## Guide to Yield to Maturity (YTM)

When investors evaluate which bonds to buy, they often take a look at yield to maturity (YTM), the total rate of return a bond will earn over its life, assuming it has made all interest payments and repaid the principal.

Calculating YTM can be complicated. Doing so takes into account a bond’s face value, current price, number of years to maturity and coupon, or interest payments. It also assumes that all interest payments are reinvested at a constant rate of return. With these figures in hand, they will be better equipped to understand the bond market and which bonds will offer the greatest yield if held to maturity.

## What Is Yield to Maturity (YTM)?

The yield to maturity (YTM) is the estimated rate investors earn when holding a bond until it reaches maturity or full value. The YTM is stated as an annual rate and can differ from the stated coupon rate.

The calculations in the yield to maturity formula include the following factors:

•   Coupon rate: Also known as a bond’s interest rate, the coupon rate is the regular payment issuers pay bondholders for the right to borrow their money. The higher the coupon rate, the higher the yield.

•   Face value: A bond’s face value, or par value, is the amount paid to a bondholder at its maturity date.

•   Market price: A bond’s market price refers to how much an investor would have to pay for a bond on the open market currently. The price buyers pay on the secondary market may be higher or lower than a bond’s face value. The higher the price of the bond, the lower the yield.

•   Maturity date: The date when the issuer repays the principal is known as the maturity date.

The YTM formula assumes all coupon payments are made as scheduled, and most calculations assume interest will be reinvested.

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## How to Calculate Yield to Maturity

Calculating yield to maturity can be done by following a formula — but fair warning, it’s not simple arithmetic!

### Yield to Maturity (YTM) Formula

To calculate yield to maturity, investors can use the following YTM formula:

In this calculation:

C = Interest or coupon payment
FV = Face value of the investment
PV = Present value or current price of the investment
t = Years it takes the investment to reach the full value or maturity

## Example of YTM Calculation

Here’s an example of how to use the YTM formula.

Suppose there’s a bond with a market price of \$800, a face value of \$1,000, and a coupon value of \$150. The bond will reach maturity in 10 years, with a coupon rate of about 14%.

By using this formula, the estimated yield to maturity would calculate as follows:

## The Importance of Yield to Maturity

Knowing a bond’s YTM can help investors compare bonds with various maturity and coupon rates, and ultimately, what their dividend yield could look like. For example, consider two bonds of varying maturity: a five-year bond with a 3% YTM and a 10-year bond with a 2.5% YTM. Investor’s can easily see that the five-year bond is more valuable.

YTM is particularly useful when attempting to compare older bonds sold in a secondary market, which can be priced at a premium or discounted — meaning they cost more or less than the bond’s face value. Understanding the YTM formula also helps investors understand how market conditions can impact their portfolio based on the investment they select. Since yields rise when prices drop (and vice versa) as seen on a yield curve, investors can forecast how their investment will perform.

Additionally, YTM can help investors understand how likely they are to be affected by interest rate risk — the danger that the value of a bond may be adversely affected due to the changes in interest rate. Current YTM is inversely proportional to interest rate risk. That means, the higher the YTM, the less bond prices will be affected should interest rates change, in theory.

## Yield to Maturity vs Yield to Call

With a callable, or redeemable bond, issuers can choose to repay the principal amount before the maturity date, halting interest payments early. This throws a bit of a wrench into the YTM calculation. Instead, investors may want to use a yield to call (YTC) calculation. To do so, they can use the YTM calculation, substituting the maturity date for the soonest possible call date.

Typically a bond issuer will call a bond only if it will result in a financial gain. For example, if the interest rate drops below a coupon rate, the issuer may decide to recall the bond to borrow funds at a lower rate. This situation is similar to when interest rates drop and homeowners refinance their home loans.

For investors that use callable bonds for income, yield to call is significant. Suppose the issuer decides to call the bond when the interest rates are lower than when the investor purchases it. If an investor decides to reinvest their payout, they may have a tough time finding a comparable bond that offers the yield they need to support their lifestyle. They may feel it necessary to take on more risk, looking to high-yield bonds.

💡 Quick Tip: It’s smart to invest in a range of assets so that you’re not overly reliant on any one company or market to do well. For example, by investing in different sectors you can add diversification to your portfolio, which may help mitigate some risk factors over time.

## Yield to Maturity vs Coupon Rate

While a bond’s coupon rate is another important piece of information that investors need to keep in mind, it’s not the same as yield to maturity. The coupon rate tells investors the annual amount of interest that a bond’s owner is set to receive — the two may be the same when a bond is initially purchased, but will likely diverge over time due to changing economic and market conditions.

## Limitations of Yield to Maturity

The yield to maturity calculation does have limitations.

### Taxes

It’s important to note that YTM calculations exclude taxes. While some bonds, like municipal bonds and U.S. Treasury bonds, may be tax exempt on a federal and state level, most other bonds are taxable. In some cases, a tax-exempt bond may have a lower interest rate but ultimately offer a higher yield once taxes are factored in.

As an investor, it can be especially helpful to consider the after-tax yield rate of return. For example, suppose an investor in the 35% federal tax bracket who doesn’t pay state income taxes is considering investing in either Bond X or Bond Y. Bond X is a tax-exempt bond and pays a 4% interest rate, while Bond Y is taxable and pays 6% interest.

While the 4% yield for Bond X remains the same, the after-tax yield for Bond Y is 3.8%. While it seemed like the less lucrative of the two options up front, Bond X should ultimately yield a higher return after taxes.

### Presuppositions

Another YTM limitation is that it makes assumptions about the future that may not necessarily come to fruition. Specifically, it assumes that a bondholder will hang on to the bond until its maturity date, which may or may not actually happen. It also assumes that profits from the investment will be reinvested in a uniform manner — again, that may or may not be the case.

## The Takeaway

Using the yield to maturity formula can help investors compare bond options with different coupon and maturity rates, market and par values, and determine which one offers the potential for a higher yield. But calculating the YTM is not an exact science, especially when you’re gauging the return on a callable bond, say, or adding the impact of taxes to the mix.

YTM is just one tool investors can use to determine which bond may best serve their financial needs and goals. One alternative to choosing individual bonds is to invest in bond mutual funds or bond exchange-traded funds (ETFs). Investors can also speak with a financial professional for guidance.

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), and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to \$1,000 in the stock of your choice.

## FAQ

### What is a bond’s yield to maturity (YTM)?

A bond’s yield to maturity is the total return an investor can anticipate receiving if the bond is held to its maturity date. YTM calculations assume that all interest payments will be made by the issuer and reinvested by the bondholder at a constant rate of interest.

### What is the difference between a bond’s coupon rate and its YTM?

A bond’s coupon, or interest, rate is fixed from the moment an investor buys it. However, the same bond’s YTM can fluctuate over time depending on the price paid for it and other interest prices available on the market. If YTM is lower than the coupon rate, it may indicate that the bond is being sold at a premium to its face value. If it’s lower, it may be that the bond is priced at a discount to face value.

### What is yield to maturity and how is it calculated?

Yield to maturity refers to the total return an investor can expect or anticipate from a bond if they hold it to maturity. It’s calculated using variables including the time to maturity, a bond’s face value, its current price, and its coupon rate.

### Why is yield to maturity important?

The yield to maturity formula can give investors an idea of what they can expect in terms of returns from their bond holdings. But again, there are some assumptions the calculation takes into account, so an investor’s mileage may vary.

### Is a higher YTM better?

A higher YTM may be better under certain circumstances. For example, since a higher YTM may indicate a bond is being sold for less than its face value, it may represent a valuable opportunity to invest. However, if the bond is discounted because the company that offered it is in trouble or interest rates offered by other investments are more appealing, then a high YTM might not be such a good thing. Investors must research investments carefully and understand the full story before they buy.

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SOIN0623030

## 7 Signs It’s Time for a Mortgage Refinance

Maybe you’ve considered refinancing your mortgage, but haven’t quite decided. Is now the right time? Will rates go lower?

It can be hard to know when to take the plunge.

Whether you purchased a home recently or bought a home years ago, you probably know the average mortgage rates now are high compared to the near-historic lows in early 2021.

But as with any financial rate or data point, it is hard—if not impossible—to time the market or predict the future.

Homeowners often look to refinance when it could benefit them in some way, like with a lower monthly payment. Refinancing is the process of paying off a mortgage with new financing, ideally at a lower rate or with some other, more favorable, set of terms.

Here are seven signs that locking in a lower mortgage rate could be the right move.

## 7 Signs It May Be Smart to Refinance Your Mortgage

### 1. You Can Break Even Fairly Quickly

Refinancing a mortgage costs money—generally 2% to 5% of the principal amount. So if you are refinancing to save money, you’ll likely want to run numbers to be sure the math checks out.

To calculate the break-even point on a mortgage refinance—when savings exceed costs—do this:

1. Determine your monthly savings by subtracting your projected new monthly mortgage payment from your current monthly payment.
2. Find your tax rate (e.g., 22%) and subtract it from 1 for your after-tax rate.
3. Multiply monthly savings by the after-tax rate. This is your after-tax savings.
4. Take the total fees and closing costs of the new mortgage loan and divide that number by your monthly after-tax savings. This yields the number of months it will take to recover the costs of refinancing—or the break-even point.

For example, if you’re refinancing a \$300,000, 30-year mortgage that has a fixed 6% rate to a 4% rate, refinancing will reduce your original monthly payment from \$1,799 to \$1,432 — a monthly savings of \$367. Assuming a tax rate of 22%, the after-tax rate would be 0.78, which results in an after-tax savings of \$286.26. If you have \$12,000 in refinancing costs, it will take nearly 42 months to recoup the costs of refinancing (\$12,000 / \$286.26 = 41.9).

The length of time you intend to own the home can affect whether refinancing is worth the expense. You’ll want to run the calculations to make sure that you can break even on a timeline that works for you.

The rate and fees usually work in tandem. The lower the rate, the higher the cost. (“Buying down the rate” means paying an extra fee in the form of discount points. One point costs 1% of the mortgage amount.)

If you’re shopping, each mortgage lender you apply with is required to give you a loan estimate within three days of your application so you can compare terms and annual percentage rates. The APR, which includes the interest rate, points, and lender fees, reflects the true cost of borrowing.

### 2. You Can Reduce the Rate by at Least 0.5%

You may have heard conflicting ideas about when you should consider refinancing. The reason is that there is no one-size-fits-all answer; individual loan scenarios and goals differ.

One commonly espoused rule of thumb is that the home refinance rate should be a minimum of two percentage points lower than an existing mortgage’s rate. What may work for each individual depends on things like loan amount, interest rate, fees, and more.

However, the combination of larger mortgages and lenders offering lower closing cost options has changed that. For a large mortgage, even a change of 0.5% could result in significant savings, especially if the homeowner can avoid or minimize lender fees.

If rates drop low enough, you might even choose to take a higher rate with a no closing cost refi.

### 3. You Can Afford to Refinance to a 15-Year Mortgage

When you refinance a loan, you are getting an entirely new loan with new terms. Depending on your eligibility, it is possible to adjust aspects of your loan beyond the interest rate, such as the loan’s term or the type of loan (fixed vs. adjustable).

If you’re looking to save major money over the duration of your mortgage loan, you may want to consider a shorter term, such as 15 years. Shortening the term of your mortgage from 30 years to 15 years will likely cost you more monthly, but it could save thousands in interest over the life of the loan.

For example, a 30-year \$1 million loan at a 7.5% interest rate would carry a monthly payment of approximately \$6,992 and a total cost of around \$1,517,172 over the life of the loan.

Refinancing to a 15-year mortgage with a 5.5% rate would result in a higher monthly payment, about \$8,171, but the shorter maturity would result in total loan interest of around \$470,750—an interest savings over the life of the loan of about \$1,046,422 vs. the 30-year term.

One more perk: Lenders often charge a lower interest rate for a 15-year mortgage than for a 30-year home loan.

### 4. You’re Interested in Securing a Fixed Rate

Borrowers may take out an adjustable-rate mortgage because they may get a lower rate (at least initially) than on a fixed-rate mortgage for the same property. But just as the name states, the rate will adjust with market fluctuations.

Typically, ARMs for second mortgages such as home equity lines of credit are “pegged” to the prime rate, which generally moves in lockstep with the federal funds rate. First mortgage ARM rates are tied more closely to mortgage-backed securities or the 10-year Treasury note.

Even though ARM loans come with yearly and lifetime interest rate caps, if you believe that interest rates will move higher in the future and you plan to keep your loan for a while, you may want to consider a more stable fixed rate.

Refinancing to a fixed mortgage can protect your loan against rate increases in the future and provide the security of knowing how much you’ll be paying on your mortgage each month—no matter what the markets do.

### 5. You’re Considering an ARM

You may also be considering a move in the other direction—switching from a fixed-rate mortgage to an adjustable-rate mortgage. This could potentially make sense for someone with a 30-year fixed loan but who plans to leave their home much sooner.

For example, you could get a 7/1 ARM with a potential lower interest rate for the first seven years, and then the rate may change once a year, when up for review, as the market changes. If you plan to move on before higher rate changes, you could potentially save money.

It’s best to know exactly when the rate and payment will adjust, and how high. And it’s important to understand the loan’s margin, index, yearly and lifetime rate caps, and payments. For further details, try using an online mortgage calculator

### 6. You’re Considering a Strategic Cash-Out Refi

In addition to updating the rate and terms of a mortgage loan, it may be possible to do a cash-out refinance, when you take out a new loan at a higher loan amount by tapping into available equity.

The lender will provide you with cash and in exchange will increase your loan amount, which will likely result in a higher monthly payment.

If you go this route, realize that you’re taking on more debt and using the equity you have built up in your home. Market value changes may result in a loss of home value and equity. Also, a mortgage loan is secured by your home, which means that the lender can seize the property if you are unable to make mortgage payments.

A cash-out refi may make sense if you use it as a tool to pay less interest on your overall debt load. Using the cash from the refinance to pay off debts carrying higher rates, like credit cards, could be a good move.

Recommended: How Does Cash Out Refinancing Work?

Depending on loan terms and other factors, a lower rate may allow for overall faster repayment of your other debts.

### 7. Your Financial Situation Has Improved

When putting together an offer for a mortgage, a lender will often take multiple aspects into consideration. One of those is prevailing interest rates. Another is your financial situation, like your credit history, credit score, income, and debt-to-income ratio.

The better your personal financial situation in the eyes of the lender, the more creditworthy you are—and the better the terms of your loan offer could be.

Therefore, it may be possible to refinance your mortgage loan into better terms if your financial situation has improved since you took out the original loan, especially when paired with relatively low market rates.

## The Takeaway

Is it time to refinance? It might be if you could get a lower interest rate or better loan term. For instance, locking in a lower rate now may help you achieve your long-term goals by freeing up cash for other stuff, like retirement or a big vacation.

If you decide that refinancing makes sense for you, it’s wise to look for a lender that has competitive rates and flexible terms, like SoFi. Along with a streamlined process, SoFi offers a regular mortgage refinance and a cash-out refinance.

With SoFi, you can choose the right mortgage option for your needs.

SoFi Loan Products
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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.

SOHL0623062

## What Is an Accessory Dwelling Unit (ADU)?

The term “accessory dwelling unit” might sound foreign, but chances are you’ve encountered one. Sometimes called an in-law suite, granny flat, or, more romantically, carriage house, an ADU is a secondary dwelling unit on the same lot as a primary single-family home.

Although ADUs have risen in popularity in recent years, they’ve been around for decades, according to a study by the Federal Home Loan Mortgage Corp., known as Freddie Mac.

When the suburbs boomed in the 1950s, municipalities across the country created zoning laws prohibiting higher-density residential structures, the Freddie Mac report noted, but in cities like Los Angeles, San Francisco, and others that lacked affordable housing, the practice continued in secret.

As zoning laws across the country have changed to allow ADUs, the trend has boomed in tandem with population growth in the South and the West. “Half of our total 1.4 million ADUs are located in the Sun Belt states of California, Florida, Texas, and Georgia,” Freddie Mac reported.

What’s the attraction? Some property owners add an ADU to generate rental income; others want a place to accommodate guests, and still others need living space for aging parents.

Read on to learn why ADUs are all the rage in pricey cities and what it takes to build one.

An ADU goes by many names, but its features make it unique among types of dwellings.

•   ADUs are smaller than the primary residence they accompany. In California, which passed statewide laws making many city restrictions on ADUs obsolete and streamlining the approval process, the size generally ranges from 500 to 1,000 square feet.

•   ADUs are self-contained. They usually include a bathroom, kitchenette, living area, and separate entrance.

•   ADUs require a special permit, which varies by location, according to the American Planning Association. Building codes may limit the size of the ADU and the number of occupants. Some cities, however, are offering an ADU amnesty program to help legalize under-the-radar units.

•   Unlike a duplex, ADUs usually share utility connections with the primary residence.

Recommended: A Guide to Buying a Duplex

## What Are the Different Types of ADUs?

All ADUs have to follow ordinances and laws, but they don’t all look the same. Depending on homeowner preference, it might look like one of the following:

•   Detached This is likely new construction, formal or informal.

•   Converted garage This might mean retrofitting the garage or adding a second floor to create an ADU. Fans of Happy Days might recall Fonzie living in the Cunninghams’ converted garage, which was actually an ADU.

•   Attached Typically this is an addition to the existing residence.

•   Interior conversion An existing portion of the house, perhaps the basement, is transformed into an ADU. Fans of Full/Fuller House might recall the Tanners’ attic conversion and the basement/garage living space.

For the right homeowner, an ADU has upsides.

•   Rental income Choosing to rent out the space could bring in income, whether with a long-term rental or short-term Airbnb.

•   A true mother-in-law suite or adult-child dwelling For multi-generational families, adding an ADU could be a good way to create privacy and be close … but not too close. An ADU can also house an adult child who returns to the nest.

•   A space to age in place Conversely, aging homeowners or empty-nesters might choose to build an ADU for themselves. The homeowners could move into the smaller, more manageable space and rent out the larger property for passive income.

•   Flexibility An ADU could become a home office or art studio. For some homeowners, it might just be a good place to host guests.

•   Enhanced property value Compare the cost of buying a second small home or condo in your area with the cost of adding an ADU. How much value will a permitted habitable accessory dwelling add? A property appraisal will tell the tale.

ADUs may also come with their fair share of potential downsides.

•   Can be expensive A detached ADU may cost as much as a small house to build (though the homeowner already owns the land). An attached ADU or conversion of an existing structure will probably cost less, but still may cause sticker shock. Size, features, and the cost of professional services, permits, and any financing come into play.

•   Occupancy requirements Some local ordinances require that a home that has an ADU be owner-occupied in some capacity. That means a property with an ADU may not be the right fit for someone who wants to rent out the entire property.

•   Higher taxes On one hand, adding value to your property is a good thing. On the other, an ADU can make a property tax bill spike.

•   A smaller yard Unless a homeowner is retrofitting an ADU into their existing dwelling, building an ADU will cut down on outdoor space.

•   Financing Can be tricky. Read on.

Recommended: 8 Steps to Buying a Vacation Home

## Ways to Pay for an ADU

While ADUs have different shapes and designs, they have a commonality: a price tag. If homeowners don’t have cash on hand to finance the build, they’ve got a few options to move forward.

A home improvement loan is a personal loan used to pay for a home renovation or update. When a homeowner takes out a home improvement loan, it’s not secured by the property — meaning the home isn’t collateral in the transaction.

A home equity loan or home equity line of credit (HELOC) leverages homeowners’ equity in a property and allows them to borrow money against the value of the home. Unlike a home improvement loan, a home equity loan or credit line is tied to the house, meaning the property is used as collateral. A home equity loan provides you with a lump sum of funds at one time and typically has a fixed interest rate. With a HELOC, homeowners can draw different amounts at different times, typically with a variable interest rate.

With sufficient equity in your home, homeowners could also consider a cash-out refinance.

## The Takeaway

Determining if an accessory dwelling unit is the right move for a homeowner comes down to needs, preferences, and finances. ADUs have pros and cons, but many areas have eased the way for this cottage industry.

Homeowners who don’t have much equity in their property or don’t want to use their home as collateral may want to consider a SoFi unsecured personal loan to cover the cost of an ADU. SoFi’s home improvement loans range from \$5K to \$100K, and offer competitive, fixed rates, as well as a variety of terms. Plus, there are no fees required.

Imagine the possibilities. Then check your rate. It’s easy.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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.

SOPL0623048

## 7 Tips for Maintaining the Value of Your Home

When housing costs are high, it’s hard to imagine that your home could ever go down in value. But the truth is it can, particularly if you aren’t actively maintaining your home. If you neglect small repairs, over time these issues can become large — i.e., expensive — problems that can drag down the resale value of your home.

Whether you plan to sell in the near or far-off future, here are some simple (and relatively low-cost) ways to maintain — or even increase — the value of your home over time.

## Update, Update, Update

If a home that’s for sale has an updated anything, the real estate listing will scream it out in ALL CAPS. This can apply to appliances, cabinetry, countertops, flooring, bathroom remodels, kitchen remodels, and more.

If your kitchen is due for an update, try to keep in mind that this doesn’t necessarily mean stripping it to the studs and starting from scratch. Are the cabinets in good shape? Consider a fresh coat of paint or stain to reflect the latest color trends.

In addition, something as simple as upgrading to matching appliances or installing a garbage disposal or water filtration system could help maintain value — even if they’re not top-of-the-line.

Also keep in mind that “update” means bringing the home’s aesthetics into line with current styles — replacing brass fixtures for brushed bronze, for example, or swapping out carpet for wood. However, it doesn’t necessarily mean having to buy the most expensive version of that aesthetic.

Something as simple as adding some USB outlets to a room could turn it into a potential home office space.
Other, more expensive updates might adjust the actual layout of the home. If your current house only has one bathroom, is it possible to find a space for another half bath? Are there unused rooms or wasted space that could be updated to become more functional?

Recommended: 10 Small-Bathroom Remodel Ideas

## Keeping Your Roof in Good Repair

Replacing a roof is costly, so it’s a good idea to do what you can to extend the life of your current roof as long as possible. A roof that shows signs of wear and tear can also be a big red flag to potential home buyers.

To maintain the value of your roof (and avoid other costly problems like leaks), you’ll want to replace any missing shingles or damaged areas as soon as possible. It’s also a good idea to have your roof cleaned regularly to remove any algae, moss, and mold that can damage the roof over time. Finally, be sure to get your gutters cleaned regularly so water can drain rather than collect on your roof.

Recommended: The Ultimate House Maintenance Checklist

## Keeping Your Exterior Paint in Good Shape

Maintaining your home’s exterior paint not only helps your house look attractive and well-cared-for but also protects it from moisture. When paint starts peeling, water can find a way in, which can cause your siding to rot over time. Replacing sections of your siding can end up being a much costlier project than periodically freshening up your paint.

It’s a good idea to give your exterior paint job a look-over once a year to see if you any areas may need attention. This can help your paint job last longer and save money in the long run.

## Pruning Your Trees and Shrubs

Maintaining your yard is a lot of work if you do it yourself, and costly if you hire a landscaper. But neglect can cause dead branches or an entire tree to fall in a heavy rain or wind storm, and can cause significant damage to your home. Overgrown shrubs can also bring unwanted bugs close to, and eventually inside, your home (more on that below).

It can be worth hiring a tree expert to evaluate and, if necessary, prune your trees once a year. You can regularly trim back hedges and bushes yourself or hire a landscaper to do the job.

Making your home more energy efficient is one of those goals that’s great not only if you’re selling, but also if you want to reduce spending on utility bills. And it doesn’t just mean big investments like switching to solar or wind-powered energy. Making your home more energy efficient can also be as simple as replacing bad weather seals, ensuring that the attic has sufficient insulation, paying attention to the air and heating systems, and using energy-efficient light bulbs and appliances.

Upgrading the energy efficiency of your home is something that might even be rolled in with another project, such as maintenance or updating.

## Installing Smart Tech

Even if your home is more than 100 years old, adding smart tech can make it 21st-century ready. Smart home assistants like Google or Alexa, for example, can control everything from the lights to the TV to locking the front door.

They can also allow you to remotely control your heating and air temperatures, make sure the oven is actually turned off, and even give you a sense of security with security systems or video door bells. In order for the home assistants to accomplish all of these features, additional smart appliances may be required.

While some types of home tech are hard-wired into the house and others are more portable, even being able to say “wired for surround sound” can be a bonus on a home listing.

Smart home tech is not only quickly becoming a must-have for many homebuyers, adding it to your home can be a perk even if you have no immediate plans to move.

Recommended: What Are Common Uses for Personal Loans?

## Keeping the Bugs at Bay

One important job that comes with homeownership is keeping unwanted critters outside where they belong. Public enemy No. 1 in this category? Termites. They can wreak havoc on a home’s wood structures leading to costly repairs.

The problem is so widespread that some home loan companies require buyers to get a “termite letter,” which is basically a guarantee that the home is free from termite damage.

DIY recommendations for keeping the pests at bay can also check off items on the home maintenance list, including keeping gutters and downspouts flowing, filling in any places where water pools around the home or in the yard, filling in cracks in the foundation, pruning shrubbery close to the home, and keeping air vents free and clear.

Beyond termites and the havoc they wreak, there are a variety of other living creatures that can cause damage to a home or surrounding property, including attic squatters like mice or raccoons, carpenter bees, moles, mosquitoes, and even grasshoppers that brunch on beautiful landscaping.

Recommended: What Are the Most Common Home Repair Costs?

## Making Improvements Affordable

While some home maintenance projects are relatively low cost, others require a more significant investment. Before sinking a lot of money into a home maintenance or improvement project, it can be a good idea to use a Home Project Value Estimator that can help determine whether it’s a smart investment.

If you decide to move forward on the project, you’ll want to get estimates from at least three different contractors. Once you know the cost of the project, your next question may be, how are you going to pay for it?

For a small to midsize home maintenance project, you might consider using a home improvement loan. Unlike a home equity loan, these are unsecured personal loans — meaning your home isn’t used as collateral to secure the loan. Lenders decide how much to lend to you and at what rate based on your financial credentials, such as your credit score, income, and how much other debt you have.

With a home improvement personal loan, you receive a lump sum of cash up front you can then use to cover the costs of your home project. You repay the loan (plus interest) in regular installments over the term of the loan, which is often five or seven years.

If you think a personal loan might work well for your home maintenance project, SoFi could help. SoFi’s home improvement loans range from \$5K-\$100K and offer competitive, fixed rates and a variety of terms. Checking your rate won’t affect your credit score, and it takes just one minute.

See if a home improvement loan from SoFi is right for you.

SoFi Loan Products
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## The Risks and Rewards of Naked Options

A naked, or “uncovered,” option is an option that is issued and sold without the seller setting aside enough shares or cash to meet the obligation of the option when it reaches expiration.

Investors can’t exercise an option without the underlying security, but they can still trade the option to make a profit, by selling the option for a premium.

When an option writer sells an option, they’re obligated to deliver the underlying securities (in the case of a call option) or cash (in the case of a put) to the option holder at expiration.

But because a naked writer doesn’t hold the securities or cash, they need to buy it or find it if the option they wrote is in the money, meaning that the investor exercises the option for a profit.

## What is a Naked Option?

When an investor buys an option, they’re buying the right to buy or sell a security at a specific price either on or before the option contract’s expiration. An option to buy is known as a “call” option, while an option to sell is known as a “put” option.

Investors who buy options pay a premium for the privilege. To collect those premiums, there are investors who write options. Some hold the stock or the cash equivalent of the stock they have to deliver when the option expires. The ones who don’t are sometimes called naked writers, because their options have no cover.

Naked writers are willing to take that risk because the terms of the options factor in the expected volatility of the underlying security. This differs from options based on the price of the security at the time the option is written. As a result, the underlying security will have to not only move in the direction the holder anticipated, but do so past a certain point for the holder to make money on the option.

Recommended: A Guide to Options Trading

## The Pros and Cons of Naked Options

There are risks and rewards associated with naked options. It’s important to understand both sides.

### Naked Writers Often Profit

The terms of naked options have given them a track record in which the naked writer tends to come out on top, walking away with the entire premium. That’s made writing these options a popular strategy.

Those premiums vary widely, depending on the risks that the writer takes. The more likely the broader market believes the option will expire “in the money” (with the shares of the underlying stock higher than the strike price), the higher the premium the writer can demand.

### But Sometimes the Options Holder Wins

In cases where the naked writer has to provide stock to the option holder at a fixed price, the strategy of writing naked call options can be disastrous. That’s because there’s no limit to how high a stock can go between when a call option is written and when it expires.

Recommended: 10 Options Strategies You Should Know

## How to Use Naked Options

While there are some large institutions whose business focuses on writing options, some qualified individual investors can also write options.

Because naked call writing comes with almost limitless risks, brokerage firms only allow high-net-worth investors with hefty account balances to do it. Some will also limit the practice to wealthy investors with a high degree of sophistication. To get a better sense of what a given brokerage allows in terms of writing options, these stipulations are usually detailed in the brokerage’s options agreement. The high risks of writing naked options are why many brokerages apply very high margin requirements for option-writing traders.

Generally, to sell a naked call option, for example, an investor would tell their broker to “sell to open” a call position. This means that the investor would write the naked call option. An investor would do this if they expected the stock to go down, or at least not go any higher than the volatility written into the option contract.

If the investor who writes a naked call is right, and the option stays “out of the money” (meaning the security’s price is below a call option’s strike price) then the investor will pocket a premium. But if they’re wrong, the losses can be profound.

This is why some investors, when they think a stock is likely to drop, are more likely to purchase a put option, and pay the premium. In that case, the worst-case scenario is that they lose the amount of the premium and no more.

### How to Manage Naked Option Risk

Because writing naked options comes with potentially unlimited risk, most investors who employ the strategy will also use risk-control strategies. Perhaps the simplest way to hedge the risk of writing the option is to either buy the underlying security, or to buy an offsetting option. The other risk-mitigation strategies can involve derivative instruments and computer models, and may be too time consuming for most investors.

Another important way that options writers try to manage their risk is by being conservative in setting the strike prices of the options. Consider the sellers of fifty-cent put options when the underlying stock was trading in the \$100 range. By setting the strike prices so far from where the current market was trading, they limited their risk. That’s because the market would have to do something quite dramatic for those options to be in the money at expiration.

💡 Quick Tip: All investments come with some degree of risk — and some are riskier than others. Before investing online, decide on your investment goals and how much risk you want to take.

## The Takeaway

With naked options, the investor does not hold a position in the underlying asset. Because this is a risky move, brokerage firms may allow their high-net-worth investors to write naked options.

Qualified investors who are ready to try their hand at options trading, despite the risks involved, might consider checking out SoFi’s options trading platform. The platform’s user-friendly design allows investors to trade through the mobile app or web platform, and get important metrics like breakeven percentage, maximum profit/loss, and more with the click of a button.

With SoFi, user-friendly options trading is finally here.

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Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.
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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