Jul
31
2025
Property Tax and Your Mortgage: Everything You Need to Know

Is Property Tax Included in Mortgage Payments?

By | Home Ownership, mortgage | Comments Off on Is Property Tax Included in Mortgage Payments?

As you explore your home loan options, you may wonder, “Is property tax included in mortgage payments?” Typically it is, often along with insurance. Though many mortgage calculators don’t include property tax in their estimates, it is likely that expense will be rolled into your mortgage payment.

Having your property tax included in your mortgage is convenient, but it’s not the only way to pay taxes. Read on to learn more about paying property taxes and your mortgage.

Key Points

•   Property taxes are typically included in mortgage payments, often alongside homeowners insurance.

•   Many mortgage calculators do not account for property tax, although it is usually part of the mortgage payment.

•   Property taxes fund local services such as schools, police, and road maintenance.

•   Typically, a homebuyer pays money for property taxes with their monthly mortgage payments and the funds are put into an escrow account from which the mortgage servicer pays the bill when it’s due.

•   If a mortgage is paid off, the homeowner must manage property tax payments directly.

What Are Property Taxes?

Property taxes are taxes paid on real property owned by an individual or entity. Property taxes are based on an assessed property value and are paid whether or not the property is used. When you become a new homeowner, you’ll pay property taxes for the first time.

The money you pay will be put to use toward the local school system, police and fire departments, sanitation, road work, and other services.


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Why Do You Need to Pay Property Taxes?

Local governments rely on property taxes as a revenue source. About 75% of local funding from tax collections come from property taxes.

As noted above, property taxes pay for government services like schools, roads, law enforcement, and emergency services. If you have a mortgage, a portion of your payment will generally go into your escrow account to be paid when your taxes come due.

How Are Property Taxes Paid?

Every month you’ll pay one-twelfth of your tax payment into an escrow account, if you have one, and most loans do.

When it’s time to pay taxes, a notice will be sent to your mortgage servicer. You’ll likely see one in the mail, too, but your mortgage servicer is the one responsible for paying your property taxes. (A review of your mortgage statements should reflect that you are paying these taxes.)

When are property taxes included in mortgages? Usually, but if you make a down payment of 20% or more on a conventional loan, your lender may waive the escrow requirement if you request it. USDA and FHA mortgages do not allow borrowers to close their escrow accounts. If you own your home outright, you’ll pay taxes on your own.

How to Calculate Property Tax

Property tax is calculated by your local taxing entity. The methods and rates for calculating property taxes vary widely around the country. In general, your property is assessed and you pay taxes as a percentage of that value. (Keep in mind that the assessed value may be different from the market value.)

To get the amount of taxes you will pay, multiply the assessed value of your home by the tax rate. Some states allow for an exemption to reduce the taxable value. Florida, for example, offers a homestead exemption of up to $50,000 on a primary residence.

If your home was assessed at $400,000, and the property tax rate is 0.62%, you would pay $2,480 in property taxes ($400,000 x 0.0062 = $2,480).

If you qualify for a $50,000 exemption, you would subtract that from the assessed value, then multiply the new amount by the property tax rate.

$400,000 – $50,000 = $350,000
$350,000 x 0.0062 = $2,170

With an exemption of $50,000, you would owe $2,170 in property taxes on a $400,000 house.

Property Tax Rate

The property tax rate is determined by the local taxing authority and is adjusted each year. In general, taxing entities aim to collect a similar amount as in the prior year. If property values go up, the effective tax rate might go down a little. You will receive a notice in the mail informing you of the new rate.

Factors That Can Affect Property Tax Rates

Local government bodies set property tax rates in their areas, depending in large part upon their funding needs. If you live in a city or county that invests heavily in its educational system, you might pay a higher rate than you would in an area that doesn’t prioritize excellent schools, for example. What’s more, some states have higher income taxes or other taxes that may be used to help fund local services, in which case the property taxes may be lower.

What you will pay is also affected by the assessed value of your property (which is not necessarily the same as your home’s market value).

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.

Does a Mortgage Include Property Tax?

Property taxes will be listed on your mortgage statements if you have an escrow account for homeowners insurance and property taxes. (When you’re shopping for a home loan, whether you’ll need an escrow account is one of many mortgage questions to ask a lender.)

The mortgage servicer deposits the portion of your mortgage payment meant for taxes in the escrow account. When your tax bill is due, the servicer will pay it.

Understanding Escrow Accounts

In general, an escrow account is an account in which a third party holds funds to fulfill a contract when certain conditions are met. In the context of your mortgage, what this means is that many lenders set up an escrow account out of which they pay your homeowners insurance and property tax bills. They do this to make sure these bills get paid and protect their investment. There are strict rules about how much they can collect (typically 1/12 the cost of your yearly insurance and tax bill, if you are up to date on your payments) and how the escrow account is administered.


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What Happens to Property Tax If You Pay Off Your Mortgage?

If you pay off your mortgage, your property tax stays the same. The difference is that you no longer have a mortgage servicer administering the escrow account for you. If you do have money left in your escrow account, it will be refunded to you once the mortgage is paid off.

Now that you no longer have an escrow account, you need to contact the taxing entity and have the tax bill sent directly to you to pay.

Recommended: How to Afford a Down Payment on Your First Home

What if You Can’t Afford Property Tax?

If you’ve paid off your house or have closed your escrow account, you may feel the full force of ever-increasing property taxes. This is particularly true for older adults on a fixed income.

The trouble with not paying your property taxes is that your taxing entity can place a lien against your property or even start foreclosure proceedings. You do have several options to explore if you’re having trouble with your property taxes.

•   Payment options. Your locality may be open to establishing a payment system for collecting your taxes. There are also relief programs you may be eligible for.

•   Challenge your home’s assessed value. Since your taxes are based on your home’s assessed value, you can challenge it to potentially reduce your taxes. You generally need to do this soon after you receive your tax bill. You have to show that the assessed value of your home is inaccurate or unfair.

•   Talk to a HUD housing counselor. A housing counselor can point you in the direction of programs that can reduce your tax bill or offer some other relief, such as a deferral or payment plan. They can also help you find mortgage relief programs, should you need them.

The Takeaway

Are property taxes included in a mortgage? With most home loans, yes. Typically, you pay one-twelfth of the amount owed every month into escrow, and your servicer is then responsible for paying the property tax bill for you. Property taxes are a significant part of your home-buying budget, so be sure to include them in your budget as you work towards securing a mortgage.

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FAQ

What is included in my monthly mortgage payment?

What exactly is included in your monthly mortgage payment can vary, but typically it includes principal, interest, property taxes, homeowners insurance, and any mortgage insurance.

Is it better to pay your monthly tax with your mortgage?

It’s certainly more convenient to have your tax included in your mortgage payment. For the duration of your mortgage you won’t have to worry about your taxes being paid or coming up with a large payment when they come due. On the other hand, if you would rather manage the tax payment yourself, you may be able to cancel your escrow account and pay the taxes on your own.

How do I know if my property taxes are included in my mortgage?

You can check your monthly mortgage statement or closing documents if you’re a new homeowner. For most types of loans, taxes are included in your mortgage payment.

Do you pay property tax monthly?

The monthly mortgage payment you send usually includes a share of the annual property tax bill that your mortgage servicer will pay. If you pay your taxes directly, you’ll pay them annually or semiannually.

What happens if you miss a property tax payment?

If you miss a property tax payment to your tax authority, there will be a lien on your property, making it more difficult to sell. Ultimately, if the situation is not resolved, you could lose your home, though that may take as long as one to three years.

Photo credit: iStock/MStudioImages


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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

SOHL-Q325-024

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Jul
30
2025
What is Market Manipulation?

Market Manipulation: An Overview for Retail Investors

By | Financial Independence, Growing Wealth, invest, Investing | Comments Off on Market Manipulation: An Overview for Retail Investors

The definition of market manipulation, according to the Securities and Exchange Commission (SEC), is a deliberate, illegal interference in markets to alter the price of securities and defraud investors. In short, market manipulation is just what it sounds like, and unfortunately it’s not uncommon — but it can be difficult to prove.

There are numerous schemes that people use to manipulate market outcomes, including pump-and-dump and poop-and-scoop.
Given the legal perils, and the chance that investors could get caught up in some form of market manipulation, it’s critical to have a basic understanding of what it is and what it can look like.

Key Points

•   Market manipulation is the illegal attempt to alter the price of a security and/or defraud investors.

•   There are numerous ways that bad actors try to influence the price of a security in order to profit.

•   Pump-and-dump is one common scheme, where the price of a microcap stock is artificially inflated before it’s sold.

•   While not uncommon, market manipulation can be difficult to prove.

•   Investors can protect themselves by knowing the red flags of market manipulation.

What Is Market Manipulation?

According to the U.S. Securities and Exchange Commission, the definition of market manipulation is the “Intentional or willful conduct designed to deceive or defraud investors by controlling or artificially affecting the price of securities, or the Intentional interference with the free forces of supply and demand.”

For example, any action to impact the supply or demand for a stock and drive a stock’s price up or down by artificial means constitutes stock market manipulation.

The SEC views market manipulation as harmful, since the practice “affects the integrity of the marketplace.” According to the regulatory agency, financial market prices “should be set by the unimpeded collective judgment of buyers and sellers.” Anything else would undermine the orderly execution and trustworthiness of the markets.

The SEC has warned market leaders that investors will “stay out of your market if they perceive that it is not fair and is subject to market manipulation.”

Recommended: What Are Securities in Finance?

What Are Examples of Market Manipulation?

There are several methods that market manipulators use to interfere with markets, creating investment risk for those who fall victim to their schemes.

“Pump-and-Dump”

The pump-and-dump scheme is a common form of market manipulation. It occurs when a market participant who holds a specific investment knowingly issues false or misleading statements about the underlying company in order to pump up the price.

When investors fall for the information and buy the stock, the manipulator can either short the stock, or wait for the optimal price point and then sell the stock before the truth emerges, and investors dump their holdings.

For example, a market manipulator may start a rumor that a publicly traded company is going to be bought by a larger company. If enough investors believe the rumor, more investors buy the stock (whether via an online investing platform or through a brokerage), pushing up the stock price.

Once the price hits a certain level, the aim is to sell shares of the stock and pocket a potentially significant profit. Those investors who don’t sell are left with a stock that could drop in price when they realize the underlying company isn’t being bought out.

The Poop-and-Scoop Scheme

The so-called poop-and-scoop scam is the reverse of a pump-and-dump. Here, fraudulent rumors are spread with the aim of pushing down a security’s price. Again, the stock could be shorted or bought at a low point, and sold when the rumors abate and the price rebounds.

The “Wash” Method

Wash trading is a form of market manipulation where a group of investors acting in tandem buy and sell the same stock repeatedly over a period of a few days or even a few hours.

By and large, an “active” trading period of a stock is considered a sign of an increase in value, and the stock may swing upward as more investors notice the stock is being actively and even aggressively traded.

This scheme, also known as “painting the tape,” makes it seem as if investors are trading stocks actively when they’re not.

Trade “Spoofing”

The practice of trade spoofing is also known as “layering,” and occurs when market manipulators set trading orders with brokers they have no intention of executing.

In financial markets, it’s common for market orders to be public. When large orders to buy or sell a certain security are made, other investors jump aboard hoping to piggyback the unexecuted trade, thus drumming up more interest — and more investors — in the security.

Market manipulators leverage that momentum trading, and wait until the time is right to buy or sell the security as other investors’ trader orders are fulfilled.

With the “spoof” finalized, the investors who wound up actually executing their trades may then see the stock move against their intended price target. Meanwhile, the “spoofer” has cancelled the trade and taken a profit on the artificial stock price, by buying or selling the security based upon intended market movement.

Marking the Close

When a market manipulator buys a security at the close of the trading day, and pays more than the bid level, or the asking price of the security, that manipulator could be “marking the close.”

As the price of a stock at day’s end is usually a reliable marker for the investment’s price performance going forward, other investors often jump in and buy the stock. The market manipulator leverages the gain and locks in a profit by quickly selling the stock once its price moves upward.

Recommended: 5 Investment Strategies for Beginners

How to Avoid Market Manipulation

It’s not always easy to see the “red flags” that signal an active market manipulator. However, beginner investors who are aware of common scams may be able to avoid falling victim to their scams.

Invest for the Long Term

Since market manipulators often profit from day-to-day stock movements, investors with long-term portfolios, who don’t engage in market timing, are largely insulated from the impact of market manipulators’ schemes.

Avoid Penny Stocks

Penny stocks, nano stocks, and micro-cap stocks are often the lowest priced securities on the market and are often low-float stocks, which makes them highly volatile and more vulnerable to the price movements engineered by market manipulators.

Larger stocks, on the other hand, such as mega-cap stocks, are less vulnerable to market manipulation due to their trading volume and the level of public scrutiny that they are subject to.

Conduct Due Diligence

When alerted to a potential research report, Internet chatroom or social media comment, or other sources of potentially false or misleading news, resist the urge to immediately trade on the information. That’s exactly what market manipulators expect investors to do, and they profit from impulsive market actions.

Instead, stay calm and do your research to see if there’s any validity to the news–or red flags to indicate manipulation.

Know the Scams

Awareness of schemes such as pump-and-dump or spoofing can make it easier for you to spot them in action.

The Takeaway

Market manipulation is the act of artificially moving the price of a security and profiting from that movement. Even sophisticated investors can fall victim to market manipulation, but understanding how such schemes work can help you spot and avoid them.

Knowing the basics of market manipulation, and how to sidestep it (if possible) can be another tool in an investor’s toolkit. It’s also worth noting that regulators are on the hunt for it, too. If you have further questions, it may be beneficial to speak with a financial professional.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

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FAQ

What is the criminal punishment for market manipulation?

Potential punishments for market manipulation depend on the specifics of the crime, the charges, and a potential conviction, but they can involve hefty fines and many years in jail, in some circumstances.

How do big investors manipulate the stock market?

It’s possible that some bad actors spread rumors or false news about market movements in an attempt to influence sentiment, spoofing the markets, or engaging in pump-and-dump schemes.

How do short sellers impact stock prices?

It’s possible that short sellers can drive the value of a stock down, improving the short sellers’ positions, in the short-term.

Photo credit: iStock/HAKINMHAN

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SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.

For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.

Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOIN-Q325-026

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Jul
30
2025
Complete Guide to the volume weighted average price indicator (VWAP)

Complete Guide to the Volume-Weighted Average Price Indicator (VWAP)

By | Financial Independence, Growing Wealth, invest, Investing | Comments Off on Complete Guide to the Volume-Weighted Average Price Indicator (VWAP)

The volume-weighted average price indicator (VWAP) captures the average price of a stock during a single trading session, weighted by trading volume and price.

VWAP is a short-term technical analysis indicator, and it shows up as a single line on intraday charts.

Professionals and retail investors can use the VWAP indicator to identify liquidity points, or as part of a broader trend confirmation strategy.

VWAP also helps determine the target price for a particular asset, helping traders determine when to enter or exit a position. VWAP restarts at the opening of each new trading session, and is thus considered a single-day indicator.

Key Points

•   The volume-weighted average price indicator (VWAP) captures the average price of a stock, weighted by trading volume and price.

•   VWAP is a short-term technical analysis indicator that restarts at the opening of each trading session.

•   It captures a stock’s price action throughout the day, and can give traders insights into price trends and value.

•   VWAP can help traders decide when to enter or exit a position.

•   VWAP is only useful for a single trading session.

What Is Volume-Weighted Average Price (VWAP)?

The volume-weighted average price (VWAP) is a technical analysis indicator that shows a security’s average price during a specific trading session, adjusted for trading volume. In effect, it’s a measure of demand for that security.

It’s similar to the moving average indicator (MA), but because VWAP factors in trading volume, it’s a stronger indicator of the security’s value.

VWAP is calculated as the total amount traded for every transaction (price x volume) and divided by the total number of shares traded. VWAP can be used by professionals as well as retail investors, who may buy stocks online or through a brokerage.

Why Is VWAP Important?

VWAP is important to traders and financial institutions for a few reasons when trading stocks. They can use the VWAP in combination with different trading strategies because it helps determine whether an asset might be over- or underpriced based on the current market.

VWAP also helps identify a target price for the security so traders can aim for the best exit or entry points, depending on the strategy they’re using.

This benefits day traders, but also comes into play during corporate acquisitions, or big institutional trades. Retail investors can also make good use of VWAP.

Accuracy

One reason traders use VWAP is because it removes some of the static around a security’s price movements, and thus this indicator can provide a more realistic view of a security’s price throughout the day.

Trend Confirmation

Traders can also use the volume-weighted average price to gauge the strength and momentum of a price trend or reversal. When a price is over the VWAP, it might be considered overvalued. When it’s below the VWAP it may be undervalued.

Thus it’s possible to determine support and resistance levels using the VWAP.

Simplicity

In many ways VWAP is a quick and easy way to interpret a security’s price and trend, and decide whether to make a trade.

Recommended: Using Technical Analysis to Research Stocks

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How Is VWAP Used in Trading?

As a trend indicator, VWAP adds more context to the moving average (MA). Since a moving average does not take volume into account, it could potentially be misleading when relatively big price changes happen on low volume, or if relatively small price changes happen despite large volume.

In addition, moving averages aren’t always helpful for short-term traders, because MA’s require longer time frames to provide good information. The VWAP is a short-term indicator, as it involves one data point for each “tick,” or time period of a selected chart (each minute on a 1-minute chart, for example).

In addition, the VWAP is flexible enough to be used by different types of investors.

Institutional Investors

Large institutional investors and algorithm-based traders use the VWAP to make sure they don’t move the market too much when entering into large positions. Buying too many shares too quickly could create price jumps, making it more expensive to buy a security.

Instead, some institutions try to buy when prices fall below the VWAP, and either sell or pause purchases when prices rise above the VWAP, in an attempt to keep prices near their average.

Retail Traders

Retail investors can use the VWAP as a tool to confirm trends. As noted above, the VWAP indicator is similar to a simple moving average with one key difference — VWAP includes trading volume, as the name implies. Why does this matter?

Moving averages (MA) simply calculate average closing prices for a given security over a particular period (e.g., 9-day MA, 50-day MA, 200-day MA, etc.). Adding volume to an indicator helps confirm the potential strength of a trend.

How to Calculate VWAP

VWAP is a ratio that indicates the relationship between an asset’s price and its volume. When used as a technical indicator on a chart, the computer automatically calculates VWAP and displays it as a single line.

Investors can also calculate VWAP manually. The two main pieces of the equation include:

•   Typical price + volume

•   Cumulative volume

The formula for calculating VWAP equals the typical price (the average of the low price, the high price, and the closing price of the stock for a given day) multiplied by the number of shares traded in a given day, divided by the total number of shares traded (cumulative volume).

Calculated daily, VWAP begins when the markets open and ends each day when the markets close. As such, tracking the VWAP for various securities can help with understanding the stock market.

Calculating a 30-Day VWAP

The 30-day VWAP is equivalent to the average of the daily VWAP over a 30-day period. So, to calculate the 30-day VWAP, you would have to add up the daily closing VWAP for each day, then divide the total by 30.

How Do You Read a VWAP Chart?

As with most technical indicators, there are many different ways to interpret the VWAP. Some of the most common ways to use this indicator for price signals include establishing support and resistance, indicating a trend being overextended, or using VWAP in combination with a different indicator.

Support and Resistance

This might be one of the simplest ways to read a chart using VWAP. One method for reading a VWAP chart is to use the line as an indicator for short-term support and resistance levels. If prices break beneath support, this could indicate further weakness ahead. If prices break above resistance, this could indicate more bullish momentum is yet to come.

Support and resistance are commonly measured using historic points of price strength or weakness, but this becomes more difficult when time frames are very short. Traders may use a volume-weighted indicator like the VWAP to predict short-term moves.

Trend Overextended

When looking at the VWAP indicator on a short-term chart, there could be times when price action goes far beyond the VWAP line.

If price quickly goes too far above the line on heavy volume, this could indicate that the security has become overbought, and traders might go short. If price quickly falls far below the line, this could indicate that the security has become oversold, and traders might go long.

Of course, there is a subjective component involved in determining the exact definition of “overextended.” Typically, however, investors assume that price tends to return to the VWAP line or close to it, so when prices go too far beyond this line one way or the other, they could eventually snap back.

Recommended: Understanding Stock Volatility

VWAP Plus MACD

As they do with many technical indicators, investors often use the VWAP indicator in conjunction with other data points.

Technical analysis can become more effective when using multiple indicators together. By confirming a trend in multiple ways, investors can feel more confident in their projections.

As an example, some traders like to look at the VWAP while also looking at the Moving Average Convergence Divergence (MACD).

If the MACD lines see a bullish crossover around the same time that prices become overextended to the downside beneath the VWAP line, this could indicate a buying opportunity. If the MACD shows a bearish crossover as prices stretch far above the VWAP line, this could indicate a good time to close out a trade or establish a short position.

Limitations of VWAP

The VWAP is useful for day traders because it’s based on that day’s trading data; it’s more difficult to use the VWAP over the course of many days, as that can distort the data.

VWAP is also a lagging indicator, so while it captures recent price changes, it’s less useful as a predictive measure.

Is VWAP Good for Swing Trading?

It’s impossible to explore the role of VWAP in trading without addressing swing trading with this indicator.

The VWAP tends to work well for short-term trading like day trading and short- to medium-term trading like swing trading, in which investors hold a position for anywhere from a few days to a few weeks.

Using the VWAP on a daily basis could potentially help swing traders determine whether to continue to hold their position. If a short-term chart consistently shows prices beneath the VWAP, this fact could combine with other information to help the trader decide when to sell.

A Cumulative Indicator

It’s important to note that VWAP is what’s known as a cumulative indicator, meaning the number of data points grows higher as the day goes on. There will be one data point for each measurement of time on a given chart, and as the day passes, these points accumulate.

A 5-minute chart would have 12 data points one hour after the market opens, 36 after 3 hours, and 84 by the time the market closes. For this reason, VWAP lags the price and the lag increases as time goes on.

The Takeaway

The volume-weighted average price (VWAP) is essentially a trading benchmark that captures the average intraday price of a given security, factoring in volume. It’s considered a technical indicator, and it’s important because it gives traders insight into a security’s price trend and value, making it helpful for intraday analysis.

VWAP is one data point among many that traders might use when devising their investment strategy, and it’s typically used with other technical indicators.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

Invest with as little as $5 with a SoFi Active Investing account.

FAQ

What is the difference between the volume-weighted average price and a simple moving average (SMA)?

The simple moving average or SMA just shows the average price of a security over a period of time. The volume-weighted average price, or VWAP, factors in the asset’s trading volume over the course of the day as well, thus giving investors more information about demand and price trends.

How do you use VWAP in day trading?

Day traders often use VWAP to determine the target price of an asset, the better to determine the entry and exit points for trades, based on their current strategy, whether long or short.

What is the difference between anchored VWAP vs VWAP?

Traditional VWAP always starts with the opening price of the day (VWAP is primarily used as an intraday metric), whereas anchored VWAP allows the trader to specify a certain price bar where they want their calculation to start.

Photo credit: iStock/Pheelings Media

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.

For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.

Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOIN-Q325-024

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2025

Averaging Down Stocks: Meaning, Example, Pros & Cons

By | Growing Wealth, invest, Investing | Comments Off on Averaging Down Stocks: Meaning, Example, Pros & Cons

Averaging down stocks is when an investor buys more shares of a stock they already own after that stock has lost value — and essentially buys more of the same stock at a discount. In effect, the averaging-down strategy is a way of lowering the average cost of a stock you already own.

It’s similar to dollar-cost averaging, where you invest the same amount of money in the same securities at steady intervals, regardless of whether the prices are rising or falling, thereby lowering your average cost basis over time.

While this strategy has a potential upside — if the stock price rises again — it can expose investors to greater risk if the price continues to decline.

Key Points

•   To average down, an investor buys additional shares of a stock they already own, after the price has declined.

•   Averaging down is a way to lower the average per-share cost of a position, potentially setting the investor up for bigger gains, assuming the stock rebounds.

•   The advantage of the averaging down strategy is the potential for gains, if the stock prices rises again.

•   If the stock price continues to fall, however, the investor would face larger losses.

•   Averaging down is similar to dollar-cost averaging, which involves investing the same dollar amount on a steady basis, which can lower the average cost per share in a portfolio.

What Is Averaging Down?

By using the strategy of averaging down and purchasing more of the same stock at a lower price, the investor lowers the average price (or cost basis) for all the shares of that stock in their portfolio.

So if you buy 100 shares at one price, and the price drops 10%, for example, and you decide to buy 100 more shares at the lower price, the average cost of all 200 shares is now lower.

Example of Averaging Down

Consider this example: Imagine you’ve purchased 100 shares of stock for $70 per share ($7,000 total) by investing online or through a broker. Then, the value of the stock falls to $35 per share, a 50% drop.

To average down, you’d purchase 100 shares of the same stock at $35 per share ($3,500). Now, you’d own 200 shares for a total investment of $10,500. This creates an average purchase price of $52.50 per share.

Potential of Gain Averaging Down

If the stock price then jumps to $80 per share, your position would be worth $16,000, a $5,500 gain on your initial investment of $10,500.

In this case, averaging down helped boost your average return. If you’d simply bought 200 shares at the initial price of $70 ($14,000), you’d only see a gain of $2,000.

Potential Risk of Averaging Down

As with any strategy, there’s risk in averaging down. If, after averaging down, the price of the stock goes up, then your decision to buy more of that stock at a lower price would have been a good one. But if the stock continues its downward price trajectory, it would mean you just doubled down on a losing investment.

While averaging down can be successful for long-term investors as part of a buy-and-hold strategy, it can be hard for inexperienced investors to discern the difference between a dip and a true price decline.

Why Average Down on Stock

Some investors may use averaging down stocks as part of other strategies when trading stocks.

1. Value Investing

Value investing is a style of investing that focuses on finding stocks that are trading at a “good value” — in other words, value stocks are typically underpriced. By averaging down, an investor buys more of a stock that they like, at a discount.

But in some cases, a stock may appear undervalued when it’s not. This can lead investors who may not understand how to value stocks into something called a value trap. A value trap is when a company has been trading at low valuation metrics (e.g. the P/E ratio or price-to-book value) for some time, and is not likely to rise.

While it may seem like a bargain, if it’s not a true value proposition the price is likely to decline further.

2. Dollar-Cost Averaging

For some investors, averaging down can be a way to get more money into the market. This is a similar philosophy to the strategy known as dollar-cost averaging, as noted above, where the idea is to invest steadily regardless of whether the market is down or up, to reap the long-term average gains.

3. Loss Mitigation

Some investors turn to the averaging down strategy to help dig out of the very hole that the lower price has put them into. That’s because a stock that has lost value has to grow proportionally more than it fell in order to get back to where it started. Again, an example will help:

Let’s say you purchase 100 shares at $75 per share, and the stock drops to $50, that’s a 33% loss. In order to regain that lost value, however, the stock needs to increase by 50% (from $50 to $75) before you can see a profit.

Averaging down can change the math here. If the stock drops to $50 and you buy another 100 shares, the price only needs to increase by 25% to $62.50 for the position to become profitable.

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Pros and Cons of Averaging Down

As you can see, averaging down stocks is not a black-and-white strategy; it requires some skill and the ability to weigh the advantages and disadvantages of each situation.

Pros of Averaging Down

The primary benefit to averaging down is that an investor can buy more of a stock that they want to own anyway, at a better price than they paid previously — with the potential for gains.

Whether to average down should as much be a decision about the desire to own a stock over the long-term as it is about the recent price movement. After all, recent price changes are only one part of analyzing a stock.

If the investor feels committed to the company’s growth and believes that its stock will continue to do well over longer periods, that could justify the purchase. And, if the stock in question ultimately turns positive and enjoys solid growth over time, then the strategy will have been a success.

Cons of Averaging Down

The averaging-down strategy requires an investor to buy a stock that is, at the moment, losing value. And it is always possible that this fall is not temporary — and is actually the beginning of a larger decline in the company and/or its stock price. In this scenario, an investor who averages down may have just increased their holding in a losing investment.

Price change alone should not be an investor’s only indication to buy more of any stock. An investor with plans to average down should research the cause of the decline before buying — and even with careful research, projecting the trajectory of a stock can be difficult and potentially risky.

Another potential downside is that the averaging down strategy adds to one particular position, and therefore can affect your asset allocation. It’s always wise to consider the implications of any shift in your portfolio’s allocation, as being overweight in a certain asset class could expose you to greater risk of loss.

Tips for Averaging Down on Stock

If you are going to average down on a stock you own, be sure to take a few preparatory steps.

•   Have an exit strategy. While it may be to your benefit to buy the dip, you want to set a limit should the price continue to fall.

•   Do your research. In order to understand whether a stock’s price drop is really an opportunity, you may need to understand more about the company’s fundamentals.

•   Keep an eye on the market. Market conditions can impact stock price as well, so it’s wise to know what factors are at play here.

The Takeaway

Simply put, averaging down is a strategy where an investor buys more of a stock they already own after the stock has lost value, in order to lower the average cost basis of that position.

The idea is that by buying a stock you own (and like) at a discount, you lower the average purchase price of your position as a whole, and set yourself up for gains if the price should increase. Of course, it can be quite tricky to predict whether a stock price has simply taken a dip or is on a downward trajectory — so there are risks to the averaging down strategy for this reason.

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FAQ

Is averaging down a good idea?

It depends on the stock in question. Averaging down can be a good idea when the investor has done their due diligence, and believes they can buy at the lower price and the stock is likely to rebound. Otherwise, averaging down can put the investor at a risk of further losses.

What is an alternative to averaging down?

One alternative is to sell the stock you have, rather than add to the position. This has the potential advantage of freeing up funds to invest in another stock or security. Another option is to do nothing, observe how the stock behaves, and use that to inform later decisions.

When does averaging down not work?

When the stock price doesn’t rise. So, if an investor sees that shares of a stock they own are dropping, they could attempt to average down by buying more shares of that stock. But if the stock continues to decline in value, they will see bigger losses.

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.

For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

[cd_dca]
Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Jul
30
2025
How to Pay Off a 30-Year Mortgage in 15 Years

How to Pay Off a 30-Year Mortgage in 15 Years: Tips and Tricks

By | Home Ownership, mortgage | Comments Off on How to Pay Off a 30-Year Mortgage in 15 Years: Tips and Tricks

If you’re trying to figure out how to pay off a 30-year mortgage in 15 years, there are several options, including making extra payments toward the principal, making biweekly payments, and more. And paying off a home loan early can save a substantial amount of interest.

But before you become a mortgage-paying overachiever, there are a few things you need to know about how to pay a 30-year mortgage in 15 years and what to consider before you do. Let’s take a look.

Key Points

•   Paying off a 30-year mortgage in 15 years can save a substantial amount of interest and give homeowners a sense of accomplishment.

•   Making extra principal payments is the primary way to pay off a 30-year mortgage early and reduce the total interest paid.

•   Switching to biweekly payments results in making one additional payment per year, which can reduce your mortgage term by a few years.

•   Refinancing to a lower interest rate and/or a shorter term can help homeowners pay off their mortgage faster.

•   Rounding up monthly mortgage payments can significantly reduce the mortgage term.

Should You Pay Off Your Mortgage Faster?

When you start paying on a 30-year mortgage, most of your payment goes toward interest rather than the principal (the amount you borrowed). This makes paying down your mortgage and building equity a slow process.

Over time, the percentage of your payment that goes toward interest vs. principal will change. Toward the end of your 30-year loan, you will pay more toward the principal than interest. This is what’s known as mortgage amortization.

Instead of following the amortization schedule, paying more on your mortgage loan — in one way or another — will reduce the principal more quickly, which means you’ll pay less interest overall.

Paying off your mortgage faster may give you a sense of accomplishment and save you a lot of money in interest charges, but if it takes you further away from your financial goals, it may not be worth it to you. Consider what you value most before deciding to put extra money toward paying off your mortgage.

Recommended: Is it Smart to Pay Off a Mortgage Early?

Pros and Cons of Paying Off Your Mortgage Early

Paying off a 30-year mortgage in 15 years has benefits, but in some cases, it may not make sense. Consider these pros and cons.

Pros

 Cons
Get rid of your mortgage faster Have a higher monthly payment
Own your home outright sooner Lose the home mortgage interest tax deduction (if you itemize)
Build equity faster Have less money available for retirement, higher-interest debt, a rainy day fund, etc.
Save money on interest Lose potential gains from investing that might total more than interest saved

Factors to Consider Before Paying Off Your 30-Year Mortgage Faster

While paying off your mortgage early — a few zealous borrowers aim to pay off a mortgage in five years — can save you tens of thousands of dollars in interest, the lost opportunities from not having money readily available for other things could be more valuable. Think about:

•   Have I been contributing enough to my retirement plans as an employee or funding retirement as a self-employed person?

•   Do I have three to six months of expenses, or more, if my personal situation calls for it, in an emergency fund?

•   Am I able to secure a lower rate or shorter term for a refinance to pay off my mortgage faster? Would a cash-out refinance make sense?

•   Do I have higher-interest debt like credit card debt or student loans I should tackle first?

•   Have I set up a college fund (if kids are in the picture)?

•   Does my mortgage carry a prepayment penalty? (This is unlikely for loans originated after January 2014.)

•   Am I able to secure a lower rate or shorter term for a refinance to pay off my mortgage faster? Would a cash-out refinance make sense?

Impact on Savings and Investments

As the questions above suggest, if you’re thinking of paying your mortgage off early, it’s worth evaluating whether the money you’d spend doing that might be put to better use elsewhere. It’s important to have emergency savings, for instance, so that you have a financial cushion if you need one, and retirement savings are also crucial. You may also feel that it would make more sense to invest the money, though returns may not be what you expect. It can help to talk to a financial adviser about what you’d like to prioritize.

Prepayment Penalties

As mentioned above, prepayment penalties are also a significant factor to consider. Prepayment penalties are fees that some mortgages charge if you pay some or all of your mortgage off early. These penalties can vary significantly. They may only kick in if you pay your mortgage off within the first few years or if you pay off a very large chunk all at once – but since they can differ, it’s worth checking with your lender to find out if you have a prepayment penalty and what exactly that means for you.

Fortunately, these penalties have become rarer since 2014, due to the Dodd-Frank Act. Since then, only conventional loans can have these penalties and they’re most commonly attached to non-conforming loans, like jumbo loans, or non-qualified mortgages (issued to borrowers who don’t meet traditional criteria). If you got your mortgage before 2014, however, these rules don’t apply, so it’s even more important to check with your lender.

How to Pay Off a 30-Year Mortgage Faster

There are at least five methods for how to pay off a 30-year mortgage faster – in 15 years if that’s your goal.Just be sure that you specify to your lender that you want the extra money to go toward principal. (There will usually be a way to indicate this, no matter what payment method you use.)

Make Extra Principal Payments

Paying more toward principal is the primary way to pay off a 30-year mortgage early.

Here’s an example of how interest adds up: Assuming you buy a $450,000 house and put 10% down on a 30-year mortgage at 6.50%, this mortgage calculator shows that total interest will be $516,551. Even by the 120th payment, you will have paid only $61,657 of the $405,000 principal and will have paid $245,528 in interest.

Putting just $200 more per month toward principal, you’d save $112,234 in interest and pay off the mortgage five years and six months earlier.

To pay off this same mortgage in 15 years, however, you would need to put an extra $975 per month from the outset of the mortgage. That’s a substantial additional expense for many homeowners. You would, however, save more than $287,000 in interest over the life of the loan.

Switch to Biweekly Payments

Biweekly payments are half-payments made every two weeks instead of a full payment once a month. Making biweekly payments instead of monthly payments results in one additional payment each year.

Using the example above, making one full, extra mortgage payment each year will reduce the amount of time it takes to pay off your 30-year mortgage, but only by five years and nine months.

Look Into Refinancing

Refinancing your loan into one with a lower interest rate and/or a shorter term (such as a 15-year mortgage) can help you pay off your mortgage faster. A shorter term usually comes with a lower interest rate, so you’re saving on interest while also paying your mortgage off in less than 30 years.

Refinancing to a lower interest rate will reduce your monthly mortgage payment, so if you continue to make the higher payment, you’ll pay your mortgage off faster.

Round Up Your Payments

Another common way to prepay your mortgage is to round up your monthly mortgage payment, which is likely not an even number. If your monthly payment is $2,559, for instance, you might be able to round it up to $3,000 a month. That means you’re paying an extra $441 every month toward your mortgage, and it would let you pay off your mortgage more than nine years early.

Budget Strategically to Maximize Savings

If you’re trying to figure out how to pay off your mortgage faster, these strategies may seem expensive or unaffordable. But something that can help with all of them – and serve as an independent tactic in itself – is to focus consciously on saving money and eliminating non-essential spending. This can involve creating and/or reviewing a budget to understand exactly where you can save money by taking steps like eating out less, canceling subscriptions you don’t need, buying on-sale and bulk groceries, and avoiding “retail therapy.” Your budget can help you track how much you’re saving – and that money can go toward extra principal payments on your mortgage. Keep in mind, too, that windfalls, like gifts or work bonuses, can also feed into paying more toward your mortgage.

Recommended: Mortgage Questions for Your Lender

The Takeaway

There are multiple approaches when it comes to how to pay off a 30-year mortgage in 15 years. Paying off your mortgage early will result in substantial interest savings, but the tradeoff for many borrowers is not having extra money to put toward retirement and other purposes.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

SoFi Mortgages: simple, smart, and so affordable.

FAQ

Is it cheaper to pay off a 30-year mortgage in 15 years?

The amount of interest you’ll save by paying off your mortgage in 15 years instead of 30 is substantial, but your monthly payments will be higher.

Why shouldn’t you pay off your mortgage early?

Homeowners who haven’t fully funded their retirement accounts, who don’t have an emergency fund, or who have other debt with high interest rates may not want to pay off a mortgage early. Also, those who think they can earn a better return on their money with investments may not want to pay off their mortgage early. (However, they need to keep in mind that past performance is not necessarily indicative of future returns.)

How do you pay off a 30-year mortgage in half the time?

If you’re trying to figure out how to pay off your mortgage faster, paying more toward the principal early in the mortgage can help you cut the amount of time you spend paying off your mortgage in half. The good news is you don’t have to make double payments to cut the amount of time you pay on your mortgage in half. Because each payment will reduce the principal, you will pay less overall.

Are biweekly mortgage payments a good idea?

Biweekly mortgage payments, or half-payments made every two weeks, will add a full mortgage payment every year. Using this method can take a few years off your mortgage.

What are the risks of paying off your mortgage early?

A primary risk of paying off your mortgage early is that you won’t be able to use that money for other important financial tasks, like paying off higher-interest debts, funding your retirement, and building up an emergency fund. You may also miss out on investment opportunities that have the potential for higher returns.

Photo credit: iStock/everydayplus


*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

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Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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