One in 4 Individuals is unaware of this significant mortgage truth
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Keeping up with all of the details of your personal finances when it comes to keeping jobs, looking after children, maintaining friendships, buying groceries and cooking, doing dishes, and doing laundry can be a challenge.
On the side, you might be wondering: How many more months until my car loan is repaid? Or, before you go to bed, you may feel a twinge of fear that you will ever be able to retire.
If you are like many Americans, your relationship with money might require a little more time and attention. Much is at stake.
For example, according to a recent survey by Bankrate.com, more than one in four people in this country don’t know the interest rate on their mortgage.
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“It may have been a few years since you took out the loan and since you don’t deal with it day in and day out, this is a detail that comes to mind for many,” said Greg McBride, financial analyst at Bankrate.com. (To know your rate, just check your monthly bank statement or give the company you send your payments to each month, McBride said.)
Not knowing what you are paying for can cost you.
For example, some people can save money by lowering their mortgage rate through refinancing. (Interest rates have dropped to lows during the pandemic.)
Typically, you need a good credit score to get the best interest rate, and some of the costs associated with refinancing – including the application fee, title fee, title search, title insurance, and evaluation fee – can make the business less attractive.
If you can still lower your rate, you can save a lot.
McBride provided an example: if the refinance lowered your interest rate on a 30-year fixed-rate mortgage from 4% to 3% from $ 200,000, you would save more than $ 110 a month and nearly $ 41,000 over the life of the loan.
However, if you don’t know your current mortgage rate, this option will be more difficult to understand.
Overall, many people are not aware of all of their financial decisions.
A poll found that two-thirds of Americans are in the dark about what a 529 college savings plan is.
On these government investment accounts, you can salt already taxed money and use these funds later for your child’s university expenses. The savings grow tax-free and your withdrawals are protected from income or capital gains taxes, provided they are used for qualified expenses.
When you have a new baby, nobody tells you to save up for college.
The lack of awareness of these plans is not the fault of the parents, said university specialist Mark Kantrowitz.
“When you have a new baby, nobody tells you to save up for college,” said Kantrowitz. “Not the obstetrician, not the nurses in the maternity ward, not the midwives, not the kindergarten teachers, nobody.”
But there’s no question that those who know better do better: If parents start putting money into a 529 plan when their child is born, about a third of their savings goal will come from the income from their investment alone.
And like most things related to money, the sooner you know, the better.
If a parent starts saving $ 500 a month when their child is born, they will have approximately $ 190,000 by the child’s 18 years old, with a 6% annual return. But if they don’t start this routine until their son or daughter is 10 years old, they would only have about $ 60,000 by the time their child graduates from high school.
Time is your greatest asset
The same logic, of course, applies to saving for retirement – another area where people are intimidated and hesitant. The average turn of the millennium doesn’t expect to put money away for their old age by their late 30s, according to a report.
Such delays can be costly: if you were saving just $ 200 a month from age 21, you would have $ 570,000 by 65, with an annual return of 6.5%. What if you waited until 37? Your nest egg shrinks to $ 180,000.
“Time is the greatest money an individual can make,” said Ed Slott, a retirement planning expert.
That’s because of compound interest: the money you invest increases interest, and that interest increases interest as well. “However, the benefits of investing are often unknown to people,” said Kimberly Palmer, personal finance expert at NerdWallet.com.
Many people are also in the dark when it comes to their credit cards: According to a 2018 survey, less than half of those who have an account balance know their interest rate.
With an average annual interest rate of 16% and the average US household with credit card debt of $ 6,300, people likely don’t know how much of their paychecks is being used up by their previous purchases. (If you’ve only made the minimum payments for a balance of $ 6,300 per month, then you can expect to be in debt for 17 years.)
Still, some people believe that maintaining a balance improves their creditworthiness, said Ted Rossman, industry analyst at CreditCards.com.
“That’s a myth,” he said. “Carrying on credit doesn’t help your creditworthiness, it just costs you money in interest.”
A lack of personal financial education is responsible for all of these misunderstandings, said Sean Stein Smith, assistant professor in the economics department at Lehman College in the Bronx, New York.
“The concepts of financing, including and compound interest, can sometimes be presented as ideas that are ambiguous, mysterious, or incomprehensible to non-experts,” said Stein Smith.
“This couldn’t be further from the truth,” he added. “Personal financial decisions have a huge impact on every other aspect of your life.”