Financial Advice

Retirement and Your 401k

How will my money be given out to me from my 401k when I retire? Will a portion be given monthly or will it be given in a lump sum? I would like to get a big wad as soon as I retire for a new home in a new location.

Owen’s not the only one asking this question. According to the Wharton School of Business, in the next 10 years, over 10 million people will reach age 65. So quite a few folks will be looking for an answer.

First here’s a disclaimer. Before making decisions that could significantly affect your taxes, it’s wise to see a qualified tax professional. This is a big decision. Don’t risk making a big mistake.

401k Distribution Options

The distribution options on your 401k are governed first by the tax laws and then by the plan’s rules. Some plans don’t offer every option that’s available by law.

If Owen really wants the money, he can get it now, either through a 401k loan or by taking a distribution. You can take money out of your 401k anytime you want. It’s just a matter of whether you want to pay the penalty.

If you withdraw money before age 59 1/2, you’ll pay a 10% early withdrawal penalty. There’s an exception if you leave your company after age 55. Then, a lump sum distribution is not subject to the penalty. But, it will still be taxed.

On the other end of the calendar, you must begin withdrawing part of the account at age 70 1/2. The amount will be determined by life expectancy.

5 Different 401k Retirement Options

Next, let’s look at what choices Owen will have when he retires. The decision will largely be his. The law allows for five different alternatives for a 401k account at retirement. The options include lump-sum distribution, continue the plan, roll the money into an IRA, take periodic distributions, or use the money to purchase an annuity. Owen’s particular plan will allow for some or all of them.

The fastest way for Owen to get his “big wad” of money is to take a lump-sum distribution. He’ll get the money quickly. But there are two disadvantages. First, he’ll pay ordinary income taxes on the entire amount withdrawn. Second, the money will no longer be growing tax-free.

If Owen does take a lump-sum distribution, he’ll be subject to 20% withholding. That means the IRS will take 20% of the money distributed now and apply to his tax bill next April. Owen can thank the “Unemployment Compensation Amendments Act of 1992” for that idea.

Owen could decide to leave the money in the account. It will continue to grow tax-free. That can make a big difference in how much is available to him during retirement. Many retirees choose to spend taxable accounts first saving IRA’s and 401k’s until they need the money or are forced by law to begin distributions.

Another possibility would be to roll the 401k into an IRA. That would give Owen the largest number of investment options. He could still withdraw the money when he wants or choose to let it grow tax-free.

Owen may also choose to take a regular, scheduled distribution from the 401k. Scheduled withdrawals are not subject to the 20% withholding. Most plans allow for a monthly or quarterly distribution. The amount can be adjusted annually if you choose. That can be handy if inflation causes your expenses to increase.

The final option, an annuity, takes the investment work out of the equation. An annuity can be purchased with part or all of the 401k money. It would pay Owen a regular income for the rest of his life.

Owen’s goal is to buy a home. Depending on how much he has in his 401k, he has a couple of possibilities. He mentioned the first option. Taking all the money, paying the taxes due and paying cash for his new home.

But he might want to consider withdrawing just enough from his 401k for the down payment. The balance of the account could be set up on regularly scheduled distributions. He could control the investments and distributions. Or Owen could choose to buy an annuity and let them do the investing and checkwriting.

Those regular distributions would cover the mortgage payments. The advantage for Owen is that he won’t have a spike in taxable income. Also he might be able to take a tax deduction for the mortgage interest at the same time that he is earning money without taxes within the retirement account.

Owen should speak with his accountant to find our which choice is best for him. Hope he enjoys his retirement and his new home!

This article by Gary Foreman first appeared on The Dollar Stretcher and was distributed by the Personal Finance Syndication Network.

The post Retirement and Your 401k appeared first on Personal Finance Syndication Network.

Financial Advice

Heaps of Navient Private Student Loans May Be Voided and Refunded in Nationwide Class Action Suit

In a suit filed in 2016 by Evan Haas and Michael Shabazi against Navient Solutions and Navient Credit Finance Corporation an interesting position was taken that myself and others have previously presented. While many assume incorrectly all student loans are protected from discharge in bankruptcy, that does not appear to be a factual statement. If a loan was not protected and discharged in bankruptcy then the continued collection of those loans would create a massive liability for Navient, refunds for consumers, and possibly legal awards and attorney fees.

The suit was filed by a number of attorneys and firms. One of those attorneys is our friend Austin Smith with Smith Law Group. Full information on all the attorneys involved will be below.

I’ve written about the underlying problems with many of the Navient, and other, private student loans. The suit filed in this case sums it up best by saying, “For the last ten years, Defendants have been engaged in a massive effort to defraud student debtors and subvert the orderly working of the bankruptcy courts. Specifically, Defendants have been originating and servicing dischargeable consumer loans and disguising them as non-dischargeable student loans. Defendants have done this in order to discourage debtors from seeking their constitutional right to relief under Title 11 and to allow creditors to continue to collect on discharged loans after a debtor’s bankruptcy. In order to effectuate this illegality, Defendants have appropriated a legal presumption for a class of debt that they know is not entitled to that presumption, thereby using the authority of the bankruptcy courts to cloak their fraud in the color of law and escape detection. Defendants are willfully and maliciously engaged in a pattern and practice targeted at some of society’s most vulnerable persons that they know defiles the proper workings of the bankruptcy process. Plaintiffs bring this action to enforce their rights and the rights of those similarly situated under law.”

From an open eyed look at the facts, Navient has known some of their private student loans were not protected in bankruptcy, even though they argued otherwise. In some written filings Navient told investors the loans were not Title IV loans and thus not protected.

The suit is primary about student loans that are non-qualified education loans and the suit seeks to have the following types of loans consumers included in a previous bankruptcy, eliminated private educational loans made to students attending non-Title IV accredited schools. If you’d like to search for a specific school, or verify whether a school is Title IV, you can do that here.

The suit sheds some additional light on these disclosures, “During the same time, student lenders were securitizing these debts for sale on the secondary market. Lenders were rightfully concerned that if they represented to investors that all private student loans were non-dischargeable in bankruptcy, sophisticated investors would easily enough discover the misrepresentation (based on a plain reading of the statute), and issuers would be liable for securities violations. Major lenders and underwriters thereafter included in student loan asset-backed securities’ prospectuses language warning investors that, pursuant to section 523(a)(8), only private loans made for qualified expenses were excepted from discharge.12 In addition, Navient has been warning shareholders in investor presentations that Career Training loans—i.e., one form of non-qualified loans made to students at unaccredited colleges and high schools — are dischargeable in bankruptcy.”

The loans targeted in this suit are non-qualified educational loans. And Navient wasn’t the only lender to make these kinds of loans.

“Non-qualified education loans” include:

  • Private loans that were not made for “qualified educational expenses,” meaning that the funds were not used for a traditional four-year college. These loans include career training loans and loans made to students for some post-graduate programs such as:
  • Airline Training School Student Loans
  • Flight Schools Student Loans
  • Tractor Trailer School Student Loans
  • Culinary School Loans
  • Bar Exam Loans
  • Study Abroad Loans
  • Caribbean/Foreign Medical School Loans
  • Cosmetology School Loans
  • Paralegal School Loans
  • Heavy Equipment Operation School Loans
  • Tutoring Loans
  • K-12 Student Loans
  • Medical Billing School Loans
  • Medical School Residency Loans
  • Dental School Residency Loans
  • Art School Loans
  • Fitness School Loans
  • Holistic Health School Loans
  • Mechanic School Loans

This current class action case allows people to joining the suit “who filed for bankruptcy protection since 2005 in the various Judicial Districts of the United States with educational loans originated and/or serviced by Defendants or their predecessors that do not meet the definition of a qualified education loan in IRC 221(d) and 11 U.S.C. § 523(a)(8) and were subject to attempts to induce payment on those loans after discharge.”

This lawsuit further alleges that debtors who have already repaid debts to Navient which should have been discharged in their bankruptcies may be entitled to a refund of all or some of the money they have repaid Navient since their bankruptcy discharges.

If you think you may be covered by the class action lawsuit you should contact one of the firms below and find out how you can participate.

You can read the suit filed here.

Attorneys Pursuing This Class Action Case on Behalf of Consumers

Jason W. Burge (admitted pro hac vice)
Kathryn J. Johnson (admitted pro hac vice)
201 St. Charles Avenue, 46th Floor
New Orleans, Louisiana 70170
Telephone: (504) 586-5252
Facsimile: (504) 586-5250

Austin Smith (admitted pro hac vice)
3 Mitchell Place
New York, New York 10017
Telephone: (917) 992-2121

Catherine E. Lasky (admitted pro hac vice)
Kerry Murphy (admitted pro hac vice)
601 Poydras Street, Suite 2655
New Orleans, Louisiana 70130
Telephone: (504) 523-2500
Facsimile: (504) 523-2508

Joshua B. Kons (admitted pro hac vice)
939 West North Avenue, Suite 750
Chicago, Illinois 60642
Telephone: 312-757-2272

Mark Douglas Myers
7700 San Felipe, Suite 550
Houston, Texas 77063
Telephone: 713-626-1700
Facsimile: 712-623-6014

Adam Corral
Susan Tran
Brendon Singh
440 Louisiana St, Suite 2450
Houston, Texas 77002
Telephone: (832) 975-7300
Facsimile: (832) 975-7301

Steve Rhode
Get Out of Debt GuyTwitter, G+, Facebook

If you have a credit or debt question you’d like to ask, just click here and ask away.

This article by Steve Rhode first appeared on Get Out of Debt Guy and was distributed by the Personal Finance Syndication Network.

The post Heaps of Navient Private Student Loans May Be Voided and Refunded in Nationwide Class Action Suit appeared first on Personal Finance Syndication Network.

Financial Advice

Be Radical, Get Rich!

Have you ever noticed that lots of “radical people” get rich, while lots of average people just stay average? And in our economy, average usually means in debt, living paycheck to paycheck, and on the verge of financial collapse depending on the whim of the economy. Here are some ideas for becoming financially radical (and rich in the process):

  1. Pay cash for everything. Yes, I know that people don’t use cash much anymore, but there are some good reasons to do this, namely you will never go into debt if you only use the cash you have on hand for your wants and needs (be sure to get a receipt for all of your purchases). Plus it’s fun to watch people who rarely take cash any more struggle with the concept of giving change.
  2. Stop using credit cards and cut them up. Such an idea may be considered blasphemy in our credit-obsessed society, but (see number one above) if you never use credit cards, you will never be subjected to the interest, late fees, over limit fees, random reduction of credit limits, etc. imposed by the credit companies.
  3. Buy the minimum that will satisfy your needs. If you aren’t an astrophysicist or a compulsive gamer, consider buying the least computer you need. The same is true for trucks (Do you really need one that could pull a semi out of the ditch?), diamonds (If your girlfriend won’t marry you because you gave her a half karat ring instead of something resembling the Hope diamond, here’s your sign.), and most other things.
  4. Live on half of your salary and bank the rest. Impossible you say? Actually there are people in our country who actually do such a crazy thing, and eventually they become crazy rich.
  5. Become debt free. This means the only bills you have coming in each month are for the phone, water, gas, sewer, and other utilities. Close your eyes and imagine what your life would look like if your paycheck was all yours and not already spent before you get it. Amazing thought, huh?
  6. Take care of your own needs. Mow your own lawn, clean your own gutters, color your own hair, and fix your own plumbing problems. Basically any service the “average person” would pay for can, and should, be done by you. You will save a lot of money and gain some very valuable skills that you can then sell to others who aren’t nearly as radical as you.
  7. Participate in the underground economy. Should your plumbing experiments go awry (see #6 above), do the next best radical thing and barter for the services you need. The underground economy also includes shopping garage sales, shopping thrift stores, buying from farmer’s markets, and the like.
  8. Be self-employed. I cannot rave about this method of earning a living enough. Set your own hours, be as creative as you want, and work more/make more. All of these are good reasons to employ the best person you know, yourself!
  9. Learn from other financially radical people. The Internet has been a boon to knowledge hungry people who don’t want to follow the status quo. Want to learn how to retire by 30? There are people who have done it and you can find them online. Want to know what it is like to live cash-only? There are plenty of blogs and newsletters to tell you all about this as well.
  10. Don’t be afraid to be weird. You can be weird by having five part-time jobs that you love instead of one job that you can barely tolerate. You can be weird by working double time, living in your truck, then paying cash for a house after a couple of years of doing this. One man actually did this some years ago. He also made the front page of many newspapers for his non-conventional, but ultimately quite successful way of doing things.

You will never get ahead by doing what the masses do because the masses are broke. If you really want to succeed, you need to look at your situation in a whole new way and be willing to do some radical, according to society, things to launch you into the financial stratosphere.

This article by April Borbon first appeared on The Dollar Stretcher and was distributed by the Personal Finance Syndication Network.

The post Be Radical, Get Rich! appeared first on Personal Finance Syndication Network.

Financial Advice

The Keys to a Good Car Deal

Buying a new (or new-to-you) car from a dealership can be a harrowing experience. Your money is on the line, your ego takes a beating, and you worry about getting stuck with a lemon. It doesn’t have to be this way. Here are some tips on scoring a great deal at the dealership.

The key to getting the car you love at the price you want is to put the car in second place. You’re not shopping for the automobile. Instead, you’re shopping for the deal. There are more than enough excellent cars out there that will meet your needs. You will find one, but you are shopping for a deal, which comes with the car you want attached to it.

Before you visit the dealership, take a deep breath. Car dealers try to inject urgency into the transaction, but you don’t have to play along. Your priority is to get the car you want at the price you want to pay. Consumer advocate and former car salesman Michael Royce notes, “The car salesman’s goal is to sell you a car or a truck that is in stock at the highest possible price today.”

Be flexible. Focus your car search on several possible choices. If you know you want a reliable sedan, look for two or three different makes and models, because being flexible about the car increases your chances of getting a good deal. If the Nissan dealer knows you’re comparing his Altima to Accords and Camrys, he’ll make more allowances than if he’s just competing with his buddy at the Nissan dealer in the next town over.

Research before you buy. Doing your homework means you read reviews of the car, you check out Consumer Reports and other reputable sources, and you consider the features you want. Royce recommends getting free price quotes from local dealers via the internet or from reputable sources like Edmunds. Check out the CarFax once you’ve narrowed your choice to a specific car if you’re buying a used car.

Remember that you have the power. Don’t feel intimidated by the car dealer. You’re still in charge when he or she sends over a manager to talk to you, which is standard operating procedure in car dealerships. The bottom line is you don’t have to please them or persuade them to sell you a car. They have to please you by giving you an attractive deal.

Practice saying no. Once you’ve agreed on the price, you’ll meet the F & I guy (Finance and Insurance). This person may also be called the business manager. His or her job is to have you sign the paperwork, but there’s more to it than that. This is the upsell department. Would you like to have the upholstery treated to avoid stains? An extended warranty? Insurance to pay off the car if you die? Royce says, “Car dealerships often make more profit from the financing of the vehicle and the sale of ‘extras’ sold in the business office than from the actual sale of the vehicle itself.” Anything you agree to with F & I will cost you money. Don’t be afraid to say no.

You might have to walk. Embrace this possibility. You may have to say, “This deal won’t work for me.” You might have to get up, gather your papers, and leave. Nine times out of ten, the deal will suddenly get sweeter. If it doesn’t get sweeter to the point where you can return to the table, it’s okay. Leave in good conscience, knowing you’ll likely get a call in a day or two from a humbled salesperson who is ready to listen to you. The worst case scenario is you’ve eliminated a dealer who won’t work with you anyway and saved yourself time.

Fall in love with the car after you buy. Remember that the deal has to be right, so keep your emotions in check until you’ve gotten the deal you need.

These tips can help you to get the deal you want and find the car you can fall in love with within your budget. Happy car shopping!

This article by Nancy Rusk first appeared on The Dollar Stretcher and was distributed by the Personal Finance Syndication Network.

The post The Keys to a Good Car Deal appeared first on Personal Finance Syndication Network.

Financial Advice

Catholic Priest Sentenced to Prison for Tax Evasion and Bank Fraud

A priest for the Roman Catholic Diocese of San Jose was sentenced to 36 months in prison, announced Acting Deputy Assistant Attorney General Stuart M. Goldberg of the Justice Department’s Tax Division and U.S. Attorney Brian J. Stretch for the Northern District of California.

According to documents and information provided to the court, from 2008 through 2011, Hien Minh Nguyen stole money that his parishioners donated to the Diocese of San Jose through cash and checks made as offerings during religious services.  He deposited such checks into his personal bank account and used the funds for his benefit.  He also wrote checks drawn on church business accounts to pay for personal expenses.  Nguyen evaded paying income taxes on the money he stole, concealing his embezzlement from his return preparer.  The court found that he embezzled $1,449,365 from the Catholic Church, and evaded $582,453 in individual income taxes that were due and owing to the Internal Revenue Service (IRS).

In addition to the term of prison imposed, U.S. District Court Judge Beth Labson Freeman ordered Nguyen to serve three years of supervised release and to pay a total of $1,883,883 in restitution, including $434,518 to the IRS.  Nguyen previously pleaded guilty to tax evasion and was convicted of bank fraud following a bench trial.

Acting Deputy Assistant Attorney General Goldberg and U.S. Attorney Stretch commended special agents of IRS Criminal Investigation, who conducted the investigation, and former Trial Attorney Gregory Bernstein of the Tax Division and Assistant U.S. Attorneys Michael Pitman and Thomas Moore, who prosecuted the case.

Additional information about the Tax Division’s enforcement efforts can be found on the division’s website.

This article by the Department of Justice was distributed by the Personal Finance Syndication Network.

The post Catholic Priest Sentenced to Prison for Tax Evasion and Bank Fraud appeared first on Personal Finance Syndication Network.

Financial Advice

CFPB’s First National Survey on Financial Well-Being Shows More Than 40 Percent of U.S. Adults Struggle to Make Ends Meet

The Consumer Financial Protection Bureau (CFPB) released the results of a first-of-its-kind national survey on the financial well-being of U.S. consumers that showed that more than 40 percent of U.S. adults struggle to make ends meet. The survey provides measurements and insights on the financial well-being of specific groups of consumers as well as the population as a whole. In addition to the survey, the Bureau also released an interactive online tool allowing consumers to measure their level of financial well-being.

“These survey results are beginning to measure and examine the financial well-being of consumers,” said CFPB Director Richard Cordray. “And the new tool we are releasing allows consumers to measure their own financial well-being and helps them take better control of their financial futures.”

National Financial Well-Being Survey

The National Financial Well-Being Survey was conducted by the CFPB in 2016. Using the 10 question scale developed by the CFPB, the survey provides the first-ever national data directly measuring the financial well-being of U.S. consumers. Upon answering the 10 questions provided, consumers were given a score from 0-100. In the survey, the average consumer score was 54. The consumer sample used to conduct the survey was designed to be representative of U.S. households. In addition to responding to the questions which are included in the financial well-being scale, people participating in the survey answered questions about a host of other measures. These measures include individual, household, and family characteristics; income and employment; savings and safety nets; financial experiences; and money behaviors, skills, and attitudes. Major findings from the report include:

  • More than 40 percent of adults report struggling to make ends meet: Of the nationally representative sample of consumers surveyed, 43 percent of consumers report struggling to pay bills. Additionally, over one third—34 percent—of all consumers surveyed reported experiencing material hardships in the past year. For the survey, examples of material hardships include running out of food, not being able to afford a place to live, or lacking the money to seek medical treatment.  
  • Certain financial and demographic characteristics are associated with financial well-being: Educational attainment, income, and employment status all appear to have a strong relationship with financial well-being. Additionally, the survey showed that financial well-being is higher for older adults, especially those aged 65 and older, whose average score was 61. On the other end of the spectrum, younger adults, those 34 and younger, tended to have the lowest financial well-being score with an average of 51. 

The Financial Well-Being in America report can be found at:

Financial Well-Being Tool

The CFPB is also releasing an interactive online tool to enable people to evaluate their own financial well-being and explore ways to take control of their finances. This new tool is based on the CFPB Financial Well-Being Scale, which was released in 2015 for use by financial education professionals working with consumers. The tool allows consumers to use the financial well-being scale themselves, and see their resulting financial well-being score online. Consumers can track their financial well-being score over time, or see how they compare to other consumers nationally, including by income, age, and employment status. Additionally, consumers can access CFPB resources to help take control of their finances and make progress towards financial goals, and find free or low-cost help from financial professionals. 

The Financial Well-Being Tool can be found at:


The Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit

This article by was distributed by the Personal Finance Syndication Network.

The post CFPB’s First National Survey on Financial Well-Being Shows More Than 40 Percent of U.S. Adults Struggle to Make Ends Meet appeared first on Personal Finance Syndication Network.

Financial Advice

Seven factors that determine your mortgage interest rate

If you’re like most people, you want to get the lowest interest rate that you can find for your mortgage loan. But how is your interest rate determined? That can be difficult to figure out for even the savviest of mortgage shoppers. Knowing what factors determine your mortgage interest rate can help you better prepare for the homebuying process and for negotiating your mortgage loan.

Your lender knows how your interest rate gets determined, and we think you should, too. Our Explore Interest Rates tool lets you plug in some of the factors that affect your interest rate. You can see what rates you might expect—and how changes in these factors may affect interest rates for different types of loans in your area.

Even saving a fraction of a percent on your interest rate can save you thousands of dollars over the life of your mortgage loan, so it definitely pays to prepare, shop around, and compare offers. 

Armed with information, you can have confident conversations with lenders, ask questions, and understand your loan choices. Interest rates, just like gasoline prices, can fluctuate from day to day and from year to year. While movement in the interest rate market is outside of your control, it makes sense—just like with gasoline prices—to gain awareness about what’s typical. This way, you’ll have a sense of whether an interest rate quote you receive appears to be in the range of typical rates, or if you should ask more questions and continue to shop around. 

Here are seven key factors that affect your interest rate that you should know

1. Credit scores

Your credit score is one factor that can affect your interest rate. In general, consumers with higher credit scores receive lower interest rates than consumers with lower credit scores. Lenders use your credit scores to predict how reliable you’ll be in paying your loan. Credit scores are calculated based on the information in your credit report, which shows information about your credit history, including your loans, credit cards, and payment history. 

Before you start mortgage shopping, your first step should be to check your credit, and review your credit reports for errors. If you find any errors, dispute them with the credit reporting company. An error on your credit report can lead to a lower score, which can prevent you from qualifying for better loan rates and terms. It can take some time to resolve errors on your credit reports, so check your credit early in the process. 

Enter your credit score range into our Explore Interest Rates tool to get information on the rates available to you. If you don’t know your credit scores, there are many ways to get it.  

You can also experiment with the tool to see how you might save more on your mortgage interest rate with higher credit scores. Learn more about things you can do to raise your credit scores

2. Home location

Many lenders offer slightly different interest rates depending on what state you live in. To get the most accurate rates using our Explore Interest Rates tool, you’ll need to put in your state, and depending on your loan amount and loan type, your county as well. 

If you are looking to buy in a rural area, our Explore Interest Rates tool will help you get a sense of rates available to you, but you’ll want to shop around with multiple lenders, including local lenders. Different lending institutions can offer different loan products and rates. Regardless of whether you are looking to buy in a rural or urban area, talking to multiple lenders will help you understand all of the options available to you. 

3. Home price and loan amount

Homebuyers can pay higher interest rates on loans that are particularly small or large. The amount you’ll need to borrow for your mortgage loan is the homeprice plus closing costs minus your down payment. Depending on your circumstances or mortgage loan type, your closing costs and mortgage insurance may be included in the amount of your mortgage loan, too. 

If you’ve already started shopping for homes, you may have an idea of the price range of the home you hope to buy. If you’re just getting started, real estate websites can help you get a sense of typical prices in the neighborhoods you’re interested in.

Enter different home prices and down payment information into the Explore Interest Rates tool to see how it affects interest rates in your area. 

4. Down payment

In general, a larger down payment means a lower interest rate, because lenders see a lower level of risk when you have more stake in the property. So if you can comfortably put 20 percent or more down, do it—you’ll usually get a lower interest rate. 

If you cannot make a down payment of 20 percent or more, lenders will usually require you to purchase mortgage insurance, sometimes known as private mortgage insurance (PMI). Mortgage insurance, which protects the lender in the event a borrower stops paying their loan, adds to the overall cost of your monthly mortgage loan payment. 

As you explore potential interest rates, you may find that you could be offered a slightly lower interest rate with a down payment just under 20 percent, compared with one of 20 percent or higher. That’s because you’re paying mortgage insurance—which lowers the risk for your lender.

It’s important to keep in mind the overall cost of a mortgage. The larger the down payment, the lower the overall cost to borrow. Getting a lower interest rate can save you money over time. But even if you find you’ll get a slightly lower interest rate with a down payment less than 20 percent, your total cost to borrow will likely be greater since you’ll need to make the additional monthly  mortgage insurance payments. That’s why it’s important to look at your total cost to borrow, rather than just the interest rate.

Make sure you are factoring in all of the costs of your loan when you are shopping around to avoid any costly surprises. You can use our Explore Interest Rates tool to see how different down payment amounts will affect both your mortgage interest rate and the amount of interest you’ll pay over the life of the loan. 

5. Loan term 

The term, or duration, of your loan is how long you have to repay the loan. In general, shorter term loans have lower interest rates and lower overall costs, but higher monthly payments. A lot depends on the specifics—exactly how much lower the amount you’ll pay in interest and how much higher the monthly payments could be depends on the length of the loans you’re looking at as well as the interest rate.  

Learn more about your loan term, and then try out different choices with our Explore Interest Rates tool to see how the length and rate of your loan would affect your interest costs.

6. Interest rate type

Interest rates come in two basic types: fixed and adjustable. Fixed interest rates don’t change over time. Adjustable rates may have an initial fixed period, after which they go up or down each period based on the market.

Your initial interest rate may be lower with an adjustable-rate loan than with a fixed rate loan, but that rate might increase significantly later on. Learn more about interest rate types and then use our Explore Interest Rates tool to see how this choice affects interest rates. 

7. Loan type

There are several broad categories of mortgage loans, such as conventional, FHA, USDA, and VA loans. Lenders decide which products to offer, and loan types have different eligibility requirements. Rates can be significantly different depending on what loan type you choose. Talking to multiple lenders can help you better understand all of the options available to you. 

Learn more about the different types of mortgage loans in our Owning a Home tool.

One more thing to consider: The trade-off between points and interest rates

As you shop for a mortgage, you’ll see that lenders also offer different interest rates on loans with different “points.”

Generally, points and lender credits let you make tradeoffs in how you pay for your mortgage and closing costs.

  • Points, also known as discount points, lower your interest rate in exchange for an upfront fee. By paying points, you pay more upfront, but you receive a lower interest rate and therefore pay less over time. Points can be a good choice for someone who knows they will keep the loan for a long time.
  • Lender credits might lower your closing costs in exchange for a higher interest rate. You pay a higher interest rate and the lender gives you money to offset your closing costs. When you receive lender credits, you pay less upfront, but you pay more over time with the higher interest rate. Keep in mind that some lenders may also offer lender credits that are unconnected to the interest rate you pay—for example, a temporary offer, or to compensate for a problem.

There are three main choices you can make about points and lender credits:

  1. You can decide you don’t want to pay or receive points at all. 
  2. You can pay points at closing to receive a lower interest rate. 
  3. You can choose to have lender credits and use them to cover some of your closing costs but pay a higher rate. 

Learn more about evaluating these options to see if points or credits are the right choice based on your goals and financial situation. 

Now you know

It’s not just one of these factors—it’s the combination—that together determine your interest rate. Everyone’s situation is different, which is why you can use our Explore Interest Rates tool to see what you can expect based on your personal factors.

By understanding these factors, you’ll be well on your way to shopping for the right mortgage loan—and interest rate—for you and your situation. Not all of these factors are within your control. But understanding how your mortgage interest rate is determined will help you be more informed as you shop for a mortgage.

Just remember:

  • Use the Explore Interest Rates tool to help you decide what’s right for you.
  • As you consider your budget and make decisions about things like your down payment amount and home price, check the Explore Interest Rates tool often. The more you know, the more accurate the rates will be. 
  • As you start talking to lenders, compare their offers to the rates in the tool—and to offers from other lenders—to see if you are getting a good deal and to help negotiate the best deal for you.

We’ve got a lot of information to help you get started

If you’ve decided now is the right time to buy, our tools and resources can help you get started. 

  • Get a copy of Your Home Loan toolkit for an overview of the process and some tools to help you define what affordable means to you.
  • Visit Owning a Home to help you navigate the process from shopping for a mortgage all the way to closing.
  • Check out Ask CFPB, our database of common financial questions. 

Editor’s note: This post was originally published on January 20, 2015. We’ve updated it to provide more comprehensive information and to include updated links to our Owning a Home tools and resources.

This article by was distributed by the Personal Finance Syndication Network.

The post Seven factors that determine your mortgage interest rate appeared first on Personal Finance Syndication Network.