Category: Card

Early Withdrawal Penalties at Major Banks
bank	One-year CD penalty	Five-year CD penalty
Ally	60 days of interest	150 days of interest
Bank of America	90 days of interest	365 days of interest
Capital one	Three months of interest	Six months of interest
Chase	180 days of interest	365 days of interest
Discover	six months of interest	18 months of interest
Synchrony	90 days of interest	365 days of interest
TD Bank	six months of interest	24 months of interest
Wells Fargo	six months of interest	12 months of interest

Walking Away With Less Money

When you incur penalties on a CD withdrawal, you can lose money and walk away with less than you deposited, in addition to missing out on interest that you would have earned.

For example, suppose you have a 12-month maturity CD that you cash out in the 11th month. You’ll probably walk away with more than you initially put into the CD—although not as much as it could have been had you held off for one more month.

Continuing with this same example, suppose you were to cash out after two months. You haven’t yet earned the six months’ interest as required by the penalty schedule. However, the bank will still take that amount by deducting it from your initial investment deposit. This action is called “invading the principal.”

How To Avoid CD Early Withdrawal Penalties

If you absolutely must cash out early, look for a way to avoid penalties. First, it never hurts to ask. The staff might waive the penalty for you, particularly if it’s an emergency and if you’re at a friendly institution or a smaller credit union. Otherwise, all they can do is say no.

You can usually qualify for a waiver for death, disability, court-determined incompetence, and other major life events. In those types of cases, speaking directly with a representative is particularly important. Banks are permitted to offer these waivers, but that doesn’t necessarily mean that they will. They’re not required to do so by law.

‘Liquid’ No-Penalty CDs

Liquid CDs are similar to standard CDs, but they work more like traditional savings accounts in that they allow you to pull money out early. Sometimes, liquid CDs have limits as to how early and how much you can withdraw, and you might have to make at least a minimum deposit, but they’re worth investigating.

Your “locked in” period is relatively short with these CDs—less than a week in many cases. Still, no one would invest in traditional CDs if this option were that easy. Since you have more flexibility, you’ll receive a lower interest rate in exchange for this freedom.

Alternative CD Strategies

You can try to use other flexible options to avoid penalties when you’re tucking your money away in the future. CDs aren’t bad options, but there might be better alternatives if you find that you keep having to pay penalties.

CD Ladders

Laddering CDs is a strategy where you’ll periodically have one of several mature CDs, often on a six-month or annual basis, giving you the opportunity to take the money penalty-free at that time.

Step-Up CDs

Step-up CDs offer more flexible interest rates. Your rate will increase to keep pace when interest rates rise. This alternative can be attractive if your concern is being stuck with a paltry rate for the whole CD term. Again, these CDs pay less on average than traditional CDs.

Money Market Accounts

Money market accounts pay more than savings accounts, but generally not as much as CDs. The advantage is that you can do limited spending from a money market account using a debit card or a checkbook.

Credit Cards

Credit cards are an expensive way to borrow, but if you need money quickly and your CD will mature soon, it might cost less to put emergency expenses on a card and pay it off as soon as the CD matures. However, a much better idea is to keep a solid emergency fund.

Frequently Asked Questions (FAQs)

Definition and Example of Tax-Loss Harvesting

Tax-loss harvesting can be valuable to an individual who invests in taxable brokerage accounts, as a means of either reducing or eliminating capital gains or reducing ordinary taxable income. The strategy isn’t appropriate for tax-deferred accounts like 401(k) or IRA accounts, because the original investment and earnings already grow tax-free in those accounts.

It’s all about balancing gains with losses. A capital gain occurs when you sell a security like a mutual fund or ETF for more than its purchase price. You would incur a capital loss if you were to sell an asset for a lower price than that at which you bought it. You don’t truly realize the gain or loss on any security as a taxable event until you sell it.

You’ll owe capital gains tax if you have a gain. Long-term capital gains on securities that are held for over one year are taxed at lower rates. A maximum rate of 20% applies, but most taxpayers will pay zero in capital gains tax or a 15% rate.

You’ll have a short-term capital gain if you sell a security you’ve held for one year or less. These are taxed at higher ordinary income tax rates.

How Tax-Loss Harvesting Works

Suppose you invested $1,000 in Fund A and $1,000 in Fund B two years ago. Fund A is now worth $1,500, and Fund B is worth $500. You’ll realize a $500 capital gain on Fund A and a $500 capital loss on Fund B when you sell. The gain and loss would offset each other, so you wouldn’t owe any tax.

Now suppose that you invested $6,000 each in Fund A and Fund B, but Fund A is worth $7,000 now, and Fund B is worth $2,000. You would have a capital gain of $1,000 and a loss of $4,000. This would result in a net loss of $3,000. You wouldn’t owe any tax on the gain. You could also reduce your taxable income by that $3,000.

What It Means for Individual Investors

Tax-loss harvesting isn’t without its potential pitfalls:

• Be aware of the “wash-sale” rule. Some investors like to buy back the same fund that they earlier harvested or sold, but the IRS rule surrounding wash sales stipulates that you can’t deduct the loss if you sell a security at a loss and buy a “substantially identical” security within 30 days before or after the sale. An exception applies if you incurred it in the course of doing ordinary business.
• Don’t confuse tax-loss harvesting with capital gain distributions, which are those that a mutual fund pays from its net realized long-term capital gains. You can use losses to offset these capital gains distributions, but you can’t use them to offset distributions of net realized short-term capital gains. These are treated as ordinary dividends rather than capital gains.
• A wise investor can also reduce taxes in a regular brokerage account by reducing income from dividend-paying mutual funds and taxes from capital gains distributions through a strategy called “asset location.” You can place tax-efficient investments that generate little to no income within taxable accounts.
• Tax-loss harvesting is a year-round activity. It’s often a year-end investment strategy. A savvy investor should be mindful of all fund purchases and sales throughout the year. Make investment decisions based on financial objectives, not market whims.

Do I Have to Pay Capital Gains Tax?

You’ll only pay capital gains tax on “net gains,” which are your gains minus your losses. You can use a capital loss to offset a capital gain if your gains exceed your losses. You can reduce your taxable income by the lesser of $3,000 or your total net losses if your losses exceed your gains during the tax year. You can only reduce your taxable income by up to $1,500 in losses if you’re married and file a separate tax return.

An investor can carry forward and apply any unused losses to future tax years if net losses exceed $3,000.

Definition and Examples of Amortization

Amortization is the way loan payments are applied to certain types of loans. Typically, the monthly payment remains the same, and it’s divided among interest costs (what your lender gets paid for the loan), reducing your loan balance (also known as “paying off the principal loan”), and other expenses like property taxes.

Your last loan payment will pay off the final amount remaining on your debt. For example, after exactly 30 years (or 360 monthly payments), you’ll pay off a 30-year mortgage. Amortization tables help you understand how a loan works, and they can help you predict your outstanding balance or interest cost at any point in the future.

How Amortization Works

The best way to understand amortization is by reviewing an amortization table. If you have a mortgage, the table was included with your loan documents.

An amortization table is a schedule that lists each monthly loan payment as well as how much of each payment goes to interest and how much to the principal. Every amortization table contains the same kind of information:

• Scheduled payments: Your required monthly payments are listed individually by month for the length of the loan.
• Main repayment: After you apply the interest charges, the remainder of your payment goes toward paying off your debt.
• Interest expenses: Out of each scheduled payment, a portion goes toward interest, which is calculated by multiplying your remaining loan balance by your monthly interest rate.

Although your total payment remains equal each period, you’ll be paying off the loan’s interest and principal in different amounts each month. At the beginning of the loan, interest costs are at their highest. As time goes on, more and more of each payment goes toward your principal, and you pay proportionately less in interest each month.

An Example of Amortization

Sometimes it’s helpful to see the numbers instead of reading about the process. The table below is known as an “amortization table” (or “amortization schedule”). It demonstrates how each payment affects the loan, how much you pay in interest, and how much you owe on the loan at any given time. This amortization schedule is for the beginning and end of an auto loan. This is a $20,000 five-year loan charging 5% interest (with monthly payments).

month	Balance (Start)	Payment	Major	Interest	Balance (End)
1	$20,000.00	$377.42	$294.09	$83.33	$19,705.91
2	$19,705.91	$377.42	$295.32	$82.11	$19,410.59
3	$19,410.59	$377.42	$296.55	$80.88	$19,114.04
4	$19,114.04	$377.42	$297.78	$79.64	$18,816.26
. . . .	. . . .	. . . .	. . . .	. . . .	. . . .
57	$1,494.10	$377.42	$371.20	$6.23	$1,122.90
58	$1,122.90	$377.42	$372.75	$4.68	$750.16
59	$750.16	$377.42	$374.30	$3.13	$375.86
60	$375.86	$377.42	$374.29	$1.57	$0

To see the full schedule or create your own table, use a loan amortization calculator. You can also use a spreadsheet to create amortization schedules.

Types of Amortizing Loans

There are numerous types of loans available, and they don’t all work the same way. Installation loans are amortized, and you pay the balance down to zero over time with level payments. They include:

Auto Loans

These are often five-year (or shorter) amortized loans that you pay down with a fixed monthly payment. Longer loans are available, but you’ll spend more on interest and risk being upside down on your loan, meaning your loan exceeds your car’s resale value if you stretch things out too long to get a lower payment.

Home Loans

These are often 15- or 30-year fixed-rate mortgages, which have a fixed amortization schedule, but there are also adjustable-rate mortgages (ARMs). With ARMs, the lender can adjust the rate on a predetermined schedule, which would impact your amortization schedule. Most people don’t keep the same home loan for 15 or 30 years. They sell the home or refinance the loan at some point, but these loans work as if a borrower were going to keep them for the entire term.

Personal Loans

These loans, which you can get from a bank, credit union, or online lender, are generally amortized loans as well. They often have three-year terms, fixed interest rates, and fixed monthly payments. They are often used for small projects or debt consolidation.

Credit and Loans That Aren’t Amortized

Some credit and loans don’t have amortization. They include:

• Credit cards: With these, you can repeatedly borrow on the same card, and you get to choose how much you’ll repay each month as long as you meet the minimum payment. These types of loans are also known as “revolving debt.”
• Interest-only loans: These loans don’t amortize either, at least not at the beginning. During the interest-only period, you’ll only pay down the principal if you make optional additional payments above and beyond the interest cost. At some point, the lender will require you to start paying principal and interest on an amortization schedule or pay off the loan in full.
• Balloon loans: This type of loan requires you to make a large principal payment at the end of the loan. During the early years of the loan, you’ll make small payments, but the entire loan comes due eventually. In most cases, you’ll likely refinance the balloon payment unless you have a large sum of money on hand.

Benefits of Amortization

Looking at amortization is helpful if you want to understand how borrowing works. Consumers often make decisions based on an affordable monthly payment, but interest costs are a better way to measure the real cost of what you buy. Sometimes a lower monthly payment actually means that you’ll pay more in interest. For example, if you stretch out the repayment time, you’ll pay more in interest than you would for a shorter repayment term.

note

Don’t assume all loan details are included in a standard amortization schedule. Some amortization tables show additional details about a loan, including fees such as closing costs and cumulative interest (a running total showing the total interest paid after a certain amount of time), but if you don’t see these details, ask your lender.

With the information laid out in an amortization table, it’s easy to evaluate different loan options. You can compare lenders, choose between a 15- or 30-year loan, or decide whether to refinance an existing loan. You can even calculate how much you’d save by paying off debt early. With most loans, you’ll get to skip all of the remaining interest charges if you pay them off early.

Key Takeaways

• Amortization is the process of spreading out a loan into a series of fixed payments. The loan is paid off at the end of the payment schedule.
• Some of each payment goes toward interest costs, and some goes toward your loan balance. Over time, you pay less in interest and more toward your balance.
• An amortization table can help you understand how your payments are applied.
• Common amortizing loans include auto loans, home loans, and personal loans.

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Definition and Examples of an Insurance Declaration Page

The insurance declaration page It is part of your insurance policy. It comes at the front of your paperwork and adds up the key data about your insurance.

• Alternate name: Policy declarations page, declarations page
• Acronyms: DEC page, dec page

For example, you would receive a declarations page when you purchase a new car insurance policy.

How Does an Insurance Declaration Page Work?

The insurance declaration page is part of your policy. You will get it once your policy is issued. It comes after the binder of insurance and you should have the same data that was sent to you in the binder of insurance.

Despite the name, the document may be longer than a single page. Depending on the details of your coverage, it may span many pages. You should get a new page every time you buy or renew a policy.

The dec page is a key part of your policy. It shows:

• The main coverages that lead to how a claim will be paid
• The limits for each section
• The premiums charged
• Who is insured and what is covered

The dec page contains all of the key information about your contract, including what or who is covered, how to file for a claim, and other details. You should review the dec page in detail to make sure that it is correct.

Common problems found on insurance dec pages may include:

• Errors such as a typo in a name or address
• The wrong type of coverage (for instance, a named perils policy instead of an open perils policy)
• Incorrect deductibles
• Incorrect coverage amounts
• Missing riders
• Missing discounts

All of the things you asked for or agreed to when accepting your new policy should be on the dec page. Any errors can make it hard to file a claim. If you find any, contact your agent to have them fixed.

Once you are done looking over your policy, keep your dec page in a safe place, as it is part of your contract.

What Does an Insurance Declaration Page Cover?

An insurance declaration page will sum up the key data from your policy, which should include:

• The policy number
• Name and address of the policyholder
• Whom and what is covered
• The insurer name, address, and contact info
• What type of coverage the policy includes
• Limits and deductibles
• Endorsements
• How long the policy is valid for
• Discounts and surcharges
• Cost of the insurance, often divided into payments
• Other named insureds, such as banks
• Limits of liability

Many declaration pages will also include the process of how to file a claim. If this is not on the dec page, it should be listed in a separate part of your paperwork.

Why Do You Need an Insurance Declaration Page?

In some cases, it’s helpful to have your insurance dec page on hand. In others, it’s required.

For instance, when you shop for insurance, having your dec page on hand makes it easy to compare products, and when you switch insurers, your new company will want proof of your current coverage.

If you have a loan on any insured property, the lender may require a copy of the dec page. For instance, your auto lender may ask for it, because the dec page will say what and how much coverage your car has, while your insurance ID card will not. The dec page will also show the lender who is listed as loss payee and/or additional insured on the policy. The mortgage company on your home may require the dec page for your homeowner’s insurance as well.

Many times, your insurer is the one that sends your dec page to the lender, but sometimes it gets lost, and you will need to provide a copy.

One of the biggest investments you will ever make is your home. In the event of an unexpected loss, you need a homeowner’s insurance company you can depend on to restore your home and its contents to their previous condition. One company that deserves consideration for your homeowner’s insurance needs is Shelter Insurance.

Shelter Insurance was founded in 1946 under the name of MFA Insurance Companies. In the beginning, the company only offered auto policies to residents of Missouri. From these small beginnings, the company grew to be one of the most successful regional property and casualty (P&C) insurance companies in the United States. In 1981, the name was changed to Shelter Insurance. This was taken from the insurance company’s famous slogan, “MFA is your Shield of Shelter.”

The headquarters of Shelter Insurance is located in Columbia, Missouri. States of operation include Arkansas, Colorado, Iowa, Illinois, Indiana, Kansas, Kentucky, Louisiana, Mississippi, Missouri, Nebraska, Nevada, Oklahoma, and Tennessee. Shelter Insurance writes the following types of insurance policies:

Shelter Insurance opened an international reinsurance operation in 1986.

The other Shelter Insurance Companies are Shelter Mutual, Shelter General, Shelter Life, Shelter Reinsurance, AmShield Insurance, and Haulers Insurance. Shelter Insurance employs over 4,385 employees and agents.

Financial Results

According to Shelter Insurance’s CEO, Shelter Mutual’s surplus strength grew to $2.17 billion for the year, which represents an increase of 3.3%. Assets under management surpassed $6 billion for the first time, an increase of almost 2%. In 2020, the global net income was $81.5 million, a decrease from $5.4 million over the previous year.

Financial Strength and Customer Satisfaction

Customers who choose Shelter Insurance for the homeowner’s insurance needs can feel good about the company’s financial standing.

In 2008, Shelter Insurance was named as one of the top 50 performing P&C companies by The Ward Group. The company has an A (Excellent) rating from AM Best.

Shelter Insurance has been a Better Business Bureau accredited business since 2000. The company has an A+ rating with the BBB. There are only 23 total customer complaints listed on the BBB website. Shelter Insurance has a 5 out of 5-star composite score rating with the Better Business Bureau.

The JD Power & Associates Power rating for Shelter Insurance is 4 out of 5, with the customer service rating also listed as 4 out of 5. In 2018, JD Power & Association awarded Shelter Insurance “highest customer satisfaction among auto insurers in the central region , two out of three years.”

Homeowner’s Policy

The Shelter homeowner’s policy will pay for restoration costs, which means that damaged items in your home will be replaced with new materials. The policy has a good selection of coverage options and generous homeowner’s insurance discounts.

Types of Coverage

Dwelling

You have coverage for your residence and attached buildings as well as coverage for damages to heating systems, cooling systems, construction materials, outdoor antennas or reception dishes, water softeners, and water heating systems.

Other Structures

Other types of structures coverage will pay for damages from a covered loss to buildings permanently attached to the premises such as sheds or fences.

Personal Property

Personal property coverage pays for damages to the contents of your home or other structures. If you own another home that is not your primary residence, you have coverage for contents at a reduced amount. There is limited coverage for money, securities, jewelry, silverware, and on- or off-premises business property. If you want to make sure you have enough coverage for your personal property, you can purchase a personal articles insurance policy.

Additional Living Expenses

If you cannot move back into your home because of damages caused by a covered loss, you have additional living expenses to pay for the costs of living away from home.

Personal Liability

Personal liability homeowner’s coverage pays for property damage or bodily injury to others that occur on your property.

Medical Payments

This portion of the homeowner’s policy is to pay for medical expenses if someone is injured on your property. This coverage does not apply to you or members of your family.

Other Coverage

You also have debris removal, emergency removal of your property, necessary repairs after a loss, fire department charges, and limited coverage for losses to trees, shrubs, plants or lawn damage.

Additional Coverage Options

If you have the need for additional coverage, you can add the following options to your homeowner’s insurance policy: business located on your property, farming, sewer damage, personal computer damage, earthquake damage, additional premises, docks, and piers and liability related to watercraft activities. Your Shelter Insurance agent has more information about the specific details of additional coverage available.

Discounts

The homeowner’s policy comes with many discounts, including for alarm systems, deadbolt locks, claims-free discounts, new home discounts, and heating system discounts. There is also a companion policy discount available if you have your auto insurance with Shelter.

Getting a Homeowner’s Insurance Quote

From the Shelter Insurance website, you can get a quote for auto, motorcycle, RV, ATV, Boat, Renters, Life, Home, Condominium, Umbrella, Personal Articles, Business, and Farm Insurance.

To get a quote for homeowner’s insurance, you’ll first enter your zip code. Next, you will enter some personal information including name, address, telephone number, and email address. You are also asked if you have any other active policies with Shelter Insurance (in order to receive the companion policy discount). You’ll be asked to select a local agent and whether you prefer to be contacted by telephone or email. You can include any additional comments to the agent up to 250 characters when submitting your quote request.

Pros and Cons

Pros

• Excellent financial strength rating
• Strong customer service ratings
• Better Business Bureau A+ Rating

Cons

• There have been some customer complaints about the claims handling process, some claiming that the claims payment process was slow.
• Coverage is only available in 14 states.

Company Contact Information

For more information about a homeowner’s policy or to learn more about the other insurance products available through Shelter Insurance, you can visit the Shelter Insurance website or call 1-800-SHELTER (1-800-743-5837). You can also contact Shelter Insurance by email.

Whole life insurance is a type of permanent coverage that’s offered in a range of “styles” to suit different needs. Since permanent coverage, including whole life, is more expensive than temporary or “term” coverage, many of the different types of whole life insurance have evolved to help owners manage the cost of premiums. But other types are built to maximize the death benefit or the cash value “savings” element.

Before you purchase permanent life insurance, consider the range of available options to determine which best suits your needs.

What Is Whole Life Insurance?

Whole life insurance provides both death benefit protection and a form of tax-advantaged cash buildup (a “cash value” account) that can be accessed by the policy owner. It and universal life insurance are the two most commonly sold types of life insurance policies on the market.

A “standard” whole life policy requires premium payments for the life of the policy for a dollar amount of coverage—the death benefit—that’s determined when the policy is issued. Since this structure can be unnecessarily restrictive, other types have been developed that allow more flexibility. Each type has its own benefits and drawbacks.

Participating Whole Life Insurance

• Dividends, fixed payments, fixed death benefits.

This type of whole life insurance pays dividends into the cash value of the policy when the issuing life insurance company makes a profit. These dividends come from the company’s excess investment earnings and are usually not guaranteed. But they can increase the overall return you receive from the policy.

Participating policies are most commonly issued by “mutual” life insurance companies, which are owned by the policyholders instead of being publicly traded. The dividends that are paid to policyholders are not classified as taxable income (unlike dividends that are paid from stocks). Instead, this form of income is generally considered to be partial repayment of the premiums that were paid and therefore a tax-free return of principal.

Non-Participating Whole Life Insurance

• Lower premium payments that are fixed, fixed death benefit.

Non-participating whole life policies do not pay dividends. The cash value in this type of policy still accrues interest, but the life insurance company doesn’t pass along any of its current profits to holders of these policies. Non-participating policies are known for their fixed costs and more economical premium payments.

Non-participating policies are most often (but not always) issued by publicly traded life insurance companies. Policyholders who want to participate in the profits made by these companies will have to buy stock in the company instead of a life insurance policy.

Indeterminate Premium Whole Life Insurance

• Premiums that adjust according to company performance.

This type of whole life insurance resembles non-participating whole life insurance in that no dividends are paid, but the premiums can be adjusted by the insurance company. The amount of premium you owe is based on the current financial health of the company. So when the insurer is doing well, premiums may go down. Conversely, they may increase during lean periods. However, they can never exceed the maximum amount specified in the policy documents, regardless of the company’s current financial condition.

Indeterminate premium whole life may be a good fit if you’re confident in the company’s financials and expect it to do well in the future. You could pay less in policy premiums over the long run, but if expectations aren’t met, you could pay more relative to a whole life policy with a level premium structure.

Economatic Whole Life Insurance

• Incorporates term coverage for a larger death benefit at a lower cost.

This is a more complex type of whole life policy. It combines a portion of participating whole life insurance along with a portion of decreasing term insurance.

Since the whole life portion is “participating,” it confers dividends, which are used to purchase additional paid-up coverage (coverage for which no additional premiums are due). In other words, the dividends are used to purchase increments of permanent coverage to replace the term coverage as it decreases and eventually expires.

The risk is, if the value of the dividends doesn’t turn out to be enough to replace the term coverage, the value of the net death benefit will decline as the term coverage decreases. The tradeoff for that risk is that this type of policy can give the insured a larger amount of coverage from the outset at a price that’s lower than that of a whole life policy that does not incorporate a term insurance element.

Limited Payment Whole Life Insurance

• High premiums for a set number of years, and then continued coverage with no premiums.

This type of whole life insurance requires a limited number of premium payments until an end date specified in the policy—for example, until age 65. The policy remains in force for the rest of your, or the insured’s life, but does not require any additional payments. This type of policy is popular with policyholders who don’t want to be burdened with premium payments that would otherwise still be required after they retire.

Single-Premium Whole Life Insurance

• One large upfront premium pays for a tax-free death benefit.

This form of whole life coverage, commonly known as a modified endowment contract (MEC), differs from all other types of whole life insurance in that it is funded with a single premium payment, meaning that you purchase a specific amount of paid-up coverage for life, with no additional premium payments required.

If you have money that you intend to leave your family and don’t need to access it yourself, it can make sense to purchase a life insurance policy with that money for those heirs to inherit instead. The death benefit is tax free and may be larger than what a conservative investment amount would be at the time of your death.

For example, if you have a $100,000 certificate of deposit (CD) that is earmarked for your grandchildren, you could withdraw the funds from that CD and instead purchase an insurance policy with, say, a $200,000 tax-free death benefit. Because you’d purchase the policy with such a substantial payment, it would be considered a MEC.

MECs have special tax rules and steep withdrawal penalties if you take money out of the policy in the early years. But MECs usually pay higher interest rates than CDs or other guaranteed investment vehicles.

Modified Whole Life Insurance

• Lower premiums in the early years of the policy, level death benefit.

This form of whole life coverage offers lower premiums during the early years of the policy that increase after a certain number of years. If you anticipate making more money in the future (and therefore being able to afford a larger premium), this type of policy can enable you to purchase a higher initial coverage amount than you could otherwise afford.

The period of lower payments may last anywhere from five to 20 years, and then the premiums are increased. While payments during the initial phase are usually lower than those of a traditional level premium whole life policy, the premiums after the increase are usually higher. Premiums increase only once during the life of the policy. The death benefit is level, which means it stays the same during the entire time you’re covered.

Children’s Whole Life Insurance

• Savings and coverage for babies and children.

This form of whole life insurance is offered as a means of providing a savings vehicle and insurance coverage for babies and children. The parents (or other payor) of the policy can lock in low premiums that are guaranteed to never increase and also secure life insurance for the child regardless of any future health issues. Coverage is often capped at a fairly low amount, such as $50,000, but it may be possible to increase it in the future.

Guaranteed Issue/Acceptance Whole Life Insurance

• No medical exam required, low coverage limits.

This form of whole life coverage is commonly known as burial or final expense insurance. It is usually issued to policyholders who are at least 50 years old, and it has limited or no underwriting requirements, which makes it more expensive. Since no medical exam is required and few, if any, health-related questions are asked, it may appeal if you have health problems that make getting coverage through a traditional underwriting process difficult or impossible.

Final expense coverage is designed to provide a small death benefit that can be used to pay for funeral and burial expenses along with other debts or bills you owe. The death benefit usually ranges from $10,000 to $50,000.

The Bottom Line

Each type of whole life insurance has its place and value, although not all types work for all situations. For example, young parents may be attracted to the benefits of children’s whole life insurance, while older policyholders may need the protection afforded by guaranteed issue policies.

Before you choose a specific policy, know why you’re purchasing one, how much you can afford, how much coverage you need, and how much flexibility you’d like the policy to have. This information will help you explore the range of offerings to determine which is best for you.

	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)

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)

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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