Mortgage Interest Deduction 2019: Here’s What Qualifies

If you own a home, one of your first questions may revolve around how your home affects your tax filing. While there have been some changes in recent years, come tax time, it’s important to know exactly what qualifies as a deduction (and to consult with your tax advisor) so you can get the most out of your tax write-offs.*

What Is the Mortgage Interest Deduction?

A mortgage interest deduction is an itemized tax deduction that allows homeowners to deduct the interest paid on a loan used to buy, build, or improve a first or second home. Homeowners who purchased a home prior to December 15, 2017 can deduct interest on the first $1,000,000 of mortgage debt. For those who purchased a home after December 15, 2017, a deduction only applies to the first $750,000 of mortgage debt.

How the Mortgage Interest Deduction Works

There are many nuances to the mortgage interest deduction, so make sure you keep good records of the interest you’ve paid throughout the year. Here’s a look at some things to watch out for and know as you’re evaluating your deductions.

  • As noted above, you can deduct all the interest you paid on up to $1,000,000 in a mortgage loan, but you can only deduct up to the first $750,000 of home loan debt if you purchased the property after December 15, 2017.
  • So for example, if you bought a home in 2016 and you have $1,000,000 in debt on that home, you can deduct all of your mortgage interest. However, if you bought a home for the same cost in 2018, you can only deduct interest on $750,000 according to the 2017 Tax Cuts and Jobs Act.
  • However, there is an exception to the new limit. If you entered into a written contract for a property before December 15, 2017 and closed on the property before April 1, 2018, you are exempt and can deduct your interest on up to $1,000,000 in mortgage debt.

What Qualifies As Mortgage Interest?

The type of mortgage in question (i.e., a first mortgage, second mortgage, or a Home Equity Loan) and what type of property it covers, such as your primary residence versus a rental or investment property, can affect how your mortgage interest deduction works, so you’ll want to know how it relates to your specific case this year. For a complete list of rules and regulations, make sure to check out IRS Publication 936. Here is a brief overview of a few common scenarios below.

Mortgage Interest For Your Home

In order to deduct the mortgage interest on your home, you must meet a few qualifications. First of all, the home must be a house, apartment, condo, co-op, houseboat, mobile home, or trailer, and it must have sleeping, cooking, and bathroom facilities. The home itself must be collateral for a mortgage loan.

If you receive a nontaxable housing allowance via the military or because you’ve done ministry work, you can still deduct interest. If you have taken out another mortgage to buy out a partner in a divorce as part of a mortgage buyout, you can also deduct the interest on that mortgage.

Mortgage Interest For Your Second Home

You can deduct mortgage interest on your second home, but in order to do so, there are a few rules. You don’t have to use the home during the year, but the home must be collateral for a loan. Also, if you rent out the home and receive rental income on the property, you must be in the house for more than 14 days or more than 10% of the days the home is rented, whichever is longer.

Any Points Paid On Your Mortgage

If you paid points on your mortgage loan as a way to pay down the amount of your loan interest, you can deduct these either all at once, or over the course of the loan, but there are a few requirements. The loan must be for your primary home, and paying discount points must be a regular practice where you live.

Also be aware of the interest rates on the points, and note that they can’t have also been used for closing costs. Your down payment must be higher than your points, and the points must be calculated as a percentage of the loan.

Home Equity Loan Interest

The interest on your home equity loan is only deductible if you are using the loan to make significant repairs to your property. If you are using the loan for another purpose — a large purchase, paying down debt, etc. — it is not deductible.

Late Payment Charges On Your Mortgage

If you’re late making a mortgage payment and are charged a late fee, this additional cost counts as part of the mortgage interest deduction.

Prepayment Penalties

For some lenders, paying off your loan early can result in a prepayment penalty (not however, when you have a loan with PennyMac) because lenders want to ensure they’re getting interest income. If you are charged a prepayment penalty for any reason, you are allowed to deduct this as part of your mortgage interest deduction.

What You’re Not Able to Deduct

Not all extra costs associated with a mortgage are deductible. Here’s a look at what doesn’t qualify.

  • Mortgage insurance premiums
  • Homeowners insurance
  • Any interest accrued on a reverse mortgage
  • Down payments, deposits, or forfeited earnest money
  • Title insurance
  • Extra principal payments made on your mortgage
  • Settlement costs (typically)

How to Claim Your Mortgage Interest Deduction in 2019

Getting ready to prepare your taxes and want to make sure you’re taking full advantage of your mortgage interest deduction this year? It’s important to make sure all your paperwork is in order and follow these steps to take full advantage of the deduction.

Look Out For Form 1098

This form shows how much you paid in mortgage interest and any points for the tax year. Your lender will send you the form if you paid $600 or more in mortgage interest, and they will also send a copy to the IRS to match up with your return. This form may also show you the amount of interest you’ve paid on your home loan to date. Can’t find it or not sure if you received it at all? Just contact your lender, and they can provide you with the amount of mortgage interest you paid for the year.

Itemize Your Taxes

If you want to take advantage of the mortgage interest deduction, you’ll need to itemize your deductions instead of using the standard deduction. Make sure it makes sense to itemize your deductions, as the goal is to take the highest possible deduction available to you.

Instances Where You Can Claim the Mortgage Interest Deduction

There are some scenarios where you can still claim the deduction even if your situation doesn’t fit the standard requirements exactly. Just make sure you’re keeping extremely accurate records of all of your property costs throughout the year, as well as square footage used for spaces like rentals and home offices, as things can get even more complicated. Here are some cases that would allow you to still claim the deduction.

  • The home was a timeshare
  • You rented out part of your home.
  • You had a home office. (Make sure you track the square footage, and you may even be able to claim an additional deduction using Schedule C.)
  • The home was an apartment co-op.
  • Your home was under construction.
  • Your home was destroyed within the applicable tax year.
  • You and a partner split and you’re now paying a mortgage on a home you both own.

Mortgage Interest Deduction 2018

The 2018 U.S. tax bill made significant changes to the mortgage interest tax deduction, as well as other updates for homeowners.

Mortgage Tax Bill Changes

The mortgage interest deduction allows homeowners to deduct part of the cost of their mortgage on their taxes. The 2018 tax plan now limits the portion of a mortgage on which you can deduct interest to $750,000, as compared to the previous limit of $1 million. Homeowners with mortgages that existed prior to the bill’s passage can continue to receive the current deduction.

Property Tax Deduction Changes

When looking at the 2018 tax changes, the focus was typically on the mortgage interest deduction changes. The bill has another aspect that affects homeowners: With the changes in property tax deductions, the 2018 tax plan has a limit of $10,000 on the amount of state and local property taxes that can be deducted from a homeowner’s federal taxes.

Know Your Tax Advantages With Homeownership

Whether you already own a home or are taking your very first steps towards making a smart investment in a home to call your own, be sure to stay in the know about all the potential tax advantages, along with the many other benefits of homeownership.

Ready to purchase or refinance and want to know what your options are? Call us now for your free mortgage consultation or apply online to get started on your pre-approval.

*Consult a tax adviser for further information regarding the deductibility of interest and charges.


Biden’s team explores ways to oust Fannie-Freddie regulator

President-elect Joe Biden’s team has held preliminary talks on how it could oust Fannie Mae and Freddie Mac’s regulator, said people familiar with the matter, a move that would let the new administration fill a post that’s crucial to the mortgage market and its goal of boosting affordable housing.

The Federal Housing Finance Agency is now led by Mark Calabria, a libertarian economist appointed by President Trump whose term extends into 2024. The incoming administration has no plans to take action against Calabria any time soon and it’s unclear whether Biden would even have the authority to remove him. The U.S. Supreme Court has taken up a case that could eliminate any ambiguity, though a ruling might take longer than Biden and his aides would want to wait.

One candidate the transition team is considering as a potential Calabria replacement is Susan Wachter, a professor at the University of Pennsylvania’s Wharton School of Business, said the people who asked not to be named in discussing private conversations. Another possibility is Mark Zandi, chief economist at Moody’s Analytics, said a different person familiar with the matter.

Any effort to oust Calabria probably wouldn’t be activated unless he starts to take drastic steps to change Fannie and Freddie’s status that the Biden administration would have difficulty reversing, such as trying to release the companies from federal control, one person familiar with the matter said. The president-elect’s team hasn’t decided whether to remove Calabria and no move is imminent, with a transition official adding that no push to replace him has been set in motion.

A Biden transition spokesperson declined to comment.

“Director Calabria committed to the Senate during his confirmation that he would serve his full term, and he intends to fulfill his commitment to the Senate,” FHFA spokesman Raphael Williams said in a statement.

Wachter declined to comment, while Zandi didn’t respond to a request for comment.

Determining what to do with Fannie and Freddie is the last major policy decision outstanding from the 2008 financial crisis. The firms got into trouble when the housing market tanked, prompting the government to take them over and rescue them with $187.5 billion in taxpayer funds.

The companies don’t make loans. Instead, they buy mortgages from lenders and package them into bonds, guaranteeing payments to investors even if homeowners default. The process is considered essential to the $10 trillion mortgage market and in keeping interest rates low.

As FHFA director, Calabria has sought to reduce Fannie and Freddie’s footprint in the mortgage market, an objective consistent with his free market views. He’s also a staunch advocate of ending the companies’ government conservatorships.

Calabria’s fate likely hinges on a case the Supreme Court heard last month that will decide whether the president can fire the FHFA director at any time for any reason. Legal analysts expect a ruling by the middle of this year.

The high court ruled in favor of granting the president such authority in a similar case last year that affected the Consumer Financial Protection Bureau, which is also an independent regulator with the same structure as the FHFA in that it’s led by a single director. There’s an argument to be made that the Biden administration could justify removing Calabria based on the CFPB decision alone, though the FHFA chief may have more grounds to challenge such a move.

With Biden poised to go in a different direction on Fannie and Freddie, Calabria has been pressing to make progress on some of his objectives before the Trump administration ends.

He’s been urging Treasury Secretary Steven Mnuchin to sign off on last-minute changes to the government’s relationship with Fannie and Freddie, including altering the terms of the Treasury Department’s roughly $220 billion stake of senior preferred shares in the companies. Such a move is key to releasing them and might be difficult for Biden to undo.


Mortgage and refinance rates today, Jan. 2, and rate forecast for next week

Today’s mortgage and refinance rates 

Average mortgage rates ended the day (and the year) on Thursday immediately adjacent to their all-time low.

We’ve grown used to rates barely moving in recent weeks. But that might soon change. And it’s possible we’ll see more volatility in the coming week. Read on to explore why things could soon be different.

Find and lock a low rate (Jan 12th, 2021)

Program Mortgage Rate APR* Change
Conventional 30 year fixed 2.75% 2.75% Unchanged
Conventional 15 year fixed 2.438% 2.438% Unchanged
Conventional 5 year ARM 3% 2.743% Unchanged
30 year fixed FHA 2.25% 3.226% Unchanged
15 year fixed FHA 2.313% 3.253% Unchanged
5 year ARM FHA 2.5% 3.232% Unchanged
30 year fixed VA 2.063% 2.232% Unchanged
15 year fixed VA 2.063% 2.382% Unchanged
5 year ARM VA 2.5% 2.413% Unchanged
Rates are provided by our partner network, and may not reflect the market. Your rate might be different. Click here for a personalized rate quote. See our rate assumptions here.

Find and lock a low rate (Jan 12th, 2021)

COVID-19 mortgage updates: Mortgage lenders are changing rates and rules due to COVID-19. To see the latest on how coronavirus could impact your home loan, click here.

Should you lock a mortgage rate today?

Next week presents more dangers for low mortgage rates than we’ve seen recently. Of course, that doesn’t mean we’ll necessarily encounter greater volatility. After all, recent weeks have brought events that would normally have moved these rates but have left them unchanged. But it means it’s more likely.

Read the following section for the risks next week brings.

But, for now, my personal recommendations are:

  • LOCK if closing in 7 days
  • LOCK if closing in 15 days
  • LOCK if closing in 30 days
  • FLOAT if closing in 45 days
  • FLOAT if closing in 60 days

However, with so much uncertainty at the moment, your instincts could easily turn out to be as good as mine — or better. So be guided by your gut and your personal tolerance for risk.

What’s moving current mortgage rates

So why do I think there may be more volatility next week? Well, there are two main reasons.

1. The Senate runoffs

The most likely causes of higher rates are the Senate runoffs in Georgia on Tuesday. If both the Democratic candidates win (and FiveThirtyEight today suggests they each have a very small lead) control of the US Senate will pass to their party.

That would give Democrats a clean sweep of the White House and both houses of Congress. And would almost certainly mean much more generous pandemic relief programs.

Investors would like that prospect. And both yields on Treasury bonds and mortgage rates might well rise. How big any increase would be or how long it would last is anyone’s bet.

Just as with the presidential election, it may take days or longer to call the runoffs. And, during that time, rates may be buffeted by emerging news stories about how the count is progressing.

Should you take a chance on a GOP win (it needs only one seat to keep control of the Senate) by continuing to float? That depends on how keen a gambler you are.

2. Employment data

The other possible influence on mortgage rates next week is employment data. The monthly employment situation report is out on Friday. And in the current circumstances, many economists regard it as the most important of all economic reports.

Better-than-expected figures could see mortgage rates rise. But worse ones could put downward pressure on those rates.


I still think mortgage rates will likely go lower during the first half of 2021. And the reason is the pandemic.

Yes, newly reported cases and deaths have declined over the holiday period. But that’s likely partly down to disrupted reporting processes. And hospitalizations were up 10% over the two weeks leading up to New Year’s Eve, according to The New York Times.

Worse, unwise social mixing over the holidays is likely to see new cases rise. So the picture until the vaccines begin to have a serious effect probably won’t be pretty.

Vaccine problems

And the administering of vaccines is already hitting logistical problems. Federal officials had set a target of 20 million inoculations by the end of 2020. But the actual number was 2.8 million.

Of course, some of the teething problems will be resolved. But some serious experts reckon things won’t get back to normal until the third — or even fourth — quarter of this year. Meanwhile, the economic harms caused by the pandemic will be piling up.

And, of course, mortgage rates tend to be lower during periods of economic distress. So I suspect we have some months of low rates to come. But January may not be one of them.

Economic reports next week

The big reports this week will likely be the ones concerning employment. But others may have an impact (all relate to December unless otherwise indicated):

  • Monday — November construction spending
  • Tuesday — Institute of Supply Management (ISM) manufacturing index
  • Wednesday — ADP employment report. Plus November factory orders
  • Thursday — Weekly new claims for unemployment insurance. Plus ISM services index
  • Friday — Employment situation report

Wednesday also brings the publication of the minutes of the last meeting of the Federal Reserve’s policy body (the Federal Open Market Committee). Investors will pore over those for further insights into the members’ expectations for the economy and policy options. And there’s a chance that what they glean could feed into mortgage rates.

Find and lock a low rate (Jan 12th, 2021)

Mortgage interest rates forecast for next week

This week may bring more volatility to mortgage rates. That’s not guaranteed. But it would be no surprise.

Mortgage and refinance rates usually move in tandem. But note that refinance rates are currently a little higher than those for purchase mortgages. That gap’s likely to remain constant as they change.

How your mortgage interest rate is determined

Mortgage and refinance rates are generally determined by prices in a secondary market (similar to the stock or bond markets) where mortgage-backed securities are traded.

And that’s highly dependent on the economy. So mortgage rates tend to be high when things are going well and low when the economy’s in trouble.

Your part

But you play a big part in determining your own mortgage rate in five ways. You can affect it significantly by:

  1. Shopping around for your best mortgage rate — They vary widely from lender to lender
  2. Boosting your credit score — Even a small bump can make a big difference to your rate and payments
  3. Saving the biggest down payment you can — Lenders like you to have real skin in this game
  4. Keeping your other borrowing modest — The lower your other monthly commitments, the bigger the mortgage you can afford
  5. Choosing your mortgage carefully — Are you better off with a conventional, FHA, VA, USDA, jumbo or another loan?

Time spent getting these ducks in a row can see you winning lower rates.

Remember, it’s not just a mortgage rate

Be sure to count all your forthcoming homeownership costs when you’re working out how big a mortgage you can afford. So focus on your “PITI” That’s your Principal (pays down the amount you borrowed), Interest (the price of borrowing), (property) Taxes, and (homeowners) Insurance. Our mortgage calculator can help with these.

Depending on your type of mortgage and the size of your down payment, you may have to pay mortgage insurance, too. And that can easily run into three figures every month.

But there are other potential costs. So you’ll have to pay homeowners association dues if you choose to live somewhere with an HOA. And, wherever you live, you should expect repairs and maintenance costs. There’s no landlord to call when things go wrong!

Finally, you’ll find it hard to forget closing costs. You can see those reflected in the annual percentage rate (APR) you’ll be quoted. Because that effectively spreads them out over your loan’s term, making that higher than your straight mortgage rate.

But you may be able to get help with those closing costs and your down payment, especially if you’re a first-time buyer. Read:

Down payment assistance programs in every state for 2020

Mortgage rate methodology

The Mortgage Reports receives rates based on selected criteria from multiple lending partners each day. We arrive at an average rate and APR for each loan type to display in our chart. Because we average an array of rates, it gives you a better idea of what you might find in the marketplace. Furthermore, we average rates for the same loan types. For example, FHA fixed with FHA fixed. The end result is a good snapshot of daily rates and how they change over time.


Will mortgage rates fall again after this week’s Fed meeting?

Editor’s note: This article was originally published on June 10, 2020, and updated on July 28, 2020, with the latest Fed forecasts

Don’t wait on the Fed for lower mortgage rates

Mortgage rates have hit record lows five times this year. They’re currently resting at or near their lowest levels in 50 years.

That’s in part thanks to the Fed, whose intervention in the mortgage market has forced and kept rates down during the COVID pandemic.

But with the Fed already injecting capital into the mortgage market, and holding its benchmark rate near 0%, there’s little it can do to push mortgage rates lower still.

That means home shoppers and refinancers shouldn’t wait on the Fed.

For those ready to buy or refinance, there aren’t many reasons to hold off on locking a rate.

Find and lock a low rate (Jan 11th, 2021)

FOMC expected to hold interest rates steady this week

CME Group’s FedWatch tool is citing a 100% probability that the FOMC — the Fed’s decision-making body — will not change its current target interest rate of 0-0.25% when it meets this week.

Image: CME Group FedWatch

What’s more, the FOMC stated at its last meeting that it intends to hold its benchmark rate steady until 2021 or 2022.

Fed policy isn’t likely to change until the U.S. starts making real progress toward economic recovery post-coronavirus.

Although the FOMC does not set mortgage rates, the overall low-interest environment means mortgage shoppers can expect historic rates to continue for quite some time.

Find a low mortgage rate (Jan 11th, 2021)

What to look for in this week’s FOMC statement

As we mentioned above, the Fed has no intention of changing its target interest rate any time soon.

But there’s a chance it could update its policy on quantitative easing (QE) — the process by which the Federal Reserve buys up mortgage-backed securities to keep borrowing costs low.

If the Fed decides to increase its mortgage purchase program, it could potentially force mortgage rates lower. QE was a big driver behind the downward rate movement in recent months.

After its most recent meeting, the FOMC indicated it would keep buying mortgages at the current pace.

But a change to that policy is the one thing borrowers should look out for if they want a heads up on potential rate movements.

Fed agrees: Rates aren’t rising any time soon

Admittedly, the reasons for the current low rate environment are nothing to cheer about.

The Fed’s interest rate policy is based on wildly uncertain economic times for the foreseeable future.

Coronavirus has ravaged the U.S. economy and led to record-high unemployment. Worldwide, things aren’t much better.

The silver lining, though, is a Fed that unanimously favors a fed funds rate near 0%. The Fed doesn’t control mortgage rates, but the group sure can help them stay low.

In a rare show of solidarity, every single Fed member predicted low rates through 2021, with only two dissenters saying rates would rise in 2022. Each dot in the below image represents a Federal Reserve member, hence this chart’s nickname, the “dot plot.”

Federal Reserve "dot plot" indicates predictions of low rates through 2022.

Typically, these dots are somewhat spread apart: some Fed predict or even argue for a higher Fed rate in the future.

But this chart shows a rare, nearly across-the-board agreement that rates should stay low for some time.

Your next move as a mortgage shopper

As mentioned, mortgage rates don’t follow the federal funds rate perfectly. Mortgages could get more expensive even as the Fed uses its full power to keep all rates low.

With that argument, those seeking to purchase a home or refinance shouldn’t wait. Rates are near 50-year lows right now, and it will be hard for them to go lower.

But if you’re in the market to buy or refi in coming years, be encouraged.

Many people are working to raise their credit score, advance their career, or set a budget. In these cases, they can likely breathe a sigh of relief. Low rates will probably be a round in a year or two when they are ready.

No matter what your home finance timeline, today’s meeting of the Federal Reserve should brighten your day.

It appears mortgage rates will continue their record-breaking streak.

Verify your new rate (Jan 11th, 2021)


Mortgage Rates Are Actually HIGHER Today and This Week

Mortgage rates moved higher today, but only a modest pace compared to yesterday (read more about yesterday’s rate rout HERE).  Over the past two days, the average rate quote for a top tier conventional 30yr fixed loan has risen by an eighth of a percent (.125%).  Yesterday accounts for essentially all of the move, making it one of only a handful of days with as much upward movement in the past few years. 

Is an eighth of a point a big deal?  Only you can answer that.  It comes out to about $7/month for every $100k in loan amount.  For some, it’s not a big deal, but for others it can make or break a transaction.  Either way, everyone can agree it would be a bigger deal if we were to see additional examples of similar spikes in the near future.

So will we?

That’s definitely possible, but not necessarily probable.  Bond traders (the people and machines responsible for moving the markets that move interest rates) were eagerly anticipating yesterday’s GA senate election results and were ready to move in either direction depending on the outcome.  Although the reaction can play out over the course of a few days the worst of it is over.  From here, if bond yields and interest rates wish to continue higher at a similar pace, they’d need separate justification.

Thankfully, that sort of justification isn’t in good supply, nor can it be until covid is far less common and the economy is far stronger.  That’s not to say that rates can’t rise (they certainly can), only that the sort of abrupt adjustment seen yesterday is less of a risk for now.

(Sidenote: you may encounter other news today that claims mortgage rates just hit another all-time low.  Be aware that the news in question is almost certainly based on the Freddie Mac Primary Mortgage Market Survey which receives a majority of its responses on Mondays.  Moreover, big rate moves on Wednesdays are essentially never reflected in the data, and of course this week’s big move was exclusively on Wednesday.  If we were talking about Monday’s rates, “all-time lows” would indeed be a valid retrospective.  We’re just not there anymore…)


Black Knight Notes Slowdown in Forbearance Improvement

A month end wave of plan expirations in December led
to a substantial decline in the number of active forbearances during the first
week of 2021. Black Knight says there were 92,000 fewer active plans as the week
ended, a decline of 3 percent and the largest weekly drop since early November.
Many of the plans that expired were reaching the 9-month mark. Program removals
totaled 146,000, offset by new plan starts, which were the lowest since spring,
and restarts which were at their lowest level since early October.

The company said however, that

Mortgage Borrowers Should Know Their Rates

Not knowing your mortgage rate can be an expensive mistake, especially in this rising interest rate market.

Yet nearly three-in-10 mortgage borrowers (29 percent) either didn’t know their mortgage rate or wouldn’t say, according to a survey by Bankrate.

This is a big problem, says Martin Choy, operations manager at Westwood Mortgage in Seattle.

“Most homeowners should know what their rate is. If they have an adjustable-rate mortgage, then they should contact their lender immediately and get their current rate,” Choy says.

Rates are climbing, so borrowers should act now

As rates continue to rise, this could be your last chance for many years to lock in a lower rate.

“During the big boom, before this last election, we could refinance mortgages at no cost because the rates were so low, but now the rates are heading up,” Choy says.

The average rates on 30-, 15- and 10-year fixed refinances have risen from a year ago, according to Bankrate’s weekly survey of large lenders. The benchmark 30-year fixed-rate mortgage rose to 4.70 percent as of July 11, 2018 from 4.13 percent a year earlier.

A $200,000 mortgage with a 4.70 percent interest rate costs $119 a month more in interest than the same mortgage with a 4.13 percent rate. As rates and mortgage amounts go up, the impact on your bottom line increases. Over time, this difference in rates can cost you thousands of dollars.

Good Candidates for Refinancing
When you refinance your mortgage, you pay off the remaining balance on your current loan and get a new one. You can get a new rate, new terms, or a new rate and new terms. You can get a cashout refinance where you tap into the equity to extract cash and then get a new mortgage. You can even pay money in and take out a smaller mortgage.

Those with ARMs may be good candidates for refinancing. As mortgage rates climb, so will your monthly payments. If you lock in a fixed-rate mortgage now, you may be able to save thousands of dollars later.

The same is true for people with high-rate mortgages who have since improved their credit.

“There are many variables in determining whether refinancing is a good option,” says Choy. “How much do you owe? How much is your house appraised for? Is your credit score good? If you’re in better financial shape now, both with your monthly debt ratio and credit score than when you got your mortgage, then you could qualify for better rates.”

Today, most people aren’t getting ARMs because the rates are about the same as fixed-rate mortgages, says Choy. “It’s always better to get a fixed-rate loan than an ARM when interest rates are equal. Now is a good time to refinance an ARM before rates get even higher.”

Cashout Refinance Options
If you have outstanding higher-rate consumer debt and an above-market mortgage interest rate, a cashout refinance might be a good option. That way you can consolidate all the debt into one presumably more affordable monthly payment.

Not only are mortgage rates rising, so are interest rates for credit card debt. Because credit card interest rates follow in lockstep with mortgage rates, people with credit card debt might be looking at higher monthly payments.

“With a cashout refi, you can use that money to pay off debt and get a new mortgage with better rates. That is an option for some homeowners,” says Choy.

What does refinancing cost?

Refinancing fees vary by lender and state, so be sure to shop around for specific costs. Calculate when you’ll break even on the new mortgage by taking into account the costs of refinancing and any prepayment penalty for paying off your mortgage early.

On average, borrowers can expect to pay between 3 and 6 percent of their balance in refinancing fees. Costs might include:

  • Application fee: This charge varies by lender and is used to cover processing your application and credit report. The cost ranges from $75 to $300.
  • Loan origination fee: The lender charges this fee for preparing your loan. This may be between 0 percent and 1.5 percent of the loan principal.
  • Points: You might pay loan-discount points, which is a one-time fee for reducing the interest rate on your loan. Each point is equal to 1 percent of the amount of your mortgage. There is another point-based fee charged by lenders to earn money on the loan. This latter fee of up to 3 percent of the loan principal can sometimes be negotiated.
    Other fees might include:
  • Appraisal fee
  • Title search/title insurance
  • FHA, RDS, or VA fees or PMI
  • Homeowner’s insurance
  • Attorney review
  • Inspection
  • Surveys

Sometimes these fees can be rolled into your new mortgage, or the lender will pay them in exchange for a higher interest rate. Refinances that don’t require borrowers to pay these up-front fees are known as “no-cost” refinancing.


Colorado First-Time Homebuyer Programs

Housing prices are on the rise in Colorado making it more challenging than ever to become a first-time homeowner.

Thankfully, the Colorado Housing and Finance Agency (CHFA) has several home buyer programs and grants for down payment and closing cost assistance for first-time homebuyers.

Get Pre-Approved for a Mortgage and Check Rates

National First-Time Homebuyer Loan Programs

  • FHA Loans – FHA home loans are very popular with first-time homebuyers cause they require a 580 credit score with just a 3.5% down payment. Debt-to-income ratios up to 50% are allowed making them perfect for low-income borrowers.
  • Conventional Loans – Conventional loans require a 620 credit score and a 5% to 20% down payment. If you put 20% or more down, mortgage insurance will not be required.
  • USDA Loans – USDA mortgage loans are for low-to-median income borrowers buying a home located in a USDA-eligible rural area. They provide 100% financing with a 620 or higher credit score. Mortgage insurance is required but the rate is the lowest of any type of mortgage program available.
  • VA Loans – Veterans of the U.S. military may be eligible for a VA home loan. No down payment or mortgage insurance is required and veterans with a 580 to 620 credit score are eligible.
  • HomeReady and Home Possible Loans – Freddie Mac and Fannie Mae created the HomeReady and Home Possible loan programs for low-income first-time homebuyers whose income does not exceed 100% of the area median income requiring just a 3% down payment and a 620 credit score.

Get Pre-Approved for a Home Loan Today

Helpful Resources

California First-Time Home Buyer Programs

CHFA offers down payment assistance and grants to first-time home buyers. You must meet the minimum requirements for a mortgage.


  • Minimum 620 credit score
  • Take a home buyer education course
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Best Places to Work in Manufacturing – 2020 Edition

Best Places to Work in Manufacturing – 2020 Edition – SmartAsset

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Manufacturing has a special place in the American story, but for the past few decades, this sector has been largely on the decline, impacting many workers and affecting decisions around things like budgeting and where they call home. Since 1997, more than 91,000 manufacturing plants have closed and almost 5 million manufacturing jobs have been lost, according to a 2020 study from the Economic Policy Center. Still, there are jobs to be had and careers to be built in the world of manufacturing in the U.S., provided you are looking in the right places. To that end, SmartAsset analyzed various data to find the best places to work in manufacturing in 2020.

To find the best places to work in manufacturing, we compared 378 metro areas across the following metrics: manufacturing as a percentage of the workforce, job and income growth between 2015 and 2018, job and income growth between 2017 and 2018, housing costs as a percentage of income and unemployment. For details on our data sources and how we put all the information together to create our final rankings, check out the Data and Methodology section below.

This is SmartAsset’s fifth study on the best places to work in manufacturing. Read the 2019 version here.

Key Findings

  • About one in 10 U.S. jobs is in manufacturing. Manufacturing represents 11.39% of jobs on average across all 378 metro areas we analyzed in our study. The metropolitan area where manufacturing makes up the highest percentage of jobs is Elkhart-Goshen, Indiana, where 57.45% of all jobs are in the manufacturing sector. The area where this rate is lowest is Laredo, Texas, where just 0.84% of the workforce is in manufacturing.
  • In recent years, manufacturing income has grown faster than jobs in the industry. From 2015 to 2018, the average number of manufacturing jobs has grown by just 3.66%, while the average income for manufacturing workers has grown by 6.44%.

1. St. Joseph, MO-KS

The St. Joseph metropolitan area, located in both Missouri and Kansas, has 24.74% of its workforce in manufacturing, the 18th-highest rate in this study. It’s also a place where jobs are fairly easy to come by: The unemployment rate in October 2020 was just 3.1%, 16th-lowest across all 378 areas we studied. St. Joseph scores lower in terms of income growth between 2015 and 2018 – though still within the top half of the study – coming in 145th for this metric, at 7.61%.

2. Lafayette-West Lafayette, IN

In the Lafayette-West Lafayette, Indiana metro area, home to Purdue University, around 25.23% of the workforce consists of manufacturing workers, the 16th-highest rate for this metric in the study. Income growth between 2017 and 2018 was especially high here, at 16.64%, seventh-highest of the 378 metro areas we analyzed. This seems to be a recent development, though, as income growth between 2015 and 2018 was not as robust at 8.73%, ranking in the top third of the study at 126th.

3. Hinesville, GA

Hinesville, Georgia saw manufacturing job growth of 27.50% between 2017 and 2018, the third-highest increase for this metric in the study. It also finished 38th in terms of job growth between 2015 and 2018, at a total of 14.50%. In this metro area, 17.81% of the workforce is in manufacturing, placing this coastal community 59th in the study for this metric, a top quartile finish.

4. Decatur, IL

Decatur, Illinois, in the central part of the Land of Lincoln, saw income for manufacturing jobs increase by 33.08% between 2015 and 2018, the fourth-highest increase in the study for this metric. The one-year increase in manufacturing job income between 2017 and 2018 was 12.88%, the 10th-highest bump in the study. Decatur is also a fairly affordable place to live, as housing costs represent just 10.81% of income on average, the fifth-lowest rate for this metric across all 378 metro areas in the study.

5. Spartanburg, SC

In Spartanburg, South Carolina, manufacturing jobs represent 25.05% of the entire workforce, the 17th-highest percentage for this metric overall. Spartanburg also ranks in the top 20 for both job-growth metrics: It comes in 15th for job growth between 2017 and 2018 (11.45%) and 18th for job growth between 2015 and 2018 (18.98%).

6. Fond du Lac, WI

In Fond du Lac, Wisconsin, 20.98% of the workforce holds jobs in manufacturing, the 30th-highest percentage we saw in the study for this metric. The unemployment rate in Fond du Lac for October 2020 was 3.7%, the 32nd-lowest rate on this list. The Fond du Lac metro area ranks toward the middle of the study in terms of housing costs as a percentage of income, placing 155th at 19.29%.

7. Columbus, IN

Manufacturing employees constitute 27.78% of the workforce in the Columbus, Indiana metro area, the 10th-highest rate for this metric in the study. From 2017 to 2018, the manufacturing job base grew just 1.67%, ranking 177th of 378 overall. The metro area also ranks toward the middle of the study in terms of housing costs as a percentage of income, ranking 160th with housing costs at 19.37% of income on average.

8. Rome, GA

Between 2017 and 2018, income for manufacturing workers actually went down 0.09% in the Rome, Georgia metro area, placing the locale in the bottom quarter of the study for this metric. However, the job market there is fairly strong right now: The unemployment rate in October 2020 was just 3.7%, 32nd-lowest overall. The Rome metro area is also a fairly robust town for manufacturing job opportunities, with 17.98% of jobs being in manufacturing, the 57th-highest rate we analyzed for this metric and a top-quartile result.

9. Appleton, WI

The workforce in the Appleton, Wisconsin metro area is 20.08% manufacturing employees, the 37th-highest rate of the 378 areas we studied. It also ranks strongly for long-term income growth, with pay for manufacturing jobs increasing 16.33% between 2015 and 2018, the 34th-largest leap we analyzed. Appleton’s job growth over the same time period is strong but not quite as robust, placing 102nd overall, at 8.63%.

10. Staunton-Waynesboro, VA

The final entry on this list is the Staunton-Waynesboro, Virginia metropolitan area. The metro area saw manufacturing jobs decrease by 0.32% between 2017 and 2018, ranking 256th overall for this metric. However, it performs well in terms of income growth between 2017 and 2018, for which it places 23rd of 378, at 9.97%. The Staunton metro area also ranks well for job growth between 2015 and 2018, with a 15.26% jump that places it 34th in the study for this metric.

Data and Methodology

To find the best places to work in manufacturing, we compared 378 metropolitan areas across the following metrics:

  • Manufacturing as a percentage of the workforce. This is the percentage of all workers employed by manufacturing firms. Data comes from the Census Bureau’s 2018 County Business Patterns Survey.
  • Three-year job growth. This is the percentage change in the number of people employed by manufacturing firms from 2015 to 2018. Data comes from the Census Bureau’s 2015 County Business Patterns Survey and Census Bureau’s 2018 County Business Patterns Survey.
  • One-year job growth. This is the percentage change in the number of people employed by manufacturing firms from 2017 to 2018. Data comes from the Census Bureau’s 2017 County Business Patterns Survey and Census Bureau’s 2018 County Business Patterns Survey.
  • Three-year income growth. This is the percentage change in manufacturing workers’ average incomes from 2015 to 2018. Data comes from the Census Bureau’s 2015 County Business Patterns Survey and Census Bureau’s 2018 County Business Patterns Survey.
  • One-year income growth. This is the percentage change in manufacturing workers’ average incomes from 2017 to 2018. Data comes from the Census Bureau’s 2017 County Business Patterns Survey and Census Bureau’s 2018 County Business Patterns Survey.
  • Housing costs as a percentage of average income for manufacturing workers. Data on median housing costs comes from the Census Bureau’s 2019 1-year American Community Survey. Data on the average income for manufacturing workers comes from the Census Bureau’s 2017 County Business Patterns Survey.
  • Unemployment rate. Numbers come from the Bureau of Labor Statistics and are for October 2020. This rate incorporates all professions, not just manufacturing-specific ones.

First, we ranked each metro area in each metric. From there, we found the average ranking for each metro area, giving an equal weight to all metrics except for manufacturing as a percentage of the workforce, which we double-weighted. We then ranked the areas based on this average ranking. The metro area with the best average ranking received an index score of 100 and the metro area with the worst average ranking received an index score of 0.

Tips for Manufacturing a Solid Financial Strategy

  • Find an expert who will help you build a financial plan. Whether you work in manufacturing or some other industry, a financial advisor can help you make the most of your income and other money. Finding the right financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors in your area in five minutes. If you’re ready to be matched with local advisors that will help you achieve your financial goals, get started now.
  • To buy or to rent? If you’re moving to a new city to work in a manufacturing job, you’ll need to find a place to live. Use SmartAsset’s free calculator to see whether it makes sense to buy or rent.
  • Work hard; save hard. Chances are, you don’t want to be in the workforce at your manufacturing job for your entire life; eventually, you’d like to retire. If your company offers a workplace retirement plan like a 401(k), make sure to take advantage of it, as it is the easiest option for saving for retirement.

Questions about our study? Contact

Photo credit: ©

Ben Geier, CEPF® Ben Geier is an experienced financial writer currently serving as a retirement and investing expert at SmartAsset. His work has appeared on Fortune, and CNNMoney. Ben is a graduate of Northwestern University and a part-time student at the City University of New York Graduate Center. He is a member of the Society for Advancing Business Editing and Writing and a Certified Educator in Personal Finance (CEPF®). When he isn’t helping people understand their finances, Ben likes watching hockey, listening to music and experimenting in the kitchen. Originally from Alexandria, VA, he now lives in Brooklyn with his wife.
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What Is a Backdoor Roth IRA?

Using a tax-free Roth to save for retirement is a smart move, but the Roth IRA door gets slammed in your face if you make too much money. Laura explains how high earners can still have one using a backdoor Roth IRA strategy.


Laura Adams, MBA
January 6, 2021

overcontribute to a tax-advantaged account, especially when you earn too much to qualify for a Roth IRA. I’m interested in how to do a backdoor Roth. What are the rules that apply for transferring funds from a traditional IRA to a Roth?

If you’re a regular Money Girl reader or podcast listener, you’ve heard me discuss the fantastic tax benefits of a Roth IRA. The problem is, as Jana mentioned, the door to a Roth IRA gets slammed in your face if you make too much money.

But sometimes when you can’t get in the front door, the backdoor is wide open! In this episode, I’ll explain a strategy known as the backdoor Roth or Roth conversion. We’ll cover how high earners can have a Roth IRA without breaking the rules.

What is a Roth IRA?

A Roth IRA is a retirement account for individuals that’s never taxed after you make contributions. Instead of getting an upfront tax deduction (like you do with deductible contributions to a traditional IRA), you can withdraw Roth IRA contributions and earnings entirely tax-free as long as you’ve had it for at least five years and reach age 59.5.

You can make IRA contributions as long as you have earned income and no matter your age, although you can’t contribute more to an IRA than you earn. To contribute the maximum for 2021, which is $6,000 or $7,000 for those over age 50, you must make at least that much.

For 2021, single taxpayers must have an adjusted gross income of $125,000 or less to make a full Roth IRA contribution.

But, as I mentioned, not everyone qualifies for a Roth IRA. For 2021, single taxpayers must have an adjusted gross income of $125,000 or less to make a full contribution. And married couples who file joint taxes must earn $198,000 or less. If your income exceeds these annual limits, you can keep an existing Roth IRA, but you can’t make new contributions.

Note that if you have a Roth at work, such as a Roth 401(k) or 403(b), there are no income limits to qualify. Unlike a Roth IRA, you can max out these accounts every year no matter how much you earn.

RELATED: Can Minors and Seniors Have a Roth IRA?

What is a backdoor Roth IRA?

A backdoor Roth isn’t a type of retirement account, it’s a method for high earners to fund a Roth IRA even when they don’t qualify for regular contributions. If your income is below the annual Roth IRA threshold, you don’t need a backdoor Roth because you can make regular “front door” contributions.

In addition to tax-deductible contributions, you can also make nondeductible, taxable contributions to a traditional IRA. Interestingly, the IRS allows you to convert nondeductible IRA contributions to a Roth IRA, which is the “backdoor” concept. It’s a clever and legitimate way to move money into a Roth IRA, even if you earn too much to qualify for one.

A backdoor Roth isn’t a type of retirement account—it’s a method for high earners to fund a Roth IRA even when they don’t qualify for regular contributions.

To create a backdoor Roth IRA, you must make a nondeductible (taxable) contribution to a traditional IRA and file IRS Form 8606, Nondeductible IRAs. Then you roll over those funds into a Roth IRA. You won’t owe taxes, except on any investment growth in the account earned between the time of your traditional IRA contribution and the Roth conversion. If it was a short period, your earnings and resulting tax should be small. Once your funds are in a Roth IRA, the earnings can grow and be withdrawn tax-free in retirement.

As I mentioned, there’s no income limit for traditional IRA contributions. So, converting nondeductible contributions from a traditional IRA to a Roth IRA allows anyone, regardless of income, to fund a Roth IRA.

Problems with doing a backdoor Roth IRA

Though sneaking into a backdoor Roth IRA sounds great, it doesn’t always work as planned.

If you already have pre-tax money in a traditional IRA, tax must be prorated over all your IRAs.

The IRS requires you to lump all your IRAs together when you make a distribution and doesn’t allow you to cherry-pick one account to convert. So, if you already have pre-tax money in a traditional IRA, tax must be prorated over all your IRAs.

For example, let’s say you have $5,000 in a nondeductible IRA that you want to convert into a Roth IRA, and you also have $15,000 in a deductible IRA. Since you have a total of $20,000 in IRAs, the $5,000 nondeductible portion is 25% ($5,000 / $20,000 = 0.25 or 25%) and the taxable portion is 75% ($15,000 / $20,000 = 0.75 or 75%).

You must pay the same ratio of tax on the conversion. In other words, 75% of $5,000, or $3,750, would be subject to tax. It’s up to you to weigh the upfront tax liability against the future benefits of getting tax-free withdrawals from a Roth IRA.

However, if you don’t have any pre-tax IRA funds, you could convert the full $5,000 from a nondeductible IRA into a Roth IRA with no tax due. Yes, this gets complicated. Just remember that if you have a substantial amount of pre-tax funds in a traditional IRA, doing a backdoor Roth IRA doesn’t help you avoid additional tax. Unfortunately, you can’t convert just nondeductible funds and forget about your pre-tax amounts.

Workaround for doing a backdoor Roth IRA

If you really want to do a backdoor Roth IRA, and you have a retirement plan at work, you can use it as a workaround solution. You could remove your pre-tax IRA money from the equation by rolling it over into your 401(k) or 403(b). That would leave you with just nondeductible, after-tax IRA money to convert to a Roth. 

High earners who fund a backdoor Roth IRA still won’t qualify to make new contributions to the account, but the converted funds grow tax-free, which could save a bundle.

This strategy only works if your workplace plan allows incoming IRA rollovers. Plus, make sure you’re happy with the plan’s investment choices and fees because you don’t have as much control over a 401(k) as you do with an IRA. If you’re self-employed, you could set up a solo 401(k) that allows roll-ins and move your pre-tax IRA money into it.  

Remember that high earners who fund a backdoor Roth IRA still won’t qualify to make new contributions to the account. However, the converted funds grow tax-free, which could save a bundle in taxes. Additionally, Roth IRAs don’t have required minimum distributions (RMDs), which means you can keep them indefinitely.

Doing a backdoor Roth can be worthwhile if you can afford to pay a potentially significant tax bill on your converted balance.

Consider that your converted funds count as income for tax purposes, which could move you into a higher tax bracket for that year. Plus, it’s a transaction that you can’t undo if you change your mind later on. So be sure to speak to a tax or financial advisor about the pros and cons of a backdoor Roth before crossing the threshold.