Lowering Your Mortgage Interest Rate (After Buying a Home)

Refinancing Your HomeSo, you’ve been living in your home for a few years since securing your home loan, and your credit score has increased! Now, it’s time to look into securing a better interest rate. First and foremost, it is important to understand how your credit initially impacts your mortgage rate.

Credit Score and Your Mortgage

Your credit score is a financial tool. It directly affects the ease at which you are able to secure financing. It also has a significant impact on your interest rate. It can be difficult to pinpoint what is and is not a good credit score for a low-interest rate. This is up to specific lenders, but it all comes down to the higher your credit score, the better the interest rate that you qualify for will be.

There are many calculators you can use to determine what a loan costs at different interest rates such as this one: Loan Comparison Calculator.

Mortgage Refinancing

A mortgage refinance is the process of taking out a new loan to pay off the previous mortgage loan that you took out on your house. Typically, if your credit score has improved, even by just a few points, you can qualify for a lower interest rate. This will help to save you a lot of money paid to interest over the many years of your mortgage length.

Simply put, if your credit score was low, or just lower than it is now when you bought the home, you are likely to have locked in a higher interest rate than you qualify for today. That is why many people will purchase a home with a lower credit score, make a series of on-time payments over the course of a year or two to establish the ability to pay the loan and boost their credit. This shows responsibility. They will then benefit from a refinance.

Current Interest Rates

It should be noted that it is also a good idea to take a look at the current market mortgage and refinance interest rates. Coupling an improved credit score with lower overall interest rates is a win-win. The overall goal is to lower that payment and doing so at the best time will save you cash in the long run.

You can always check the current mortgage interest rates HERE.

Mortgage Refinance Process

To refinance, take a look at where you would like to be and do your research to determine the feasibility of that number by taking into account your credit score and the current market analytics. Know what your exact credit score is. Look at what your equity in your home is in excess of what you owe the bank on your current mortgage. You can do this by checking your mortgage statements for your current balance. From here, you can work with a real estate agent to determine the current estimated value of your home.

It is important to note that after finding a lender that you would like to go with for your mortgage refinance, many lenders require an appraisal of your home. You will have a closing for this mortgage, similar to that of your first mortgage. It is not a terribly long process, but it certainly requires some assistance from the lender.

Mortgage Refinance Benefits

After all, is said and done, your mortgage refinance not only secures a better interest rate, but it helps to create more cash available to you each month after you pay your lowered monthly mortgage. You may have even been able to refinance into a lower term, allowing you to pay off the home faster. This was all made possible by boosting that credit score!

Source: creditabsolute.com

Acronyms of Real Estate: What Homebuyers Need to Know

Real estate is a regular smorgasbord of acronyms – everything from APR to REO. Here’s a list of the ones you’re likely to run into and what they mean when you’re buying or selling a house:

Acronyms You’ll Hear Associated with Real Estate Professionals

Real estate agents, builders and most other realty-related professions have numerous professional designations, all designed to set them apart from those who haven’t taken advanced courses in their fields. These designations don’t mean that professionals without letters after their names are not as experienced or skilled, but rather only that they haven’t taken the time to further their educations.

Read: How to Build Your Real Estate Team

Let’s start with the letter “R,” which stands for Realtor. A Realtor is a member of the National Association of Realtors, the nation’s largest trade group. NAR says it speaks for homeowners, and it usually does. But in that rare occasion when the interests of its members and owners don’t align, it sides with those who pay their dues.

Read: A Timeline of the History of Real Estate

NAR embraces a strict code of ethics. There are about 2 million active and licensed real estate agents nationwide, and 1.34 million can call themselves Realtors.

NAR members sometimes have the letters GRI or CRS after their names. The Graduate, REALTOR® Institute (GRI) designation signifies the successful completion of 90 hours of classroom instruction beyond the continuing education courses required by many states for agents to maintain their licenses. After the GRI, an agent may become a Certified Residential Specialist (CRS) by advancing his or her education even further.

black family touring a house to buy racial homeownership gap discriminationblack family touring a house to buy racial homeownership gap discrimination

Builders can obtain the GBI – Graduate Builder Institute – designation by completing nine one-day classes sponsored by the educational arm of the National Association of Home Builders. Those who pass more advanced courses become Graduate Master Builders, or GMBs. Remodeling specialists with at least five years of experience can be Certified Graduate Remodelers, or CGRs. And, salespeople can be CSPs, or Certified New Home Sales Professionals.

In the mortgage profession, the Mortgage Bankers Association awards the Certified Mortgage Banker (CMB) and Accredited Residential Originator (ARO) designations, but only after completing a training program that may take up to five years to finish. To start the process, CMB and ARO candidates must have at least three years’ experience and be recommended by a senior officer in their companies.

Acronyms Associated with Mortgage Lending

When obtaining a mortgage, you will be quoted an interest rate; however, perhaps the more important rate is the annual percentage rate, or APR, which is the total cost of the loan per year over the loan’s term. It measures the interest rate plus other fees and charges.

An FRM is a fixed-rate mortgage, the terms of which never change. Conversely, an Adjustable Rate Mortgage (ARM) allows rates to increase or decrease at certain intervals over the life of the loan, depending on rates at the time of the adjustment.

Female client consulting with a agent in the officeFemale client consulting with a agent in the office

A conventional loan is one with an amount at or less than the conforming loan limit set by federal regulators on Fannie Mae and Freddie Mac, the two major suppliers of funds for home loans. These two quasi-government outfits replenish the coffers of main street lenders by buying their loans and packing them into securities for sale to investors worldwide.

Other key agencies you should be familiar with are the FHA and the VA. The Federal Housing Administration (FHA) insures mortgages up to an amount which changes annually, as does the conforming loan ceiling. The Veterans Administration (VA) guarantees loans made to veterans and active duty servicemen and women.

LTV stands for loan-to-value. This important ratio measures what your are borrowing against the value of the home. Some lenders want as much as 20% down, meaning the LTV would be 80%. But in many cases, the LTV can be as great as 97%.

Private mortgage insurance (PMI), is a fee you’ll have to pay if you make less than a 20% down payment. PMI covers the lender should you default, but you have to pay the freight. Fortunately, you can cancel coverage once your LTV dips below 80%.

Your monthly payment likely will include more than just principal and interest. Many lenders also want borrowers to include one-twelfth of their property tax and insurance bills every month, as well. That way, lenders will have enough money on hand to pay these annual bills when they come due. Thus, the acronym PITI (principle, interest, taxes, and insurance).

Real-estate owned (REO) properties are foreclosed upon by lenders when borrowers fail to make their payments. When you buy a foreclosure, you buy REO. Short sales are not REO because, while they are in danger of being repossessed, they are still owned by the borrower.

houses real estate market selling buyinghouses real estate market selling buying

Acronyms You’ll Hear During an Appraisal

There is no acronym for an appraisal, which is an opinion of value prepared by a certified or licensed appraiser (though sometimes other types of valuation methods are used in the buying and selling process).

A Certified Market Analysis (CMA) is prepared by a real estate agent or broker to help determine a home’s listing price. A Broker Price Opinion (BPO) is a more advanced estimate of the probable future selling price of a property, and an automated valuation model (AVM) is a software program that provides valuations based on mathematical modeling.

AVMs are currently used by some lenders and investors to confirm an appraiser’s valuation, but they are becoming increasingly popular as replacements of appraisals, especially in lower price ranges.

Other Terms to Know

If you hear the term MLS, you should know it stands for multiple listing service. An MLS is a database that allows real estate brokers to share data on properties for sale, making the buying and selling process more efficient. There are many benefits to both homebuyers and sellers utilizing an MLS, for more information on how to get your home available through an MLS, work with a real estate professional when selling.

Read: What Buyers and Sellers Need to Know About Multiple Listing Services

Did you know? Homes.com has some serious MLS partnerships, no joke! When you start your home search on Homes.com, you’ll see accurate property information quickly so you’ll never have to wonder if a home is actually available.

House tourHouse tour

However, not all properties for sale are listed on the MLS. A home may be a for-sale-by-owner (FSBO), if the owner is selling his or her property without an agent and bypassing an MLS listing. In addition, some agents fail to enter their listings in the MLS for days or weeks at a time in hopes of selling to a list of preferred clients.

Read: Advantages of Buying With or Without an Agent

Finally, you may find yourself buying into a homeowners association (HOA) when you purchase a house or condominium apartment. HOAs are legal governing bodies that establish requirements everyone must adhere to in order to keep the community it oversees running smoothly and ensure property values are maintained.


Lew Sichelman

Syndicated newspaper columnist, Lew Sichelman has been covering the housing market and all it entails for more than 50 years. He is an award-winning journalist who worked at two major Washington, D.C. newspapers and is a past president of the National Association of Real Estate Editors.

Source: homes.com

Subsidized vs. Unsubsidized Loans

The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

The federal direct loan program offers subsidized and unsubsidized loans to college students. A federal direct subsidized loan is a loan where the government pays the interest while the student is in school. A federal direct unsubsidized loan is one in which the student is responsible for paying all interest, receiving no additional federal aid.

What Is the Difference Between Subsidized and Unsubsidized Student Loans?

The main differences between federal direct subsidized and unsubsidized loans are the qualification criteria, the maximum limits and how the loan interest works.

A chart displaying the differences between subsidized and unsubsidized student loans.

Loan Qualifications

Subsidized: To qualify for a subsidized loan, you must be an undergraduate student who can demonstrate financial need based on the information you submit through the Free Application for Federal Student Aid (“FAFSA”).

Unsubsidized: Unsubsidized loans are available to both undergraduate and graduate students, and there is no requirement to demonstrate financial need.

Maximum Loan Limits

Subsidized: Your school will determine exactly how much you can borrow each year, but there are federal limits. These limits are based on what year of school you are in and whether you file as a dependent or an independent. Subsidized loan limits tend to be lower than unsubsidized limits. The aggregate limit for an independent student with subsidized loans is $23,000.

Unsubsidized: Unsubsidized loan limits tend to be higher than subsidized loan limits. The aggregate limit for an independent student with unsubsidized loans is $34,500.

How Interest Accrues

Subsidized: The U.S. Department of Education pays the interest for subsidized loans as long as the student is enrolled in school at least half-time. They will also pay the interest during your grace period—defined as the first six months after leaving school—and any period of deferment. This means that the amount of the loan will not grow once the student graduates, since the government has been paying the interest.

Unsubsidized: Whether you’re an undergraduate or a graduate student, you’re responsible for paying all of the interest during the entire life of your unsubsidized loan.

What Are the Similarities Between Subsidized and Unsubsidized Student Loans?

When it comes to interest rates, fees and the “maximum eligibility period”—the amount of time you’re able to take out loans—subsidized and unsubsidized loans are virtually the same.

Fees

On top of interest, you can expect to pay a small fee for both types of loans. This is approximately 1.06 percent of your total loan amount, and it is deducted from each loan disbursement. 

Both subsidized and unsubsidized student loans have a fee of 1.06% of the total loan amount.

Undergraduate Interest Rates

The interest rates for both subsidized and unsubsidized loans for undergraduate students are the same. Currently, the rate is at 2.75 percent for loans first disbursed from July 1st, 2020, to June 31st, 2021. The one exception is for direct unsubsidized loans for graduate students, which have an interest rate of 4.30 percent. 

Maximum Eligibility Period

For both loan types, the time in which you’re eligible for your loans is equal to 150 percent of the time of your program. For undergraduates pursuing a four-year bachelor’s degree, this means they will be eligible for their loans for six years. Those pursuing a two-year associate’s degree will be eligible for three years. This ensures that students can still receive loans even if they’re unable or choose not to graduate within the program’s time frame. 

How to Apply for Subsidized and Unsubsidized Loans

Once you’re ready to apply for a federal direct loan, fill out the FAFSA. Your school will send you a detailed report of what student aid you’re eligible for. Any grants or scholarships are free money, so make sure to accept them. They’ll also decide which loans you’re eligible for, the amount you can borrow each year and what loan type you can get—subsidized or unsubsidized. 

No matter what type of student loan you go for, it’s important to understand how they affect your credit so that you can set yourself up for financial success after graduation. With responsible, on-time payments, you’ll be well on your way to healthy credit for life.


Reviewed by Cynthia Thaxton, Lexington Law Firm Attorney. Written by Lexington Law.

Cynthia Thaxton has been with Lexington Law Firm since 2014. She attended The College of William and Mary in Williamsburg, Virginia where she graduated summa cum laude with a degree in International Relations and a minor in Arabic. Cynthia then attended law school at George Mason University School of Law, where she served as Senior Articles Editor of the George Mason Law Review and graduated cum laude. Cynthia is licensed to practice law in Utah and North Carolina.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.

Source: lexingtonlaw.com

Forbearances Tick Up Again: Black Knight

The number of mortgages in active forbearance rose for the second week in a row, climbing by by 21,000 (+0.08) since last Tuesday, pushing the total back up above 2.7 million after falling below that threshold for the first time since last April earlier this month.

This week’s rise continues the trend of mid-month increases that have become commonplace since the recovery began.

Despite the weekly increase, the monthly rate of decline held steady at -2%, continuing the trend of very slow but steady improvement in the number of outstanding forbearance cases. Remember, monthly declines have been averaging less than 2% since early December.

According the McDash Flash daily mortgage performance data set, as of February 23, 2.7 million homeowners (5.1% of all mortgage-holders), remain in active forbearance. This includes 9.3% of FHA/VA, 3.2% of GSE and 5.2% of portfolio/private mortgages

Once again, portfolio-held and privately-securitized loans saw the largest increase in plans (+16,000 / +2.4%), followed FHA/VA loans, which saw active forbearance plans rise by 7,000 (+0.6%). As was the case last week, GSE loans were the only cohort to see any sort of decline (-2,000; -0.2%).

Some 160,000 forbearance plans are set to hit scheduled expiration points at the end of February.

Source: themortgageleader.com

How Much Does Medicare Cost? – Parts A, B, D, Advantage & Medigap

Americans are used to paying high costs for health care. Even for those who have health insurance — and as of 2019, there are still millions who don’t — it doesn’t cover everything. However, many people assume that once they reach age 65 and start receiving Medicare benefits, it will cover all their costs. After all, we’ve already paid into the program through payroll taxes, so we should have no costs beyond that, right?

Wrong. In fact, the Medicare taxes you pay during your working years only cover the premium costs for Medicare Part A, or hospital insurance. However, you still have to pay a part of the costs for hospital stays and other inpatient care out of your own pocket. And on top of that, several other parts of Medicare have their own costs.

How Much Does Medicare Cost?

There are two primary forms of Medicare coverage. Original Medicare includes Medicare Part A and Medicare Part B, or medical insurance, which covers doctor visits and other outpatient care. You can also add Medicare Part D to cover prescription drug costs. Alternatively, you can choose a Medicare Advantage plan from a private insurer, which includes Medicare Parts A and B and usually adds coverage for drugs and some other types of care.

Put it all together, and your Medicare costs can add up to thousands of dollars. A 2020 analysis by AARP found that in 2017, people on Original Medicare spent an average of $5,801 on health care and that about 1 in 10 people spent $10,268 or more. (The analysis did not include people on Medicare Advantage plans because there was no reliable data available about their expenses.) These expenses fall into three primary categories: premiums, cost sharing, and expenses Medicare doesn’t cover.

Premiums

Most health insurance comes with a monthly premium — an amount you pay to the insurer each month for coverage. According to AARP, the average Medicare beneficiary paid $2,728 in premiums in 2017. However, this cost varied widely by age. People under 65 paid an average of $1,810, while those over 65 paid an average of $2,810.

How Much Does Medicare Part A Cost?

Most people don’t pay a premium for Medicare Part A because they have already paid for it through payroll taxes. However, if you have paid Medicare taxes for fewer than 10 full years (40 quarters), you must pay a fee to buy into Part A.

For the year 2021, the monthly premium is $458 if you’ve paid Medicare taxes for fewer than 30 quarters. If you have paid them for 30 to 39 quarters, the premium is $259. That adds up to either $3,108 or $5,496 per year.

Additionally, if you don’t sign up for Medicare Part A when you first become eligible for it, you must pay a late enrollment penalty. That causes your premiums to go up by 10%. You continue to pay the higher premium for twice the number of years you delayed signing up for Part A.

How Much Does Medicare Part B Cost?

All Medicare recipients pay a premium for Part B coverage. The standard premium for 2021 is $148.50 per month, or $1,782 per year.

If you have already started collecting Social Security benefits or retirement benefits from the Railroad Retirement Board, this premium is automatically deducted from your benefits check. Otherwise, you receive a bill for your coverage.

If you neglect to sign up for Medicare Part B when you first become eligible, you pay a late enrollment penalty for this as well. This penalty is even steeper than the one for Part A. It increases your monthly premium by 10% for each 12-month period you delayed enrollment — so if you sign up three years late, your premiums go up by 30%. Moreover, this higher rate lasts for the rest of your life.

How Much Does Medicare Part D Cost?

If you choose to add Medicare Part D to your coverage, you must pay an additional premium for it. The cost per month varies based on the plan you choose. However, the Centers for Medicare & Medicaid Services (CMS) estimates the average premium for basic Part D coverage at $30.50 per month ($366 per year) for 2021.

On top of that, there’s a late enrollment penalty for Medicare Part D. You pay this penalty if you go at least 63 days without having either a Medicare prescription drug plan or a Medicare Advantage plan that provides drug coverage. The penalty is equal to 1% of the “national base beneficiary premium” ($33.06 for 2021) times the full number of months you went without coverage, rounded up to the nearest $0.10.

This amount gets added to your Part D premium for life once you sign up. For instance, if you went 30 months without drug coverage, you would pay an extra $10 per month. Additionally, this penalty rises whenever the national base beneficiary premium increases.

Medicare also tacks on a monthly income adjustment for all beneficiaries whose income is above a certain level. For 2021, this adjustment ranges from $12.30 per month if your income is over $87,000 to $77.10 per month if it’s over $500,000.

How Much Do Medicare Advantage Programs Cost?

Medicare Advantage plans are sometimes called Medicare Part C, but they’re actually not part of the federal Medicare program. Instead, private insurance companies offer them. However, they must provide all the same coverage as Original Medicare, and many plans provide more.

When you join a Medicare Advantage plan, you continue to pay your Part B premium to the federal government. The government then pays a fixed amount each month to the insurer to help cover your care costs.

Some Medicare Advantage plans charge an additional monthly premium on top of your regular Part B premium. According to CMS, the average expected premium for the year 2021 is $21 per month. Since that’s less than the average cost for a separate Part D plan, Medicare Advantage is a cheaper way to get prescription drug coverage for the average Medicare user. However, specific prices and coverages vary from plan to plan.

According to the Kaiser Family Foundation (KFF), Medicare Advantage premiums are typically lowest for health maintenance organizations (HMOs), which require you to get your care from doctors within a specific network. They’re somewhat more expensive for preferred provider organizations (PPOs), which allow you to see an out-of-network doctor for an additional cost. The KFF does not evaluate old-fashioned fee-for-service plans, which let you see any doctor you choose, but in general, these plans are expensive.

How Much Does Medigap Cost?

Original Medicare has relatively low premiums, but there are also many costs it doesn’t cover. Many people buy Medicare supplement insurance, commonly known as Medigap, to fill the “gaps” in their Medicare coverage. These plans, sold by private insurers, cover your deductibles and coinsurance. Some of them also cover costs Original Medicare doesn’t, such as care received when traveling outside the United States.

If you buy a Medigap policy as an add-on to Original Medicare, you pay an additional monthly premium to the insurer. How much it costs depends on the specific plan you choose. Under state laws, Medigap plans are sorted into several standard categories, which most states identify by the letters A through N. A chart on Medicare.gov outlines each plan’s benefits. (Three states — Massachusetts, Minnesota, and Wisconsin — use different standard categories for Medigap policies. See each state’s specific rules.)

Insurance companies aren’t required to offer every type of Medigap policy. However, any insurer that sells Medigap policies is required to offer Plans A, C, and F.

According to eHealth Medicare, the monthly premium for a Medigap policy ranges from around $70 to $270 per month, depending on the plan type and where you live. According to Business Insider, Plan F — the most popular type of Medigap plan —  cost an average of $1,712 per year, or about $143 per month, in 2018. However, this cost varied by state, ranging from $1,310 per year in Hawaii to $1,947 per year in Massachusetts. You can find cost estimates for Medigap policies in your area by entering your zip code on the eHealth Medicare site.


Cost Sharing

On top of your Medicare premiums, you must pay a portion of the cost for all the health care services you receive. The AARP study found that Medicare recipients paid an average of $1,522 for their share of covered care in 2017. This cost came to $1,441 for beneficiaries under age 65 and $1,536 for those 65 and older.

How Much Are Medicare Deductibles?

Medicare requires you to pay a certain amount of your medical bills out of your own pocket before your Medicare coverage kicks in. This portion is called your deductible.

As of 2021, Medicare Part A charges a deductible of $1,484 for each benefit period. A benefit period starts when you enter a hospital or skilled nursing facility as an inpatient. It ends once you haven’t received any inpatient hospital care for 60 days in a row. That means you may have to pay your Medicare Part A deductible more than once in a single year.

For instance, suppose you go to the hospital for a knee operation in January, and they discharge you later that month. During that time, you pay all your care costs up to the $1,484 deductible. Then, in June — more than 60 days later — they admit you again after a fall. That starts a new benefit period, so you must once again pay all your care costs up to the deductible. There’s no limit to the number of benefit periods you can have in a single year.

Medicare Part B also has a deductible, but you only have to pay it once per year. For 2021, the Part B deductible is $203.

Medicare Part D plans usually have a deductible as well. The cost varies from plan to plan, but Medicare sets limits on how high it can be. As of 2021, your Part D deductible cannot exceed $445. According to eHealth, the average Part D deductible was $308 in 2019.

As for Medicare Advantage plans, some have deductibles and some don’t. According to eHealth, the average deductible for a Part C plan that includes prescription drug coverage was $292 in 2019. A plan can charge one deductible for all your care or have separate deductibles for medical care and prescription drugs. You have to look at the details of a specific plan to find out how much the deductible is and how often you need to pay it.

How Much Is Part A Coinsurance?

Even after you meet your deductible for Medicare, you must continue to pay a portion of your medical bills out of pocket. This amount is called coinsurance.

For Medicare Part A, the cost of coinsurance varies based on how long you spend in the hospital. You pay $0 for the first 60 days and $352 per day for the next 30. These numbers reset at the beginning of each benefit period. In other words, if you stay in the hospital for 60 days, then leave and return three months later, you’re back to Day 1 and your cost is $0.

If you stay in the hospital for more than 90 days at a stretch, you start using up your lifetime reserve days. You pay $704 per day, and Medicare pays the rest — but only for a maximum of 60 days over your entire lifetime. If you spend any more time in the hospital than that, you must pay the full cost.

That doesn’t mean you have to pay all your hospital bills in full for the rest of your life. Once you leave the hospital, your benefit period resets after 60 days. If you go back in, you start over again at Day 1, with 60 days for free and another 30 days at $352. But if you’re still in the hospital on Day 91 and you have no lifetime reserve days left, you’re responsible for the full cost.

How Much Is Part B Coinsurance?

Coinsurance costs for Part B are more straightforward than for Part A. After meeting your deductible, you pay 20% of the Medicare-approved amount for all covered medical expenses. The Medicare-approved amount is the standard amount Medicare agrees to pay all doctors and other health care providers.

You pay this 20% coinsurance for all services covered by Part B, including doctor visits, outpatient therapy, and durable medical equipment. However, if your doctor or provider charges more than the Medicare-approved amount, you must pay all the additional cost on top of your coinsurance.

How Much Are Prescription Drug Costs?

Costs for Medicare Part D vary. Some Part D plans require you to pay coinsurance — a percentage of the cost of each prescription. Others charge copayments — a flat fee for each prescription.

Many Medicare prescription drug plans sort covered drugs into different tiers. For instance, some drugs are “preferred” and have a lower copayment. According to the KFF, average costs for different tiers in 2020 were:

  • Preferred generic drugs: $0
  • Other generic drugs: $3
  • Preferred brand-name drugs: $42
  • Other brand-name drugs: 38% coinsurance
  • Specialty drugs: 25% coinsurance

Under Medicare rules, once your total prescription drug costs for the year — including the amounts paid by you and your insurer — have reached a certain amount, your coverage changes. This limit, which includes your deductible, is $4,130 for the year 2021. Once you hit this limit, you pay up to 25% of your medications’ total cost. The manufacturer of the drug pays 70% of the cost, and your insurer pays the rest.

However, that doesn’t necessarily mean you have to keep paying 25% for the rest of the year. Once your out-of-pocket costs for prescriptions hit a second limit — $6,550 in 2021 — your share of your prescription costs drops to only 5%.

To help you get out of this coverage gap (called the “doughnut hole”) faster, Medicare allows you to count the discount received from the drug manufacturer as part of your out-of-pocket costs. For instance, if you have a drug that costs $100, your insurer pays $5 for it, you pay $25, and the manufacturer pays $70. However, you can count a full $95 — your share and the manufacturer’s — toward your out-of-pocket costs. That pushes you closer to the $6,550 upper limit at which your payment falls.

How Much Are Medicare Advantage Costs?

Most Medicare Advantage plans charge you a copayment for doctor visits and other services rather than the 20% coinsurance you pay with Original Medicare Part B. However, the exact cost varies by plan. Factors that affect your copay costs include where you live, the type of plan you buy, and the company that issues it.


Costs Not Covered by Medicare

There are certain services Original Medicare simply doesn’t cover. In general, you must pay all your own costs for:

  • Dental care, including checkups, fillings, root canals, and dentures
  • Vision care, including eye exams, eyeglasses, and contact lenses
  • Hearing exams or hearing aids
  • Routine foot care, such as callus removal (according to AARP, Medicare does cover costs for foot injuries and ailments, such as heel spurs and problems related to nerve damage caused by diabetes)
  • Cosmetic surgery
  • Acupuncture
  • Long-term care in a nursing home or assisted living facility
  • Any medical care received outside the U.S.

You can get some of these expenses, such as dental and vision care, covered under a Medicare Advantage plan. However, it depends on the plan you choose. Neither Original Medicare nor Medicare Advantage ever covers costs for care received outside the country. However, some Medigap policies provide this coverage.

According to the 2020 AARP analysis, the average Medicare recipient in 2017 spent $1,551 on health care costs not covered by Medicare. This amount was $932 for beneficiaries under 65 and $1,662 for those 65 and up.


Limits on Total Costs

The $5,801 AARP says the average person on Medicare spends each year is a significant chunk of money. However, some Medicare beneficiaries have much higher costs. The 2020 study found that people at the 90th percentile for spending — those who had health care costs higher than all but 10% of the population — spent a total of $10,268 on their care in 2017. That includes $5,218 for premiums, $3,740 for cost sharing, and $2,537 for expenses not covered under Medicare.

In fact, under Original Medicare, there’s no limit on how much you can pay each year for health care. Although the program covers a large share of your costs, it doesn’t protect you from the kinds of sky-high medical bills that can drive people into bankruptcy. A 2010 paper from the University of Michigan found that more than 1 in 3 seniors who file for bankruptcy cite medical expenses as a reason.

There are two ways to put a cap on your out-of-pocket costs under Medicare. One is to choose Medicare Advantage. According to CMS, all Medicare Advantage policies are required to limit out-of-pocket spending for in-network care, which can be no higher than $7,550 in 2021. However, this out-of-pocket limit does not include the amount you spend on premiums.

If you prefer Original Medicare, you can cap your costs by adding a Medigap policy that comes with an out-of-pocket limit. Medigap Plan K policies limit your out-of-pocket costs to $6,220 for 2021, and Plan L caps them at $3,110.

You can estimate how much your total out-of-pocket costs are likely to be under different Medicare plans using the out-of-pocket cost calculator on Medicare.gov. It lets you compare Original Medicare, with or without Part D and Medigap, with a Medicare Advantage plan that includes drug coverage. The calculator factors in all your costs, including premiums, deductibles, and coinsurance. You can look at typical costs for plans with high, medium, or low premiums.


Final Word

If you’ve been thinking of Medicare as a permanent fix for high health care bills, it can come as a shock to learn how much the average beneficiary pays. However, the average cost cited in the AARP report is just that — an average. You can reduce your costs for Medicare the same way you would with any other significant expense: by shopping around.

Medicare makes it easy to comparison-shop for plans. On the Plan Compare page at Medicare.gov, you can review your Medicare coverage options and compare specific Part D and Medicare Advantage plans available in your area.

The site asks you for details about where you live and what type of plan you want, then lists available plans with their premiums, deductibles, copays, and out-of-pocket limits. With a little more information, it can also show you how much you’ll pay out of pocket for prescription drug costs on each plan. The site even includes star ratings for each plan just like you might use to find the best products when shopping online.

To learn more about comparing Medicare plans and signing up, check out our Medicare enrollment guide.

Source: moneycrashers.com