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Biden Announces $10K Student Loan Forgiveness Plan, Extends Payment Pause Until 2023

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Biden Announces $10K Student Loan Forgiveness Plan, Extends Payment Pause Until 2023

Biden Announces $10K Student Loan Forgiveness Plan, Extends Payment Pause Until 2023

What's happening

President Joe Biden has announced up to $10,000 in student loan debt will be forgiven for all borrowers earning under $125,000.

Why it matters

Student loan debt has become a major economic issue, with 45 million Americans carrying more than $1.7 trillion in federal student loans.

What's next

Biden also extended the current moratorium on student loan payments through the end of the year.

President Joe Biden has extended the current pause on student loan payments, which was set to expire on Aug. 31. In a tweet on Wednesday, Biden announced the moratorium would be extended "one final time" through Dec. 31, 2022.

As expected, the White House also announced a long-awaited executive action erasing up to $10,000 in federal student debt for borrowers making less than $125,000 a year -- or $250,000 for married couples.

The president, who said he would go into more detail in a press conference Wednesday afternoon, also announced that Pell grant recipients will have $20,000 of their student debt erased. Borrowers with undergraduate loans will be able to cap repayment at 5% of their monthly income.

The forgiveness plan could wipe clear the balances of 15 million borrowers, The Wall Street Journal reported, a third of the 45 million Americans who are currently carrying about $1.7 trillion in federal student loans.

"In keeping with my campaign promise, my Administration is announcing a plan to give working- and middle-class families breathing room as they prepare to resume federal student loan payments in January 2023," Biden said.

Americans are divided on student loan forgiveness: 59% are concerned it will make inflation worse, according to a CNBC/Momentive poll last week, which also said 30% of adults opposed any kind of student loan forgiveness.

Democrats in Congress had pressed for more debt forgiveness -- at least $50,000 -- while Republicans said the president lacked the authority to cancel billions in student debt. Republican Sen. Mitt Romney introduced legislation to block Biden from forgiving debt but the bill never advanced in the Democrat-controlled Senate.

"Canceling student loan debt is yet another giveaway to the wealthy by Washington Democrats," Missouri Rep. Jason Smith, a Republican who serves on the House Budget Committee, tweeted Wednesday morning before the announcement. "And 87% of Americans who don't have student debt will be forced to pay for the 13% who chose to take on student loans," Smith added.

According to a Wharton School of Business research model, the one-time debt forgiveness of $10,000 per borrower will cost taxpayers around $300 billion over the next 10 years.

Read more: Student Loans Have Been Paused Again but You Should Probably Keep Making Payments Anyway

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Hey, Gen Z: Here's What Millennials Say About Riding Out A Recession

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Hey, Gen Z: Here's What Millennials Say About Riding Out a Recession

Hey, Gen Z: Here's What Millennials Say About Riding Out a Recession

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

I'm officially one year away from graduating college, and I have no idea what comes next. A job, hopefully. Grad school, maybe? For me, college has been about preparing to enter the workforce, armed with all the skills I need to succeed. Now that it's time to start actually applying for jobs and planning for long-term financial stability, it's pretty scary.

Entering the job market comes with endless challenges, even in a healthy economy. And regardless of the debate over whether we're in an official recession, the past few months have demonstrated how difficult it can be to remain financially stable during a shaky economy. Inflation is at a historic high, and wages are not keeping up with the cost of living. Higher interest rates are also making homes, cars and other big-ticket items more expensive and inaccessible.

And that makes the idea of entering the job market all the more terrifying.

Older generations who have already lived through recessions may be more prepared. Millennials, those born roughly between 1981 and 1996, are feeling some déjà vu. Many in this cohort entered the job market just as the Great Recession was taking place, and the years that followed altered the course of their career and financial trajectory in major ways.

I caught up with five millennials who completed their undergraduate studies between late 2007 and 2009 and managed to navigate the last economic downturn. I wanted to learn how they were impacted, from layoffs and tightening budgets to career pivots, and what skills they developed that were most important for staying afloat. Each had a unique experience that affected their approach to finances today. Now, as they reflect on that time, they see the hard-won lessons and share their best advice with the next generation.

What stood out was the power of investing for the future, such as taking advantage of employee-match programs and routinely contributing to 401(k)s and Roth IRAs. The millennials I spoke with all encouraged Gen Zers to invest early in their careers. And they each had more nuggets of wisdom to hand down to us -- including how to make the most of the first few years out of college, how to talk money with employers, discuss finances with partners and build successful careers in unexpected ways.

Here's what they shared via email.

Embrace career uncertainty and be flexible

Katie Oelker, St. Paul, Minnesota

Katie Oelker worked in the auditing department of a bank after college while living with her parents, mainly to build some savings and pay off private student loans. That ultimately allowed her to afford going back to school to get her master's in education.

Since Oelker didn't want to have a career in banking or auditing, she always took advantage of different learning opportunities, like training sessions or conferences, that were offered through her job. "If you don't like what you're doing post-graduation or even if you do, there are always educational opportunities to pursue that can help you further your career down the line," she told me by email.

That career-building focus came in handy when she decided to pivot once again, this time to become a certified Business Education instructor. After teaching courses ranging from personal finance to marketing at two different high schools, she now runs her own business as a freelance writer and money coach. Having flexibility in her vision allowed her to navigate the recessionary job market and explore new industries.

"I've never been afraid to open new doors and try new things when it comes to career and educational opportunities, and it has paid off," she said.

Talk about money with your partner, even if it's hard

Jared and Katie Pogue, Atlanta, Georgia

Before getting married, Jared and Katie Pogue learned that they needed to find productive ways to talk about money, especially how to afford building a family. The two had radically different outlooks on financial planning, which caused anxiety. Katie said she had many long-term goals, while Jared described his approach as "ignorant optimism."

They developed a routine to talk about money. They set a time limit for one day a week and slowly worked through their finances. They were eventually able to align their goals, which helped them make big financial decisions, including how to finance a house, when to have children and if they should go back to school. They came up with a division of labor, with Jared taking care of the daily and monthly payments, and Katie overseeing more long-term planning. Neither one could do their part alone.

"Once we started making tangible progress and got on the same page, our financial conversations were much more fruitful," said Jared.

Negotiate for more, despite your doubts

Sara Gifford, Hyattsville, Maryland

Sara Gifford's first full-time job out of college wasn't her ideal choice. But with the tightening labor market, she felt compelled to accept an offer from the company she had interned with.

"I settled for a job where I was expected to work 60-plus hours a week for laughably low pay, and I didn't negotiate my salary or benefits because I felt the employer held all the power," she said. Accepting such low compensation at her first job made it harder to move her salary benchmark forward in future negotiations.

Though recessions put more pressure on workers to avoid asking for higher pay, Gifford said that shouldn't discourage you from negotiating other benefits, such as commuting stipends, paid vacation and flexible or remote working hours. If the employer's not agreeable to any perks, it might be a sign to keep looking. "If the company pulls the offer, that's such a red flag."

Though she regrets not asking for better pay, she's proud that she took advantage of opportunities to network and learn new skills. It all came in handy when she decided to leave and build her career. Today Gifford runs her own marketing strategy company.

Identify your money priorities

Adam Eisenberg, Huntington Woods, Michigan

Adam Eisenberg is still working at the company that offered him his first job in sales logistics. After college, he got his money goals in order, which for him meant immediately prioritizing payments toward his student loans -- instead of moving out of his parents' house.

"I put my commission checks toward paying off my debt. It took four years to do it, and the first three I was living at my parents house, but it was worth it." While everyone's priorities are different, identifying them early on can help you better decide where your money should go.

In fact, Eisenberg originally had a second job offer he was considering, and took a similar approach when comparing his options -- he prioritized what mattered most to him. A higher commission rate, he decided, would ultimately be more beneficial for him, even if the base salary was lower. Another appealing component was the company's potential for growth.

Eisenberg said that those entering the job market should expand beyond their normal job research to "make sure the foundation is there for future success."

Budgets can be your calm in the storm

Jonathan Schrull, Indianapolis, Indiana

At the end of 2008, Jonathan Schrull was laid off from his second job after graduating. He was unemployed for six months before securing a new job and felt as though he had to put off beginning his long-term career and delay savings and investing. That, according to him, cost "a lot of money in the long run."

Looking back, he found that maintaining a budget helped alleviate some of the stress. "Seeing the figures in front of me made the situation more tangible and easy to understand," he said. Having a way to track his spending, even without any income, helped him find new opportunities to reduce his expenses. Looking at his whole financial picture, not just income, was important, because "the numbers don't lie."

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Hey, Gen Z: Here's What Millennials Say About Riding Out A Recession

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Hey, Gen Z: Here's What Millennials Say About Riding Out a Recession

Hey, Gen Z: Here's What Millennials Say About Riding Out a Recession

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

And that makes the idea of entering the job market all the more terrifying.

Here's what they shared via email.

Embrace career uncertainty and be flexible

Katie Oelker, St. Paul, Minnesota

"I've never been afraid to open new doors and try new things when it comes to career and educational opportunities, and it has paid off," she said.

Talk about money with your partner, even if it's hard

Jared and Katie Pogue, Atlanta, Georgia

"Once we started making tangible progress and got on the same page, our financial conversations were much more fruitful," said Jared.

Negotiate for more, despite your doubts

Sara Gifford, Hyattsville, Maryland

Sara Gifford's first full-time job out of college wasn't her ideal choice. But with the tightening labor market, she felt compelled to accept an offer from the company she had interned with.

Identify your money priorities

Adam Eisenberg, Huntington Woods, Michigan

Eisenberg said that those entering the job market should expand beyond their normal job research to "make sure the foundation is there for future success."

Budgets can be your calm in the storm

Jonathan Schrull, Indianapolis, Indiana

Source

8 Ways To Protect Your Money During A Recession

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8 Ways to Protect Your Money During a Recession

8 Ways to Protect Your Money During a Recession

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

With the latest GDP report showing another consecutive quarterly decline in economic activity, the country is likely in a technical recession.

Why it matters

Previous recessions have all seen pervasive layoffs, higher costs of borrowing and a tumultuous stock market.

What it means for you

Worry less about the macroeconomic news of the day and focus on what you can control. Take inventory of your financial life, gather facts and make moves to protect your savings.

While many economists still refuse to use the R-word, the warning signs indicate the US economy is now likely in a technical recession. In addition to another quarterly drop in GDP, or gross domestic product, consumer confidence has gone down, the stock market is in bear territory and inflation is still soaring, despite four interest rates hikes from the Federal Reserve.

An increase in layoffs -- another key indicator of a recession -- is also being felt across the country as many companies, particularly in the tech sector, have announced layoffs in recent months. And if you ask most people, they'll say it's become undoubtedly harder to make ends meet. At least one poll conducted in June finds a majority of Americans, or 58%, believe we are in a recession.

But then others point to some key factors that point in the opposite direction -- for example, low unemployment levels, rising spending and a healthy banking sector.

While the National Bureau of Economic Research makes the official call on a recession -- and so far it's remained tight-lipped -- whether we call this challenging financial period a recession or not seems like a pretty subjective matter of interpretation.

At CNET Money, we're dedicated to supporting your financial health with accurate, timely and honest advice that takes into consideration the pressing financial questions of our time. That's why we're launching the Recession Help Desk, a destination where you will get the latest, best advice and action steps for navigating this uncertain period.

First, a quick look back at the US economy

Since the Great Depression, the US has had about a dozen economic setback periods lasting anywhere from a few months to over a year. In some ways, there's always a recession on the horizon: Economies are cyclical, with upswings and downturns. We can't predict what will happen in advance, and sometimes we can't even tell what's happening while we're in the middle of it. Morgan Housel, author of The Psychology of Money, may have said it best when he tweeted back in April: "We're definitely heading toward a recession. The only thing that's uncertain is the timing, location, duration, magnitude and policy response."

Attempting to figure out recession specifics is a guessing game. Anyone who tells you different is likely trying to sell you something. The best we can do right now is draw on history to build context, get more proactive about the money moves we can control and resist the urge to panic. This includes reviewing what happened in previous recessions and taking a closer look at our financial goals to see what levers to pull to stay on track.

Here are eight specific steps you can take to create more financial stability and resilience in a turbulent economy.

Read more: Bear Markets: Expert Stock Market Advice for Investors

1. Plan more, panic less

The silver lining to current recession predictions is that they're still only forecasts. There is time to assemble a plan without the real pressures and challenges that come with being in the thick of an economic slowdown. Over the next couple of months, review your financial plan and map out some worst-case scenarios when your adrenaline isn't running high.

Some questions to consider: If you did lose your job later this year or in early 2023, what would be your plan? How can you fortify your finances now to weather a layoff? (Keep reading for related advice.)

2. Bulk up your cash reserves

A key to navigating a recession relatively unscathed is having cash in the bank. The steep 10% unemployment rate during the Great Recession in 2009 taught us this. On average, it took eight to nine months for those affected to land on their feet. Those fortunate to have robust emergency accounts were able to continue paying their housing costs and buy time to figure out next steps with less stress.

Consider retooling your budget to allocate more into savings now to hit closer to the recommended six- to nine-month rainy day reserve. It may make sense to unplug from recurring subscriptions, but a better strategy that won't feel as depriving may be to call billers (from utility companies to cable to car insurance) and ask for discounts and promotions. Speak specifically with customer retention departments to see what offers they can extend to keep you from canceling your plans.

3. Seek a second income stream

Web searches for "side hustles" are always popular, but especially now, as many look to diversify income streams in the run up to a potential recession. Just like it helps to diversify investments, diversifying income streams can reduce the income volatility that arrives with job loss. For inspiration on easy, low-lift side hustles that you might be able to do from home, check out my story.

4. Resist impulsive investing moves

It's hard not to be worried about your portfolio after all the red arrows in the stock market this year. If you have more than 10 or 15 years until retirement, history proves it's better to stick with the market ups and downs. According to Fidelity, those who stayed invested in target-date funds, which include mutual funds and ETFs commonly tied to a retirement date, during the 2008 to 2009 financial crisis had higher account balances by 2011 than those who reduced or halted their contributions. "Those who panic and sell 'at the bottom' often regret it because trying to time the market can result in losses that are very difficult to regain because stock prices can change quickly," said Linda Davis Taylor, seasoned investment professional and author of The Business of Family.

If you have yet to sign up for automatic rebalancing, definitely look into this with your portfolio manager or online broker. This feature can ensure that your instruments remain properly weighted and aligned with your risk tolerance and investment goals, even as the market swings.

5. Lock interest rates now

As the policy makers raise interest rates to bring down inflation levels, interest rates will increase. This potentially spells bad news for anyone with an adjustable-rate loan. It's also a challenge for those carrying a balance on a credit card.

While federal student loan borrowers don't have to worry about their rates going up, those with private variable rate loans may want to look into consolidating or refinancing options through an existing lender or other banks, such as SoFi, that could consolidate the debt into one fixed-rate loan. This will prevent your monthly payments from increasing unpredictably when the Federal Reserve raises interest rates again this year, as expected.

6. Protect your credit score

Borrowers may have a tougher time accessing credit in recessions, as interest rates jump and banks enforce stricter lending rules. To qualify for the best loan terms and rates, aim for a strong credit score in the 700s or higher. You can typically check your credit score for free through your existing bank or lender, and you can also receive free weekly credit reports from each of the three main credit bureaus through the end of the year from AnnualCreditReport.com.

To improve your credit score, work towards paying down high balances, review and dispute any errors that may be on your credit report or consider consolidating high-interest credit card debt into a lower interest debt consolidation loan or 0% introductory APR balance transfer card.

7. Rethink buying a home

While home prices have cooled in some areas, it remains a competitive housing market with few homes to go around. If rising mortgage rates are adding more pressure to your ability to buy a home within budget, consider renting for a little longer. If you're also worried about your job security in a potential recession, then that's even more reason to take pause. Leasing isn't cheap at the moment, but it can afford you more flexibility and mobility. Without the need to park cash for a down payment and closing costs, renting can also keep you more liquid during a potentially challenging economy.

8. Take care of your valuables

The advice that was born out of the sky-high inflation period in the late 1970s still applies now: "If it ain't broke, don't fix it."

With ongoing supply chain issues, many of us face high prices and delays in acquiring new cars, tech products, furniture, home materials and even contact lenses. This includes replacement parts, too. If a product comes with a free warranty, be sure to sign up. And if it's a nominal fee to extend the insurance, it may be worth it during a time when prices are on the rise.

For example, my car has been in the repair shop for over three months, waiting for parts to arrive from overseas. So, in addition to paying my monthly car payment, I have a rental car fee that's adding up. If nothing else, I'll be heading into a possible recession a more cautious driver.

Read more: Smaller Packages, Same Prices: Shrinkflation Is Sneaky

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Navigating Foreclosure: How To Find Help, Repair Your Credit And Bounce Back

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Navigating foreclosure: How to find help, repair your credit and bounce back

Navigating foreclosure: How to find help, repair your credit and bounce back

The COVID-19 pandemic -- and its economic fallout -- have put millions of homeowners at risk of losing their homes. Consumer Financial Protection Bureau industry data in April showed that almost 3 million homeowners are behind on their mortgage payments.

While the CARES Act provided temporary relief for homeowners, its moratorium on foreclosures ended on July 31. Although this means lenders can proceed with the foreclosure process, a moratorium on foreclosure-related evictions has been put in place by the Federal Housing Administration until Sept. 30. The White House has also extended the forbearance enrollment period for federally backed mortgages through Sept. 30, giving homeowners more time to enroll in housing protections that could last for up to 12 months.

That said, some homeowners are still facing the resumption of monthly mortgage payments that have been paused for over a year -- and as a result, a mountain of debt.

If you own a home and are concerned about making mortgage payments, it's important to understand the foreclosure process. We'll walk you through everything you need to know -- from the best practices for avoiding it to surviving the aftermath.

You can find out more information about buying a foreclosure here.

What is a foreclosure?

Foreclosure starts when a homeowner has missed payments for a certain length of time -- usually, 90 to 120 days. At this point, the lender will attempt to recoup what they're owed on a mortgage. Once you're a few months late on your mortgage payment, the lender will put your loan into default.

If you don't make your mortgage payments for, say, three months, your lender can start a legal process to take ownership of your home in order to sell it. This allows them to get some of the money you still owe on your mortgage back.

The steps of the foreclosure process vary from state to state.

The foreclosure process

Foreclosure doesn't happen overnight. Your mortgage lender is required to notify you well in advance of when your home officially enters foreclosure -- also known as preforeclosure.

Preforeclosure

After you miss one mortgage payment, you might enter a preforeclosure period, but you often have another month to pay the balance owed before the bank takes serious action.

"Making your mortgage payment after the 1st of the month won't be considered late," says James McCann, branch manager at Cornerstone First Mortgage. "Most mortgage servicers won't charge a late fee until the 15th of the month and even when they do, it's usually nominal. Mortgage payments aren't reported late until the 30th of the month."

At that point, your lender sends you a notice. Whether you just needed a little extra time or making the payment simply slipped your mind, if you make your missed payment at this time, the preforeclosure process stops. You'll probably need to pay a late fee and your credit score might take a hit, though.

If you miss two mortgage payments, the letters become more serious. At this stage, you'll receive a demand letter requesting the missed payments. You can still stop the foreclosure process at this point by sending in the money you owe right away.

After three to four months of missed payments (varies by lender), you'll get a notice of default. This notice will usually lay out a grace period (often 90 days) during which you can make up the money you owe to avoid foreclosure. This grace period is called the reinstatement period. If you don't take advantage of this final window to get caught up on your missed payments, your lender officially starts foreclosure.

Foreclosure

At this point, your mortgage lender starts the process of taking ownership of your home. This works because mortgages are secured loans, which means they're backed by collateral -- in this case, your home.

When homeowners are unable to continue making mortgage payments, lenders start the foreclosure process to take back their collateral. Foreclosure ends with the lender either selling the home or adding it to their real estate portfolio. This allows the lender to recoup the money the homeowner was unable to pay.

Types of foreclosures

There are three different types of foreclosures, but processes will vary depending on where you live. Most states employ one of the first two types of foreclosures:

Judicial foreclosure

A judicial foreclosure is an option in all states. During this process, the lender files a lawsuit with the court to initiate the foreclosure process. The homeowner then gets a notice of the suit in the mail and has 30 days to pay all of the money they owe. If they don't, the local sheriff's office or the court will sell the house at an auction and give the proceeds to the lender.

Power of sale

Also called a statutory foreclosure, this type of foreclosure is legal in most states, provided your mortgage has a power of sale clause. This clause says that if your mortgage lender demands payment and you continue to fail to pay for the period of time laid out in the clause, the lender can sell the home to recoup their money.

Strict foreclosure

The rarest type of foreclosure, strict foreclosure, is often avoided unless the outstanding mortgage amount is greater than the property's current value. The process is similar to a judicial foreclosure in that the lender files a lawsuit, but rather than selling the property at auction, the property enters the lender's real estate portfolio once the foreclosure is complete.

Avoiding foreclosure

Foreclosures are stressful. But you can often avoid foreclosure, especially if you take steps as soon as you struggle to make your mortgage payments. Here are some tips to help with avoiding foreclosure.

Talk to your lender ASAP

Lenders don't want you to enter into foreclosure. They would much rather have you continue to make your payments (allowing them to make income off your mortgage's interest). If you're struggling to make a payment, reach out to see what support your lender can provide.

"Talk with your current mortgage servicer to see if there's anything they can do to help," McCann says. "Your lender might offer a loan modification or forbearance plan that would allow you to lower or pause your payments."

Consider selling

With real estate property values at notably high levels in many regions, homeowners who think they won't be able to keep up with their mortgage payments can consider selling before they end up in a foreclosure situation. With the proceeds from your home sale, you can pay off the outstanding balance of your mortgage and avoid foreclosure -- and the eviction and major hit to your credit score that comes with it.

You don't necessarily go back to renting, either. McCann recommends working with a realtor to find out if you can downsize to reduce your monthly mortgage payment.

Explore a refinance

With mortgage rates at historic lows right now, refinancing can help you get through a financially challenging season -- and save you money over the life of your loan. Refinancing could allow you to lock in a lower rate, reducing your monthly mortgage payment.

"You can often time your refinance to skip a mortgage payment, which could give you a little time to get back on your feet," McCann says.

You might be able to get a short refinance, which means your lender forgives some of your outstanding balance, then refinances the rest.

Foreclosure assistance programs

There are also assistance programs that can serve as helpful tools in avoiding foreclosure.

Until Sept. 30, you can enroll in a forbearance program if you have a federally held mortgage, e.g., FHA, VA, USDA and some Freddie Mac and Fannie Mae home loans.

While federal programs beyond the COVID-19 forbearance are currently lacking, you can also get help from a housing counselor. You can click your state on their map to find information about foreclosure avoidance counselors near you. It's well worth choosing one approved by the US Department of Housing and Urban Development to help avoid foreclosure scams.

Beware of foreclosure assistance scams

Unfortunately, unsavory individuals and organizations often take advantage of people facing financial hardship and foreclosures. And they may do it under the guise of old programs. Be wary of mortgage assistance from groups that recommend expired assistance programs like the FHA Home Affordable Program or the Making Home Affordable program. Although these programs are legitimate, they were established to help after the subprime mortgage crisis of 2008 and aren't accepting new applicants.

For a full list of foreclosure assistance scams to avoid, review this guide from the Office of the Comptroller of the Currency.

Surviving foreclosure

Avoiding foreclosure isn't always possible -- and it's not a financial death sentence. If none of the above resources can help you avoid foreclosure, your first step should be to find safe housing for yourself and anyone who lives with you.

From there, work on establishing a consistent income stream and building up your savings. Your credit score will take a dive after your foreclosure, but managing your money responsibly -- paying your bills on time and making sure you don't use too much of your other available credit, including credit cards -- will help you to rebuild it. From there, it's a waiting game. After seven years, the foreclosure will fall off your credit report and you'll have a fresh start again.

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Home Equity Loan Rates For September 2022

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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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Financial Therapy Could Help You Navigate Inflation-Related Stress

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Financial Therapy Could Help You Navigate Inflation-Related Stress

Financial Therapy Could Help You Navigate Inflation-Related Stress

Whether it be in grocery stores, at the gas station or the cost of rent, you may notice your money isn't stretching as far as it used to as rising inflation continues to impact the purchasing power of the dollar. Because of this, there are plenty of reasons to feel worried about your finances right now.

Financial anxiety isn't exclusive to the ranks of the unemployed. It can just as easily plague people who have enough money at the moment but are worried about the future. And regardless of where you fall on the socio-economic spectrum, money can be difficult to talk about -- even in a regular therapy session.

"Financial trauma has unfortunately become a reality for some who've experienced extreme financial hardship," says Alex Melkumian, founder of Financial Psychology Center. "In times of the pandemic, the overall level of financial stress and worry has risen exponentially and has negatively impacted the financial wellness and mental health of so many."

Financial concerns can ripple into all areas of your life. After all, money isn't always just about money; it can be a surrogate for stress, anxiety and trauma, too. That anxiety can manifest through fears about end of life and mortality -- running out of money in retirement or during an emergency, for example.

There's a type of counseling specifically for money-related anxiety: financial therapy. Read on to see if it might be a good fit for you.

What is financial therapy?

According to the Financial Therapy Association, this form of counseling can help people change the way they think and feel about money -- and, most importantly, change negative behaviors. It gets right to the heart of your financial attitudes.

Melkumian says financial therapy can help those who need to dig deeper into why they can't stop living paycheck to paycheck or keep getting deeper into debt.

"If you make the same financial mistakes and can't seem to figure out why, if money is a major source of conflict with your significant other, [or] if your financial situation is creating turmoil in your life and causing extreme emotions," financial therapy may help you, Melkumian says.

Different people have different needs, he says, but financial therapy can help develop a detailed financial plan.

"One of the most common tasks addressed in financial therapy is setting up and implementing a spending plan," Melkumian says. "A client can implement a comprehensive spending plan in a span of three months. For clients who struggle with extreme financial stress, worry and trauma, addressing those issues may take longer to process."

Read more: What Does It Even Mean to Build Wealth in 2022?

What does a financial therapist do?

Financial therapist Lindsay Bryan-Podvin, author of The Financial Anxiety Solution, says there are a few important distinctions between a financial therapist and a traditional therapist.

"Many therapists have a specialty in other tough areas such as trauma, sex, abuse, gambling, addiction and/or neglect -- but very few specialize in money," she says. "Money can absolutely be brought up in a regular therapy session. However, most therapists do not have additional training on the psychology of money."

And, of course, a conventional financial advisor helps you manage your money -- not manage your feelings and emotions about money. "You cannot call yourself a therapist if your background is in finance," says Bryan-Podvin. "You can say you have financial therapy training, but to call yourself a therapist, you must have at least a Master's degree in Counseling, Social Work, or Psychology."

While Bryan-Podvin has a Master's degree in social work, the Financial Therapy Association requires a financial or mental health background for those seeking to become a Certified Financial Therapist. General therapists might recommend seeing a financial therapist if they don't have the extended knowledge, training and expertise surrounding the psychology of money.

Read more: Investing for Beginners: Everything Experts Want You to Know for 2022

Where can you find a financial therapist?

You can find a financial therapist on the Financial Therapy Association's database. Melkumian, who is also an FTA board member, says there are approximately 350 financial therapists in the US. The cost of a session varies by provider and location.

Many financial therapists, including Bryan-Podvin and Melkumian, currently offer remote service. If you don't have a financial therapist near you, you may be able to set up a virtual session.

There may be less expensive alternatives, too. Many banks, credit card issuers and other financial institutions offer some form of education or counseling. Capital One offers free money coaching. You may not get the same level of counseling as you would from a financial therapist, but it may help you begin to address some of your issues with money.

And you don't need to wait until you've gone through financial trauma before getting into financial therapy. Melkumian says you can look into financial therapy before issues start.

"Why wait to see a financial therapist until you are broke?" he asks. "You can save yourself from the pain and suffering by starting now."

For more, read up on how to avoid retail therapy and how to negotiate your salary the right way. You can also check out CNET's list of best online therapy services for 2022.

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Today's Mortgage Rates For Aug. 22, 2022: Rates Move Up

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Today's Mortgage Rates for Aug. 22, 2022: Rates Move Up

Today's Mortgage Rates for Aug. 22, 2022: Rates Move Up

A few notable mortgage rates moved up today. The average interest rates for both 15-year fixed and 30-year fixed mortgages both saw increases. At the same time, average rates for 5/1 adjustable-rate mortgages also increased.

Though mortgage rates have been rather consistently going up since the start of this year, what happens next depends on whether inflation continues to climb or begins to retreat. Interest rates are dynamic and unpredictable -- at least on a daily or weekly basis -- and they respond to a wide variety of economic factors. Right now, they're particularly sensitive to inflation and the prospect of a US recession. With so much uncertainty in the market, if you're looking to buy a home, trying to time the market may not play to your favor. If inflation rises and rates climb, this could translate to higher interest rates and steeper monthly mortgage payments. For this reason, you may have better luck locking in a lower mortgage interest rate sooner rather than later. No matter when you decide to shop for a home, it's always a good idea to seek out multiple lenders to compare rates and fees to find the best mortgage for your specific situation.

30-year fixed-rate mortgages

The average interest rate for a standard 30-year fixed mortgage is 5.78%, which is an increase of 25 basis points from one week ago. (A basis point is equivalent to 0.01%.) The most frequently used loan term is a 30-year fixed mortgage. A 30-year fixed rate mortgage will usually have a smaller monthly payment than a 15-year one -- but usually a higher interest rate. You won't be able to pay off your house as quickly and you'll pay more interest over time, but a 30-year fixed mortgage is a good option if you're looking to minimize your monthly payment.

15-year fixed-rate mortgages

The average rate for a 15-year, fixed mortgage is 4.95%, which is an increase of 4 basis points from seven days ago. Compared to a 30-year fixed mortgage, a 15-year fixed mortgage with the same loan value and interest rate will have a higher monthly payment. But a 15-year loan will usually be the better deal, if you can afford the monthly payments. You'll usually get a lower interest rate, and you'll pay less interest in total because you're paying off your mortgage much quicker.

5/1 adjustable-rate mortgages

A 5/1 adjustable-rate mortgage has an average rate of 4.30%, a climb of 8 basis points compared to last week. With an ARM mortgage, you'll typically get a lower interest rate than a 30-year fixed mortgage for the first five years. But since the rate adjusts with the market rate, you may end up paying more after that time, as described in the terms of your loan. Because of this, an ARM could be a good option if you plan to sell or refinance your house before the rate changes. But if that's not the case, you could be on the hook for a significantly higher interest rate if the market rates change.

Mortgage rate trends

Though mortgage rates were historically low at the beginning of 2022, they have been rising somewhat steadily since then. The Federal Reserve recently raised interest rates by another 0.75 percentage points in an attempt to curb record-high inflation. The Fed has raised rates a total of four times this year, but inflation still remains high. As a general rule, when inflation is low, mortgage rates tend to be lower. When inflation is high, rates tend to be higher.

Though the Fed does not directly set mortgage rates, the central bank's policy actions influence how much you pay to finance your home loan. If you're looking to buy a house in 2022, keep in mind that the Fed has signaled it will continue to raise rates, and mortgage rates could increase as the year goes on. Whether rates follow their upward projection or begin to level out hinges on if inflation actually slows.

We use information collected by Bankrate, which is owned by the same parent company as CNET, to track rate changes over time. This table summarizes the average rates offered by lenders nationwide:

Average mortgage interest rates

Product	Rate	Last week	Change
30-year fixed	5.78%	5.53%	+0.25
15-year fixed	4.95%	4.91%	+0.04
30-year jumbo mortgage rate	5.80%	5.52%	+0.28
30-year mortgage refinance rate	5.76%	5.51%	+0.25

Rates as of Aug. 22, 2022.

How to shop for the best mortgage rate

When you are ready to apply for a loan, you can reach out to a local mortgage broker or search online. When looking into home mortgage rates, think about your goals and current finances. A range of factors -- including your down payment, credit score, loan-to-value ratio and debt-to-income ratio -- will all affect your mortgage interest rate. Having a good credit score, a higher down payment, a low DTI, a low LTV, or any combination of those factors can help you get a lower interest rate. The interest rate isn't the only factor that affects the cost of your home — be sure to also consider other costs such as fees, closing costs, taxes and discount points. Be sure to shop around with multiple lenders -- including credit unions and online lenders in addition to local and national banks -- in order to get a mortgage that's the right fit for you.

How does the loan term impact my mortgage?

When picking a mortgage, remember to consider the loan term, or payment schedule. The most common mortgage terms are 15 years and 30 years, although 10-, 20- and 40-year mortgages also exist. Another important distinction is between fixed-rate and adjustable-rate mortgages. The interest rates in a fixed-rate mortgage are fixed for the duration of the loan. Unlike a fixed-rate mortgage, the interest rates for an adjustable-rate mortgage are only fixed for a certain amount of time (commonly five, seven or 10 years). After that, the rate fluctuates annually based on the market interest rate.

One factor to consider when choosing between a fixed-rate and adjustable-rate mortgage is how long you plan on staying in your home. Fixed-rate mortgages might be a better fit for those who plan on living in a home for a while. Fixed-rate mortgages offer more stability over time compared to adjustable-rate mortgages, but adjustable-rate mortgages might offer lower interest rates upfront. If you don't plan to keep your new home for more than three to 10 years, though, an adjustable-rate mortgage might give you a better deal. The best loan term all depends on your situation and goals, so make sure to think about what's important to you when choosing a mortgage.

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