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What the New DOL Fiduciary Rule Means For You

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Geeting advice on future investments

Seven years in the making, the Department of Labor’s long-awaited Fiduciary Rule finally went into effect June 9.* The full breadth of the rule’s impact won’t officially be felt until January 2018, when advisors must be fully compliant with the rule’s requirements.

The rule survived an upheaval by the Trump administration, which had hinted earlier this year that it might seek to block the rule’s implementation.

Aimed at saving consumers billions of dollars in fees in their retirement accounts, the Department of Labor’s new fiduciary rule will require financial advisers to act in your best interest. However, the final rule includes a number of modifications, including several concessions to the brokerage industry, from the original version proposed six years ago.

Here’s what you need to know about these new rules and how they may affect your money.

*This story has been updated to reflect the rule’s successful release.

What is a Fiduciary?

So what exactly is a fiduciary? According to the Certified Financial Planner (CFP) Board, the fiduciary standard requires that financial advisers act solely in your best interest when offering personalized financial advice. This means advisers can’t put personal profits over your needs.

Currently, most advisers are only held to the U.S. Securities and Exchange Commission’s suitability standard when handling your investments. This looser standard allows advisers to recommend suitable products, based on your personal situation. These suitable products may include funds with higher fees — with revenue sharing and commissions lining their own pockets —  which may not reflect your best possible options.

What is Changing Exactly?

Affecting an estimated $14 trillion in retirement savings, the Department of Labor’s new fiduciary rule is meant to help you receive investment advice that will aid your nest egg’s ability to grow. Many investors have been pushed toward products with high fees that quickly eat away at profits.

All financial professionals providing retirement advice will now be required to act as fiduciaries that must act in your best interest. This applies to all financial products you may find in a tax-advantaged retirement accounts. Because IRAs offer fewer protections than employment-based plans, the Department is concerned about “conflicts of interest” from brokers, insurance agents, registered investment advisers, or other financial advisers you may turn to for advice.

Despite these new protections, the Department of Labor also made some key concessions. Previously, brokers were required to provide explicit disclosures about the costs of products to their clients. This included one, five, and ten year projections. However, this requirement has been eliminated. After heavy pushback from the industry, the Department of Labor also agreed to allow the use of proprietary products.

Additionally, the Department of Labor has pushed the deadline for full implementation of their new rules. Firms must be compliant with several provisions by June and fully compliant by January 1, 2018.

Despite all of these concessions, the Department of Labor’s highest official insists the integrity of their rule is still in place.

Exceptions You Should Know About

Although advisers working with retirement investments will no longer be able to accept compensation or payments that create a conflict of interest, there’s an exception many brokers will likely pursue.

Firms will be allowed to continue their previous compensation arrangements if they commit to a best interest contract (BIC), adopt anti-conflict policies, disclose any conflicts of interest, direct consumers to a website that explains how they make money, and only charge “reasonable compensation.” The best interest contract will soon be easier for firms and advisers to use because it can be presented at the same time as other required paperwork.

How These New Rules Might Affect Your Investment Options

Although these new rules don’t call out specific investment products as bad options, it’s expected advisers may direct you to lower-cost products, like index funds, more regularly. New York Times also predicts the new regulations may also accelerate the movement toward more fee-based relationships. They also suggest complex investments like variable annuities may soon fall out of favor.

What Will the Larger Impact of These Changes Be?

Backed by extensive academic research, the Department of Labor’s analysis suggests IRA holders receiving conflicted investment advice can expect their investments to underperform by an average of one-half to one percentage point per year over the next 20 years. Once their new rules are in place, they are anticipating retirement funds will shift to lower cost investments, savings consumers billions of dollars.

What You Can Do To Protect Yourself

Although these new rules are a positive step for consumers, it’s important to remember there are still a wide variety of financial professionals out there. And the quality of the advice you receive can vary greatly based on their level of education, experience, and credentials. In order to find someone who is equipped to handle your unique financial situation, you will still need to do your homework.

You may want to start by looking for a fee-only financial planner. Due to the nature of how they are compensated, fee-only financial planners operate without an inherent conflict of interest. They are paid a fee for the services they provide and they don’t earn commissions from product sales.

Once you’ve narrowed down your options you’ll want to ask about their credentials, what types of clients they work with, what types of services they offer, while carefully checking their background and references. Like any professional working relationship, you’ll want to feel comfortable with someone you are receiving financial advice from, so it’s important to make sure your personalities and priorities are aligned. Remember, no one cares more about your money than you do. That’s why it’s essential to carefully vet anyone who is working with you to secure a healthier financial future.

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Pay Down My Debt

Options to Get Out of Your Timeshare

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Options to Get Out of Your Timeshare

You’ve finally escaped the stress of your commute, stacks of unfinished paperwork, and the never-ending demands of the office. You’re staying someplace warm, enjoying pina coladas on the beach or working on your tan by the pool.

The resort’s sales manager has casually mentioned an affordable way to return to this same place every year. And in your relaxed state of bliss, you start daydreaming about future vacations. You imagine making the resort an annual family destination or the spot to celebrate your wedding anniversary.

Let’s face it — buying a timeshare is often an impulsive decision. And one you may regret after the drinks have worn off, your vacation is over, and reality sets in. Because chances are, your timeshare is not the amazing deal the resort’s sales manager sold you on. If you’re stuck with buyer’s remorse or simply can’t afford your timeshare, here is how to minimize the damage to your wallet and credit score.

What is a Timeshare?

So what is a timeshare exactly? A timeshare allows you to buy the right to use a property every year for a certain period of time. And the property is usually part of a resort. A deeded timeshare means you’re purchasing a portion of the property. And a non-deeded timeshare mean you’re leasing the right to use the property for an agreed upon number of years (usually 10-50).

How Much a Timeshare Actually Costs

The cost of a timeshare varies based on the size of the unit, the resort’s location, the time of year, amenities, and more. But the National Timeshare Owners Association (NTOA) says the average timeshare sales price is $20,020.

What does typical report-based financing looks like?

  • Loan Amount – $20,000
  • Term of Loan – 6 years (72 months)
  • Interest Rate Charged – 15.9%
  • Monthly Payment – $432.74
  • Actual Cost – $31,157.28

Many resorts also offer a 1-year loan with a 0% interest rate if you’re willing to put 50% down within 30 days of purchasing the timeshare.

In addition to the cost of the timeshare itself, you’re also responsible for an annual maintenance fee. The National Timeshare Owners Association (NTOA) says the average maintenance fee for 2015 is a whopping $880. This annual maintenance fee can increase over time. And you’re responsible for paying this fee every year regardless of whether or not you visit.

Selling a Timeshare

Are you thinking about trying to sell your timeshare? Although the National Timeshare Owners Association (NTOA) lists three preferred resellers on their website, it’s not always that simple.

Resale websites operate as a subscription service. And their fees range from $14.99 to $125 per year. Plus, resellers may take a portion of the sale.

Remember, timeshares are not real estate investments. And the secondary market is oversaturated with buyers. Want to see further evidence? A quick search on eBay revealed dozens of timeshares practically being given away for $1.

Try Refinancing Your Loan

Between the high interest rates of resort-based financing and the annual maintenance fee, what was sold as an affordable vacation becomes expensive very quickly. If you’re struggling to afford monthly loan payments, you may want to try refinancing to secure a single-digit interest rate.

LightStream, a division of SunTrust bank, offers timeshare-refinancing options if you’re a U.S. citizen with good credit. They don’t charge fees to refinance. And their interest rates are fixed.

Here’s an example of what the numbers may look like for refinanced timeshare loan:

  • Loan Amount – $20,000
  • Term of Loan – 6 years (72 months)
  • Interest Rate Charged – 8.49% – 14.74% APR with Autopay
  • Monthly Payment – $349.10 – $368.91
  • Actual Cost – $25,135.20 – $26,561.52
  • Money Saved – $4,595.76 – $6,022.08

Your timeshare might be such a financial drain that you decide to sell (or give it away) and then refinance the remaining debt to pay it off quickly and with a lower interest rate.

Consider Timeshare Exchanges

Did your resort’s sales manager mention the option of timeshare exchanges? It’s a major selling point for many buyers. And who wouldn’t like the option of trading timeshares with owners in other locations? But does it make sense for you? It depends.

If you’ve paid off your debt, it may be worth the additional fees to list your timeshare on an exchange. The National Timeshare Owners Association (NTOA) lists preferred exchange companies on their website. But you need to read the fine print. Less popular destinations and off-peak season timeshares tend to be more difficult to exchange. And there may be other restrictions that weren’t mentioned at the closing table.

Try To Negotiate With Original Owner

Have you paid off your debt but you’re sick of coughing up annual maintenance fees? It’s worth reaching out to the original owner to see if they’re willing to negotiate. They may agree to let you out of your original deal if you agree to cover a few years of maintenance fees. And they’ll have the option of reselling the timeshare to another buyer. It doesn’t hurt to ask!

Can’t negotiate with the original owner? Try getting a team of experts to help you legally get out of the contract with the Time Share Exit Team.

The Truth About Timeshares

It’s cheaper than ever to find affordable places to stay on vacation. Websites like Airbnb, VRBO, and HomeAway make it easy to find affordable listings all over the world. A timeshare at a luxury resort may seem attractive today, but what happens when your tastes and lifestyle change? The truth is, timeshares don’t always get used as often as buyers originally planned.

If you have to finance a timeshare, it’s probably not worth buying. Why? Resort-based financing can incur interest rates of 15-16%. And even once you’ve paid off the loan, you’re still stuck with expensive annual maintenance fees averaging $880 or more! Plus, attempting to resell can be a nightmare. It can get costly and there’s just not a strong secondary market. And all this doesn’t even include the cost of travel to get to your timeshare in the first place.

Despite all these drawbacks, almost 400,000 timeshares were sold in 2015. And it’s easy to see how buyers get roped in. It’s not easy to make a clear-headed decisions on a white sand beach after a couple of margaritas.

If you’re regretting your choice to buy or can’t afford your timeshare, you can minimize the damage to your wallet and credit by refinancing, exchanging, or negotiating with the original owner.

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Life Events, Mortgage

Why Lying on Your Mortgage Application Just Isn’t Worth the Risk

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Mortgage

Have you ever gotten lost in daydreams about building wealth? We all have. And at some point, you’ve probably thought about purchasing an investment property to help you reach that goal. Maybe you’ve considered working for yourself as a full-time landlord. Or even building your own mini real estate empire and managing multiple properties.

See Mortgage Rate Quotes for Your Home

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By clicking “See Rates”, you will be directed to LendingTree. Based on your creditworthiness, you may be matched with up to five different lenders in our partner network.

But before you start cashing an imaginary handful of rent checks, you should take a step back. Can you actually afford an investment property? Maybe a seemingly harmless white lie could enable your start towards becoming a mogul. Before you wander too far down that path, beware the consequences. 

My Investment Property Opportunity

Recently, my sister and I were offered the chance to purchase a two-family home right outside of Boston to settle a family member’s estate. It’s nestled in a quiet, tree-lined inner city neighborhood with tons of street parking. Plus, it’s just a few blocks from the subway, making it a prime location for someone commuting to Boston for work every day. Clearly, the house has major cash flow potential as a rental property.

So, what stopped us? The massive down payment. Because we both live out of state, the home would be considered an investment property. And financing an investment property with a conventional loan usually requires a minimum 20% down payment.

Appraised at nearly $600,000, we’d have to cough up a staggering $120,000 to cover the loan’s mandatory 20% down payment. Our dreams of becoming landlords were quickly deflated. We’d lost nearly all hope for the idea when she identified a potential loophole.

Many FHA loans can be approved with a 3.5% down payment, but require the property to be owner-occupied. FHA requires the borrower to establish the home as his or her primary residence within 60 days of signing the loan. Also, the owner must live there for at least a year.

“I can just say I live there,” she insisted. “Who would ever know the difference?”

How much could her seemingly innocent mortgage application fib hurt? Quite a bit, it turns out. Realizing we really couldn’t afford the home, we quickly abandoned our unattainable investment property idea. But, unfortunately, this doesn’t happen as often as it should.

Not all borrowers have been honest. Our country saw an uptick in rental property investments following the housing market collapse. And many borrowers intentionally misrepresented their living situation in order to secure a smaller down payment and lower interest rates for their loan. But misleading your lender about owner occupancy is an incredibly risky move. Lying on a mortgage application is considered mortgage fraud and is illegal.

Why Do People Lie About Owner Occupancy?

After being tempted by an attractive property we couldn’t afford, it’s really easy to understand how others are motivated to lie about their owner occupancy status. Especially when financing a first home with an FHA loan has significantly lower financial hurdles.

How much money do most people put down on a first home purchase? Despite the threat of costly mortgage insurance, many first-time homebuyers can’t scrape together 20%. Or they prefer to keep their cushion of emergency savings in tact, even if it means paying extra for a mortgage insurance premium (MIP).

Luckily, most FHA loans only require a minimum down payment of 3.5%. And because borrowers are required to pay MIP on these loans, FHA backed lenders can afford to offer more attractive interest rates.

Using Nashville’s current median home price of $230,000 as an example, it’s easy to see a stark contrast between the costs of FHA and conventional loans.

First, there’s a much smaller down payment. An FHA loan would require $8,050 to meet their 3.5% down payment. However, a conventional loan with a 20% minimum down payment would cost a borrower $46,000. Obviously, the $37,950 difference is huge and could potentially make a property unaffordable for some buyers.

Why is there such a huge difference? Loans for non-owner occupied properties are considered riskier and have higher rates of default. To protect their investment, conventional loan lenders also tend to charge higher interest rates.

The Consumer Financial Protection Bureau (CFPB)’s interest rates tool yielded significant differences in interest rates between FHA and conventional loans in Tennessee:

  • Credit score: 700 – 719
  • Home price: $230,000
  • Down payment: 20%
  • Rate type: Fixed
  • Term: 30 years
  • Loan type: Conventional

Interest rates: 4.0 – 4.5%

  • Credit score: 700 – 719
  • Home price: $230,000
  • Down payment: 4%
  • Rate type: Fixed
  • Term: 30 years
  • Loan type: FHA

Interest rates: 3.625 – 4.375%

Lenders Are Cracking Down

“Are you planning to make this home your primary residence?”

It may seem innocent enough to lie about where you’re planning to live. But Fannie Mae has named occupancy as one of their common mortgage fraud red flags. Their list of inconsistencies in an applicant’s loan file includes examples for lenders to look for like an unrealistic commute distance, new homeowner’s insurance that’s a rental policy, or a borrower who is downgrading from a larger, more expensive house.

Lenders have become more sophisticated in detecting mortgage fraud than ever before. Companies like LexusNexis have the software to analyze 16 dimensions of occupancy evidence, speeding up research time and reducing investigative expenses. This software makes it much easier to get caught.

 

What Happens If You’re Caught Lying?

Are you still willing to take the risk? You could be facing major trouble if you’re caught. For starters, your lender could immediately demand full repayment of the loan. And they could move the property to foreclosure if you’re unable to pay. But that’s not even the worst-case scenario. Your case could be escalated to the Federal Bureau of Investigation, risking criminal charges.

It’s Not Worth the Risk

A lot of people dream about building long-term wealth through real estate investing. But dishonesty isn’t the right way to get there. Mortgage fraud is illegal. And misleading your lender about your occupancy status can lead to foreclosure or criminal charges. Both of these can leave you worse off than before you decided to take a chance on that investment property. Bottom line: lying on your mortgage application about owner occupancy just isn’t worth it.

By clicking “See Rates”, you will be directed to LendingTree. Based on your creditworthiness, you may be matched with up to five different lenders in our partner network.