock will open the next day, however.
• Change: This describes the difference between the last trade and the previous day’s price.
• Year-to-date percentage change (YTD% CHG): This number is the stock price percentage change for the calendar year. The percentage is adjusted for stock splits and dividends of more than 10%.
• Net change (CHG): The net change is calculated from the previous day’s close, so you are comparing what the stock closed at today to what it closed at yesterday.

You may also notice some footnotes throughout the listings. These point out any number of extraordinary circumstances, including new highs or lows, the first day of trading, or unusual dividends.

What a Stock Market Quote Means for Individual Investors

Once you understand how to read a stock quote, you can begin to make educated decisions regarding investments. With the data you gather, you can learn how to value a company and even make predictions about a stock’s performance. You’ll get to know how to read a stock’s volatility and better gauge your risk when investing.

You can follow a stock’s price throughout the day, although you should be aware that the quotes you see on many free internet sites are delayed. Data providers may delay quotes by 20 minutes or more, enabling them to sell truly live quotes at a premium.

Use a watchlist to track stocks you’re interested in over time. Although past performance does not guarantee future results, tracking your picks helps you learn to identify stocks that meet your trading criteria. It also allows you to detect patterns that can help you in your trades.

That’s the last time (before now) the S&P 500 had fallen five weeks in a row, showing why the stock market’s recent deterioration is so hard to take.

The nearly 11-year stretch without such losing streaks was the longest in the history of the index going back to 1928, according to analysts at Deutsche Bank, suggesting that the “relentless march” of US stocks over the last decade was a fluke characterized in part by “a buy the dip narrative.”

“The last decade has very much been the exception rather than the norm,” they wrote in a commentary.

The benchmark stock index only fell 0.2% last week, but that fifth straight down week left it 9.3% lower than at the beginning of April. And there was no relief on Monday, either. It dropped 3.2% to close at 3,991.24, its lowest point in more than a year, and even farther into correction territory—down 17% from the record high reached in January.

The S&P 500’s recent decline highlights just how many factors have converged to undermine stock prices. Investors are increasingly wary of fallout from rampant inflation. Federal Reserve officials are raising the central bank’s benchmark interest rate to fight higher prices, but many estimate they may trigger an economic recession if they go too high too fast. On top of that, the war in Ukraine and COVID-19 lockdowns in China threaten to further disrupt already gnarled supply chains.

“Wall Street remains uninspired to ‘buy the dip’ as inflation seems poised to remain stubbornly high, which will force the Fed to tighten policy to levels that will jeopardize the soft landing most traders were expecting” for the economy, Edward Moya, a senior market analyst at OANDA, said in a commentary. “No one can confidently answer the question of when stocks will hit the bottom.”

Have a question, comment, or story to share? You can reach Diccon at dhyatt@thebalance.com.

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If you’re like most people, you’ll need to take out a mortgage to buy a home. According to the US Census Bureau, 94% of people who bought a home in 2021 purchased it with a mortgage.

When you start shopping for a mortgage, it’s easy to get overwhelmed. There are lots of different types of mortgages, each of which is better for some people than others. Here’s how to tell which type of mortgage might be best for you.

Fixed-Rate Mortgages

Fixed-rate mortgages are mortgages with a single interest rate that stays consistent over the entire life of the loan, whether that’s 15, 25, or 30 years. Your interest rate will never change, regardless of what the economy does.

Each type of mortgage can be described with more than one classification. For example, every mortgage has either a fixed rate or an adjustable rate. You can have a fixed-rate FHA loan, for example, or an adjustable-rate conventional mortgage.

Why Homebuyers Use This Type of Loan

• It’s easier to budget for your mortgage payment because it’ll stay the same for the whole term.
• You won’t have to worry about your payment drastically increasing if interest rates go up.

Limitations

• Interest rates are usually a bit higher for fixed-rate mortgages than for adjustable-rate mortgages.
• If you buy your home when interest rates are high, you’re stuck with that rate unless you refinance.

Adjustable-Rate Mortgages

If you have an adjustable-rate mortgage (ARM), your payment amount may fluctuate a lot more than a fixed-rate mortgage would. Each ARM loan agreement describes how often the rate might adjust, how much it can adjust in any one step, and the lifetime limits on how high it can go.

Why Homebuyers Use This Type of Loan

• Interest rates are usually lower than for fixed-rate loans—at least at the start of the loan.
• Some homebuyers use ARMs to keep their payments lower near the beginning of the loan. This can work in their favor if they plan to resell or refinance the home, especially before the ARM’s first-rate adjustment.

Limitations

• ARMs can be a lot more confusing than fixed-rate loans.
• Your payment can change significantly over the life of your loan, making it difficult to afford your mortgage in the future.

Conventional Mortgages

A conventional mortgage is a term for any mortgage given out by a lender that is not part of a government-backed program. If you don’t qualify for any special mortgage programs, this is likely the type of mortgage you have. It’s the most common mortgage type, making up 74% of all mortgages in 2021, according to the US Census Bureau.

Typically, your lender will sell these conventional mortgages to either Fannie Mae or Freddie Mac. For your mortgage to be sold to one of these entities, it must conform to their guidelines, hence why these mortgages are often called conforming loans.

Why Homebuyers Use This Type of Loan

• They may not qualify for other types of mortgages with more favorable terms, like VA loans.
• Interest rates may be lower than for some other types of loans, such as FHA loans.

Limitations

• You may be required to pay an extra fee for private mortgage insurance (PMI) if you make a down payment of less than 20%.
• It can be more difficult to get approved if you have a lower credit score or recent credit dings.

Mortgages Backed by Government Programs

VA Loans

If you’re a veteran or active-duty service member, VA loans can be very lucrative. Overseen by the Department of Veterans Affairs, these home loans generally offer the cheapest rates of all the different types of mortgages. VA loans require no down payment (although sometimes it’s good to put as much down as you can). If you have a lower credit score or negative credit information on your file, it may also be easier to get approved for a VA loan than for other types of mortgages.

FHA Loans

Regulated by the Federal Housing Administration, FHA loans are designed to make homeownership more accessible for people who might not otherwise qualify because they don’t have the greatest credit score or haven’t managed to save up a large down payment. FHA loans tend to be more expensive than conventional loans, but you may be able to get approved with a credit score as low as 500 and a down payment of just 3.5%.

USDA Loans

If you live in a rural area and you’re not a high-income earner, the USDA loan program might be right for you. You won’t need a down payment (but you might still want to put down as much as you can afford). You may also have to pay an extra fee for mortgage insurance, but even so, these loans are usually cheaper than FHA loans.

Why Homebuyers Use These Types of Loans

• VA loans are typically the cheapest mortgage options for current and former service members.
• FHA and USDA loans can unlock home ownership for people who might not otherwise be approved for a conventional mortgage, either because of credit issues or a lack of down payment savings.

Limitations

• These loans may take longer to close because properties need to be inspected and meet loan requirements.
• USDA and FHA loans are typically more expensive than conventional loans for people with good credit and larger down payments saved up.

Jumbo Mortgages

Jumbo mortgage is a broad term for any type of mortgage that is bigger than the limits of common mortgage programs.

For example, if a conventional mortgage is larger than what Fannie Mae or Freddie Mac will buy, then it’s a jumbo non-conforming mortgage. “Non-conforming” comes from the fact that it doesn’t conform to the limits set by those organizations. Similarly, a veteran may be able to use a VA loan to buy a house that costs more than the program’s limit. In this case, the borrower would have a jumbo VA loan.

Why Homebuyers Use This Type of Loan

• Jumbo loans can be used to purchase expensive properties, such as luxury homes.
• In areas with a high cost of living, a jumbo loan may be required to purchase even a medium-value home.

Limitations

• May require better credit and a high income for approval.

How To Tell Which Loan Type Is Right for You

The right mortgage for you will depend on your circumstances, including your:

• Credit score and history
• Down payment
• Income
• Ability to take advantage of special types of mortgages, like USDA or VA loans

Frequently Asked Questions (FAQs)