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Inflation, Interest Rates and Jobs: How Today's Economy Compares to Recessions of the Past

Inflation, Interest Rates and Jobs: How Today's Economy Compares to Recessions of the Past

This story is part of Recession Help Desk, CNET's coverage of how to make smart money moves in an uncertain economy.

What's happening

There's still debate about whether the US economy is officially headed into a recession, but the economic downturn is causing widespread stress.

Why it matters

Periods of financial volatility and market decline can drive people to panic and make costly mistakes with their money.

What's next

Examining what's happening now -- and comparing it with the past -- can help investors and consumers decide what to do next.

Facing the aftershocks of a rough economy in the first half of 2022, with sky-high inflation, rising mortgage rates, soaring gas prices and a bear market for stocks, leading indicators of a recession have moderated slightly in the past month. That could mean the economic downturn won't be as long or brutal as expected. 

Still, the majority of Americans are feeling the sting of rising prices and anxiety over jobs. The country has experienced two consecutive quarters of economic slowdown -- the barometer for measuring a recession -- even though the National Bureau of Economic Research hasn't made the "official" recession call.  

At a time like this, we should consider what happens in a recession, look at the data to determine whether we're in one and try to maintain some historical perspective. It's also worth pointing out that down periods are temporary and that, over time, both the stock market and the US economy bounce back. 

I don't mean to minimize the gravity and hardship of the times. But it can be useful to review how the economy has behaved in the past to avoid irrational or impulsive money moves. For this, we can largely blame recency bias, our inclination to view our latest experiences as the most valid. It's what led many to flee the stock market in 2008 when the S&P 500 crashed, thereby locking in losses and missing out on the subsequent bull market. 

"It's our human tendency to project the immediate past into the future indefinitely," said Daniel Crosby, chief behavioral officer at Orion Advisor Solutions and author of The Laws of Wealth. "It's a time-saving shortcut that works most of the time in most contexts but can be woefully misapplied in markets that tend to be cyclical," Crosby told me via email. 

Before you make a knee-jerk reaction to your portfolio, give up on a home purchase or lose it over job insecurity, consider these chart-based analyses from the last three decades. We hope this data-driven overview will offer a broader context and some impetus for making the most of your money today.

What do we know about inflation? 

Historical inflation rate by year

Macrotrends.net

Current conditions: The US is experiencing the highest rate of inflation in decades, driven by global supply chain disruptions, the injection of federal stimulus dollars and a surge in consumer spending. In real dollars, the 8.5% rise in consumer prices over the past year is adding about $400 more per month to household budgets. 

The context: Policymakers consider 2% per year to be a "normal" inflation target. The country's still experiencing over four times that figure. The 9.1% annual rate in July was the largest jump in inflation since 1980 when the inflation rate hit 13.5% following the prior decade's oil crisis and high government spending on defense, social services, health care, education and pensions. Back then, the Federal Reserve increased rates to stabilize prices and, by the mid-1980s, inflation fell to below 5%.

The upside: As overall inflation rates rise, the silver lining might be increased rates of return on personal savings. Bank accounts are starting to offer more attractive yields, while I bonds -- federally backed accounts that more or less track inflation -- are attracting savers, too. 

What's happening with mortgage rates? 

30-year fixed-rate mortgage averages in the US

Current conditions: As the Federal Reserve continues its rate-hike campaign to cool spending and try to tame inflation, the rate on a 30-year fixed mortgage has grown significantly. In June, the average rate jumped annually by nearly 3 percentage points to almost 6%. In real dollars, that means that after a 20% down payment on a new home (let's use the average sale price of $429,000), a buyer would roughly need an extra $7,300 a year to afford the mortgage. Since then, rates have cooled a bit, even dipping back down below 5%. What happens next with rates depends on where inflation goes from here.

The context: Three years ago, homebuyers faced similar borrowing costs and, at the time, rates were characterized as "historically low." And if we think borrowing money is expensive today, let's not forget the early 1980s when the Federal Reserve jacked up rates to never-before-seen levels due to hyperinflation. The average rate on a 30-year fixed-rate mortgage in 1981 topped 16%. 

The upside: For homebuyers, a potential benefit to rising rates is downward pressure on home prices, which could cause the housing market to cool slightly. As the cost to borrow continues to increase with mortgages becoming more expensive, homes could experience fewer offers and prices would slow in pace. In fact, nearly one in five sellers dropped their asking price during late April through late May, according to Redfin. 

On the flip side, less homebuyers mean more renters. Rent prices have skyrocketed, and housing activists are asking the White House to take action on what they call a "national emergency."

What about the stock market? 

Dow Jones Industrial Average stock market index for the past 30 years

Macrotrends.net

Current conditions: Year-to-date, the Dow Jones Industrial Average -- a composite of 30 of the most well-known US stocks such as Apple, Microsoft and Coca-Cola -- is about 8.5% below where it started in January. Relative to the broader market, technology stocks are down much more. The Nasdaq is off almost 19% since the start of the year. 

The benchmark S&P 500 stock index hit lows in June that marked a more than 20% drop from January, which brought us officially into a bear market. Since then, it's bounced back up a little, but some experts warn that a current bear market rally is at odds with expected earnings and we could see even lower stock prices in the near future.

The context: Stock price losses in 2022 are not nearly as swift and steep as what we saw in March 2020, when panic over the pandemic drove the DJIA down by 26% in roughly four trading days. The market reversed course the following month and began a bull run lasting more than two years, as the lockdown drove massive consumption of products and services tied to software, health care, food and natural gas. 

Prior to that, in 2008 and 2009, a deep and pervasive crisis in housing and financial services sank the Dow by nearly 55% from its 2007 high. But by fall 2009, it was off to one of its longest winning streaks in financial history. 

The upside: Given the cyclical nature of the stock market, now is not the time to jump ship.* "Times that are down, you at least want to hold and/or think about buying," said Adam Seessel, author of Where the Money Is. "Over the last 100 years, American stocks have been the surest way to grow wealthy slowly over time," he told me during a recent So Money podcast.

*One caveat: If you're closer to or living in retirement and your portfolio has taken a sizable hit, it may be worth talking to a professional and reviewing your selection of funds to ensure that you're not taking on too much risk. Target-date funds, a popular investment vehicle in many retirement accounts that auto-adjust for risk as you age, may be too risky for pre- or early retirees. 

What does unemployment tell us? 

US unemployment rates

Current conditions: The July jobs report shows the unemployment rate holding steady, slightly dropping to 3.5%. The Great Resignation of 2021, where millions of workers quit their jobs over burnout, as well as unsatisfactory wages and benefits, left employers scrambling to fill positions. However, that could be changing as economic challenges deepen: More job losses are likely on the horizon, and an increasing number of workers are concerned with job security. 

The context: The rebound in theunemployment rate is an economic hallmark of the past two years. But the ongoing interest rate hike may weigh on corporate profits, leading to more layoffs and hiring freezes. For context, during the Great Recession, in a two-year span from late 2007 to 2009, the unemployment rate rose sharply from about 5% to 10%. 

Today, the tech sector is one to watch. After benefiting from rapid growth led by consumer demand in the pandemic, companies like Google and Facebook may be in for a "correction." Layoffs.fyi, a website that tracks downsizing at tech startups, logged close to 37,000 layoffs in Q2, more than triple from the same period last year. 

The upside: If you're worried about losing your job because your employer may be more vulnerable in a recession, document your wins so that when review season arrives, you're ready to walk your manager through your top-performing moments. Offer strategies for how to weather a potential slowdown. All the while, review your reserves to see how far you can stretch savings in case you're out of work. Keep in mind that in the previous recession, it took an average of eight to nine months for unemployed Americans to secure new jobs.

§

What's happening

Home prices overall are up by 37% since March 2020.

Why it matters

Surging home prices and higher interest rates make monthly mortgage payments less affordable.

What's next

Rising mortgage rates will make borrowing money more expensive, which will lessen competition to buy homes and eventually flatten prices.

Home prices continued to skyrocket in March as buyers tried to stay ahead of rising mortgage rates. 

Prices increased by 20.6% this March compared to last year, according to the S&P CoreLogic Case-Shiller Indices, the leading measures of US home prices. This was the highest year-over-year increase in March for home prices in more than 35 years of data. Seven in 10 homes sold for more than their asking price, according to CoreLogic. 

Out of the 20 cities tracked by the 20-city composite index, Tampa, Phoenix and Miami saw the highest year-over-year gains in March. Tampa saw the greatest increase, with an almost 35% increase in home prices year-over-year. All 20 cities experienced double-digit price growth for the year ending in March.

The strongest price growth was seen in the south and southeast, with both regions posting almost 30% gains in March. Seventeen of the 20 metro areas also saw acceleration in their annual gains since February. 

"Those of us who have been anticipating a deceleration in the growth rate of US home prices will have to wait at least a month longer," said Craig Lazzara, managing director at S&P DJI, in the release. "The strength of the Composite indices suggests very broad strength in the housing market, which we continue to observe."

Since the start of the pandemic in March 2020, home prices overall are up by 37%. The current surge in home prices is a result of tight competition between buyers in a low-inventory market as they attempt to lock in lower mortgage rates before rates jump even higher throughout the year, as experts predict they will.

If you're considering buying a new home -- or are actively in the market -- the news isn't all bad. Interest rates are at their highest point in more than 40 years, and one potential benefit of that may, eventually, be downward pressure on home prices. As it becomes increasingly expensive to borrow money, fewer people will seek to do so, and homes for sale may receive fewer offers leading to, eventually, lower prices. In fact, nearly one in five sellers lowered their asking price during a four-week period in May and April, according to Redfin.

"Mortgages are becoming more expensive as the Federal Reserve has begun to ratchet up interest rates, suggesting that the macroeconomic environment may not support extraordinary home price growth for much longer," said Lazzara. "Although one can safely predict that price gains will begin to decelerate, the timing of the deceleration is a more difficult call."

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Why Black Holes Smashing Together Could Settle an Astronomical Dispute

Why Black Holes Smashing Together Could Settle an Astronomical Dispute

In 2019, a conference held at the Kavli Institute for Theoretical Physics in California concluded with a fraught statement: "We wouldn't call it a tension or a problem but rather a crisis."

David Gross, a particle physicist and former director of the KITP was talking about the rate at which our universe is expanding. But Gross wasn't worried about the expansion itself. We've already known for decades that the cosmos is exponentially blasting apart, because celestial bodies surrounding our planet continuously drift farther away from us and from each other. 

No, Gross was worried about mathematics.

To determine exactly how quickly this cosmic shift is happening, scientists must calculate an important value called the Hubble constant -- yet, even today, no one can agree on the answer. 

Thus, the astronomy community was permeated with a "crisis," but it was a dilemma that cradled innovation. Since that tense conference, experts everywhere have starkly adjusted the way they look at their Hubble constant equations as an attempt to restore peace among stargazers. 

And on Monday, one such team presented a very out-of-the box idea to settle the dispute, as outlined in a paper published Aug. 3 in the journal Physical Review Letters.

Basically, astronomers from the University of Chicago believe when black holes lurking in deep space smash into one another – which they do sometimes – the gravitational leviathans reverberate ripples across the fabric of space and time that might leave traces of information crucial to decoding the Hubble constant. 

In the end, if scientists can figure out the true Hubble constant, they can also derive answers to some really big questions about our universe like: Howdid it evolve to the stunning realm we see today? What is it physically made out of? What might it look like billions of years from now, long after humanity ceases to exist and therefore can't cast an eye on it?

Reading between the lines of space-time

Every so often, two enormous black holes collide. This means that a pair of the universe's most incomprehensibly massive objects combine into an even more incomprehensibly massive object. 

When this happens, the merger sends ripples across the fabric of space and time -- as coined by Albert Einstein's general relativity -- just like dropping a rock in a pond would send ripples across the water. 

Animation of gravitational waves produced by a fast binary orbit.

NASA

Just four years before Gross and fellow physicists hosted their stressful debate over the Hubble constant conundrum, two powerful observatories managed to capture those black hole-induced ripples from down here on Earth. They're called the US Laser Interferometer Gravitational-Wave Observatory and the Italian Virgo observatory. 

Over the past few years, both LIGO and Virgo have detected the ripples from almost 100 pairs of black hole collisions, and those readings might help us calculate the rate at which the universe is expanding, according to Daniel Holz, an astrophysicist at the University of Chicago and co-author of the new study. They might shed light on the Hubble constant. 

"If you took a black hole and put it earlier in the universe," Holz said in a press release, "the signal would change, and it would look like a bigger black hole than it really is."

What this means is that if a black hole collision happened way (way) out in space, and the signal has been traveling for a long (long) time, the gravitational ripples emanating from the event would've been affected by the universe expanding since the incident. If you think about pond ripples again, for instance, dropping a rock in a pond usually creates tighter ripples right at the point of contact. But if you keep watching those ripples extend outward, they get sort of wider and blunter.

Therefore, if we can somehow measure the changes in black hole collision ripples, perhaps we can understand the rate at which some of those changes occur. That would help us understand the rate at which the universe's expansion might've affected them and finally, the rate at which the universe is legitimately expanding. 

"So we measure the masses of the nearby black holes and understand their features, and then we look further away and see how much those further ones appear to have shifted," Jose María Ezquiaga, a NASA Einstein Postdoctoral Fellow, Kavli Institute for Cosmological Physics Fellow and co-author of the new study, said in the release. "This gives you a measure of the expansion of the universe."

Is there a catch?

But there is a bit of a caveat -- this technique, which the researchers call the "standard siren" method, can't quite be implemented right now. In truth, LIGO and Virgo are going to have to really buckle down and get to work for us to even imagine a future where it becomes commonplace. 

"We need preferably thousands of these signals, which we should have in a few years, and even more in the next decade or two," Holz said. "At that point, it would be an incredibly powerful method to learn about the universe."

Though a pretty promising aspect of the standard siren method is that it relies on Einstein's general relativity theory -- tried and tested rules that are considered unbreakable by many, and thus incredibly trustworthy. 

From left, an illustration of how relative amounts that the moon might warp space-time, then the Earth, the sun, and a black hole all the way on the right.

Zooey Liao/CNET

By contrast, most other scientists tackling the Hubble constant crisis rely on stars and galaxies, the researchers said, which involves a lot of complex astrophysics and introduces an honest possibility of error. But, of note, there have been some other experts zeroing-in on gravitational waves as measurements of the Hubble constant. 

In 2019, for example, a separate crew of astronomers looked at ripples across space and time stemming from a neutron star merger, which was picked up by LIGO and Virgo in 2017. They were trying to understand how bright the collision was when it happened by reverse calculating from the gravitational waves and eventually arriving at a Hubble constant estimate. And in the same year, another team suggested that we need only about 25 neutron star collision readings to nail down the constant to within an accuracy of 3%.

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What Is Home Equity?

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What Is Home Equity?

Most homeowners now have more equity in their homes than they did two years ago, thanks to surging home values during the pandemic. That means right now is a good time to consider tapping into your home equity if you're looking to borrow money at a lower interest rate than you might get with other types of loans such as personal loans. Home equity is the difference between what you owe on your mortgage and the current market value of your home.

You build equity in your home by consistently making mortgage payments over the years. Equity is valuable because it allows you to borrow money against your home at lower interest rates than other types of financing. Once you have enough equity built up in your home, lenders and banks will allow you to borrow against it. Some of the most common reasons to borrow against your equity are to pay for life expenses such as home improvements, higher education costs such as tuition, or to pay off high-interest credit card debt.

Most lenders want to see that you've built up at least 15% to 20% in equity in order to let you borrow money against your house in the form of refinancing or other kinds of home equity loans. One of the simplest ways to ensure you have a good chunk of equity in your home is to make a large down payment if you are able to. 

For a typical homeowner with a 30-year fixed-rate mortgage, building up 15% to 20% usually takes about 5 to 10 years. Even if you paid less for your home when you bought it years ago, your equity is based on the present-day value of your house. If, for example, your home is currently worth $500,000 and you have $400,000 left to pay on your mortgage, you would have $100,000 of equity in your home.

Here's what you need to know about home equity, what it is, how to calculate it and why it's important to homeowners. 

How do you calculate home equity?

To calculate your home equity, simply subtract your remaining mortgage balance from the current market value of your home. So if you owe $400,000 on your mortgage and your house is worth $500,000, you have $100,000, or 20% equity in your home. You may need to work with an appraiser or real estate agent in order to get an accurate evaluation of your home's fair market value, especially since home values have risen by record-breaking amounts since the beginning of the pandemic. 

Ways to borrow against home equity 

There are various ways to access the equity in your home. Some of the most common equity financing options are home equity loans, home equity lines of credit (or HELOCs) and reverse mortgages. It's important, however, to keep in mind that all of these options require you to put up your home as collateral to secure the loan, so it's critical to understand that there's a risk of losing your home to foreclosure if you miss payments or default on your loan for any reason. 

Home equity loan

A home equity loan lets you borrow money against the equity you've built in your home and provides you with a lump sum of cash at a fixed interest rate. Lenders typically want to see that you have at least 15% to 20% in your home to approve you for a home equity loan. A home equity loan doesn't replace your mortgage like a refinance, rather, it's an entirely new loan that you'll repay monthly along with your existing mortgage payment. But just like a mortgage, with a home equity loan, your interest rate never changes and your monthly payments are fixed, too.

HELOCs

A home equity line of credit, or HELOC, is a type of loan that lets you borrow against the equity you've built up in your home and functions like a credit card. It provides you with an open line of credit that you can access for a certain amount of time, typically 10 years, followed by a set repayment period, which is usually 20 years. Lenders also generally want you to have at least 15% to 20% in your home for HELOC approval. With a HELOC, you don't have to take all of your funds out at once, and you can withdraw money repeatedly from your HELOC over the 10-year period, once previously borrowed sums are paid back.

"A HELOC offers more flexibility than a home equity loan -- you can't withdraw money from a home equity loan like you can with a HELOC, and a HELOC allows you to receive replenished funds as you pay your outstanding balance," said Robert Heck, VP of Mortgage at Morty, an online mortgage marketplace.

HELOCs have variable interest rates however, so it's important to make sure you can afford higher monthly payments if your rate goes up once your introductory interest rate expires, especially in the current economic climate. 

Reverse mortgage  

You must be 62 years or older to access a reverse mortgage and have either paid off your home or have significant equity accumulated, usually at least 50%. With a reverse mortgage, you do not have to make monthly mortgage payments and the bank or lender actually makes payments to you. You must still pay your property taxes and homeowners insurance and continue to live in the house, however. A reverse mortgage allows you to access the equity in your home and not pay back the funds for an extended period of time while using them for other expenses during retirement. It's important to keep in mind that you are building a mortgage balance back up as you borrow against your equity, and your estate will eventually have to pay off your loan. A common way to repay this loan is to sell your house. 

The bottom line

Unlocking the equity in your home can be a valuable way to access financing to cover other life expenses. It's important to understand the differences between the kinds of equity loans available to secure the best one for your particular financial situation. When comparing ways to access equity, always take into account the interest rate, additional lender costs and fees, and the size of the loan and how it will be disbursed to you, as well as the amount of time you have to pay it back, before you enter into an agreement to borrow against the equity in your home. 

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WWE wrestles with its past as 90s star Bill Goldberg rises again

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WWE wrestles with its past as 90s star Bill Goldberg rises again

The Rock, Hulk Hogan and "Stone Cold" Steve Austin are all household names, but for a brief period in the late '90s there was a wrestler just as popular as any of them: Bill Goldberg.

At Sunday's Fastlane event, a 50-year-old Goldberg once again became the top man in the business when he bested Kevin Owens to win the WWE Universal Championship.

Next month's WrestleMania 33, airing on the WWE Network, is the company's biggest show of the year. It'll be headlined by Goldberg as he defends his newly won title against Brock Lesnar.

13 years after his retirement in 2004, Goldberg is once again The Man. But at what cost?

Part-time problem

WWE

For the last five years, there's been an ongoing argument within the wrestling business.

Does it make sense for part-time stars, such as The Rock, Triple H and Brock Lesnar, who only show up a few times a year, to take part in marquee WrestleMania matches?

These icons often have a quantifiable impact on ratings and intrigue casual fans. But at the same time, they take opportunities away from younger wrestlers, who get relegated to background roles while the spotlight shines on returning performers.

Last year, Triple H, 47, wrestled Roman Reigns in the main event of WrestleMania 32, but hasn't wrestled since. The Undertaker, 51, has made one brief in-ring appearance since WrestleMania, entering last month's Royal Rumble. Both veterans are expected to be major parts of Wrestlemania 33 on April 2.

When these returning all-stars are positioned so strongly, it can give the impression that full-time performers such as Dean Ambrose and Kevin Owens are just the B team. That may lead to dips in day-to-day business, if the WWE isn't careful.

In 2012, The Rock faced John Cena in the main event of WrestleMania 28. Since then, no WrestleMania main event has consisted entirely of full-time WWE performers.

But no one can claim the formula doesn't work. WrestleMania 29, headlined by The Rock and John Cena's return match, was touted as the company's highest grossing event, making the WWE $72 million. WrestleMania 31, featuring Brock Lesnar in the main event, drew a record $12.6 million in ticket sales alone. Last year, around 100,000 people packed Dallas, Texas' AT&T Stadium to see Triple H take on Roman Reigns.

These big WrestleMania matches also lead to big boosts in WWE Network subscribers. In 2015, WWE gained 511,000 new paid subscribers to the Network during WrestleMania season, and another 140,000 the year after, according to The Wrestling Observer.

But there is a downside: Last year, 358,000 signed up for a free month (like Netflix, you'll get the first month for free) but opted to not stay on after WrestleMania. Much of this could be chalked up to freeloaders, but the big stars leaving after WrestleMania could certainly be a factor.

WWE has a conundrum here, and Goldberg vs Brock Lesnar encapsulates it perfectly.

Big time

When Goldberg returned to the WWE last October, he was originally scheduled for one big match against Brock Lesnar at Survivor Series in November, according to The Wrestling Observer. But his return caused a huge buzz, and a big bump in WWE ratings, making the company change its plans. Goldberg signed a contract to wrestle a few more matches, culminating in next month's WrestleMania main event.

If this isn't Goldberg's last match, it's not far off it: He's 50 years old and originally thought he was wrestling one match so his son could see him perform. Meanwhile, Lesnar, arguably WWE's biggest star, wrestles around five times a year. To set up their match at WrestleMania, this past weekend Goldberg beat the now former-champion Kevin Owens, a full-time star you can see every week on Monday Night Raw, in just over 20 seconds.

This rubbed some fans the wrong way, especially brevity of the match. In recent years, fans have become accustomed to longer, more hard-fought main events. Goldberg's two one-on-one matches since returning have lasted a combined 1 minute and 48 seconds.

The company wrote his bouts this way to make him look as dominating as possible, but it's led some to question how exciting their 'Mania bout will be. Most main events last around 20 minutes, so you can understand how some could find a 20-second match a little flat.

It's a polarising issue among wrestling fans, to say the least.

No matter who wins, a part time star will walk out of WrestleMania 33 as the WWE Universal Champion.

While that's sure to upset some fans, the show will pull around 60,000 people into Orlando, Florida's Camping World Stadium, and bring even more to the WWE Network for Wrestlemania where it'll be streamed live to subscribers.

Come WrestleMania season, the WWE is all about getting as much viewers and media attention as possible. It has records to break, and it'll break them by any means -- whether that means using stars that work five nights a week or five times a year.

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Home Equity Loan Rates for September 2022

Home Equity Loan Rates for September 2022

With record-breaking home appreciation seen throughout the pandemic, most homeowners have more equity in their homes now compared to two years ago. If you need access to funds for a renovation project, education expenses or even debt consolidation, tapping into your home's equity could provide you with a lower-rate financing option. A home equity loan, which lets you borrow money against the equity you've built in your home, provides you with a lump sum of cash at a fixed interest rate. 

Home equity loans may be particularly appealing in the current economic climate. Mortgage rates overall have gone up more than 2% since the beginning of the year. Even though rates recently dipped as the Federal Reserve increased its benchmark interest rate for the fourth time this year in an attempt to combat rising inflation, home equity loans still tend to offer lower interest rates than other types of loans. That's a significant benefit for anyone looking for financing at a time when it's uncertain how much rates will fluctuate moving forward. 

This type of financing may make sense if you own a home and have at least 15% to 20% of equity built up in your home. Unlike a home equity line of credit, or HELOC, you'll receive the sum of the loan upfront in one lump payment if you're approved.

A home equity loan is a lower interest rate financing option, but it's not without risk. When you secure a home equity loan, your home acts as collateral, which means you could lose your home if you're unable to repay what you borrowed. It's important to carefully consider whether a home equity loan is right for you before applying for financing.

Here's everything you should know about home equity loans, how they work, who they're best for and how they compare to other loan options.

What is a home equity loan?

A home equity loan offers you a lump sum of cash you borrow against the equity built in your house. Tapping into your home's equity means you are borrowing against the mortgage payments you've already made -- it won't replace your existing mortgage payment -- it's a new loan that you'll repay monthly, along with your existing home loan.

Most lenders require you to have 15% to 20% of equity in your home to secure a home equity loan. To figure out how much equity you have, subtract your remaining mortgage balance from the value of your home. For example, if you have a $500,000 mortgage and you owe $350,000 on it, you have $150,000 in equity. To figure out the percentage, divide this number ($150,000) by your home's value ($500,000) and you'll see you have 30% equity available in your home. Lenders will typically let you borrow around 80% to 85% of your home's equity for a home equity loan. So, in this case, you could borrow up to $120,000 to $127,500. 

A standard repayment period for a home equity loan is between five to 30 years for a home equity loan. You make fixed-rate payments that never change, which means even if interest rates go up, your loan rate is locked in. 

Current home equity loan rate trends

One of the benefits of home equity loans is that they typically have lower interest rates than personal loans or credit cards. Right now, borrowers with good credit and sufficient equity can secure home equity loans with interest rates as low as 3%, according to Bankrate, which is owned by the same parent company as CNET.

One potential downside of a home equity loan is that if your property value goes down for any reason, you could end up underwater on your loan. This happens when the balance of your loan becomes higher than the value of your home. That's what happened to millions of Americans during the 2008 financial crisis. Right now, there's less risk of your home's value decreasing below your home equity loan amount, though. Home prices have appreciated as much as 20% in some metro areas across the US over the last two years, and it seems unlikely that they will go down in a significant way anytime soon.

Pros of a home equity loan 

• Fixed-rate payments: Your monthly payment will never change even if interest rates rise.
• One lump sum of cash: You receive the entire loan upfront in one disbursement.
• Low interest rates: It has a lower interest rate than other types of personal loans or credit cards. 
• Tax deductible interest: If you use it for home renovations, you can deduct the interest from your taxes. 
  

 Cons of a home equity loan 

• Using your home as collateral: If you fail to make your payments or default on your loan, your lender can foreclose and take ownership of your house.
• Can take longer to receive the funds: It can take more time to receive a home equity loan than a personal loan, for example. 
• Closing costs are expensive: Closing costs can range anywhere from 2% to 5% of the loan. 
• Your home's value could decrease after receiving your loan: Although home values are not expected to decrease significantly any time soon, if your home's value were to drop below your home equity loan amount, you would have what is known as negative equity. Negative equity means you owe more than your home is worth. So, if you were to sell your home, you likely would not receive enough money from a seller to pay off your loan balance.

Home equity loans vs. HELOC

Home equity loans and home equity lines of credit, or HELOCs, are similar, but have a few key distinctions. Both let you draw on your home's equity and require you to use your home as collateral to secure your loan. The two major differences between a home equity loan and a HELOC are the way you receive the money and how you pay it back. 

A home equity loan gives you the money all at once as a lump sum, whereas a HELOC lets you take money out in installments over a long period of time, typically ten years. Home equity loans have fixed-rate payments that will never go up, but most HELOCs have variable interest rates that rise and fall with the economy and overall interest-rate trends. 

A home equity loan is better if:

• You want a fixed-rate payment: Your monthly payment will never change even if interest rates rise.
• You want one lump sum of money: You receive the entire loan upfront with a home equity loan.
• You know the exact amount of money you need: If you know the amount you need and don't expect it to change, a home equity loan likely makes more sense than a HELOC.

A HELOC is better if:

• You need money over a long period of time: You can take the money as you need it and only pay interest on the amounts you withdraw, not the full loan amount, as is the case with a home equity loan.
• You want a low introductory interest rate: Although HELOC rates may increase over time, they also typically offer lower introductory interest rates than home equity loans. So, you could save money on interest charges.

Home equity loans vs. cash-out refinances

A cash-out refinance is when you replace your existing mortgage with a new mortgage, typically to secure a lower interest rate and more favorable terms. Unlike a traditional refinance, though, you take out a new mortgage for the home's entire value -- not just the amount you owe on your mortgage. You then receive the equity you've already paid off in your home as a cash payout. 

For example, if your home is worth $450,000 and you owe $250,000 on your loan, you would refinance for the entire $450,000, rather than the amount you owe on your mortgage. Your new cash-out refinance home loan would replace your existing mortgage, and then offer you a portion of the equity you built (in this case $200,000) as a cash payout. 

Both a cash-out refi and a home equity loan will provide you with a lump sum of cash that you'll repay in fixed amounts over a specific time period, but they have some important differences. A cash-out refinance replaces your current mortgage payment. When you receive a lump sum of cash from a cash-out refi, it is added back onto the balance of your new mortgage, usually causing your monthly payment to increase. A home equity loan is different -- it does not replace your existing mortgage and instead adds an additional monthly payment to your expenses. 

A home equity loan is better if:

• You do not want to pay private mortgage insurance: Some cash-out refinances require PMI, which can add hundreds of dollars to your payments, but home equity loans do not.
• You can't complete a refinance: With rates rising, it's possible that your mortgage rate is lower than current refinance rates. If that's the case, it likely won't make financial sense for you to refinance. Instead, you can use a home equity loan to only take out the money you need, rather than replacing your entire mortgage with a higher interest rate loan.  

A cash-out refinance is better if:

• Refinance rates are lower than your current mortgage rate: If you can secure a lower interest rate by refinancing, this could save you money in interest, while providing access to a lump sum of cash. 
• You only want one monthly payment: The amount you borrow gets added back to the balance of your mortgage so you only make one payment to your lender every month.
• Less stringent eligibility requirements: If you don't have great credit or you have a high debt-to-income ratio, you may have an easier time qualifying for a cash-out refi compared to a home equity loan. 
• Lower interest rates: Cash-out refinances sometimes offer more favorable interest rates than home equity loans.

FAQs

What is a good home equity loan rate?

Right now, lenders are offering rates that start as low as around 3% for borrowers with good credit, but rates vary depending on your personal financial situation. A lender will base your interest rate on how much equity you have in your home, your credit score, income level and other aspects of your financial life such as your debt-to-income ratio, which is calculated by dividing your monthly debts by your gross monthly income. 

How do I qualify for a home equity loan?

You are typically required to have at least 15% to 20% equity built up in your home to qualify for a home equity loan. You must also have enough income and a low-enough debt-to-income ratio to qualify -- lenders usually want to see a DTI of 43% or below. Lenders also like to see a minimum credit score of at least 620. Generally speaking, if your credit score is below 700 there is a possibility that a lender will deny you for a home equity loan. The better your credit, the better your chances of being approved for a loan with a low interest rate. 

What can I use a home equity loan for?

Home equity loans can be used for anything you choose to spend the money on. Typical life expenses that people usually take out home equity loans to cover are expenditures like home renovations, higher education costs like tuition or to pay off high-interest debt like credit card debt. There's a bonus for home improvements: If you use a home equity loan for renovations, the interest is tax deductible.

You can also use a home equity loan in an emergency situation or for life events like weddings. But keep in mind that whatever you chose to use a loan for, taking out a large sum of money that accrues interest is an expensive choice you should always carefully consider – especially since you're using your home as collateral to secure the loan. If you can't pay it back, the lender could seize your home to repay your debt.

How do I apply for a home equity loan?

Applying for a home equity loan is similar to applying for a mortgage. You need to qualify with a lender or bank who is willing to lend you the money. First, the lender will first want to make sure you have at least 15% to 20% equity in your home. If you do, the lender will take into account your credit score (lenders usually like to see a minimum score of 620), your income and your current debt-to-income ratio to determine whether you qualify and what your interest rate will be. You should be prepared to have financial documents like pay stubs and W2s in order, as well as proof of ownership and proof of the appraised value of your home. It's important to interview multiple lenders to determine which lender can offer you the lowest rates and fees.

More mortgage tools and resources

You can use CNET's mortgage calculator to help you determine how much house you can afford. The CNET mortgage calculator factors in variables such as the size of your down payment, home price and interest rate to help you understand how much of a difference even a slight increase in rates can make in the amount of interest you'll pay over the lifetime of your loan.

More mortgage rates:

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Why Black Holes Smashing Together Could Settle an Astronomical Dispute

Why Black Holes Smashing Together Could Settle an Astronomical Dispute

In 2019, a conference held at the Kavli Institute for Theoretical Physics in California concluded with a fraught statement: "We wouldn't call it a tension or a problem but rather a crisis."

David Gross, a particle physicist and former director of the KITP was talking about the rate at which our universe is expanding. But Gross wasn't worried about the expansion itself. We've already known for decades that the cosmos is exponentially blasting apart, because celestial bodies surrounding our planet continuously drift farther away from us and from each other. 

No, Gross was worried about mathematics.

To determine exactly how quickly this cosmic shift is happening, scientists must calculate an important value called the Hubble constant -- yet, even today, no one can agree on the answer. 

Thus, the astronomy community was permeated with a "crisis," but it was a dilemma that cradled innovation. Since that tense conference, experts everywhere have starkly adjusted the way they look at their Hubble constant equations as an attempt to restore peace among stargazers. 

And on Monday, one such team presented a very out-of-the box idea to settle the dispute, as outlined in a paper published Aug. 3 in the journal Physical Review Letters.

Basically, astronomers from the University of Chicago believe when black holes lurking in deep space smash into one another – which they do sometimes – the gravitational leviathans reverberate ripples across the fabric of space and time that might leave traces of information crucial to decoding the Hubble constant. 

In the end, if scientists can figure out the true Hubble constant, they can also derive answers to some really big questions about our universe like: Howdid it evolve to the stunning realm we see today? What is it physically made out of? What might it look like billions of years from now, long after humanity ceases to exist and therefore can't cast an eye on it?

Reading between the lines of space-time

Every so often, two enormous black holes collide. This means that a pair of the universe's most incomprehensibly massive objects combine into an even more incomprehensibly massive object. 

When this happens, the merger sends ripples across the fabric of space and time -- as coined by Albert Einstein's general relativity -- just like dropping a rock in a pond would send ripples across the water. 

Animation of gravitational waves produced by a fast binary orbit.

NASA

Just four years before Gross and fellow physicists hosted their stressful debate over the Hubble constant conundrum, two powerful observatories managed to capture those black hole-induced ripples from down here on Earth. They're called the US Laser Interferometer Gravitational-Wave Observatory and the Italian Virgo observatory. 

Over the past few years, both LIGO and Virgo have detected the ripples from almost 100 pairs of black hole collisions, and those readings might help us calculate the rate at which the universe is expanding, according to Daniel Holz, an astrophysicist at the University of Chicago and co-author of the new study. They might shed light on the Hubble constant. 

"If you took a black hole and put it earlier in the universe," Holz said in a press release, "the signal would change, and it would look like a bigger black hole than it really is."

What this means is that if a black hole collision happened way (way) out in space, and the signal has been traveling for a long (long) time, the gravitational ripples emanating from the event would've been affected by the universe expanding since the incident. If you think about pond ripples again, for instance, dropping a rock in a pond usually creates tighter ripples right at the point of contact. But if you keep watching those ripples extend outward, they get sort of wider and blunter.

Therefore, if we can somehow measure the changes in black hole collision ripples, perhaps we can understand the rate at which some of those changes occur. That would help us understand the rate at which the universe's expansion might've affected them and finally, the rate at which the universe is legitimately expanding. 

"So we measure the masses of the nearby black holes and understand their features, and then we look further away and see how much those further ones appear to have shifted," Jose María Ezquiaga, a NASA Einstein Postdoctoral Fellow, Kavli Institute for Cosmological Physics Fellow and co-author of the new study, said in the release. "This gives you a measure of the expansion of the universe."

Is there a catch?

But there is a bit of a caveat -- this technique, which the researchers call the "standard siren" method, can't quite be implemented right now. In truth, LIGO and Virgo are going to have to really buckle down and get to work for us to even imagine a future where it becomes commonplace. 

"We need preferably thousands of these signals, which we should have in a few years, and even more in the next decade or two," Holz said. "At that point, it would be an incredibly powerful method to learn about the universe."

Though a pretty promising aspect of the standard siren method is that it relies on Einstein's general relativity theory -- tried and tested rules that are considered unbreakable by many, and thus incredibly trustworthy. 

From left, an illustration of how relative amounts that the moon might warp space-time, then the Earth, the sun, and a black hole all the way on the right.

Zooey Liao/CNET

By contrast, most other scientists tackling the Hubble constant crisis rely on stars and galaxies, the researchers said, which involves a lot of complex astrophysics and introduces an honest possibility of error. But, of note, there have been some other experts zeroing-in on gravitational waves as measurements of the Hubble constant. 

In 2019, for example, a separate crew of astronomers looked at ripples across space and time stemming from a neutron star merger, which was picked up by LIGO and Virgo in 2017. They were trying to understand how bright the collision was when it happened by reverse calculating from the gravitational waves and eventually arriving at a Hubble constant estimate. And in the same year, another team suggested that we need only about 25 neutron star collision readings to nail down the constant to within an accuracy of 3%.

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• Why Black Holes Form
• Why Do Black Holes Form
• Why Do We Have Black Holes
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• Why Black Holes Are Important
• Why Black Holes Invisible
• Why Black Holes Are Said To Be Black
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The Worst Credit Card Mistakes You Should Stop Making

The Worst Credit Card Mistakes You Should Stop Making

There are several important benefits of using a credit card to shop. You can earn rewards, build your credit and take advantage of travel points and perks. But while shopping with a credit card can be convenient, there are also certain risks you need to be aware of.

If you pay a card late or don't pay your balance in full, you can incur fees and extra interest charges that make your purchases more expensive in the long run, especially considering today's rising interest rates, fueled by skyrocketing inflation. You could also wind up jeopardizing your credit score, which could make it harder to buy a house or get a loan.

So what are the biggest mistakes well-meaning people commonly make with their credit cards -- and what can you do to avoid financial pitfalls? I spoke with experts for their suggestions, and identified some of the most dangerous credit card behaviors. For more, learn how to get out of credit card debt and why now is the right time to pay off your credit cards.

Paying your credit card bill late

Missing a payment or making a late payment on a credit card is a major no-no. Colleen McCreary, a consumer financial advocate at Credit Karma, says this is the most common mistake people make with credit cards. Your payment history is a major factor of your credit rating and accounts for more than 30% of your overall score, McCreary said in an email.

A late payment is a one-way ticket to ruining your credit, and the ding on your report won't go away for seven years. Even worse, if your credit card bill remains unpaid, your creditor could sell your debt to a collection agency, which could tank your credit rating.

The best way to avoid late fees is to set a monthly reminder to pay your bill, and at least make the minimum payment. Most credit card companies will also let you set up monthly auto-payments, so you won't skip a beat. If you're worried you may not have enough each month to cover an autopayment, remember you can always set it to pay out the minimum, the full balance or a specified amount.

The credit bureau Experian notes that some credit card issuers may provide a short grace period for late payments, while others will mark your payment late as soon as you miss your due date.

If you do pay your credit card bill on time regularly and accidentally miss one payment, call your bank as soon as possible to see if it will offer one-time forgiveness, provided you pay in full at the time of your call. Your bank might refund your late fee and interest, but it isn't required to do anything.

While some credit card companies may mark your payment late after one day, those late payments are not reported to credit bureaus for 30 days, according to credit reporting company Equifax, If you act quickly to change your issuer's decision to mark your payment late, you could avoid damaging your credit score. If you're unable to pay your bill, you can also ask your issuer if it can create a payment plan for you.

Stop paying your credit card bill late

Sarah Tew/CNET

Maxing out your credit cards

After payment history, the second biggest factor in determining your credit score is the percentage of available credit that you are currently using. Called the "credit utilization ratio," this factor is calculated by dividing the amount you currently owe by your total credit limit, or your maximum borrowing potential.

Maintaining a high balance on your credit card compared to your total credit limit will increase your total percentage of credit used and hurt your credit score.

You usually want to keep your credit utilization ratio under 30% for a good credit score, though less is better. A good rule of thumb is to use 10% of your total credit limit and pay it off each month so you're not carrying a balance. For example, if your credit limit is $5,000, you wouldn't want to borrow more than $1,500 and ideally $500 or less.

If you find your credit card limit is too low -- for example, the amount you want to charge to your card exceeds the total you can charge on a given card -- you can always ask your credit card issuer for an increase.

Maxing out credit cards could also cost you big money if you can't pay off the total by the payment deadline. "The higher your outstanding balance (the amount of money you owe), the more interest you'll pay, which can make it even more difficult to climb out of debt," McCreary said.

Making only the minimum payment on your credit card

Your minimum payment is the lowest amount that your credit card issuer will allow you to pay toward your credit card bill for any given month -- for example, $50. The minimum monthly payment is determined by the balance on your credit card (what you owe at the end of the pay period) and your interest rate. It's generally calculated as either 2 to 4% of your balance, a flat fee or the higher amount between the two. 

Making only minimum payments is one of the most common credit card mistakes, according to Katie Bossler, a quality assurance specialist at GreenPath financial wellness. 

Although making minimum payments on time is still far better than paying late or ignoring your bill, paying only the minimum can cause interest to build, making it much more difficult to pay off your balance completely.

For example, if you have a $2,000 balance with a minimum payment of $50 on a credit card with an APR (annual percentage rate) of 14.55%, it will take 56 months (or almost five years) to pay off your debt, and you'll end up paying a total of $753 in interest. However, if you make a plan to pay the balance off in a year, your payments would be $180, and you'd only pay $161 in interest.

It only gets worse as the APR goes up -- at a relatively high but not unreasonable rate of 25%, a minimum payment of $50 would take 87 months (or a little more than seven years) to pay off a $2,000 debt, with a sizable $2,344 in interest payments. Meanwhile, upping the monthly payments to the same $180 would pay off your debt in 13 months, and cost only $281 in interest.

Here's an example of how making more than minimum payments can save you significant money in interest. 

How minimum payments lead to higher interest

Credit card balance	Annual percentage rate	Monthly payment	Time needed to pay balance	Additional interest paid
$2,000	14.55%	$50	4.7 years	$753
$2,000	14.55%	$180	1 year	$161
$2,000	25%	$50	7.3 years	$2,344
$2,000	25%	$180	1.1 years	$281

The best way to avoid paying any interest at all on your credit cards is to pay off your full balance each month. If you can't do that, Bossler, the quality expert from GreenPath financial advisors, suggests pausing use of the credit card while you're paying it off, and paying more than the minimum to do so.

Taking out a cash advance on your credit card

Withdrawing a cash advance with a credit card is a big mistake. "It's the most expensive way to pay for things," Bossler said. Cash advances are a method of borrowing money from your credit line to put cash in your pocket "now."

Convenient as it may be, a cash advance uses an interest rate that is typically significantly higher than your standard APR. Most cards will also include a transaction fee of 3 to 5%. "This is not the way to go," Bossler said.

If you receive a "convenience check" in the mail from a credit card company, be careful. It could be a cash advance offer that's best tossed in the recycle bin. If you need some extra cash, it might be better to think about starting a side hustle or taking out a personal loan with a lower interest rate. Budgeting apps can also help track your spending, so you can pull back on expenses that can wait.

Chasing credit card rewards with abandon

If you're thinking of opening a new credit card account to get money back on your purchases, you can best manage rewards by considering your lifestyle. Heavy travelers should look for a card with frequent flyer rewards. If you spend a lot of money on groceries or drive your car often, look for cash back rewards for spending at gas stations and grocery stores. 

However, you shouldn't make spending decisions based on receiving rewards. "Credit cards shouldn't be used as a strategy for buying things," Bossler said. Many cards will require a minimum amount of purchases for special rewards, or a welcome bonus to tempt you into spending more than you can afford.

Credit cards with lucrative rewards can also charge higher annual fees, for example, $100 or even $500 a year. If you're not spending enough to earn that annual cost back in rewards, you might consider a card with no annual fee.

Credit card rewards can be a powerful financial tool when used wisely, but you'll need to be careful to avoid running up your balance. Thomas Nitzsche, senior director of Media and Brand at MMI, says he often sees people making the mistake of using credit cards for rewards while ignoring the growing interest on their balance. If you're chasing rewards at the expense of your budget, consider coming up with a plan to pay your balance down instead. 

Your credit score can drop when you cancel your credit cards.

Sarah Tew/CNET

Not paying off big purchases during a 0% APR period

Whether you just opened a 0% APR credit card -- which offers interest-free debt for a specific promotional period -- or a balance transfer card -- a credit card designed to accept debt from other cards -- make sure you read the fine print. Oftentimes, there's a fee to transfer your existing balance, commonly 3% of the balances transferred. Also, the introductory 0% rate only lasts for so long, typically between six and 18 months. That means you've got a limited time to pay off your balance before a higher APR kicks in. (When it does, your monthly interest gets a lot more expensive.)

To create a simple repayment plan, take the amount you owe and divide it by the number of months in your 0% APR promo period. Then pay that amount monthly to completely pay off your balance while you are borrowing without interest. For example, if you buy a $300 TV using a credit card with 0% APR for six months, making $50 monthly payments will eliminate your debt before the no-interest period expires.

Using a 0% intro APR credit card can be a good strategy to pay off your debt or finance a large purchase, but it can be risky, too. While disciplined borrowers can effectively roll balances into new accounts with 0% intro APR, Nitzche says that many people who transfer their credit card balances only make minimum payments, which can result in spiraling debt and damaged credit, leading to a point when they can no longer get approval for new accounts.

Canceling your credit cards

Even if you have paid down your balance on a credit card, there are two big reasons why you shouldn't cancel your account. Closing your account would affect your length of credit history and credit utilization ratio, two important components of your credit score. (Remember, your credit utilization ratio is the percentage of your total available credit lines across all cards you're using.)

If you close an account you're not using, your total available credit line shrinks, making your credit utilization ratio higher.

Canceling older credit cards will also shorten your credit history, leading to a significant drop in your credit score. If you do decide to cancel some of your credit cards, it's best to leave the oldest account open, as well as the one with the highest credit limit to maintain your credit utilization ratio and prevent any damage to your credit score.

It's important to note that with inactivity, credit card issuers may automatically close your account. To avoid this, Nitzche says that it's best to use each of your credit cards once in a while for small purchases.

Applying for too many credit cards

You may have heard this advice before: Don't apply for too many credit cards at once. Each time you apply for a new credit card, your credit score can drop slightly due to a "hard" credit check. 

Hard credit checks require your consent and involve a full credit summary from a credit bureau. "Soft" credit checks occur when you view your credit report or a financial company requests a summary without your consent, and they don't affect your credit score. They're used for purposes such as preapproved credit card offers.

When you authorize lenders to pull your credit history, you'll see a "hard" inquiry on your credit report. According to credit score company MyFICO, a hard pull will lower your credit score by about 5 points. While it will stay on your report for two years, the deduction to your score will usually be eliminated within a year.

Too many hard pulls on your credit in a short amount of time -- for example, applying for five store credit cards in one weekend -- could affect your credit rating more, as multiple inquiries indicate higher risks of insolvency or bankruptcy. Experian suggests waiting at least six months between applying for new lines of credit to avoid lowering your credit score.

Applying for too many credit cards at once can drop your credit score.

Sarah Tew/CNET

Not checking your billing statements regularly

How often do you check your monthly billing statement? It can be an eye opener to see how much money you really charge your credit card, especially if it's routinely more than you bring home each month. 

Spending $20 here and there may not seem like a huge amount, but it can add up quickly. Remember that increasing your credit utilization ratio (your percentage of credit used) will lower your credit score and high balances will cost you more in interest. Plus, how do you know how much you've charged if you aren't tracking your spending?

Tracking your credit card spending isn't the only reason to check your billing statement. You should thoroughly comb through your transactions to make sure there aren't any potentially fraudulent charges you didn't make. The sooner you discover you're a victim of identity fraud, the sooner you can contact your card issuer to dispute the charges and take the necessary steps to secure your credit card account.

For more tips on using credit cards wisely, learn six ways to get the most from your credit card and how to pick the right credit card.

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