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Facing a Medical Debt Lawsuit? Take These 10 Steps First

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Facing a Medical Debt Lawsuit? Take These 10 Steps First

If you’ve ever been sued by a debt collector or service provider over medical debt, you know how stressful it can be. If you couldn’t afford to pay the original debt, you likely still can’t afford it. And if you want to defend yourself, you’ll have to face the additional time and cost of going to court, too.

You should know that you’re not alone. According to staff attorney Chi Chi Wu of the National Consumer Law Center, when you look at debt collection items on credit reports in America, “half of those items are from medical debt. Not credit cards. Not auto loans. Medical debt.”

You may be tempted to ignore the suit since you know you can’t pay, but Wu advises against inaction.

“Always show up,” she says. “Never ignore a lawsuit. If you ignore it, the debt collector or service provider on the other side automatically wins by default.”

What happens when you show up, though? Here are four steps to take if you’re facing a medical debt lawsuit.

1. Find Out Where the Debt Comes From

You cannot properly address your lawsuit if you don’t understand where the debt comes from. If you look back at your past bills, you should be able to find a date of service and itemized list of services rendered with associated costs.

You may be in debt because you’re uninsured, but even insured patients end up in this boat thanks in part to a rise in high-deductible health plans. Mistakes can happen as well. If a patient visits an in-network hospital, but is unknowingly seen by an out-of-network doctor, they can be charged out-of-network fees. Doctors are independent contractors, so while the hospital may be affiliated with your insurance company, that doesn’t mean your service provider is inherently in-network.

2. Don’t ignore the lawsuit

In most consumer debt cases, consumers don’t have an attorney at all. But hiring an attorney to advise you can be a wise move. It doesn’t have to cost a fortune either, Wu says.

Most lawyers will provide a free consult before taking you on as a client. In this consult, they may be able to help you find your bearings so you can represent yourself.

Wu recommends seeking help from the Legal Services Corporation, a government-supervised nonprofit that provides legal representation at a low cost to low-income households. You can also seek help from nonprofit legal assistance firms in your area.

If you’re uninsured, one way to keep the case from going to court is to contact the doctor or debt collector immediately to negotiate your bill down to Medicaid/Medicare prices — which are often 2-3 times less than that of the gross price you were billed. When a provider refuses to negotiate down to these lower rates, it is called “discriminatory pricing,” and your legal counsel may recommend using it as a defense in court.

3. Prepare for Court

The first thing you must do is prepare an answer to the lawsuit, including any defenses or countersuits that you want to raise. This will involve filing paperwork at the court, mailing paperwork, and showing up on your initial court date. Again, it’s advisable to get a lawyer to help you through this, or at least get a consult. The National Association of Consumer Advocates has a helpful video explainer on preparing to defend a medical debt lawsuit.

It’s important to make this initial court date. It is very unlikely the judge will grant you a continuance that would move the court date further out.

There are some exceptions to this. If you are being sued in a state in which you no longer reside, it’s easier to mount a defense if you can’t appear in court. In fact, appearing in court could work against you, demonstrating to the court that you have no problem traveling to and from court out of state.

If you’ve been served in a state outside of your own, it is very important to get legal representation.

This is because you must answer the suit, but you must also do so in a way that does not imply that you are submitting to that court’s jurisdiction over you. The process is one that is best handled by someone trained in law.

After you answer the suit, the court will set a date for the discovery part of the trial. You will have to file more paperwork with the court before this date so that you are able to present evidence that you are not liable for the debt.

4. Understand Wage Garnishment

If you are found liable for the debt, or you fail to answer the lawsuit and the judge rules against you, the court may issue an order giving the lender or collection agency the ability to garnish your wages. By federal law, they cannot leave you with less than 75% of your income or $217.50 per week — whichever is greater. State law may protect you even further.

Medical debt collectors are able to garnish your wages, but they cannot garnish Social Security benefits, disability insurance payments, unemployment insurance payments, VA benefits, pension distributions, child support payments, or public assistance benefits. If you have any of these forms of income, it’s wise to set up a different bank account where those funds are deposited and keep all garnishable wages in another separate account.

You should do this because a court order can go after your bank account balances, too. While that doesn’t make it legal to take money that came from any of these protected sources, separate bank accounts will make the incidence of errors smaller — saving you headaches and potential victimization.

5. Know Your Rights

When it comes to medical billing and debts, you do have rights as a patient. Make sure you understand them so you can lower or eliminate your bill before or after you’ve been sued.

Were You Served Properly?

Sometimes wages are garnished before the plaintiff is even aware that there’s a lawsuit against them. This happens most commonly when you’re improperly served. Examples of using “improperly served” as a legal defense include papers being only mailed to you and not delivered in person, papers being left at an incorrect residence, or papers being mailed to an old address. Being “improperly served” does not mean that the papers were left with a family member or friend at your residence and they forgot to tell you about it. If that happened, you’re still on the hook.

If you have been improperly served, or if you find out that the court mistakenly started garnishing wages because you have the same name as an actual plaintiff, you should contact a lawyer immediately to figure out what possible recourses there may be for your specific situation.

6. Get Low-Cost or Free Help from Financial Assistance Programs

In 2016, about 58% of community hospitals in the U.S. were not-for-profit, according to the American Hospital Association. This gives them tax-exempt status, but also obligates them to give back to their communities. Under the Affordable Care Act, these hospitals must provide some type of financial assistance program to low-income patients. Even if you aren’t from a low-income household, you should apply, as some hospitals extend their programs far beyond the poverty line. Many hospitals also extend this program to insured patients.

These hospitals have an obligation to let you know about their financial assistance programs within four months of when your bill has been issued.

You have until eight months after the initial bill was issued to apply for financial assistance. You have the right to do this even if the debt has been sold to a third-party collector, and even if that collector is the one suing you in court.

7. Be Aware of Discriminatory Pricing

We’ve already touched on the fact that you can try to negotiate your medical bills down to Medicaid/Medicare prices. If you are being sued in court and are uninsured, discriminatory pricing can serve as a defense. If you qualify for the hospital’s financial assistance program, they legally must reduce your bill to the amount generally billed to insured patients.

8. Look Out for Balance Billing

Balance billing happens when your hospital or medical provider bills you instead of or in addition to Medicaid or Medicare. It’s a forbidden practice, and you are not responsible for any amounts due when this happens.

You may be able to identity balance billing if you receive an “Explanation of Benefits” from your insurer that states the amount they covered and the amount you still owe. If this does not match the bill your medical provider sent you, there is a cause for concern. Additionally, if the bill you receive does not show any payment from your insurance when you are, in fact, on Medicaid or Medicare, it may be a sign that you are a victim of balance billing.

9. Stop Lawsuits Before They Begin

If something about your bill doesn’t look quite right, there are ways to reduce it to its fair amount.

First of all, make sure the hospital didn’t make an error that resulted in a larger bill. One way this could happen is if something they did caused you to have to stay in the hospital an extra night, inflating your costs beyond what they should have been originally.

Another good avenue to pursue is to have your bill examined by a medical bill advocate. They’re familiar with coding and laws that you’re not, making them the perfect people to review your charges. You may find one in your community by asking around, or you can start your search with the National Association of Healthcare Advocacy Consultants.

Debt collectors, hospitals, and other medical providers don’t want to take you to court. It costs them money, and the odds of them actually getting a full payment at that point are very low. They are almost always willing to work with you before issuing a lawsuit. Negotiate. Apply for financial assistance. Set up zero-interest payment plans directly with your health care provider.

Keep the lines of communication open so that no one ends up with the additional costs of litigation.

10. Weigh Bankruptcy

At any point in this process, you can choose to file for bankruptcy. Filing for bankruptcy may alleviate the medical debt. Just be cautious. Bankruptcy is not a decision that should be made lightly, as it will remain on your credit report for up to 10 years and make it difficult to qualify for new credit.

There are two types of bankruptcy: Chapter 7 and Chapter 13. Chapter 7 requires you to sell off all of your assets to settle what you can of your debt obligations. If you don’t have any or many assets, that aspect of it doesn’t matter much. What will matter is that the debt will essentially disappear after you file.

If you file for Chapter 13, you do not have to sell off any assets, but the debt won’t disappear either. Instead, you’ll be put on a 3-5 year payment plan in order to settle.

This may make sense if the court has already issued an order against your wages, but at any other point in your case, it would make more sense to try to set up a payment plan with the medical service provider or debt collection agency directly. Their last resort is wage garnishment. Don’t let it get that far. Know your rights so you can negotiate with them effectively rather than damaging your credit report through Chapter 13 bankruptcy.

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7 Signs You’re Working With a Shady Credit Repair Firm

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7 Signs You're Working With a Shady Credit Repair Firm

It’s natural to want a quick fix for your credit problems, but be wary of any practice that seems deceptive — even if it could work in your favor.

In September 2016, the Consumer Financial Protection Bureau filed a lawsuit against Prime Marketing Holdings, a credit repair firm based in Van Nuys, Calif. In its complaint, the CFPB alleged the company charged customers advance fees “totaling hundreds of dollars” and misled customers about their ability to remove negative items from their credit reports.

The case is still active, but it’s just one example of the proliferation of credit repair abuse in the U.S. And it gives rise to the question: How do I know if a credit repair company is legitimate or just another scam?

We’ve put together a litmus test of seven signs you could be working with a shady credit repair company.

1. They ask you to pay before they start working.

One of the biggest red flags in the credit repair business is requiring an upfront fee before any services are rendered. Under the Credit Repair Organizations Act (CROA), credit repair companies can’t charge advance fees before rendering services.

In some cases, advance fees can be only a couple of hundred dollars. But some companies have been found to ask for thousands of dollars upfront. In 2011, the Federal Trade Commission sued Doug and Julie Parker, owners of a Texas-based credit repair firm called RMCN Credit Services, Inc. The FTC claimed the couple charged customers a staggering $2,000 retainer fee before they completed any work. In the end, the Parkers were fined $400,000 by the federal watchdog.

2. They try to give you a new “credit identity.”

Another dodgy credit repair practice is when a company tries to convince clients to create a “new credit identity.” To establish this identity, the firm may offer to issue the client a nine-digit “credit profile number” or even prompt them to apply for an employer identification number with the IRS. With the new number in place, the firm could them encourage the client to apply for new credit and stop using their real Social Security number.

Don’t be fooled — this practice is completely illegal. An EIN is only used to identify businesses, and it is not a substitute for a Social Security number. Additionally, that credit profile number could easily be someone else’s stolen Social Security number. “These companies may be selling stolen Social Security numbers, often those taken from children,” the FTC warns. If you fall for this trap, you are essentially committing identity theft.

3. They ask you to lie on credit applications.

Some credit repair organizations may also ask you to lie on credit applications in order to qualify for more credit. For example, they may ask you to report more income than you earn. It’s illegal to make false statements on credit applications.

4. They dispute correct information on your credit report.

Yet another way credit repair companies try to manipulate the system is by misinforming consumers about the rules surrounding credit reports. They may tell consumers that they can fight every single item on their credit report — even if the item is accurate.

This is not true. If there is a negative item on your credit report that you feel is an error, you absolutely can fight to have it removed. But if it’s negative because you were, indeed, late on your bill, or did, in fact, file for bankruptcy, you cannot file to have it removed by claiming it is inaccurate.

5. They promise to get you a perfect credit score.

When a company promises they can improve your credit score or even get your score up to a specific number, don’t believe their hype.

In 2015, the FTC filed suit against a company called FTC Credit Solutions for making exactly these types of claims. The company’s representatives told customers they would get their credit score into the 700s and promised any negative credit report information could be removed. On top of that, they also charged advance fees before rendering any services. The case was settled very quickly to the tune of a $2.4 million penalty against the defendants.

6. They claim they are affiliated with a government agency.

Some repair firms fraudulently claim they are affiliated with the FTC or another government agency. If you are filing bankruptcy, it is true that you’ll be required to get some kind of credit counseling. But that counseling must be from a government-approved organization. There’s a full list of approved credit counseling firms on the U.S. Trustee Program website. If you’re thinking of working with a firm that isn’t on that list, you might want to reconsider.

7. They don’t want you to contact the credit bureaus on your own.

Don’t believe a company that tells you they are the only way to contact the credit bureaus. By law, any consumer can contact credit bureaus directly without a third party. You also have the right to access your credit report from each of the three credit bureaus once per year for free. If you’ve been rejected for anything for credit-related reasons, you have 60 days to request a free copy of your report. This enables you to keep potential creditors honest.

If a company ever tells you that you are not allowed to contact the credit bureaus on your own, walk away — fast.

How to Repair Your Credit All by Yourself

The MagnifyMoney team highly recommends taking simple steps to improve your credit on your own, without the risk of working with a shady credit repair firm.

Read MagnifyMoney’s full, in-depth guide to repairing your own credit.

Start by getting a copy of your free credit report from each of the credit bureaus. The simplest way to do this is by requesting copies at AnnualCreditReport.com, which is a government-sponsored website.

From there, look over your information to make sure everything is accurate. If there are late payments listed, did you actually pay late? Does it show closed accounts accurately? Do you recognize all of the accounts?

Sometimes reports do have errors. If you find one, consider the fact that you may be a victim of identity theft and take appropriate steps as necessary.

If you’re instead the victim of an honest mistake, contact the credit bureaus directly. You will have to do so online and via written letter. You will also have to contact the entity that incorrectly reported the line item. You can get a sample letter here.

Be sure to keep copies of all of your paperwork and follow up on your dispute. The credit bureaus have 30 days to investigate. If all turns out well, they will remove the item, which could result in a higher credit score.

If they do not find in your favor, you can request that a copy of the dispute be attached to your credit report moving forward, but you will have to pay a fee to do so. While this will not improve your credit score, it could potentially alert future creditors to the fact that you do not agree with the negative item.

There are also rare cases where you can attempt to get an accurate item removed from your credit report. If you were not aware of a debt, but you quickly paid it off once you were properly notified, the creditor may be willing to remove the item from your report. This kindness may also be extended if you were experiencing a temporary illness or life emergency. These removals are rare, but are most often rewarded when you are an otherwise responsible steward of your debts.

To make your case to your creditor, you will need to write them a letter of goodwill. In it, explain that you understand why the item is on your report, but also explain why you temporarily were unable to fulfill your obligation. Stress the fact that you are an otherwise responsible borrower, and point out specific instances in your business relationship where this has proven to be true.

It’s also a good idea to appeal to their human side. Explain what the removal of the debt would mean for you. Is there a major milestone coming up, such as a job interview or a mortgage application? Thank them sincerely for the time they’re taking to review your case and cross your fingers. Goodwill letters do not have a high success rate, but you will have a zero percent success rate if you don’t try.

Read MagnifyMoney’s full guide on letters of goodwill.

Finding Legitimate Solutions

Even though there are a lot of scammers out there, it’s good to remember that there are legitimate credit repair organizations, too. However, before you pay a company to help you repair your credit, read our guide on repairing your credit on your own and our guide on credit counseling. At the very least, properly vet a credit repair firm before you sign up for their services — and watch out for the warning signs we covered before.

Another potentially safer way to go about credit repair is by working with a not-for-profit credit counselor. These organizations have a lower rate of deceptive practices and can work with you in a more holistic manner to resolve not just your credit report woes but also your current debt situation.

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5 Risks of Working with a Debt Settlement or Debt Relief Firm

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5 Risks of Working with a Debt Settlement or Debt Relief Firm

If you’re deep in debt, you may have looked into getting some outside help to find relief. Frequently, your search for aid will bring you to debt settlement firms.

Debt settlement firms negotiate directly with your creditor to reduce your debt. If they succeed in settling your debt for a lesser amount, you will then be required to make one lump-sum payment, effectively wiping out your obligation.

Using these firms may sound like a lifesaver to someone struggling to pay off many debts at once. But debt settlement firms can actually cause more harm than good to your finances if you aren’t careful.

“Based on all the evidence we’ve seen, it is extremely rare that anyone benefits from using a debt settlement firm,” says Andrew Pizor, a staff attorney with the National Consumer Law Center.

Before you agree to work with a debt settlement firm, it’s important to know the risks:

5 Risks of Working with a Debt Settlement Firm

1. You will have to stop paying your debts. When you begin working with a debt settlement firm, many firms will encourage you to stop paying your debts and start paying into a third-party bank account. The idea is that you will eventually build up enough money in that account to be ready to make a lump-sum payment when the firm succeeds in convincing your lender or collections agency to settle.

This, of course, means that your accounts are going to become increasingly delinquent. It can take up to 36 months to fully fund a debt settlement firm account, according to the Federal Trade Commission.

While you are not paying your debt, your creditor can send your account to collections or even file a lawsuit against you before the settlement firm gets a chance to negotiate. You could also be responsible for any interest, late fees, and legal fees that have accrued over that time as well.

2. They may not succeed in settling your debt. Once you have saved up enough money to make a lump-sum offer to the creditor, the debt settlement firm will attempt to enter negotiations. What they may not tell you is that some creditors will not work with these firms as a rule. That means it’s possible that after you’ve saved enough money for the payment — meanwhile, allowing your accounts to become severely delinquent and your credit score to tank — you could be left without a resolution at all. To avoid this, call your lender or collections agency directly to ask if they work with debt settlement agencies before you sign up for their services.

3. They’ll take a portion of your debt savings. If the firm is able to successfully negotiate, they will often take a cut of your savings in return. For example, if you owe $10,000 and they are able to negotiate a lump-sum payment of $8,000 with $2,000 of your original debt forgiven, the firm would take a percentage cut of that $2,000.

4. Your credit will tank. It is important to note that debt settlement shows up on your credit report when it is reported to the credit bureaus. It will serve as a red flag to future lenders that in the past, you have not paid your debts in full. This could result in higher interest rates, smaller lines of credit, or even failure to get approved for credit at all.

5. You could face a hefty tax bill. If the amount forgiven is $600 or more, you will most likely have to report it as taxable income. Let’s look back at our earlier example. When that person settled their $10,000 debt for $8,000, the lender effectively forgave $2,000. To the IRS, that forgiven debt could be treated as additional income and you could owe taxes on it.

What to Look for in a Debt Settlement Firm

There are six things you should consider red flags when it comes to debt relief services, according to the FTC:

  • The company charges any fees before it settles your debts
  • The company advertises that they are part of a “new government program” to bail out personal credit card debt. There are no such programs.
  • The company guarantees it can make your unsecured (credit card) debt go away
  • The company tells you to stop communicating with your creditors, but doesn’t explain the serious consequences
  • The company tells you it can stop all debt collection calls and lawsuits
  • The company guarantees that your unsecured debts can be paid off for pennies on the dollar

Almost all states have some form of regulation for debt relief services. Some states ban them altogether.

A debt settlement firm may be licensed to operate in your state, but that does not mean they are necessarily the best for your needs. Because state licensing agencies are not federally regulated, quality standards can vary widely from state to state.

What should you look for, then?

A best-case scenario, according to Pizor, is finding a company that only takes a percentage of your debt reduction in exchange for their services. “This setup helps better align their interests with your own,” Pizor says. If you do well, they do well.

How to Avoid Debt Settlement Scams

Most debt settlement firms focus on unsecured consumer debt, like credit card debt. The most common scams in these situations involve telemarketing. You’ll receive a call from a company posing as a debt settlement firm that promises to reduce the amount of debt you owe as long as you pay an upfront free. They may even tell you that you don’t have to pay a fee until later as long as you’re saving money in a third-party account.

The latter sounds legitimate, but in both these situations, the supposed debt settlement firm can easily run with your money. There was a flurry of these telemarketing scams following the 2008 financial crisis, prompting the FTC to add further federal regulations under their Telemarketing Sales Rules.

If you can’t sit down with someone in person, it’s difficult to judge their legitimacy. In these situations, it’s best to just hang up.

Another tactic scammers perpetrate is using a lawyer as a front. This lawyer may be licensed to practice in your state, but will outsource your debt woes to companies across the country, or even the world, that have no legal background.

In order to avoid this scam, make sure you can sit down with the lawyer face to face in their office. Pizor recommends asking probing questions to get a feel for their legitimacy, including, “Who will be working on my case?”

If the lawyer or a paralegal in their office will be doing the work, that is much more acceptable than someone they cannot immediately supervise in person, or someone without a background in law.

Scams also frequently happen in the student loan sector. You’ll often see settlement firms advertising that there is a “new government program” that could help you settle your student loan debt. This is tricky because there are legitimate government programs that can help those with federal student loans defer payments or even forgive their remaining debt, but you should never have to pay anyone a fee in order to access these programs.

In late 2014, the Consumer Financial Protection Bureau prosecuted two companies that were preying on those with student loans.

Try Negotiating Your Own Debt Settlement

As long as you’re aware of the effect it may have on your credit, you can negotiate a settlement on your own. Many creditors have a floor for how much they’ll reduce your debt in favor of a lump-sum payment. This floor applies to debt settlement firms and consumers alike. By entering negotiations without a third party, you can save yourself the fees and potential victimization that you would risk by working with a debt settlement firm.

There are two important things to remember before you settle your debt:

  1. You will likely need to provide a lump sump payment right away. It’s unlikely a debt collector or lender will accept installments. Also, having the ability to make a lump sum payment could give you additional bargaining power.
  2. As we mentioned before: If the debt is settled for a lesser amount, you may be taxed on the portion of the original debt that was forgiven.

Consider Paying Your Debt in Full

Debt settlement leaves a scar on your credit report that will take years to fade. If possible, attempt to negotiate a lower interest rate and/or longer terms that may decrease your monthly payment. Just be aware that a longer term may lower your monthly payments but increase the amount of interest you pay over the course of your loan, even if your interest rate goes down or stays the same. However, you’ll more likely be able to afford your payments and possibly save your credit report.

That being said, some debts may have passed their statute of limitations in the state in which they originated. Once that statute of limitations has been passed, it is no longer possible for the lender or collections agency to sue you for those unpaid debts. Furthermore, they may have already fallen off your credit report. However, if you make any further payments, the clock will restart and the debt will be revitalized. Consult a consumer law attorney or a credit counselor before deciding whether to make a payment on an old debt.

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How to Speed Up Your Mortgage Refinance

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Clock time deadline

When you’re refinancing your mortgage, timing is everything.

Once a lender offers you a rate, they only give you a certain amount of time in which to take advantage of it — a period called a “lock.” Locks come in 15-day increments. The shortest is 15 days, followed by 30 days, followed by 45 days, and so on. Shorter locks generally mean better rates, while longer locks mean higher rates.

If you’ve found an amazing interest rate with a short lock period, you’ll want to make sure things go as quickly and smoothly as possible so you don’t lose that fantastic deal. Here are the best ways to speed up the mortgage refinance process so you can take advantage of lower interest rates.

Related Article: Guide to Refinancing Your Mortgage

Be Honest on Your Application

You may be tempted to omit some debt on your application in order to get approved for a larger loan. Don’t do it. Lenders will find out if you’re withholding information about debts, and the ensuing paperwork will slow down the process. Avoid the headache now and be forthright about all of your finances.

You do not, however, need to disclose all of your assets. In fact, Casey Fleming, mortgage adviser and author of The Loan Guide: How to Get the Best Possible Mortgage, cautions against it if you want the process to go quickly.

“Typically, [you only need to disclose] enough to pay for all closing costs, plus a little more than three months of reserves,” Fleming advises. One month of reserves is the sum of the principal, interest, taxes, insurance, mortgage insurance, and any HOA dues you may incur with your new property.

“Providing more assets than this just gives the underwriters more paperwork to plow through and more opportunities for more questions,” Fleming says. “It is not considered fraudulent to understate your assets.”

Know How to Access Your Paperwork and Return Documents Quickly

Because each individual’s situation is different, it’s very hard for borrowers to know what paperwork they will need to include in their application before applying. Fleming does, however, recommend knowing how to get necessary paperwork should it be requested. This includes knowing how to print out e-statements from financial accounts and obtaining copies of pay stubs and deposited checks.

Throughout the process, you will be asked to submit additional supporting documentation, along with signing and returning new documents issued by the financial institution. This is one of the biggest things that slows down mortgage refinances, and it’s completely in your hands. Return all requested paperwork expediently.

Stay at Your Current Job

If you’re thinking of making a career move, hold off until you close. Stability is a big deal when lenders are making their decisions, and switching employers before closing could negate the entire deal.

Don’t Take on New Debt

If you’re looking for a fast refinance, it is wise to stop taking on new debts 60 days before you apply. It can take this long for lenders to report new loans to the credit bureaus. If your new loan doesn’t appear on your credit report, the financial institution issuing the mortgage refinance will have to get in touch with the credit bureaus directly, which costs both additional time and money.

Note: Taking on new debt, even prior to 60 days before your application, can temporarily reduce your credit score. This can affect the interest rates you are offered or even keep you from qualifying.

You may think you’re golden after you have been approved, but that simply isn’t true. Your lender will pull your credit report on the day of closing, enabling them to see any new debt you’ve taken on since they approved your application. Don’t do anything that would change your debt-to-income ratio.

Find a Lender Who Uses Appraisal Waivers

In the past, common industry advice instructed borrowers to schedule their appraisal as soon as possible, and to keep their own schedule flexible so they could accommodate that of the appraiser. Because physical property appraisals take a long time, this was one of the best things you could do to speed up the process.

However, technology is now offering better and quicker options both for the lender and the borrower.

“More and more automated approvals are requiring only an automated valuation — a software-generated estimate of value,” says Fleming. These valuations are similar to Zillow Zestimates, but they are more accurate as they are based on more data points. “This is commonly known as an appraisal waiver. It is faster and, of course, cheaper than a real appraisal.”

Fleming says that the cost of a typical home appraisal would likely run somewhere between $400 and $500, though he notes these numbers can vary depending on region.

“Appraisal waivers used to be $75,” says Fleming, “but I understand that Fannie [Mae] is experimenting with waiving the appraisal waiver fee.” That means that the appraisal waiver is potentially free to your financial institution.

Not all lenders use appraisal waivers equally. Before applying, you can ask different lenders what percentage of their loans were approved with appraisal waivers in the past 12 months. This can help you identify lenders who will save you a lot of time during the appraisal process.

If you can’t find a lender with competitive rates who also uses appraisal waivers, stick to the old advice and book your appraisal as early as possible.

Refinances Will Move Faster This Year

If you applied for a mortgage refinance in 2016, you probably noticed that the process took a long time. There was a reason for that.

“Interest rates stayed much lower than expected,” Fleming explains. “The purchase market is not highly sensitive to interest rates, but the refi market is. Purchase applications were about as predicted [in 2016], but the refi market was much larger than anticipated.”

Because interest rates stayed so low, more people applied for mortgage refinances. Financial institutions weren’t expecting the increased demand, so many found themselves severely understaffed.

In 2017, Fleming doesn’t predict the same problem. In fact, he anticipates that mortgage refinances will close much more quickly.

“With rates up about 0.5% or more from the lows of last year, it is estimated that 25% to 50% of the refi market is no longer viable,” says Fleming. “It no longer makes sense for [many homeowners] to refinance. So, in 2017 the purchase market will stay about steady, while the refi market will drop precipitously.”

That means staffing should not be an issue and lenders will be eager for your business. The entire process is anticipated to move very quickly in the new year, which is good news for those securing competitive interest rates with short lock periods.

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BankAmericard Secured Card Review: $39 Annual Fee, 20.74% Variable APR

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The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Building credit when you’re starting from zero can be difficult. One way to build credit is by opening up a secured card. Secured cards are an introduction into the world of credit. You deposit a certain amount of money to establish your credit limit. Then, you pay off your balance in full every month to establish a good credit history and avoid late fees.

If you prove you can use a secured card responsibly, you will likely be offered a traditional credit card.

Today we’ll review Bank of America’s secured credit card. Bank of America is not the only financial institution that offers secured credit cards. In fact, you may find better terms elsewhere. Check out our full review for more details:

BankAmericard Secured Credit Card Details

Minimum deposit

To open a BankAmericard Secured Credit Card, you have to make a minimum deposit of $300. The maximum you can deposit is $4,900. BankAmericard Secured Credit Card users do not earn interest on their deposits. For this reason, it may make sense to make a smaller deposit to open your secured card and store any extra funds you have in a savings account where you can earn interest.

Determining your credit limit

Your credit limit is determined by your security deposit, your income, and your ability to repay. Some users will only be able to spend as much as they originally deposited to open the card. However, if you prove that you have the income to repay, you may have a larger line of credit extended to you, making the card only partially secured. For example, if you deposit $300, but Bank of America looks at your income and decides you’re able to pay $700 back, your line of credit would exceed your deposit by $400.

Building your credit

Once you’ve had the card for 12 months, Bank of America will re-evaluate your credit history and ability to repay. If both of these things are trending to the positive, they may return your deposit, making the card fully unsecured. This is an ideal situation for those trying to establish or rebuild their credit.

Because Bank of America does report their secured card customers to each of the three credit bureaus monthly, you are likely to see an uptick in your score if you’re using the card responsibly. This increases the likelihood that you’ll get your deposit back at the end of the 12-month period.

Interest rates and fees

The BankAmericard Secured Credit Card is not without fees. In fact, its fees are probably the least attractive thing about it:

(Terms are current as of Jan. 3, 2017)

  • $39 annual fee
  • 20.74% variable APR on transactions, balance transfers, direct deposit, and check cash advances
  • Up to 29.99% variable APR penalty if you miss a single payment
  • Fee of $10 or 3% — whichever is more — on all balance transfers and direct deposit or check cash advances
  • 25.49% variable APR on bank cash advances
  • Fee of $10 or 5% — whichever is more — on all ATM, over-the-counter, same-day online, or cash-equivalent cash advances
  • 3% foreign transaction fee
  • Maximum late payment penalty fee of $37
  • Maximum returned payment penalty fee of $27

In addition to these fees, you have an option to set up overdraft protection with your secured card if you have a Bank of America checking account. If the card is used for overdraft protection, you will be charged a $12 fee each time. While this is better than the typical $35 overdraft fee, it’s still not ideal. Many financial institutions offer free overdraft protection when you are linked to a savings account; however, Bank of America charges $12 every time, whether you’re linked to your savings account or your secured card.

Safety and benefits of the BankAmericard Secured Card:

The BankAmericard Secured Credit Card does come with some security benefits. For one, you have $0 liability protection. This means that if anyone uses your card fraudulently, you won’t have to pay a dime as long as you report it and provide any requested information to Bank of America.

It also comes with chip technology and ShopSafe. ShopSafe is a program that generates a temporary card number for use when shopping online. It links directly to your card, but protects you from having your real card number stolen.

Another benefit is signing up for email and text alerts. These can either provide you with the information you want at the drop of a hat or remind you when your bill is due so you don’t rack up those nasty interest charges and late fees.

What You Need to Get Approved for a BankAmericard Secured Card

To determine approval, Bank of America looks at several factors, including:

  • Your ability to pay the security deposit
  • Your ability to make monthly payments
  • Information pulled from all three credit bureaus
  • Past management of other Bank of America accounts for current members

Pros and Cons of the BankAmericard Secured Card:

Pros

  • Option for partially secured card for those with adequate income
  • Status regularly reported to all three credit bureaus to help you build or rebuild your credit
  • Potential to turn into an unsecured card after twelve months if used responsibly, removing the need for the hard credit pull that would be involved in opening a new card

Cons

  • Annual fee of $39
  • Interest rates are high — once you qualify for an unsecured card, it may be worth the hard pull and shopping around for lower rates
  • Associated overdraft protection is not free
  • Deposit does not earn interest

How the BankAmericard Secured Card Stacks Up to the Competition

Bank of America is not the only financial institution that offers secured credit cards. In fact, you may find better terms elsewhere.

USAA’s secured credit card does offer interest on your deposit through a 2-year CD. Interest rates are variable, but currently sit at 0.54% APY. The minimum deposit is $250, and the maximum is $5,000.

Interest rates charged to customers and associated fees are lower. There is a $35 annual fee, but no penalty APR or foreign transaction fees. Interest rates are between 10.15% and 20.15% APR, depending on your creditworthiness. All cash advances and balance transfers come with a 3% fee, and the fee for a late charge is $35. The only place where this card is more expensive than the Bank of America option is returned payment fees, which come in at $35. Both fees are only $25 for the first occurrence, however.

Another option is the Discover it Secured Credit Card, with a minimum deposit of $200 and a maximum of $2,500. This card earns you cash back rewards points on all your purchases as you build your credit. Depending on how much you spend, you could yield more in cash back rewards than the CD with USAA would yield you. It comes with no annual fee, penalty APR, or foreign transaction fee. They also won’t charge you a late fee the first time you miss a payment. After that, you pay $37.

While it lacks many fees, interest rates are actually higher than the Bank of America option at 23.24% APR on purchases and balance transfers. Balance transfers also incur a 3% fee. (Currently, there is an offer for 10.99% APR on balance transfers for the first six months.) APR for cash advances is 25.24%. The fee for cash advances is either $10 or 5% — whichever is more.

Don’t Focus on Rewards

Maybe the fact that the BankAmericard Secured Credit Card doesn’t offer you cash back is actually a positive. It won’t reward you for spending more money, and that’s a very good thing from a psychological perspective — especially if you are recovering from past credit follies.

We still like USAA’s interest-bearing CD option as it doesn’t incentivize additional spending, but does offer consumers a return on their deposit.

Your exclusive goal when using a secured card should be to rebuild your credit by using it and paying it off in full every month so you don’t incur interest or late charges. If rewards would entice you to do otherwise, sticking with Bank of America could be a smart move.

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Featured

3 Times It’s Smart to Use a Cashier’s Check

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The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

 

Man writing a payment cheque at the table with calculator and glasses

When you’re making a big purchase or entering a contractual obligation, a cashier’s check might be a good idea — especially if you want a paper trail to document the other party’s responsibilities.

Unlike personal checks, which are paid out of your checking account, cashier’s checks are signed by a cashier or teller and cashed out of your financial institution’s funds. This signals to the payee that the money is as good as gold, and helps you avoid any situation where your own checking account may be accidentally overdrawn.

When should cashier’s checks be used?

Cashier’s checks aren’t something you’ll use too often in your day-to-day life. Since they are generally only used in bigger purchases, there are few situations where you’ll encounter this need. Keep in mind that larger checks, generally those over $5,000, may take a few days to clear. This could mean it will take a couple of days for any of these transactions to become official.

Here are a few cases in which a cashier’s check makes sense:

Closing on a home

When you’re closing on a home, the lender may ask you for a cashier’s check. This is typically convenient for you. It removes any risk of a funds transfer delaying closing, and also helps you avoid an accidental overdraw on your personal checking account. Because a cashier’s check cannot be altered, the only time it proves inconvenient is if there are unexpected fees or costs at closing that weren’t anticipated.

Security deposits for rental agreements

You may be a reliable tenant, but your new landlord doesn’t know that yet. Even though they’ve likely pulled your credit score and secured references, some rental agencies or individual landlords will require your first payment in the form of a cashier’s check. This ensures that they have at least one valid payment from you should they need to evict you or if you end up writing bad personal checks in the future.

Buying a car

When you’re purchasing a vehicle, you may be required to pay via cashier’s check, particularly if you’re paying in full. This protects the seller from ending up with a bad personal check after you drive off the lot. Note that you should not come to a car dealership with a cashier’s check for your maximum budget. While some people view this as a way to solidify negotiation positions, it will in all likelihood backfire. Because of taxes and fees, there is no way to know exactly how much you will end up paying unless you have agreed in a prior conversation. Additionally, you may end up at a disadvantage if the seller was willing to go lower than the amount on the payment line.

How do I get a cashier’s check?

To get a cashier’s check, you’ll need to go to a financial institution in person. You will then give the teller the exact amount you want for the cashier’s check in cash. You will also be required to provide a valid form of identification.

The institution may be able to take the funds directly out of your checking account if you are an existing customer. In other cases, some banks will require that the funds have been in your account for a certain number of days before cutting you a check.

For example, if you’re requesting a $2,000 cashier’s check but only have $1,800 in your account, you could deposit $200 to make up the difference. But you might have to let that money sit in your account for an additional three to five days before the financial institution would actually withdraw the money. Only at that point would they cut the cashier’s check.

Before the check is issued, you will have to designate who you want the check written out to. You cannot leave with a blank “To” line. The signature line will be taken care of by the teller; you do not sign a cashier’s check yourself as the funds now belong to the financial institution — not you.

How much does it cost to get a cashier’s check?

The cost of a cashier’s check depends largely on your financial institution. Some will issue a check with zero fees as long as you hold a checking account with them.

Others will charge a fee in the ballpark of $5-$10 whether you hold an account with them or not. Call your physical branch before going in to see how much yours will cost.

If you bank with a credit union and you live a distance away from its physical branches, you may be able to go to another credit union within network that is more convenient to your current location. The largest credit union network is CO-OP, but call yours to see which networks it participates in.

If you bank with an online-based financial institution, things will work a little bit differently. Because you cannot go into a physical branch, the transaction will be done over the phone. For convenience, the institution will take the money out of your account rather than exchanging cash. Some institutions will not require ID in this situation, but they will maintain security by verifying identity in other ways such as a phone PIN or requesting confirmation of your personal identifying information.

For checks over a designated amount, you will have to submit a written request. For example, USAA requires written requests for checks over $10,000, a spokesperson says. The written request can generally be uploaded, but some institutions may require you to send this documentation in via snail mail.

If you use digital banking, the institution will also have to mail the check to you or the recipient. While standard shipping may be free, this option can take up to 7-10 business days; if you need it quicker, don’t forget to factor shipping fees into your calculations.

Alternatives to cashier’s checks

Cashier’s checks are not the only way to make a secure payment. While cash and personal checks are risky, money orders and electronic transfers are alternate and potentially cheaper options.

If you are getting a paper money order, you can get one for as little as 70 cents at Walmart. The downside to this is that you’ll have to bring the total cash amount to Walmart. If that number is big enough to warrant such a secure transaction, you may be putting your own security at risk by walking around with that much money in your pocket for however brief a time.

Walmart is usually the cheapest option, but you can also purchase money orders at post offices or your financial institution. Keep in mind that money orders typically have a maximum daily limit, which could cause problems if you’re making a large purchase.

Another option is an electronic transfer. Your financial institution likely offers this service for free, and more and more places are accepting them as money becomes increasingly digitized.

The biggest drawbacks to this method are the potential to overdraw your account and the possibility that the transfer doesn’t complete in time for your planned transaction. However, both of these circumstances can be avoided with careful money management and planning.

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Featured, Mortgage

Guide to Refinancing Your Mortgage to Lower Your Payments, Consolidate Debt

Advertiser Disclosure

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Happy black couple standing outside their house

According to the Consumer Financial Protection Bureau, mortgage lending between August and October 2016 was up nearly 50 percent over last year, “unusually large number likely due to a high rate of mortgage refinancing.”

There are many reasons you might consider refinancing your mortgage. For one, interest rates are continuing to creep up after several years of historic lows, driving many borrowers to refinance in hopes of locking in a lower rate now.

You may also have a long list of home repairs that need to be addressed. Cashing out on a refinance could provide you find the money you need to get the job done. You might also consider a mortgage refinance to help consolidate some of your high interest debt from credit cards or student loans.

But is any of this a good idea?

Today we’ll explore when refinancing a mortgage is a smart decision, and when it’s mathematically unwise. We’ll do this by looking at the cold, hard numbers and walk you through the process if you decide it is an avenue you’d like to pursue.

Refinancing to Lock in a Lower Mortgage Rate

Rates

As of this posting, the national average interest rate is at 4.15%. While that number is higher than it has been in the recent past, rates are still much lower than the average 6% rate you would have secured before the 2008 recession or the 10% average rate you would have had to pay in the 1980s.  If you originally financed or refinanced your mortgage prior to the recession, exploring refinance options could be a good path for you.

Fees

However, before you decide on interest rates alone, you need to be aware of all the associated fees that come along with a refi. These fees usually include escrow and title fees, document preparation fees, title search and insurance, loan origination fees, flood certification, and recording fees. These alone can easily add up to $4,700 or more, according to Trulia.

Do the math

Because each situation will have varying interest rates and fees, it’s important to run your own numbers before making a definitive decision. While we can’t run your numbers for you, we can take you through the mathematical process through an example. You can do the same by using your own, real-life numbers and this calculator from myFICO.

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Source: MyFICO

Let’s say you’re refinancing a 30-year mortgage with a 5.4% interest rate. You have been paying your mortgage for 10 years at this point. But today, you still have $205,285.94 to pay off. If you continue to pay on your current mortgage, you will pay it off in 2036 but you will have paid a staggering $255,377.71 in interest fees over the lifetime of the loan.

So you are considering a refi loan. Let’s say you prequalify for a 3.5% fixed mortgage refi rate over an additional 30 years.

If you decide to refinance to a 30-year mortgage, it will be like starting the clock over even though you already paid 10 years into your original loan. So, factoring in the total interest you paid over that 10 year period on the original loan and the interest you will accrue over the 30-year span of the new refi loan, you will pay a total of $251,720.

By refinancing, it looks like you will pocket $3,657.71 in savings. So refinancing is definitely the better option, right?

Hold your enthusiasm. Remember those fees that come along with a refi? Before you can actually refinance your existing mortgage, you could face an estimated $5,077 in fees, MyFICO’s calculator shows. With the additional interest and fees combined, you’ll end up paying  $256,797 over the lifetime of the loan — about $1,000 more than you would if you just stayed put.

That makes this particular refinance over $1,000 more expensive than continuing with your current mortgage. Plus, if you refinance, you’ll be paying on a mortgage for an additional ten years before you own your home outright.

Refinancing to Lower Your Monthly Mortgage Payments

House building, insurance, housewarming, loan, real estate, home concept

If you already have a low interest rate and are thinking about refinancing exclusively for lower monthly payments, think again. While the amount due monthly will go down, the amount you pay over the life of your loan will go up.

In our example above, refinancing to a lower rate of 3.5% would dramatically decrease your monthly mortgage payments before taxes —  from $1,403.83 per month to $922 per month. However, as we demonstrated using myFICO’s refi calculator, you’d end up spending $1,000 more over the course of the loan as a result.

Refinancing simply to lower your monthly payment is especially dangerous if you are in the first 5-7 years of paying off your current mortgage. That’s because interest charges are not spread out evenly over the course of your loan — they are front loaded. That means for the first 5-7 years, you’re paying more toward interest and very little toward the principal loan balance. In the meantime, you’re building very little equity. If you refinance during this time frame, you’re starting the clock over and delaying the opportunity to establish equity.

Suggest: Let’s back to our first example one more time. In this case, the homeowner is 10 years into their existing mortgage and has been making monthly payments of $1,403.83. By this time, roughly $477.89  goes toward the principal loan balance each monthly. But if they were to restart the clock and refinance to a new 30-year mortgage, only $325 of their monthly mortgage payment would go toward their loan principal.

Refinancing to Make Home Improvements

home improvement repair kitchen remodel

If you’re looking to refinance so you can cash out a portion of the new mortgage for home improvements, you may be onto a good idea. If you have a 20-year-old roof that needs to be fixed and no cash on hand, refinancing at at a lower rate could make more financial sense than using alternative financing options.

When you use a cash-out refinance, your financial institution will give you a new mortgage. Part of your monthly payment will go towards the amount you still owe on the home, while another part will go towards paying off the cash they give you at closing. You can usually only take 80%-90% of your established equity out as cash when using this method.

Another option is to take out a home equity line of credit (HELOC). This operates similarly to a credit card; the financial institution offers your a line of credit up to a specified amount, but you only have to pay on it if and when you choose to borrow. Because a HELOC is secured by your home, interest rates are much lower than on credit cards and may even be lower than the interest rate on a cash-out refinance. However, HELOC interest rates are typically variable, which could get you in trouble further down the line if you’re borrowing a lot of money for home repairs like a new roof.

Either way, you should be cautious. Making an upgrade for the sake of functionality is one thing, but making an upgrade for the sake of luxury is another. It’s inadvisable to make a lavish kitchen upgrade in the tens of thousands, even if you are under the illusion that it will build home value further down the line. If the luxury is something you really want, save up for it. Don’t finance it.

Refinancing to consolidate existing debts

Desperate young couple with many debts reviewing their bills. Financial family problems concept

Cashing out to pay off credit card debt

You may also be tempted to cash out a refinance in order to pay off other debt. Historically, homeowners have used this method primarily to pay off high-interest credit card debt. With interest rates so low, doing so may seem like a good idea. Rolling your credit card debt into a mortgage with 3% interest is better than paying it off with an average of 15%-25% interest — isn’t it?

It may seem like a good idea, but too often this method doesn’t change the root cause of the issue. If you had a spending or cash flow problem prior to the refinance, you’re likely to end up in credit card debt again, but this time you’ll have a bigger mortgage on top of it.

A better way to refinance your credit card debt could be applying for a balance transfer. Many credit cards include an initial offer of 0% interest on balance transfers for a certain amount of months. Zero percent is better than any interest rate you’ll find in the housing market. Though these cards come with balance transfer fees, those fees can be as low as 3%, and you only have to pay them once. Because there is a deadline on the 0% interest period, you’ll be more likely to find the motivation to pay the debt off quickly, building better financial habits along the way.

There are rare instances where rolling your credit card debt into a mortgage refinance can be advantageous. For example, if you’re a dual-income household and you lose a spouse without adequate life insurance, you may find yourself in a financial quandary.

In this scenario, if you have credit card debt in your own name and suddenly can’t afford to pay the monthly bills, refinancing your mortgage and cashing out a portion to pay off your high-interest debt may be one of the few feasible options.

Cashing out to pay off student loans

Recently SoFi, an online market lender, rolled out a new product that allows you to refinance your home and cash out a portion of the new mortgage to pay off your student loans. Let’s say you owed $30,000 on your home and had $20,000 in outstanding student loan debt. You would take out a $50,000 mortgage refinance with $20,000 of it paying off your student loan debt.

This can potentially be a smart idea. If the interest rate on the refinance is less than the interest rate on your student loans, you stand to save some money. If you ever sell your home, the sale will take care of the portion that went to pay off your loans.

The danger is you will lose all the benefits that come with federal student loans, such as income-based repayment and pay-as-you-earn options, as you will be swapping your Federal loans for a private loan issued by SoFi. For this reason, the vast majority of people who will benefit from this product will be those who already carry private student loans with relatively high interest rates.

How Should You Shop?

cfpb-logo-730x273

Before you start shopping, you’re going to want to arm yourself with knowledge. First, find out what competitive interest rates look like in your area. You can do so by using this tool from the Consumer Financial Protection Bureau.

It’s good to know what the best rates are, but it’s even better to know if you’ll qualify for them. About six months before you plan on applying for a refi, get a free copy of your credit report from each of the three credit reporting bureaus to make sure everything on your report is accurate and up to date. Your credit report will be used to determine your credit score when you start submitting applications.

Many conforming loans will be backed by Fannie Mae’s Refi Plus program. To qualify for the lowest interest rates in this program, you will want to have a credit score of 740+. You can still qualify with a lower credit score, but the further down you are on this list, the higher your interest rate will be:

  • 740+ Best rates
  • 720-739
  • 700-719
  • 680-699
  • 660-679
  • 640-659
  • 620-639
  • Below 620 Worst rates, and you may have trouble even qualifying.

To find out which credit score range you fall into, pull your scores from several different sources using several different scoring models.

Variable vs. fixed rates

Another thing to consider before you shop is whether you prefer a variable or fixed rate. Variable rate loans are stable for one month to five years or more, after which the interest rate will adjust based on an index. Since rates are low at the current moment, the odds of your interest rates shooting up after five years is extremely high. Unless you know with certainty that you can afford your monthly payments when they rise, or you aren’t planning to stay in the home for long, taking this route is risky.

Because rates are so low, fixed is likely the way to go. The rates will be higher than the offers you receive for initial variable rates, but they will stay consistent for the entirety of your loan. When interest rates inevitably go up again, yours won’t if you lock in the fixed rates today.

Shop around — including your current lender

As with most shopping endeavors, the best way to find the best price is going to be getting quotes from several different lenders in your area.
There are two primary criteria you will want to examine. The first is obviously interest rates. The second is fees, which can eat into your savings.
When you start shopping, it’s easy to take the path of least resistance: your current lender. Typically, they will offer you lower fees than their competitors, but their interest rates may be potentially higher. Get outside quotes to use as leverage for negotiations in this arena.
Another possibility is your lender offers you the smallest fees and lowest interest rates among their competition, but the rate is still higher than you’d like it to be because of your credit score. While doing so doesn’t have a 100% success rate, you can try to negotiate for a lower rate based on customer loyalty.

When you’re applying, don’t forget to look at online marketplace lenders such as SoFi. Many times they have lower fees and involve less paperwork.

How Long Does the Process Take?

Clock time deadline

Many lenders will want to see if you are pre-qualified before you begin the full application process. This can be misleading because getting pre-qualified often takes mere minutes, and the interest rates you are offered are based only on a soft pull of your credit.

The full process of being approved for a loan will take much longer–typically between 30 and 45 days if you submit all of your paperwork in a timely manner. It will require a hard pull on your credit report and score, along with submitting a lot of personal documentation. Remember, just because you are pre-qualified doesn’t mean you will be approved. Once the financial institution has more information, they may adjust or redact their offer.

Paperwork to prepare

To make sure the application and approval process goes as smoothly as possible, gather up these commonly required documents before approaching your lender to fill out any forms:

  • Proof of income, including: past 2-3 months’ worth of pay stubs, employer contact information including anyone you’ve worked for in the past two years, W-2s and income tax documents for the past two years, and/or additional documentation of income for the past two years for self-employed individuals including Schedule C or K and profit/loss statements.
  • Proof of assets, including: a list of all the property you own, life insurance statements, retirement account statements, and bank account statements going back at least three months.
  • Accounting of debts. This includes statements for any outstanding loans or credit card debt you may have. Don’t forget your current mortgage!
  • Proof of insurance. For our purposes today, this generally refers to homeowner’s insurance and title insurance.
  • Know Your Customer information. Financial institutions are required to verify your identity before lending you any money or allowing you to open any type of financial account. Be prepared with your Social Security card, your driver’s license or other state-issued ID, and the addresses you have lived at for at least the past three years, including dates of residence.
  • Additional documents for special situations. If you receive income from disability, Social Security, child support, alimony, rental property, regular overtime pay, consistent bonuses, or a pension, be sure to prepare documentation for these income sources as well.

There may be additional documents required depending on your lender, but checking off this list is a great start.

If you have all necessary paperwork on hand, you can submit it via the internet or postal mail immediately after filling out your application online, over the phone, or in person. The modality of submission will depend on the lender.

Approval

A loan officer will look over your paperwork, which will hopefully end in approval. You will then be sent documents to review. It would be wise to do so with a lawyer, which is an additional fee you will want to calculate into your refinancing equation.

Closing

If you are agreeable to all terms, you will fill out your documentation for closing. You will have to issue payment for closing fees just as you did when you took out your original mortgage. Depending on the lender, you will submit this paperwork in person, through postal mail, or online. After the paperwork is processed, your current mortgage will be paid off and your refinanced mortgage will take effect.

Typically, the entire process takes somewhere between 30 and 45 days. >

Conclusion

If you’re refinancing solely for lower mortgage payments or in order to cash out for a chef’s dream kitchen, back up and reconsider. But if you’re refinancing for lower interest rates on a mortgage on which you’ve built significant equity, moving forward may be a good option. Be sure to run your numbers and sit down with a lawyer before signing on any dotted lines.

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Investing, Reviews

Hedgeable Review: Robo-Advisor for Investors Who Don’t Mind Risk

Advertiser Disclosure

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

hedgeableYou may get overwhelmed when you think about wealth management. It can feel complex, and you may not consider yourself wealthy enough to justify the expense of having someone manage your investments.

In the past few years, though, wealth management services have been largely democratized by robo-advisers. Rather than paying an individual to handle your investments, robo-advisers manage your money through technology, letting algorithms do the heavy lifting.

In this post we’ll look at Hedgeable, a highly personalized digital investing platform.

What Is Hedgeable?

Hedgeable is a private wealth management platform that is accessible on your computer, tablet, and smartphone. Hedgeable actively invests across a wide range of asset classes, including exchange-traded funds (ETFs) and individual stocks. Because past performance cannot predict future returns, we have no way of knowing if this method will be successful in the future. But we do know that studies have repeatedly shown that the best-performing portfolios over time have often been forgotten.

While forgetting about your retirement account is certainly one way to passively invest, a more conscious option is investing in low-cost index funds. If, however, you are willing to take on the risk of lower returns associated with an actively managed account, Hedgeable’s personalization makes it worth examining.

Unlike other robo-advisers, Hedgeable takes and more active approach to managing client portfolios. When you sign up for an account, you take a portfolio customization quiz that asks you about your assets, goals, and risk tolerance. The quiz takes all of five minutes and then assigns you a very specific portfolio to match your needs.

You can either open a new investment account directly through Hedgeable, transfer an existing account, or roll over a 401(k), 403(b), or 457 to an IRA.

How Hedgeable Chooses Your Investments

While many robo-advising apps use modern portfolio theory to allocate money in a portfolio, Hedgeable uses an objective-based model, which relies less on what the market will do and more on what the investor wants their money to do.

The approach is three-pronged. First, it widens the amount of available asset classes. Your money may be invested in any of the following, depending on your personal risk tolerance:

U.S. Equities

International Equities

Emerging Market Equities

U.S. Fixed Income

International Fixed Income

Emerging Market Fixed Income

Commodities

Real Estate

Master Limited Partnerships

Alternatives

Absolute Return

Currencies

Short U.S. Equities

Short Emerging Market Equities

Short Fixed Income

Cash

To better understand the list above, there are a few key terms you should be familiar with. “Equities” generally means stocks or exchange-traded funds (ETFs). “Fixed Income” is typically indicative of bonds. When you “short” something, you’re betting against it.

Using all of these asset classes, Hedgeable then looks at the goal end date of your portfolio, whether or not you want to invest exclusively in a social cause such as female leadership, LGBTQ equality, or alternative energy, and your risk tolerance to decide where it should invest your money. Riskier portfolios generally have a better potential for return, while lower risk portfolios will likely bring in less, but run a lower potential for losing value.

After your money is invested in specific assets, Hedgeable doesn’t wait a year to rebalance your portfolio. Instead, it implements something called dynamic hedging. As assets become more volatile, the algorithm will cut exposure to them, moving your money into safer assets immediately. Portfolios on this platform are very much actively managed.

Users are also encouraged to take advantage of Hedgeable’s account aggregation, which allows you to link all of your financial accounts to the app. This gives Hedgeable an overall view of your cash and debts. When the app has more information, it can better allocate your money to fit your specific financial situation.

Fees and Costs

Hedgeable’s pricing depends on the size of your portfolio. While there is no account minimum, those with the least amount of money in their accounts pay the highest fees.

While the fees on Hedgeable’s pricing page are annual fees, customers are billed on a monthly basis. For example, if a customer’s fee is 0.75% per year, they would be charged 0.0625% each month. 

Fees cover management fees, trading costs, product fees, administration, technology, analytics, and customer support.

$0-$49,999 – .75%

$50,000-$99,999 – .70%

$100,000-$149,999 – .65%

$150,000-$199,999 – .60%

$200,000-$249,999 – .55%

$250,000-$499,999 – .50%

$500,000-$749,999 – .45%

$750,000-$999,999 – .40%

$1,000,000-$9,999,999 – .30%

Customer Service and Rewards

Hedgeable has a variety of ways to get your problems resolved and questions answered. You can open up a ticket and monitor the progress the support team has made in addressing your concerns. Alternatively, you can text or do live chat with the organization’s customer support team seven days a week. On top of all this, the CIO himself holds office hours twice a week via video conferencing.

In order to increase customer retention and give users the best experience possible, Hedgeable runs a rewards program known as ?lph? clu?. You can earn points by becoming a member, funding your first account, referring new users, sharing on social media, investing specifically for retirement, adding a recurring deposit, and sticking with the company. When you are rewarded for financial activity, your points correspond with how much money you add to your account.

You can claim points for prizes such as Airbnb gift cards, VR headsets, and donations to charitable causes. The more expensive an item is, the more points it will cost to acquire it.

Pros and Cons

Pro: The quick onboarding quiz makes it very easy for users to find an appropriate portfolio and invest without doing mental gymnastics.

Con: While the user might not feel actively engaged in the process, these portfolios are very much actively managed by Hedgeable’s algorithm. Many finance experts stay away from this type of management as it is extremely difficult to do successfully.

Pro: You can start investing with any amount of money, and can do so in accordance with your values through socially responsible investments.

Con: Those with the least amount of money will pay the highest annual fees.

Pro: There is one, flat-rate, easy-to-understand fee that is only assessed once per year.

Other Investing Apps to Consider

Betterment is another investing app with a relatively low barrier to entry. There are no minimum required investments, though it does not invest in as wide of an array of asset classes as Hedgeable. Its fees are lower though, ranging from .35% to .15% annually, depending on the size of your account. Betterment does require a $100 monthly contribution or you will incur a $3 fee.

Wealthfront uses modern portfolio theory like Betterment, but offers a wider variety of potential investable assets. Wealthfront is also free until you have $10,000 or more invested; at that point your fees jump to .25% annually, making it the cheapest option of the three. To get started, though, you must open an account with at least $500.

 

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Reviews, Strategies to Save

Review: You Need a Budget (YNAB) — The Budgeting Tool That Makes Every Dollar Count

Advertiser Disclosure

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

The Budgeting Tool That Makes Every Dollar Count

You Need a Budget (YNAB) is subscription-based budgeting software available both on desktop and mobile devices. Its trademark mantra is, “Give every dollar a job.” That means as you have money coming in, you assign it a budget category. Once you have one month’s worth of expenses fully funded, you can start budgeting funds for future months.

How Does ‘You Need a Budget’ Work?

When you first sign up for You Need a Budget, you will be asked to link your checking, savings, and credit card accounts. This allows the app to see exactly how much money you have at this very moment.

Next, you’ll add upcoming transactions like rent, utilities, and groceries. As you add these expenses, you’ll also be prioritizing them. The ones that are most important (generally rent or mortgage payments) will go on top, and the ones that are a little more frivolous like entertainment spending will go at the bottom.

After you’ve set up transactions you know are coming, you’ll be able to establish goals. You can set up goals by a date, in which case the app will tell you how much you have to save per month to meet your objective. You can also set them up by how many dollars you’d like to allocate toward them per month, in which case the app will tell you how long it will be until they are fully funded (or in the case of debt repayment goals, paid off).

6  January screen shot 1

You’ve linked accounts. You’ve accounted for bills and upcoming spending. You’ve set goals. Now it’s time to fund all of those things! You start with the money you have, and not a penny more. You assign each dollar to a certain line item, again, starting with the most important items at the top. Once you reach the end of your current funds, you won’t be able to budget any more until you get more cash in your hands.

If you are able to fully fund one whole month, then you can use any excess funds on hand to start funding the next month. The more you do this, the happier the founders of YNAB get. Their entire philosophy is that you should “age your dollars,” meaning the further in advance you can fund a transaction or goal, the more financial stability you will have.

How Much Does ‘You Need a Budget’ Cost?

Currently, You Need a Budget offers a 34-day free trial — no credit card required. After that, you will have to pay either $5 per month or $50 per year. Students get twelve months free, after which they’ll be eligible for a 10% discount for one year. If you have a previous version of YNAB, you’ll be able to score a 10% lifetime discount on the latest version.

Fine Print

Fine PrintYNAB is extremely transparent and seemingly ethical in their practices. They do not sell information to third parties, but may give others access to it in the course of business as they work to facilitate the software through companies such as Amazon Web Services and Finicity, which are two trusted names in the Fintech industry as far as security is concerned. Your data is always encrypted, and will be completely and irreversibly deleted upon request should you ever choose to close your account.

Pros and Cons

You Need a Budget is commonly recognized as one of the best budgeting apps around. That doesn’t mean that it’s perfect for everyone, though. Think through the pros and cons before downloading.

Pros

  • Transparent company.
  • Committed to security and positive user experience.
  • Helps you change your financial habits through a simple, yet revolutionary, process.
  • Prioritizes your expenses each month.
  • Forces you to address overspending.
  • Allows you to set goals.
  • Can be used by those who get paid regularly and receive W-2s or by freelancers.
  • There are user guides and lessons accessible to members to deepen your understanding of common personal finance principles and concepts.
  • There is a community where you can get support.

Cons

  • There is a price for your subscription.
  • This won’t be good software for you if you’re a percentage budgeter as the interface makes no allowance for that method.
  • At this point in time, there are no reports or analyses to help you disseminate your habits. They are promised on the horizon, though.

How Does ‘You Need a Budget’ Stack Up against the Competition?

YNAB is an extremely useful and user-friendly app. However, it does come with a fee and is far from the only budgeting software on the market. Here are some other options you may want to check out if the YNAB $50 annual subscription is getting you down:

Mint.com

While it may not use the “give every dollar a job” philosophy, Mint.com solves very similar budgeting problems in a very free way. It allows you to link accounts, plan for upcoming expenses, and set goals. It also provides charts and graphs to analyze your past behavior and provides your FICO score at no charge — two things YNAB doesn’t do. The biggest con to this no-cost application is that it is laden with ads.

Wally

If you don’t like the idea of your financial accounts being linked to a third-party app, another free option is Wally. When you use this app, you’ll have to be a lot more diligent at inputting your income and expense as none of it will be automated, but that’s the price you pay for keeping your bank account info completely separate.

Level Money

Level Money is a free app that allows you to link accounts, gives you insights into how much you have left to spend in any given category on any given day, and comes 100% ad-free. This app isn’t the best for the self-employed or those with variable income, and also isn’t as useful for those who make a lot of cash purchases.

Who Should Use You Need a Budget?

You Need a Budget is great for anyone who wants to get a hold on their money today, but doesn’t necessarily want to analyze their past spending. It’s developed for people who prefer budgeting by dollars rather than percentages, and comes with extra savings for students who are trying to establish good money habits at a younger age. It is time-tested, and is created by a company that has continually shown it cares for its customers.

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Reviews, Student Loan ReFi

Review: North Dakota’s Deal One Student Loan Refinance Program

Advertiser Disclosure

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

student loans college

If you don’t know much about North Dakota, it has some interesting quirks. It’s the largest producer of honey and sunflowers in the U.S. It’s home to the largest scrap metal sculpture in the world. In the past year, it has had both the largest population growth and the biggest economic contraction of any U.S. state.

North Dakota is also home to the only remaining state-owned bank in the country. The Bank of North Dakota (BND) collects all state tax revenues to redistribute into various programs. One of those programs is the Deal One Loan, which gives residents the chance to refinance their student debt at competitive interest rates.

Who Qualifies?

You must be a resident of North Dakota to qualify for this loan option. This means your primary residence has had a physical address in the state for at least the past six months. On top of being a state resident, you must also be a citizen of the United States.

If you are able to refinance by yourself, your credit score must be 700 or higher. If you cannot qualify solo, you can also look at getting a co-signer who has a minimum credit score of 600.

Co-signers can be released after 48 straight months of on-time payments as long as you meet the current credit score requirements at that time. It’s important to know Bank of North Dakota looks at your complete credit history when determining your eligibility.

The final criteria for qualifying is the loan itself. If your loan is in repayment or a grace period, you qualify, but if it is delinquent or in default, you cannot refinance through this program. Most loans are eligible, including federal, state, and private loans for both undergraduate work and graduate school. However, you cannot currently be attending school if you want to use this refinancing option.

[Look into refinance options on our table here.]

Terms

The length of the term on your loan will depend on how much you are refinancing.

If you owe…Your term will be….
Under $10,00010 years
$10,001-$20,00015 years
$20,001-$30,00020 years
$30,001 or more25 years

While terms vary depending on how much you owe, interest rates are the same across all terms. Currently, fixed interest rates sit at 4.36%, while variable interest rates are at 2.35%. If you choose to go with a variable rate, the maximum variable interest rate is 10%. If you sign up for automatic payment, you can decrease your interest rate by 0.25%.

There are no application or origination fees with a Deal One Loan. However, if you are more than 15 days late on a payment you will have to pay a late fee. The late fee will be 6% of the missed payment amount, as long as 6% doesn’t exceed $15.

It is also important to note that when you refinance federal loans, even at the state level, you will be giving up access to certain advantaged repayment options like REPAYE, IBR, and other benefits. Always make sure any refinancing program is worth forfeiting these programs for.

While these federal benefits will be lost, BND does offer some deferment and forbearance options of their own. If you find yourself unemployed, disabled, in a state of financial difficulty, or deployed as an active duty member of the armed services, you may qualify for partial or full deferment or forbearance.

These special exceptions do have guidelines, but are generally handled on a case-by-case basis.

Pros and Cons of Refinancing with BND’s Deal One Loan

Pros

  •       No application or origination fees.
  •       Extremely competitive rates, especially on longer loan terms.
  •       BND does allow for some form of forbearance on deferment in extreme circumstances.
  •       Co-signer release is available.

Cons

  •       Only available to residents of North Dakota.
  •       Late fees will be assessed.
  •       Credit score criteria may be high for some new graduates.
  •       You will lose access to advantaged programs if refinancing federal loans.

Application Process and Documents Needed

You can apply for a Deal One Loan online. Before you start the application process, make sure you have the following documentation and information:

  •       The lender’s name, current balance, loan type, account number, and interest rate of any loans you are attempting to refinance.
  •       Your Social Security number and driver’s license number.
  •       The names, addresses, and phone numbers of three separate references who live at three separate addresses.

If you do not qualify for the loan based on your own credit score, you will be provided with information to give to a co-signer at the end of the application process. The co-signer will use this information to create their own account and apply to co-sign your loan.

After you have finished the application, you will need to send in the Authorization for Release of Student Loan Information via email, fax, or snail mail. This form allows BND to confirm that the loan information that you submitted was accurate. You may also need to sign a Federal Student Loan Benefits Waiver.

After BND has confirmed and approved your loan, you will need to sign some paperwork to accept the refinancing offer. You will be given one more chance after this to change your mind, and will be required to sign the Loan Final Disclosure. Then, BND will pay off your existing loans.

How It Stacks Up

As far as state-run refinancing programs go, the Deal One Loan has some of the lowest interest rates around. The only states that compare are Kentucky, Iowa, and Rhode Island.

Kentucky’s Advantage Education Loans only offer fixed interest rates. Those rates are low, though, starting at 3.99%. However, those who are closer to the qualification line of a 670 credit score are more likely to see rates closer to 7.99%. You cannot be eligible for both North Dakota and Kentucky’s programs. Advantage Education Loans are only available to residents of Kentucky, Georgia, Mississippi, Missouri, Ohio, Virginia, and West Virginia.

Iowa’s Reset Refinance Loans do compete with North Dakota on interest rates, but they do so with a few caveats. The first is that the longer your term, the higher your interest rate will be. This means rates are only truly competitive with North Dakota on their five-year product. On that product, the interest rate is 4.25% for Iowa residents and 4.50% for non-residents, but only if your credit score is 830 or above. Reset Refinance Loans also come with a financing fee, which puts North Dakota clearly ahead.

If you are refinancing with a co-signer, Rhode Island’s RISLA Refinance Loans come in at a respectable 4.49% fixed interest rate, but, again, this is only for five-year loans. If you apply without a co-signer, that rate jumps up to 5.74%. While this program is open nationwide, North Dakota residents will still have an advantage by staying loyal to their own state’s program.

Overall, if you’re a resident of North Dakota and want to refinance after considering the loss of advantaged programs from your federal loans, staying with your own state program or shopping the private sector is likely the best way to go.

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