Refinancing replaces your current mortgage with a new loan, often to lower your interest rate, shorten your loan term or lock in a fixed rate. Some homeowners also choose a cash-out refinance, which lets you tap your home’s equity and receive a lump sum for larger expenses.

As housing markets shift and personal finances evolve, many homeowners periodically reassess whether their mortgage still fits their needs. Changes in income, home equity, debt levels or long-term plans can all create opportunities, or reasons to consider refinancing.

Still, refinancing isn’t automatically a win. Closing costs, extended loan terms and aggressive lender offers can quietly add thousands of dollars to your total cost. Before you apply, it’s important to understand the warning signs, run the numbers and make sure a refinance truly aligns with your financial goals.

Warning signs and red flags to watch for

Refinancing can be financially smart, but not every offer is created equal. Some lenders rely on confusing terms, aggressive marketing or hidden costs that can quietly increase what you’ll pay over time.

Be aware of warning signs and red flags that you might see when refinancing a mortgage:

• Too-good-to-be-true offers: If a refinance offer seems to be too good to be true, it probably is. Look out for aggressive pitches and offers designed to be irresistible, such as unbelievably low interest rates.
• No closing costs: Refinancing comes with closing costs, but some offers roll those costs into the loan amount, increasing your debt and the amount you’ll pay in interest. “No closing cost” offers should be reviewed carefully.
• Upfront fees: Most lenders won’t require you to pay any large fees upfront when refinancing a mortgage; you’ll just be responsible for closing costs at the closing. If the loan terms outline upfront fees, you may not be working with a legitimate lender.
• Excessive pressure: Refinancing a mortgage is a big decision, and you should take your time researching lenders before you decide to refinance. If a lender or broker is pressuring you to quickly decide to refinance, walk away.

Do the math: Rates, costs and break-even

Refinancing your home can help you get a lower interest rate, but you’ll also need to pay closing costs. Calculating your break-even point, which is the point at which your interest savings will cover the closing costs, can help you determine whether refinancing makes sense.

To get started, add up all of your closing costs, including lender fees, title costs and escrow services. You’ll also need to determine how much your new mortgage will save you per month; you can do that by subtracting your new monthly mortgage payment from your old monthly mortgage payment.

To calculate your break-even point, divide your total closing costs by your monthly savings. The resulting figure is the number of months that it will take before your savings will cover the closing costs and you’ll break even.

For example, if your closing costs are $6,000, and you’ll save $250 per month, it will take 24 months before you break even on your refinancing.

A common rule of thumb can help you decide when to refinance. If you have a 30-year mortgage, a 0.75% drop in interest rates will usually result in positive savings after three years, often justifying the cost of refinancing. With a 1% drop, you’ll break even in about 20 months.

Generally speaking, if interest rates have dropped by 0.5% or less, refinancing may not be worth it, since you won’t reach your break-even point in a reasonable amount of time.

When you refinance, you have the option to extend the loan term, taking a longer time to pay down your mortgage. Extending the loan term on a 30-year refinance could end up costing you more over time, since it starts amortization over again.

When you start paying on your new 30-year mortgage, your initial payments are interest-heavy, which increases your cost. Even if you have a lower interest rate, the longer mortgage term and interest could mean you’ll ultimately pay more. To avoid this scenario, consider refinancing while maintaining your loan term or even shortening your mortgage to a 15-year term if you can comfortably afford the payments.

Other financial traps you might overlook

Even if you avoid obvious red flags, refinancing can still come with less visible costs that affect your long-term finances. Understanding these potential traps can help you make a more informed decision.

Be aware of several other refinancing traps that could cost you money:

• Closing costs: Refinancing closing costs can range from 2% to 6% of your total loan amount, on average. If you have a $400,000 mortgage, your closing costs could be $8,000 to $24,000. Make sure that you understand these costs before you close on your refinance.
• New loan terms: Your new loan terms could delay your payoff or increase your mortgage’s lifetime interest. Carefully read the refinance terms and make sure you understand how they will impact your mortgage going forward.
• Mortgage insurance and equity requirements: If you refinance with less than 20% equity on a conventional loan, you’ll typically need to pay private mortgage insurance until you rebuild sufficient equity, which increases your monthly costs.

How to shop and compare refinance offers

Different lenders offer different terms and interest rates, so it’s important to shop around and compare quotes from different lenders. Request at least three quotes from different lenders and pay attention to factors like interest rates, closing costs and loan terms.

Consider getting offers from credit unions, online lenders and mortgage brokers, since they may offer lower interest rates and better overall terms than larger traditional banks and lenders.

Who should not refinance right now

Refinancing can offer benefits to some homeowners, but make sure that it makes sense for your specific situation. For example, if your refinance break-even point is in five years, but you plan to move within the next two years, refinancing doesn’t make financial sense, and you’ll pay more to refinance than you’ll save. Think about how long you plan to stay in your home to determine if you should refinance now.

You also need sufficient equity in your home to be able to refinance. According to A+ Federal Credit Union, you’ll generally need at least 20% equity in your home. Some lenders will work with you if you have less equity, but chances are you’ll need to pay private mortgage insurance until you build up 20% equity again, which adds onto the cost of refinancing and pushes your break-even point further out.

If you don’t have a strong credit score, refinancing may not make sense, either. Lenders often consider borrowers with poor credit scores as being higher risk, so they charge a higher interest rate to make up for that risk. If you’re refinancing to take advantage of a lower interest rate, you may not qualify for that interest rate, especially if your credit score has dropped since you initially bought your home.

Practical next steps before you apply

Before you apply to refinance a mortgage, do some calculations to determine if it makes financial sense. The Navy Federal Credit Union’s mortgage refinance calculator makes it easy to see how much refinancing could save or cost you.

Take some time to talk with a trusted financial adviser or mortgage professional about your goals and what you should consider when refinancing. These experts can provide advice tailored to your specific situation and can also help you spot potential financial pitfalls.

Curious about today's refinance interest rates? Use the tool below, powered by Bankrate, to explore and compare some of today's top offers:

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Anyone who’s tackled a home remodel knows costs can snowball fast, and today’s prices for materials, labor and financing don’t make it any easier. While mortgage rates have cooled slightly from their 2023 peak, many homeowners are still reluctant to refinance and lose their low rates.

That has sparked a new question: How can you fund a remodel without touching your first mortgage or maxing out credit cards?

Rather than relying on a traditional loan with fixed draws and paperwork-heavy funding, a growing number of lenders now offer flexible, card-based home equity lines of credit (HELOCs) that let homeowners tap their home’s value as needed. These hybrid products work much like a credit card, offering swipe access or digital transfers but with interest rates tied to home-equity lending rather than high-rate consumer credit.

Why homeowners are looking beyond traditional HELOCs

A standard home equity line of credit (HELOC) remains one of the most common ways to fund a home remodel. It offers a revolving line of credit secured by your home’s equity, typically with variable interest rates that are lower than most personal loans or credit cards.

But traditional HELOCs can feel rigid. Lenders often require a minimum draw amount, charge setup fees or impose strict repayment schedules. That’s where Trovy and similar platforms come in.

They combine the lower-rate borrowing power of a HELOC with the convenience and accessibility of a credit card. Instead of completing multiple forms and waiting for funds to transfer to a bank account, approved borrowers receive a Trovy card linked directly to their home-equity line.

With it, homeowners can pay contractors, purchase materials or move funds online, drawing only what they need, when they need it.

How a home-equity-backed card like Trovy works

Trovy’s model is designed for homeowners with built-up equity who want to finance projects gradually. You start by applying online, providing property details and verifying income and credit. Once approved, your line of credit is secured by your home but you don’t have to borrow a lump sum right away.

Instead, Trovy issues a HELOC card that functions like a credit card. You can use it for materials, appliances, contractor invoices and other purchases related to your renovation.

Because it’s tied to your home equity, the interest rate will likely be lower than a standard credit card. Trovy lists variable APRs in the 6% to 12% range, depending on your credit profile and available equity.

Other notable features:

• No minimum draw requirement. You only pay interest on what you use.
• No annual or closing fees. Trovy eliminates several costs that can make traditional HELOCs less appealing.
• Flexible repayment. Borrowers can pay down balances at any time without penalty.
• Tax-deductible interest. When funds are used for qualified home improvements, the interest may be deductible under IRS rules.

For homeowners managing multi-phase projects, say, a kitchen update now and a bathroom overhaul six months later, this flexibility can be a game-changer.

Real-world example: A remodel paid as it happens

Imagine a homeowner planning a $75,000 kitchen remodel. Rather than taking out a lump-sum home equity loan or depleting savings, they open a $100,000 Trovy line of credit. During construction, they use the Trovy card to pay a contractor’s $20,000 deposit and later buy $15,000 worth of appliances.

Because they’ve only drawn $35,000 so far, they pay interest on that amount, not on the full $100,000 line of credit. When phase two begins months later, they can use the same line to cover additional costs. This approach keeps cash flow flexible and helps avoid paying interest on unused funds.

It’s a modern take on the HELOC, built for how most renovations actually unfold one invoice, delivery or supply run at a time.

How Trovy compares to other funding options

The main advantage of a Trovy HELOC card is control. You can access your home’s value at lower rates than credit cards, but without the commitment of a lump-sum loan.

The trade-off is that, like any HELOC, your home is collateral. Missing payments could affect your credit or, in some cases, lead to foreclosure.

When Trovy makes sense and when it doesn’t

A home-equity-backed card is best suited for homeowners who:

• Have significant equity (at least 20%) and good credit.
• Prefer incremental funding over a single lump sum.
• Want a lower-interest alternative to credit cards for big-ticket home upgrades.
• Plan to deduct interest for qualifying renovations.

It may not be ideal if you:

• Don't have good credit.
• Don’t have enough equity.
• Prefer not to secure a credit line with your home.

The future of home-equity access

For homeowners who want to remodel without refinancing or racking up high-interest debt, Trovy’s home-equity-backed card offers a middle ground. You borrow only what you need, and enjoy rates below typical credit cards.

It’s not a one-size-fits-all solution, and borrowers should compare costs and read the fine print. But as more homeowners look for flexible ways to use their built-up equity amid high renovation costs, Trovy’s model offers a modern option in home-improvement financing.

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The ripple effects of each Federal Reserve meeting reach far beyond Wall Street. They shape the rate on your mortgage, the growth of your savings, and even the value of long-term investments.

Ahead of the September Fed meeting, mortgage rates dropped to their lowest level since October 2024. The average 30-year fixed rate slipped below 6.5% for the first time in months, thanks to cooling inflation and growing confidence that the Fed may begin cutting rates in the coming quarter.

The reaction was immediate: refinance applications spiked nearly 60% last week — the sharpest increase in more than two years. As rates shift, understanding who stands to benefit and who may lose ground is the first step in adjusting your financial strategy.

The big winners: Homeowners and buyers

Falling mortgage rates are a welcome break for homeowners who took out mortgages during the peak-rate periods of 2022 and 2023. For those with rates above 7%, today’s environment opens the door to consider refinancing into lower monthly payments.

That relief can free up hundreds of dollars per month, offering a much-needed buffer against other rising costs like groceries, insurance and energy.

Homebuyers also stand to benefit, at least in theory. Lower rates slightly boost affordability by reducing monthly payment burdens, making it easier to qualify for a mortgage. However, inventory remains tight in many markets, and prices are still elevated. This means buyers may find some relief but not a complete reset of the housing affordability crunch.

Curious about today's rates? Explore and compare some of today's best offers with the tool below, powered by Bankrate:

The losers: Banks, investors and savers

Not everyone wins when rates fall. Banks and investors holding older mortgage-backed securities (MBS) face losses as new loans enter the market at lower yields. As older, higher-interest loans get refinanced, the value of those securities drops, reducing bank profitability and potentially affecting investor portfolios with heavy exposure to mortgage debt.

Savers, too, may feel the downside. If the Fed signals a pivot to rate cuts in response to softening inflation and economic data, banks will likely lower yields on CDs and high-yield savings accounts.

For consumers relying on those accounts for a reasonable return, the recent gains in interest income may start to decrease. The era of 5% savings rates could be short-lived if broader rate cuts materialize.

Browse some of today's best savings account offers with the tool below, powered by Bankrate:

What it means for your financial strategy

When interest rates shift up or down, it sends a ripple effect across nearly every aspect of your personal finances. That’s especially true when mortgage rates move sharply. If you're a homeowner, a buyer, or someone with money in savings, now’s the time to pause and ask: What should I do differently?

Here are a few options to consider.

Refinance math: When it makes sense.

If you have a mortgage with an interest rate at least one percentage point higher than current offerings, now is the time to run the numbers. Just make sure you factor in closing costs, loan term changes and how long you plan to stay in the home. Refinancing isn’t always a slam dunk, but for many, it could mean real monthly savings.

Diversifying savings if yields fall.

If CD and high-yield account rates start to decline, look into laddering strategies or short-term Treasury bills to lock in higher yields while they last. Consider moving a portion of savings into I-bonds or other inflation-protected assets if you’re worried about losing ground.

Big picture: why every rate move creates both opportunity and trade-offs.

Whether you’re a homeowner, a saver or an investor, every rate change reshapes your financial landscape. With another decision coming in October, now is the time to revisit your strategy, weigh the trade-offs between borrowing and saving and make adjustments that support your long-term goals.

Falling mortgage rates can provide relief for homeowners and buyers but they also bring challenges for savers and financial institutions. Instead of seeing these shifts as purely good or bad, treat them as a signal to reassess and realign your money decisions.

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Mortgage rates have slipped to their lowest level in nearly a year, creating a pivotal moment for homeowners considering a refinance.

Those who bought after 2022, when rates climbed above 6%, now have an opportunity to reassess. Lower borrowing costs can translate into real savings, but the decision hinges on timing, long-term goals and whether the math works out after closing costs.

The current surge in refinancing isn’t just about cheaper payments. It’s being driven by signs of a cooling job market, falling Treasury yields and expectations that the Federal Reserve could enter a rate-cut cycle. Together, these forces are reshaping the landscape and prompting many homeowners to take a closer look at their options.

Mortgage rates fall, fueling a surge in refinancing

On September 11, Freddie Mac reported a 15-basis-point drop in mortgage rates from the previous week — the largest weekly decline in the past year. The average rate for a 30-year fixed mortgage fell to 6.35%, while the 15-year fixed dropped to 5.5%.

Homeowners moved quickly to seize the opportunity. Data from the Mortgage Bankers Association shows refinance applications climbed 60% in early September, rising from 1,010 on August 31 to 1,600 by September 7.

Why refinancing is back on the table

Several factors are contributing to falling mortgage rates. The August jobs report revealed that unemployment increased from 4.2% in July to 4.3% in August, suggesting a slowdown in the labor market. The Federal Reserve often cuts interest rates to help drive employment, and a rate cut could help drive mortgage rates down further.

Additionally, the Treasury yield, which can reflect interest rates, recently dropped to 4.04%. The 10-year Treasury yield, which is the borrowing cost the government pays over a decade, tends to closely correlate with mortgage rates. The recent drop in the Treasury yield means that mortgage rates will likely drop, too.

The falling mortgage rates are a welcome reprieve from the high-rate environment of the past 24 months. Beginning in 2023, mortgage rates climbed significantly, and interest rates for a 30-year fixed rate mortgage reached 8% on October 18, 2023, according to Mortgage News Daily.

Rates hovered between about 6.5% and over 7% for much of 2025, so the recent drop offers exciting opportunities for buyers and homeowners looking to refinance.

What homeowners could gain by refinancing now

If you bought a home when interest rates were higher than the current 6.35% for a 30-year fixed rate mortgage, you could potentially save money by refinancing. When you refinance, you can take advantage of a lower mortgage rate, which means you’ll pay less in interest each month, lowering your monthly mortgage payments.

Locking in a lower mortgage rate also saves you on interest over the life of a loan. Even if the interest rate has dropped just a few points, those savings can add up significantly across the life of a 30-year loan.

When you refinance, you also have the option to shorten your loan term. For example, if you’ve been paying on a 30-year mortgage but want to pay your home off sooner, you could refinance to a 15-year mortgage to speed up the process. By paying your home off sooner, you can again save on interest.

Explore and compare some of today's best refinance offers with the tool below, powered by Bankrate:

Costs and risks to weigh carefully

As refinance applications surge, it may be tempting to join in on the refinancing movement, but it’s essential to carefully consider whether refinancing makes sense for you.

Start by carefully reviewing the costs of refinancing. You will be responsible for paying closing costs to refinance, which typically range from 3% to 6% of your mortgage balance.

If you owe $250,000 on your home and want to refinance, you could pay $7,500 to $15,000 in closing costs. Those costs can vary depending on the lender you use and the type of refinance you choose, so be sure to shop around and compare costs.

Calculating the refinance break-even point can help you determine if refinancing makes financial sense. The break-even point occurs when you start saving money as a result of refinancing your home.

To start, add up all of your costs of refinancing, then determine how much money you’ll save each month. Divide your refinancing fees by the amount of money you save per month to determine how many months it will take before you start saving money.

For example, if your fees total $7,000 and you’ll save $350 a month, you’ll divide 7,000 by 350 for a result of 20 months. In this scenario, you’ll start saving money in just under two years.

Make sure that you meet the requirements to refinance, too. It’s a good idea to have built up at least 20% equity in your home before you refinance. While some lenders will allow you to refinance with less, they will typically require you to carry private mortgage insurance, which will eat into your savings.

It’s ideal to have a strong credit score, too. The better your credit score, the better the chances of a lender offering you the lowest available mortgage rate. It’s also important to keep your debt-to-income ratio as low as possible. That ratio affects your credit, plus each lender may require borrowers to meet specific debt-to-income ratio requirements.

Consider the timing of refinancing, too. If you’re planning to move in just a few years, refinancing may not make sense, especially if you could be moving before you meet that break-even date. If you refinance your mortgage and move soon after, you might never recoup the money you paid for your closing costs, ultimately losing money thanks to a refinance.

Is this window temporary?

The falling mortgage rates may be temporary. Economic instability from a volatile market and unpredictable tariffs could prompt interest rates to increase. If inflation continues to climb, the Federal Reserve might choose to keep interest rates higher to help fight inflation, which could result in higher mortgage rates.

Since it’s difficult to predict how long lower rates will hold, many homeowners are weighing their options now. The recent drop has already sparked a surge in refinancing, but future moves by the Federal Reserve and broader economic shifts could change the picture quickly.

For borrowers, the key is understanding how long it might take to benefit from a refinance and whether it aligns with their financial goals — especially in a market that could shift again in the coming months.

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Refinancing a mortgage may be a good move for you if you can lower your current interest rate or shorten your term to save on your monthly payments. But those aren’t the only reasons.

Maybe you need to tap your home’s equity for cash, get out of paying private mortgage insurance (PMI), or change from an adjustable to a fixed-rate mortgage. There are many good reasons to refinance, not to mention several reasons not to.

Some experts predict that mortgage rates may decline in 2025, which could make refinancing more appealing. At its May meeting, the Federal Reserve decided to keep interest rates steady at 4.25% to 4.5% — a level maintained since December 2024. This cautious approach reflects the Fed’s strategy to stabilize the economy amid ongoing economic uncertainty and trade tensions, suggesting that mortgage rates may remain steady for the time being.

However, the best time to refinance isn’t just when interest rates drop—it’s when it aligns with your financial goals. Here's a look at how refinancing works and if it's right for you.

How refinancing a mortgage works

Refinancing a mortgage works by replacing your current mortgage loan with a new one, preferably with better terms, a lower interest rate and new (hopefully lower) monthly payments. When you refinance, you usually pay closing costs and fees.

You won’t receive money from the loan unless you’re doing a cash-out refinance. Instead, your lender will use the loan amount to pay off your existing mortgage. After closing, you’ll start making monthly payments on the new loan.

For example, if you refinance your current 30-year mortgage to a 15-year mortgage, the number of years you paid on your original loan doesn't matter because your payments will start over and continue for the next 15 years.

How much does it cost to refinance a mortgage?

The type of refinance loan you choose depends entirely on your current situation, needs and wants. You may want to tap the equity in your property and use it to finance a large expense, or change the interest rate and terms of your existing mortgage to lower your monthly payments.

Whichever type of refinancing you opt for, just make sure the benefits outweigh the costs. Yes, you will likely pay closing costs and lenders' fees on a refinance just as you did with your first home loan.

In fact, refinancing your mortgage can cost between 3% to 6% of the new loan amount, according to the Federal Reserve.

For example, if you still owe $350,000 on your home, expect to pay between $10,500 to $21,000 in refinance fees. But shop around, because these costs can vary by lender.

You’ll want to do some math to determine whether or not it's worth refinancing. It can take a few years for the accumulated monthly savings to exceed the closing costs on your refinance or the break-even mark.

Which type of mortgage refinance is right for you?

Rate and term refinance

Rate and term refinancing, which lets you change the interest rate and terms of your existing mortgage, is considered the most common type of refinancing. Your mortgage balance won’t change, but your monthly payment may drop because of a lower interest rate or longer repayment term.

This type of refinancing can also be used to shorten your repayment term. Your monthly payment may increase, but you’ll pay off your loan faster and spend less in interest over the life of your new loan.

Cash-out refinance

A cash-out refinance lets you tap into the equity in your property. It replaces your existing mortgage with a new, larger loan, giving you access to the difference between the two in real money. The terms of your refinance might differ significantly from your original mortgage loan, including new rates and terms.

Although a cash-out refinance can be a convenient way to access large sums of money to pay for a large expense, home improvements or a remodeling job, it comes with risks. You may pay a higher interest rate than on your existing loan, and if you don’t make payments, you risk losing your home to foreclosure.

Also, not all borrowers qualify. You need a certain amount of home equity — usually 20% or more, which can vary by lender, and you must meet your lender’s credit score and debt-to-income (DTI) ratio requirements.

No closing cost refinance

If refinance rates are low, but scraping together the upfront costs is out of the question, a no-closing cost refinance may be the answer. This is especially true if you plan to stay in your home for only a few years.

However, lenders may recoup their closing costs by raising the mortgage rate, wrapping the fees into the financing or rolling the fees into the total principal balance you’ll owe. Still, you’ll pay no upfront origination fees at closing, which means a shorter break-even point.

FHA refinance

If the Federal Housing Administration (FHA) insured your existing mortgage, you could lower your monthly payments with an FHA streamline refinance. You may even be able to roll your closing costs into the new loan, saving you money upfront, although your lender may charge a higher interest rate to make this happen.

Borrowers often use this type of loan to refinance into a conventional mortgage to suspend mortgage insurance premiums (PMI).

VA refinance

A VA refinance, or interest rate reduction refinance loan (IRRRL), is for homeowners with an existing mortgage backed by the U.S. Department of Veterans Affairs (VA).

This type of refinance can help borrowers lower their monthly mortgage payments by switching from an adjustable-rate to a fixed-rate loan. With this refinance, borrowers are typically required to pay a one-time VA funding fee in addition to closing costs. The VA funding fee for a VA refinance generally ranges from 0.5% to 3.3% of the loan amount.

USDA Assist Refinance

Current USDA borrowers can access low- or no-equity refinancing with streamlined assist refinance loans from the U.S. Department of Agriculture (USDA). However, you will need to go through a USDA-approved lender for your refinance.

This type of program does not typically require credit approval, an appraisal, home inspection or a low debt-to-income ratio to qualify.

Cash-In Refinance

A cash-in refinance is an option for borrowers who want to reduce their monthly mortgage payments, lower interest costs, remove PMI, or inject cash into their homes.

With a cash-in refinance, borrowers put a lump sum payment toward their existing mortgage balance at closing, which reduces the loan-to-value (LTV) ratio and increases the equity in their homes.

This type of refinance can be a good option if you lack equity in your home or are underwater on your mortgage (which means you owe more than the property is worth in the current market).

Short refinance

Missed mortgage payments and foreclosures often come with a higher cost of living. If you find yourself in a tight spot, you may be eligible for a short refinance.

This type of refinance involves replacing your existing mortgage with a lower-balance loan, which can reduce your monthly payments and help you keep your home. Lenders benefit by escaping any short sale or foreclosure costs.

Reverse mortgages

A reverse mortgage isn't the same as refinancing, but they are similar. A reverse mortgage lets older borrowers tap into the equity in their home. However, unlike a standard mortgage where a borrower makes payments to the lender, the lender makes regular payments to the borrower.

It's also possible to refinance a reverse mortgage, ideally with a better interest rate or different monthly payout, and the steps are similar to refinancing a conventional mortgage with a few caveats. You can't refinance a reverse mortgage any earlier than 18 months from when you closed on your original reverse mortgage.

Also, the money that's available to you must be equal to or more than five times the loan closing costs, and the additional cash you get from the refinance must be equal to or more than 5% of the amount being refinanced.

Steps to take to refinance a home

Once you've decided that you want to refinance a home loan, here are the steps you need to take:

1. Find the type of refinance that works best for you. 
2. Next, you’ll want to shop around for a mortgage lender who is willing to accommodate your needs. 
3. Then, gather all of the necessary documents. Much of this information will be the same as when you applied for your existing mortgage loan, including income, tax returns, assets, debt, credit score, etc. If you're married, your lender may also ask for your spouse’s information.  
4. After your lender approves your refinance, you may be given the option to lock in your interest rate, which usually lasts between 15 to 60 days — this way, you know the rate you’ll pay before the loan closes. You might also choose to float your rate, which means not locking in the rate before proceeding with the loan and hedging your bets that interest rates will go down.
5. Once you submit your refinance application, your lender will begin the process of underwriting where the lender verifies your financial information and looks over all of the details of the property to ensure what has been submitted is accurate. 
6. The lender typically also orders a home appraisal before you refinance, which will be scheduled. You'll want to put together a list of all of the renovations and updates you've made to your home and tidy up a bit so it looks its best. 
7. Once the home appraisal and underwriting are complete and everything is in order, it's time to close on your new loan. Before closing, you'll receive a document called a Closing Disclosure, which contains all of the final numbers for your refinance. You have a few days to exercise your right of rescission and cancel your loan if something happens and you need to get out of your refinance before the standard three-day grace period ends.

Does refinancing impact your credit?

Generally, refinancing your mortgage will temporarily lower your credit score and can remain a factor for up to two years. When you shop around for a lender and apply for refinancing, each lender will do a hard credit inquiry, which will reflect on your credit report and your score may drop.

However, you can limit this by applying within a short period of time, usually within a 14- to 45-day window, depending on the scoring model.

Refinancing a home loan can also result in the closing of the account of your existing home loan, which is also reflected on your credit report. But, the impact on your credit score can vary and is based on the size and age of the account. Over time, the impact of a refinance on your credit score will generally lessen as your other credit accounts age.

Should you refinance a home loan?

There are several things to consider before refinancing. Doing so can change the conditions of your mortgage and help you secure a lower interest rate and new repayment term.

Refinancing can also lower your monthly payment, allow you to consolidate debt or provide the option to take some cash out of your home’s equity to pay for renovations.

But, there are times when refinancing is not recommended.

One drawback of refinancing is that it comes with closing costs. Also, if you’re at least halfway through paying off your existing loan, it's unlikely you'll save money refinancing. That's because refinancing with a new loan restarts the clock all over again, meaning you may pay more in interest over time.

Pros and cons of refinancing

Patrick Boyaggi, Co-Founder & CEO of Own Up says, “Refinancing in today's market may not make sense for most homeowners because current market rates are significantly higher than the rates most homeowners secured during the pandemic's low-rate environment.”

While the Federal Reserve recently decided to keep interest rates steady, mortgage rates are still higher than those secured during the pandemic's low-rate environment.

However, some homeowners are still choosing to refinance to tap into the equity they've built, using the funds for home renovations or to consolidate higher-interest debt. Whether refinancing is the right move depends on your financial situation and goals.

There are many positive reasons to refinance, but there are also a few drawbacks to consider.

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Does it matter what time of year you go house hunting? You can find houses during all seasons. Determining the best time to jump into homeownership means understanding the pros and cons of buying a house at different times — and deciding when it’s best for you. 

When is the best time of year to buy a house? 

Seasonality tends to affect factors such as inventory, the number of homes for sale, and purchase price. Market conditions, such as job growth, mortgage rates and tax incentives, also influence the best time to search for a new house. But, the best time to purchase a home isn’t always when inventory is highest or when prices are the lowest. These are important factors to consider, but broader market conditions and your personal needs will be paramount in finding the right home. 

Winter

Winter is traditionally the slowest season for home sales and, as a result, it’s the cheapest time to buy a home. There's usually less competition between buyers and sellers may be more willing to negotiate to make a sale since buyer interest is lower than it is in the spring. The best time for a bargain is "the winter months, especially from the week of Thanksgiving to mid-January" Lawrence Yun, chief economist for the National Association of Realtors (NAR), told Kiplinger.

"The best time for price negotiations is during the winter months provided the right home appears on the market," Yun said.  While prices are cheaper during the winter, inventory is far more limited. There are fewer open houses in the winter months and you may be house hunting in less than ideal conditions. 

Evaluating a home’s roof and exterior grounds in a cold climate can also be challenging especially if it’s covered with snow or ice. It’s hard to assess the amount of natural light you’ll enjoy when the days are short. At the same time, inspecting a property during the winter lets potential buyers determine the effectiveness of heating systems and the structure’s integrity. 

Completing a sale may be easier than the peak home-buying months. The closing process tends to be speedier as lenders process fewer applications during this season and inspectors have less backlog.

Spring

Spring is when the weather and home buying start to heat up. In the spring, there is pent-up demand on both sides. Sellers and buyers often sit it out during the winter months. Most people start looking for homes as the weather gets warmer.  "Inventory is higher in spring and early summer, but that is when there are also more buyers in the marketplace. The days on market shortens and multiple offers become more prevalent" said NAR Chief Economist Yun.

Spring may not have the best weather, but it historically has the quickest home sales. One of the reasons sales inventory tends to increase when temperatures rise is because houses show better. Houses look much better in the spring sunlight and when landscaping is in bloom. People that want top dollar know spring is the season to sell and generally price their homes high during the spring.

The desire to get settled before the new school year begins is another reason why home buyers wait until spring to go house hunting and why they want to complete the sale before the fall. Mr. Yun noted that "Parents try their best to avoid school — year disruptions for their kids." While spring is generally one of the best times for inventory, competition is also fiercer, which can result in bidding wars and less room to negotiate with sellers.

Spring is typically a rainy season, which can magnify any defects of a property. Water infiltration can lead to rot, mold and mildew.  Seeing a property at this time of year can reveal costly damage that may be harder to detect in the warmer, drier conditions of summer. 

Since springtime is such a busy season in real estate, it’s not uncommon for mortgage brokers, real estate agents and inspectors to have busy schedules and thereby create longer wait times for buyers. 

Summer

 The early days of summer are considered peak real estate season in the U.S. Many of the same reasons buyers shop in the spring apply to home buying in summer as well — warm weather, school breaks, and having more hours of sunlight to go to open houses. If you are determined to get into a house before the summer is over, expect to come in with a strong offer. And you might consider being flexible on terms, not just price. 

There are parts of the country where real estate is slow in the summer because it’s simply too hot to shop comfortably. Florida is a great example. The temperature and humidity in the Sunshine State are at its worst in July and August, so searching for homes can be less than pleasant.

Buying in the summer has its pros and cons, but timing matters a lot. If you can hold off until the end of the summer, deals abound. In most areas the market slows down as it gets closer to August. Late August traditionally gives you a great opportunity to find deals. The sellers may need to get their kids settled and enrolled by the next term or may not want the listing to go stale. 

Don’t overlook the houses that have languished on the market during the spring and summer selling seasons. There are any number of reasons why a home might not have sold. A home that has been on the market for an extended period may end up being a great find.

Fall

While buyers shopping in the early fall may be trying to move before the weather gets bad, many sellers want to avoid moving during the holiday season. This may give you more room to negotiate when you do make an offer on a house.  Fall is one of the best seasons to negotiate a more desirable price because sellers often take their home off the market prior to winter.  

Buying a home in the fall can be ideal for home buyers trying to stretch their budget. When summer ends, sellers get more motivated. Prices usually get lower and there are opportunities to get a deal. As is the case with winter, there’s also less inventory during the fall. "Sales and listings drop in September," Yun noted. 

There are also fewer buyers during the fall. People — especially parents — who have looked during the spring and summer typically want to be settled into a home before school starts. Once fall arrives, they tend to put home shopping on hold until the next spring. If you wait until around October, you may be able to get the most bang for your buck. Desperation can start to set in for sellers around that time. This is particularly true of sellers who want to sell their home by the end of the year.

October can be the best month in the fall to buy a home as prices tend to be less competitive, but inventory remains at a good level. Where severe weather is of concern, buying during this month still gives time to settle in before the brunt of winter arrives.

Average daily home sales and median days on the market by month

Stiff competition for homes will continue through the fall, according to the National Association of Realtors (NAR).  “In areas with persistent housing shortages, principally in the Northeast region, the recent falling interest rates could reignite more buyer interest—but without necessarily increasing supply,” says NAR Chief Economist Lawrence Yun. “Therefore, multiple offers could intensify.” 60% of home sellers nationwide sold their home in less than a month, a sign of strong buyer demand, according to the latest REALTORS Confidence Index. 

Buyers are making concessions and cash offers to secure a home: 18% of buyers waived the inspection contingency and 20% waived the appraisal contingency in August, according to NAR’s Confidence Index. All-cash sales were down slightly, to 26% of buyers, from 27% one month ago and 27% one year ago.

Let's take a look at average sales of existing and new home listings by month with help from NAR's data.

Bottom line

The season, month and even week or day that you buy can impact many different parts of the home-buying process, including how many options you have while shopping and how much you end up paying at closing. If you want your pick of homes and don’t mind paying for it, the best time to buy a house ends up being in the late summer or early fall. There tends to be less competition than at the peak during the spring and summer, but still a fair number of houses on the market. 

In the winter, there are fewer homes on the market, but buyers often have more negotiating power, since there are fewer of them out house hunting. As mortgage rates continue to climb, you might find some unexpected savings by buying off-season or maybe not. As Mr. Yun, chief economist of NAR, observed: “This year is unusual in terms of having historically low inventory. Therefore, many people got outbid by other buyers. Those who got outbid will still be in the market to look for fresh listings.”

The Federal Reserve cut the fed funds rate, a key overnight bank lending rate that influences other rates, by a half-percentage point at its September meeting of the Federal Open Market Committee (FOMC). Mortgage rates were already falling from a high of 7.39% in May ahead of the rate cut. This rate cut should help to bring rates down further and may coax some homeowners to put their home on the market. If mortgages rates fall and inventory remains low, there could be a spike in prices due to competition. 

So, if you can find financing that you can afford, it could be beneficial to lock in a rate. There’s always the opportunity to refinance down the road as rates fall further; meanwhile, you're still building equity while you wait.

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The government’s consumer watchdog group is suing high-cost installment lender Heights Finance Holding and its subsidiaries for illegal loan-churning practices that collected hundreds of millions of dollars in loan costs and fees from struggling borrowers.

In a complaint filed in a South Carolina district court, the Consumer Financial Protection Bureau (CFPB) alleges that Heights Finance identifies borrowers who are struggling to pay their existing loan debt and “aggressively pushes” them to refinance.

According to a Federal Reserve Bank of New York report earlier this year, the number of U.S. households grappling with paying off debt is rising, as Kiplinger reported. The chief culprits behind the increase are mortgages, credit card balances and auto loans, which together helped drive U.S. household debt to hit a record $16.90 trillion at the end of 2022, as reported.

In the Heights Finance matter, the CFPB said in a statement that borrowers “become trapped in the loan-churning scheme and often are forced to refinance multiple times.”

The agency is seeking to end the company’s illegal loan-churning practices, gain compensation for harmed consumers and require the company to pay a fine.

CURO Group Holdings, which acquired Heights Finance in November 2021, denied the allegations in a statement and said it will “vigorously defend” its business practices.

The complaint relates to certain small loans originated by Heights Finance’s subsidiaries prior to the 2021 acquisition, CURO said. Small loans account for less than 15% of the company’s direct lending portfolio as of June 30, 2023, CURO said.

“CURO has previously disclosed the underlying civil investigative demand and our related indemnification rights in public filings with the Securities and Exchange Commission,” the company added.

Heights Finance also called 'Southern'

Heights Finance, formerly known as Southern Management, operates under several trade names including Covington Credit, Southern Finance, and Quick Credit, and is collectively called “Southern.”

“What Southern sold as a financial lifeline was, in reality, pushing customers into financial quicksand,” said CFPB Director Rohit Chopra.

The CFPB charges that Southern harmed consumers in several ways including by coercing distressed customers into fee-laden cycles of reborrowing, with a strategy focused on getting customers to refinance their loans as early and as often as possible.

The company also has incentive-compensation programs that reward employees who are the most successful in driving payment-stressed borrowers into refinancing and punishing those employees who do not, the agency charges. The company lists refinancing as the top priority when interacting with borrowers, putting refinancing ahead of even collecting the full past-due balances on loans, the CFPB said.

Other ways that Southern allegedly harmed consumers is by targeting customers for their likelihood to refinance, and by falsely marketing refinances as fresh starts, the agency said.

The CFPB invites consumers to submit complaints about financial products and services to its website or by calling 855-411-CFPB (2372).

Meanwhile, Kiplinger recently reported on personal debt management tips, which include the use of a budget or spending tracker to measure performance and give insight into areas that may need improvement.

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If you’ve owned your home for a while, odds are you are sitting on home equity. At the end of the second quarter of this year, the average homeowner with a mortgage had $307,000 of equity in their home, according to Cotality. Of that amount, an average of $205,000 was “tappable” — the amount lenders will allow a homeowner to borrow while maintaining a 20% equity stake in their home.

With a home equity loan or a home equity line of credit (HELOC), you can draw on your equity for just about anything — to fund your business, pay off high-rate debt or update your home, to name a few. And because home equity loans and HELOCs are secured by your home, they typically come with lower interest rates than credit cards or personal loans.

But before you pull the trigger, it’s smart to evaluate your options and be aware of the risks that come with borrowing against your home’s value.

How a HELOC works

Home equity loans provide a single lump-sum disbursement, typically at a fixed rate. In most cases, you start making monthly payments to repay principal and interest on the loan right away, and the repayment period can range anywhere from five to 30 years.

A HELOC is a revolving line of credit, so you can borrow and repay funds as you need them. HELOC interest rates are typically variable and tied to the prime rate, which changes in tandem with the Federal Reserve’s target federal funds rate.

After three quarter-point rate cuts in September, October and December, the Federal Reserve closed out 2025 with lower borrowing costs. The Fed’s next policy-setting meeting takes place January 27–28.

The national average rate range for a $30,000 line of credit is 4.99% to 11.74%, according to Bankrate’s national survey of lenders. If you have a good credit score (usually 740 or above), that will help you qualify for the lowest rate available.

With a HELOC, you can borrow from your home equity during the draw period, which typically lasts for about 10 years but can be longer or shorter. During the draw period, you may be able to make interest-only payments on the amount that you borrow. If you want to reduce the balance more quickly, you can pay the principal at any time or agree with the lender to make a minimum principal payment — typically 1% to 2% of the balance — during the draw period.

You can use a check, a credit or debit card connected to the account, or an electronic transfer to access funds from your HELOC. If you owe money on the HELOC at the end of the draw period, you’ll enter a repayment period — typically up to 20 years — during which you’ll pay principal and interest at prevailing rates. Payments are usually made monthly, amortized to retire the debt by the end of the repayment period.

Whether a line of credit or a loan better suits your needs depends on how you plan to use the money and your comfort level with the structure of the loan or credit line. If you’re concerned that interest rates may rise again in the future or you want a one-time disbursement, you may prefer a home equity loan.

If you want to have continuing access to funds over the course of several years or would like to have more flexible repayment options, a HELOC may be the better choice.

Any co-owner of the home, such as your spouse or partner, will be required to sign off on a HELOC or a home equity loan. That’s true even if you’re the sole earner in your household, because your shared home is collateral for the loan or line of credit. Late payments, defaults or a foreclosure will negatively impact both owners’ credit.

Popular uses for a HELOC

Debt consolidation is one of the most common reasons homeowners take out a HELOC or home equity loan. Borrowing against your home may look especially attractive to refinance high-rate credit card debt; credit card rates recently averaged just under 20%, according to Bankrate.

But it’s important to understand the risks of using debt that’s secured by your home to pay off unsecured debt, says Ted Rossman, senior industry analyst for Bankrate. If you struggle to keep up with expenses — a common reason people get into credit card debt in the first place — you may also struggle to pay off your HELOC or home equity loan, Rossman says. If that happens, the lender could take possession of the property and require you to vacate your home.

Most HELOCs come with a “curtailment clause,” which allows lenders to cut off access to the line of credit if they detect a significant change in your financial situation or the value of your home.

In addition, borrowing against your home could be more expensive than some other strategies you could use to pay off high-interest debt. Depending on the amount you borrow, your lender may require you to get an appraisal, which can cost anywhere from a few hundred dollars to a few thousand dollars.

Closing costs for a HELOC may run anywhere from 2% to 5% of the loan amount, but some lenders will waive the fees if you keep the credit line open for three years or more. Lenders also usually charge an origination fee of about 1% of the loan amount or credit line. However, if the amount you’re borrowing is small, you may be able to get some fees waived.

Transferring high-rate credit card debt to a card with a low introductory interest rate on balance transfers is less costly and won’t put your home at risk. If you have good credit, you can probably get a 0% rate for 18 to 21 months, Rossman says. You usually have to pay a balance-transfer fee, typically 3% to 5% of the amount you transfer.

A balance transfer makes sense only if you can pay off the balance in full before the 0% rate expires. After that, you’ll likely be charged a much higher variable interest rate on any remaining balance.

Home-improvement projects are another popular reason that homeowners tap their equity. Using a HELOC or home equity loan to pay for a project that will enhance your home’s value, such as remodeling your kitchen or renovating bathrooms, is less risky than paying off unsecured debt with the funds.

And if you itemize deductions on your tax return, the interest you pay on home equity that is used to buy, build or improve your primary residence or qualified second residence is tax-deductible, up to certain limits; you can deduct interest paid on combined mortgage and home equity debt of up to $750,000 if single, or married filing jointly, or $375,000 if married filing separately.

If you move before the loan is repaid, proceeds from the home sale could be used to pay off the loan.

Other HELOC possibilities

Some homeowners use their home equity to finance the purchase of a second home. This strategy is especially popular with people who plan to sell their primary residence eventually and move into their second home. If you sell your primary residence before the draw period ends on a HELOC, you could then use the proceeds to repay the line of credit in full.

Home equity can also help you fund business expenses. Interest rates for a HELOC or home equity loan are usually lower than those for a business loan or line of credit because unsecured debt tends to have higher rates than debt secured by collateral. You’ll also have more time to repay the loan than generally permitted by traditional business loans.

Although you won’t be required to lay out a detailed business plan when you apply for a HELOC or home equity loan, as you would for a business loan, it’s still a good idea to have one in place. And if your business fails, you’ll put your home at risk if you can’t keep up with payments, so it’s best to limit home equity borrowing and to have a strategy for making payments regardless of whether your business survives.

Finally, some parents use home equity to help pay for a child’s college education. Home equity loans and HELOCs may offer lower rates than Parent PLUS loans, which currently have a fixed rate of 8.94%, and private student loans, some of which come with rates as high as 15% or more, depending on the borrower’s credit.

However, before tapping home equity, families should max out on federal student loans, which have a fixed rate of 6.39% for loans disbursed from July 1, 2025, to June 30, 2026. They offer other benefits, too, such as a tax deduction for up to $2,500 in interest, income-based repayment plans and loan forgiveness for public service employees.

Using a HELOC as an emergency fund

Even if you don’t need access to your home equity right now, you might consider taking out a HELOC to serve as a source of emergency funds in the event of job loss —especially if you work in an industry that is prone to layoffs.

In addition to vetting your credit, lenders will take a close look your other debts and your income, which means you may not be able to qualify for a HELOC after you’ve lost your job. You can apply for a HELOC and leave the credit line untouched until you need it.

If you use a HELOC as an emergency fund, consider whether you’ll still be able to make monthly payments if your income is reduced after a job loss. For instance, if you borrow $50,000, an interest-only monthly payment would come to about $350.

A HELOC isn’t a substitute for having at least three to six months’ worth of living expenses in a savings account, but it could be beneficial to have a credit line available as a backup.

Use the tool below to explore and compare some of today's top home equity product offers, powered by Bankrate:

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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For Shelly Parks, cohousing and its emphasis on close community ties appealed for both professional and personal reasons. A former marketing professional for large retirement communities, Parks felt like something was missing. “We crave connectedness, but our culture doesn’t do a great job of allowing it,” she says. “Cohousing gave me the answer I was looking for.”

Often confused with other types of living arrangements, like shared living or even communes, cohousing combines private homes with shared, common spaces, often in a village-like setting. Cohousing may be multigenerational or exclusively for retirees, but unlike other communities, facilitating social interaction is a big part of the cohousing model. Residents are typically expected to share in the community’s joint needs—so-called “workdays” to spruce up gardens or service on a committee, for instance—with decisions managed as a group, by consensus or consent. Five years ago, Parks left her corporate job and founded a cohousing consulting firm. Now, she and her husband will move into Skagit Commons, a cohousing community in Anacortes, Wash.

Many people have made a similar choice, adopting the cohousing lifestyle. In the U.S. today, there are 172 established communities, according to the most recently available numbers from the Cohousing Association of the United States. Another 105 communities are forming, and 20 are under construction. Trish Becker-Hafnor, executive director, adds that the actual numbers may be larger, as the data is still being analyzed to chart growth.

The housing concept has also experienced some growing pains, as well as the occasional financial failure. Rocky Corner, a 30-unit, 33-acre cohousing community in Bethany, Conn., is one example. The first cohousing experiment in the state, Rocky Corner collapsed into foreclosure earlier this year after a decade of planning, leaving some senior investors with lost money and no homes. Troubles were largely blamed on unanticipated costs and bureaucratic delays that piled on the debt and dragged out the project’s timeline. Because the infrastructure is completed and 22 homes built, the community is hopeful that development will continue at some point. 

Still, investing in a new cohousing project inherently has a higher and different level of risk than purchasing a new home from a home builder or condominium developer because buyers must commit more money upfront to help develop these communities. Those risks especially matter now because of the impact that high inflation has on all housing developments and construction costs.

Although it’s an unusual case because the failure occurred so close to completion, Rocky Corner does highlight the biggest risks that all cohousing communities face, which can be described as the four M’s: market conditions, members, money and management. “Most cohousing projects that lose money and time have failed in the early feasibility stage, mostly because people have unrealistic expectations,” says Jim Leach, a cohousing pioneer and founder of residential and multiuse development firm Wonderland Hill Development Co. in Boulder, Colo. Leach helped develop the nation’s first cohousing community and many others during his five-decade career. 

For instance, when a project inks a final construction budget based on finished plans and specifications and has all planning approvals in place, it generally needs to have committed buyers for 70% to 90% of the homes to secure construction financing, Leach notes. “In today’s financial underwriting world,” he says, “committed buyers will likely need to have 20% or more of the price of their homes invested in the project before the final construction loan is approved to close.” 

People who are attracted to cohousing often want to be part of “‘creating the dream,’ so to speak,” says Leach, who lives in Silver Sage Village Senior Cohousing in Boulder, Colo., a cohousing community he and his company planned and developed from 2003 to 2007. “But if you really want to lower the financial risk, the best thing you can do is buy into a community that’s already established or nearing completion.” 

Community commitment is a key element of any cohousing endeavor, and it’s more than just the number of qualified member buyers, Leach says. A cohousing development requires strong community decision making, team building and social connections right from the start.

In fact, successful cohousing communities typically began with a few, so-called “burning souls,” proponents say. Jim Mendell is one of them. For 27 years, he and his family lived in a Vermont home that was big on outdoor amenities but had little contact with neighbors. “Once we became empty nesters,” he says, “we wanted to have that sense of community where we know our neighbors could be part of our everyday lives.” He and his wife, Meg Kamens, started to explore cohousing and attended a few national conferences to learn more about it.

A visit to nearby Bristol, Vt., where a large, historic property near the town center was for sale, became the launchpad for a cohousing vision. Other buildings on adjoining land were also for sale. “We found partners and were able to mortgage the properties,” Mendell says. “We then put the word out locally, meeting in Bristol and surrounding towns.” Other families joined in, and the result was a plan for a 14-unit community of homes and the historic common house. With construction financing from a local bank, “we were off and running,” he says. “Within a year, we had sold all the units and were able to pay off the loan.” Bristol Village Cohousing was born in 2017, and five years later it has 31 residents between the ages of 11 and 80+. 

The community is committed to sustainability, he says, so there are gardens and orchards, as well as 100% solar electricity. Shared tools include an electric lawn mower and snowblower, and residents have monthly community meals, chore days and social events.

Mendell enjoys Bristol Village’s built-in network of support and camaraderie. “We have a great group of families who have fun working and playing together,” he says. “I love living in cohousing. It’s really a throwback to the days when children could feel free to play outside, knock on anyone’s door and expect to be welcomed.” K Susan J. Wells 

The cohousing way of life has its perks and tradeoffs, but retirees interested in these communities should take the time to understand and vet them in the following ways. 

Know what cohousing is. “Cohousing tends to get a love/hate reaction when people first hear about it,” says cohousing consultant Shelly Parks. “It either appeals to you or it doesn’t.” The Cohousing Association of the United States can give you a good introduction to how cohousing works on its website (cohousing.org). 

Explore fully before you act. Cohousing communities differ greatly in size, location, types of properties, number of homeowners, cost and expected shared commitment. So go beyond site tours to become familiar with everything. At Skagit Commons in Anacortes, Wash., for example, new potential members with interest are invited to be “explorers,” which, for a $100 fee, immerses them in the community for 30 to 90 days, Parks says. “In that timeframe, you get all questions answered by being observers in everything – from getting to know residents to attending business meetings.”

Scrutinize the financial and legal structure. Examine documents and bylaws if you can, and ask questions. Is income covering expenses? Are there sufficient capital reserves? Who is the community’s financial partners? What surprises have cropped up and how did the community handle them? Do they operate as a homeowners association, and if so, how are HOA fees divvied up?

Assess the project designers, architectural experts and construction team involved. Getting a firm sense of the knowledge, experience and financial capacity of the developers and builders is crucial, says cohousing pioneer Jim Leach. Varied skill sets of founders and residents are also helpful to know.

Evaluate member recruitment and sales momentum early on. Pre-sold levels and sustained interest, even when properties change hands, are the must-have commitments that will drive success.

Understand how the community is managed. Jim Mendell, a cohousing resident in Vermont, finds this type of community’s self-governing style of sociocracy effective. “In this decentralized system, I can trust others to make decisions that work for me,” he says, “and I don’t need to be involved in every detail.” 

In an effort to provide economic relief during the pandemic, the federal government suspended payments on federal student loans last year, with no interest accrual on loan balances. The moratorium was extended a couple of times, but now that the pandemic has subsided and the economy is recovering, the pause is set to expire on September 30. Loan servicers planned to start notifying borrowers in August about the date their payments will resume.

Time to refinance? In addition to a notice from your loan servicer, you may receive fliers or e-mails from private lenders offering to refinance your student loans at interest rates as low as 2.5%.

The best private-loan deals are limited to borrowers with excellent credit or a co-signer. But even if you qualify to refinance at a lower rate, you may want to wait. If President Biden fulfills his pledge to forgive up to $10,000 in student loan debt, it will likely be limited to federal loans. And once you refinance to a private loan, you can’t refinance back to a federal loan.

Another reason to wait: The suspension on federal student loan payments may be extended. Secretary of Education Miguel Cardona has said the Department of Education is considering extending the waiver, and the most likely scenario is that it would last through the end of 2021, says Mark Kantrowitz, a financial aid expert and author of How to Appeal for More College Financial Aid. And even if the waiver isn’t extended, rates on private student loans are likely to remain low through the end of 2022, he says, which means borrowers interested in refinancing have plenty of time to consider their options.

If you still think it’s a good idea to refinance to a private loan, read the fine print on any offer you are considering. Some plans offer low interest rates in the first year and hike them later. But it’s important that you do not refinance unless you’re confident you can afford payments under the plan you’re considering. Options for private loans for borrowers who are unemployed or experiencing other economic difficulties generally aren’t as flexible as federal loans.

However, if you already have private student loans, there’s no reason not to look into refinancing to a loan with a lower rate. Be sure to compare the monthly payment with the total cost when you are considering consolidating or refinancing student loans, Kantrowitz says. Simply extending your payment period will lower your monthly payments, but you could pay thousands of dollars more in interest by the time you pay off the loan.

To avoid interest-rate hikes down the road, look for a low fixed rate rather than a variable rate. And if you can afford it, you may also want to consider a shorter repayment term. Although your monthly payments may go up, you’ll save on interest and get out of debt sooner. Most lenders offer loan repayment terms of 10, 15 and 20 years.

Options for federal loans. If your budget can’t handle payments on your federal student loans, you may be eligible to lower them by enrolling in an income-driven repayment (IDR) plan. There are several IDR plans available through the Department of Education, but all base your monthly payments on your earnings. If you’re already enrolled in an income-driven plan and your income has declined considerably, you can also ask your loan servicer to recertify your income and recalculate the payment, which could dip as low as $0. You can apply for an IDR plan at https://StudentAid.gov/app/ibrInstructions.action and select the plan that you qualify for that will provide you with the lowest monthly payment. You may end up paying more in interest in the long run because you’re extending the repayment period, but after 20 years of payments, you may be eligible to have the balance forgiven.

If you can’t afford to make payments at all, you may qualify for deferment or a forbearance. There are two types of deferments: economic hardship and unemployment deferment. You must be out of work to qualify for the unemployment deferment, but you may qualify for economic hardship if you’re receiving federal or state public assistance, you’re a Peace Corps volunteer, you’re working full-time but earn less than or equal to the federal minimum wage, or you have income that’s less than or equal to 150% of the poverty line for your family size and state (about $26,000 for a two-person household).

Both of these options, as well as general forbearance, are available for up to three years, and you can use a combination of deferments and forbearance for up to nine years. Interest may continue to accrue while payments are suspended, depending on the type of loan you have. A subsidized or Perkins loan, for example, will not accrue interest during a forbearance or deferment. For other loans, the interest that accrues while payments are suspended will likely be added to the loan balance at the end of the deferment or forbearance period.

Prepare to pay. Once you decide your path forward, calculate your payment. For federal loans, you can use the loan simulator tool at https://StudentAid.gov/loan-simulator. If you haven’t already checked, be sure that your loan servicer has your current contact information. If you signed up for automatic payments, you may be required to confirm that your bank account information has not changed.

Another step to consider before the end of the federal payment suspension is whether to request refunds for payments made after March 13, 2020. Any payment you made during the suspension of payments can be refunded, which is useful if you need the money or think you will in the future. Contact your loan servicer before September 30. The call centers may be busy, so you may get better results by using your lender’s online contact forms.

Finally, be on guard against fraud. The Department of Education says student loan borrowers have received phone calls, e-mails, letters and texts warning them that the suspension program will end soon and offering debt relief. Usually, companies offering these types of services don’t offer any relief, and some are crooks looking to take advantage of vulnerable borrowers.

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Links and resources mentioned in this episode:

• Home Buyers Loving the Suburbs Again
• 11 Home Features Today’s Buyers Want Most
• 6 SPACs to Buy for ’Smart Money’ Returns
• 8 Tax Tips for Gambling Winnings and Losses

Transcript

David Muhlbaum: It’s time we checked in on that crazy housing market going on out there. What does the run-up in home values and prices mean for people looking to buy or sell, and also people with no intention of moving? Contributing writer Daniel Bortz gives us a fix on real estate today. Speaking of rising asset values, what’s up with SPACs? That’s all coming up on this episode of Your Money’s Worth, stick around.

David Muhlbaum: Welcome to Your Money’s Worth, I’m senior online editor David Muhlbaum joined by my cohost senior editor Sandy Block. How are you doing today, Sandy?

Sandy Block: I’m doing great.

David Muhlbaum: Well, good. And how are your brackets faring?

Sandy Block: All messed up, but I’m still having fun watching the games. And yours? Oh no, no wait, sports aren’t your thing. That was my old cohost, Ryan.

David Muhlbaum: Yeah, you’re right about me and sports. I was just being polite and trying to set up our closer today where we are going to talk about sports gambling and taxes. But first I want to talk about another sort of gambling, stock market gambling. Okay, maybe that’s a bit harsh, stock market speculation? Specifically these things called SPACs, special purpose acquisition companies. It seems like every day a new celebrity puts their name on one like, Jay Z, Shaquille O’Neal, Colin Kaepernick .... Sammy Hagar. Because next week in our main segment, we’re going to have a guest on to talk about bitcoin. And I want the practice of discussing something I don’t totally understand, and tell a cautionary tale.

Sandy Block: Okay. Well, we talked about SPACs actually at this week’s editors’ meeting and yes, risky is a word that came up a lot and there was a lot of head-shaking too, but we should start with what the darn things are. Most people are familiar with an initial public offering or IPO. Special purpose acquisition company or SPAC, is another way of bringing a company public. But while they have some similarities, they also have key differences from IPOs.

David Muhlbaum: Okay. I just love these acronyms. We’ve got SPACs, not PACS, which are for politics and not Spanx, which are for bellies. They’re not an acronym either, but okay.

Sandy Block: Yeah, don’t go there. Right, SPACs. So a SPAC is a publicly traded company that lists on a public stock exchange, but unlike an IPO, which is usually for a company that builds, makes or sell something and wants to cash out and get bigger, a SPAC’s purpose is to buy something else. It’s just a pool of money with managers, a board, and of course, shareholders, including some small retail shareholders.

David Muhlbaum: Who are getting a chance to play in the private equity world. They’re going to be like the next Bill Ackman, except just one little chunk of him.

Sandy Block: Right. That’s their hope, big paydays, the kind formerly reserved for early investors in public offerings. So the A is for acquisition; they’ve been buying lots of tech startups and of course electric vehicle companies because everybody wants to own the next Tesla. Plenty of startups like the idea of SPACs competing for them too. It raises valuations and is a whole lot easier and less public than going through the IPO process.

David Muhlbaum: Oh yeah. And sports gambling too. One of the biggies that went through the SPAC process was DraftKings. That was a year ago or so and they now trade on the Nasdaq, DKNG.

Sandy Block: Exactly. You can gamble with DraftKings or on DraftKings. And also yes, that one was a year ago and yes, we’re aware that SPACs are not anything all that new in the market, but they have been on an absolute tear lately. There’s substantially more money being raised this way than through traditional initial public offerings. And that’s one of those phenomena that is raising the “uh, oh, irrational exuberance” warning flags in the markets.

David Muhlbaum: So even if you as an individual investor who shakes their head and goes, “Thanks, but no thanks” about investing your own money in a SPAC, there’s still some exposure in a way.

Sandy Block: Markets go up, markets go down and sure, you can mitigate risk by being diversified in big index funds, but to an extent, we’re all in the same boat. I’m not saying SPACs are what’s going to turn around this bull market, but you can’t rule that out either. The SEC is making some noises about that.

David Muhlbaum: SEC, another acronym. This one’s familiar, for Securities and Exchange Commission, the feds, the government, the regulators. Okay. I got a headline, “SEC Spanks SPACs.”

Sandy Block: Okay. That hasn’t happened yet, but they have warned people about not being too wowed by the celebrity veneer being applied to these things. I’ll quote, “It is never a good time to invest in a SPAC just because someone famous sponsors or invests in it or says it is a good investment.” Basically, just because Shaq thinks it’s a good investment, doesn’t mean it’s for you.

David Muhlbaum: Or Sammy Hagar.

Sandy Block: Or Sammy Hagar. I’m dating myself here.

David Muhlbaum: Yeah. I was wondering what the Red Rocker had been up to.

Sandy Block: Well now you know, he’s raising money. Sammy’s is a businessman. Caveat emptor.

David Muhlbaum: When we return, we’ll look at the ups and bigger ups of today’s real estate market. Want to buy a house? Better be ready to move fast and write a nice note.

Welcome back to Your Money’s Worth. Joining us for our main segment today is Daniel Bortz, a contributing writer for Kiplinger’s Personal Finance. One of his latest pieces for us is a wide-ranging look at the real estate market, which is a particularly good topic for him because he’s also, get this, a licensed real estate agent. Welcome Daniel.

Daniel Bortz: Hey, thanks for having me, David.

David Muhlbaum: Daniel, you had your work cut out for you because you have to cover not only the significant demographic disruption that the COVID-19 pandemic had on real estate last year, but the ongoing flurry of activity. In 2020 sales of previously owned U.S. -homes hit their highest level in 14 years, and a lot of economists say this year is going to top that, and prices of course are continuing to rise.

David Muhlbaum: Since we’d like to be forward-looking here, we’re probably going to spend more time asking you to speculate about what’s to come. But to start, can you give us a quick recap on 2020? We had a couple of months of freak out and lock down and then, well, people figured out pretty quickly how to trade houses in the middle of a pandemic. What were they looking for?

Daniel Bortz: Sure. So, they were looking for two main things and they’ve been pretty well reported, so I won’t belabor them too much, but they’re quite real. At the top of the market, you have wealthy urbanites who didn’t have a second house in a more rural location. So they went out and bought one. And this happened in your traditional summer destinations, but also places like Bozeman, Montana and southern Vermont. So if you’re buying a home, that’s in a more rural location without too many people around, those were getting really snatched up by people that were living in cities.

Sandy Block: Yeah, I see that. As David and listeners know, I spend part of my time in West Virginia and I’ve certainly seen that happening. There were people from the DC area snapping up properties in the Eastern panhandle. So, the rich take care of themselves and I guess developers or anyone else with building lots, like the people on my street, are making out well too. But what about people in the less exalted areas of the market?

Daniel Bortz: Well, that’s the second thing that we’re seeing. So the motivations were similar, and so was the behavior. People were moving from densely populated locations. You’ve got the big cities and tightly packed suburbs and they were moving to the exurbs where they could have a bigger, more affordable house and be farther away from other people.

So the dollar values there were lower and so sometimes were the distances that they moved. The main difference was the really rich could always move, and what let these people move now, in these circumstances, was that they have the freedom to telecommute.

You have big companies like Twitter and REI and Square, they’ve announced plans to let their employees work remotely indefinitely. And there’s one recent survey that found a third of workers that they would quit their jobs if they couldn’t continue working remotely after the pandemic. Now, I don’t really think a lot of people would follow through on that, but it does show that a lot of Americans, they do really want to continue teleworking after the pandemic.

Sandy Block: Right. And I read recently that Ford is telling people they can work from home indefinitely if they have, obviously they’re not building cars, because I don’t think you can do that from home. So this is what’s driving the market a year in, even as maybe just maybe the end of the pandemic is in sight.

Daniel Bortz: That’s a great question. So here’s the general forecast for what we’re looking at for the rest of this year in terms of prices and inventory and mortgage rates. So for the economists that I interviewed for the article, the economists at redfin and zillow and realtor.com, they’re all forecasting modest home price gains this year, and that’s largely because mortgage rates are still historically low. They’re not as low as they were at the beginning of this year, but they’re expected to stay low.

The last time I checked in with the Mortgage Bankers Association, they told me that they were predicting rates will rise to just 3.4% for a 30-year fixed-rate mortgage by the end of the year. So relatively speaking rates are still going to be pretty great. Also, certain properties at the same time are not selling as well as other properties. You’ve got these condos and townhomes that are located in big cities and downtown areas.

Those are a little bit harder for sellers to move and mainly because people right now, with what’s going on with the pandemic, they want access to outdoor space. So if you are trying to sell a small townhouse or condo in, say, the middle of Washington D.C., And you’ve got no outdoor space, you have no backyard, you’re going to have a harder time selling that.

David Muhlbaum: So we have a seller’s market for the foreseeable future. What’s a buyer to do?

Daniel Bortz: The most important thing that they can do is to make what we call a clean offer. With so much competition among home-buyers right now, you want to be submitting an offer with as few contingencies as possible. That’s what’s going to really strengthen your bid.

David Muhlbaum: Cash is king!

Daniel Bortz: Cash is always king. Now it’s interesting, there’s a new, I think it was just released actually last week or maybe even this week. Redfin’s been tracking how many of their winning offers have gone up against other offers, and this time they found that six out of 10 offers that were written by their agents actually faced bidding wars last month in February. And that’s the 10th straight month where more than half of Redfin offers encountered competition.

Daniel Bortz: So in situations where you’re going up against a ton of other bids, you might want to consider waiving some contingencies. For example, you might forgo your right to home inspection. Now that is a risk that you take, especially when you’re buying an older home. So one strategy that we have, if you know you’re going up against other offers, is to perform what’s called a pre-offer inspection before you submit your offer.

So that’s where you’re going to come in, where you look at the house during a showing or an open house, decide you like it, and before you write an offer and give it to the seller, you’re going to hire your own inspector to sort of kick the tires on the house, take a look, see what’s working, see what’s not and decide for yourself if the house is in good enough condition that you’re willing to buy the property as is and then you can waive that home inspection contingency.

David Muhlbaum: I love the kick the tires analogy because it reminds me of checking out a car before you buy it. Yeah, but this has all got to happen pretty fast, right? I’m thinking anecdotally about literally the house next door to me here. The sign went up, coming soon, they had a few previews before the weekend open house and there was a contract on it by the end of the weekend, like boom, four, five days. So if you want to do one of these pre-offer inspections, you probably better have that person sort-of on contract with you, ready to go.

Daniel Bortz: Yeah, you need to have all your ducks in a row in that sense. Your agent is where you can really lean on for this. Your agent can connect you with a really quick, responsive home inspector. And since homes are selling so quickly, you want an agent who’s really tapped into your market. For example, two friends of mine, they recently purchased a house and they did a pre-offer inspection, but they were able to do that, like I think within the first hour that the property went on the market, because the seller knew when it was being listed. So they were the first people to get in there and they did their inspection right away, and they submitted an offer within hours. And even though they went up against, I think more than 10 other bids, having that home inspection contingency waive was what really gave them the edge. And so they won that house.

Sandy Block: Yeah. Dan, not to promote your license too much, but it sounds like in this kind of market, having a good real estate agent is... they earn their pay because you do need kind of an inside track on some of these deals.

Daniel Bortz: Yep. Absolutely. And something buyers should consider if they’re thinking about not working with an agent, they should remember that the buyer’s agents commission is paid for out of the seller’s proceeds when they actually go to closing and they sell their house. The buyer doesn’t actually, nothing comes out of their pocket in addition to what they’re paying for the house to pay their agents. So essentially, a buyer’s agent for a home buyer is free.

Sandy Block: So Daniel, what are some of the nonfinancial things that you can do? I’ve heard stories about people actually writing letters to sellers to try and get in it. Does that work?

Daniel Bortz: It does. So even with homes selling above list price right now, you really want to be tugging on the sellers’ heartstrings. And you could do that by writing a personal letter to the seller. This is a really old-school tactic that performs well in today’s market. Actually one of the sellers I interviewed for the story was a couple selling their home in Carmel, Indiana. It was about 30 minutes outside Indianapolis. They got five offers when they sold their house last December, and the winning offer was from a buyer who wrote them this really heartfelt letter that outlined their struggles of finding a home in the area. And it’s what really resonated with the sellers.

What we recommend is you can have your agent help you write a letter and the letter should be pretty short, no longer than a page, but just really speaking to what’s going to resonate with the seller and having that personal touch with your offer is what can potentially give you an edge over other buyers.

David Muhlbaum: Yeah. It might not hurt to do a little Google stalking on the owners too. So you can align your story with theirs. English majors, this is your chance! So, what guidance do you have for sellers, I mean, besides judging these essay contests?

Daniel Bortz: If you’re planning to sell your house, you want to do it in the first half of the year. Mainly because that’s going to help you beat an expected increase in supply. We’re going to see more homes coming on the market this year, later this year, as we go through the pandemic, as we continue to see vaccines being rolled out. You’re going to have more homes being listed and buyers are going to have a larger selection of houses to choose from. So you want to list your home kind of as soon as possible when supply is lower.

And another thing that you can do to really make your house, your listing shine and get top dollar for it is you’ve got to hire a professional real estate photographer to take photos for your listing. But what’s interesting is in addition to doing those photos, virtual tours, it’s also called 3D tours where buyers can basically walk through your home online. That’s really standard operating procedure right now.

Also, staging is crucial. If there’s no furniture for buyers to focus on when they walk inside your house, they’re going to see every little flaw. They’re going to see the scratches on the floor, they’re going to see the paint smudge on the wall. They’re small flaws, but they can really stick in a buyer’s minds later on.

Staging also, it costs money, but it usually offers pretty good return on investment. So professional staging costs on average $500 to $600 per room per month, but it really pays off. Staged homes, they sell faster and for more money than unstaged homes, that’s according to research by the National Association of Realtors. And some listing agents will even include staging services as part of their listing service.

David Muhlbaum: Yeah, that’s interesting because I think in a seller’s market like this, there can be a temptation for sellers to get complacent, to just be like, I’ll get lots of money, and not even sweep the garage out. But there’s a danger, I think of frankly, insulting your buyers if you don’t make an effort.

Daniel Bortz: I think that’s right. I think buyers, even though they know that sellers are in the driver’s seat right now, they still want to be working with a home seller that cares about their house, that kept their home in good condition and that wants to sell to a buyer who’s going to come in and treat their home as well as they did.

Sandy Block: So Dan, you talked earlier about mortgage rates and we saw this yesterday with Freddie Mac’s report, creeping higher. Let’s talk about that for a minute. Are we going to see them going up enough to sort of dampen the roaring housing market that we’re seeing?

Daniel Bortz: So if things continue on the path that they are right now, they’re going to increase this year, certainly, but they’re not going to price home buyers out of the market. Essentially, you’d have to see significant interest rate hikes for that to happen. We’re talking mortgage rates for 30 or fixed mortgages going well over 4%, which is not likely to happen by the end of this year even.

Sandy Block: Well, as an old person, 4% to me still seems really cheap. It was 5% for years and I’m old enough to remember when it was over 10. So yeah. I think you make a good point, it’s still a pretty good deal.

Daniel Bortz: Yeah. I mean, historically it’s interesting, like you said, mortgage rates 20 years ago were sky high compared to today’s rates. But for instance, my wife and I, we just closed on a beach house that we bought, not to brag, but we were able to get a 30 year fixed rate mortgage at 2.625%, which is just crazy.

Sandy Block: That is crazy. Awesome, congrats.

David Muhlbaum: We’ll be over. Now, one thing I wanted to touch on also is: All of this activity is really one thing to pay attention to if you have the intention of buying or selling a house, but it could also have an effect if you’re sitting in one without intending to move, and you’re seeing your home equity going up and up and up. What are people doing to tap into that?

Daniel Bortz: So like you said, you have homeowners who are staying put. They’re sitting on a lot of home equity right now and what a lot of people are doing is they’re taking that money and they might be getting a cash-out refinance and then using that cash to make renovations to their house. And some of them are doing this just to kind of improve their own enjoyment of their property. They might be adding on screened-in porch so that they can spend time outside in the summer without having bugs get at them while they’re eating dinner. But you also have people that are still always sort of laser-focused on their return on investment and people who are making improvements that are going to actually have their home sell for a significantly higher amount of money in a few years.

Sandy Block: And actually, that’s a good promo because we are working on a story for an upcoming issue on the types of home improvements that add the most to the value of your home. And some of them are kind of surprising. Like I think number one was like a new garage door or something like that. But, the lowest cost with the biggest value. But I know that’s going on, guys, because as we are recording this, if you hear any ambient noise, it’s a house two doors down from me is just putting on a great big addition and replacing their siding with brick or something like that. It looks very expensive and it’s been going on and it’s really loud.

David Muhlbaum: Oh yeah. Just before we started out, I heard beep, beep, beep. I thought, Oh my God, here we go. I looked out the window and sure enough, someone’s rolling a dumpster into the driveway. I’m like, okay, going to have to find out what’s going on down there. There is a lot of rebuilding happening and yeah, I presume that’s a lot of that’s happening with HELOC money, home equity line of credit.

Daniel Bortz: Yeah. Sandy, I hope the construction crew doesn’t get started too early in the morning.

Sandy Block: It’s early enough.

David Muhlbaum: There are a lot of local laws about that sort of thing.

Sandy Block: Yeah, well, I don’t see any cops on the street. I just see a lot of saws and construction trucks.

David Muhlbaum: Yeah, well, it’s them versus the leaf blowers. All right, Dan. So what could stop this juggernaut? We think mortgage rates are going to stay okay, but anytime the real estate market is doing gangbusters, a lot of us think back to the mid 2000s and we get a little edgy. This time is different?

Daniel Bortz: So, unlike during the last recession when we had the housing crisis, today’s buyers are extremely well qualified for mortgages. They are vetted top to bottom, they have to provide a ton of paperwork just to get pre-approval. Buyers can’t really make offers on homes until they have a pre-approval letter from a mortgage lender in their hands.

David Muhlbaum: So everyone’s getting sniffed over so well that we’re not really headed for the credit quality crisis that we had back then?

Daniel Bortz: No, definitely not.

Sandy Block: But still to David’s question, what would slow things down? If it’s not a credit quality issue, what do you think could, not necessarily put on the brakes, but make this not so crazy?

Daniel Bortz: I think as we see rates continue to tick up, we’re going to have some buyers who might put themselves on the sidelines again, especially younger home buyers. There is that frenzy right now that they want to lock in a rate around the magic 3% number. And in fact, if the mortgage rate for 30 year mortgages goes significantly higher than that, I think you might see some buyers pull out of the market.

David Muhlbaum: Well, there’s nothing wrong with a nice calm ending to a run-up. It sure beats the alternative. Thanks very much for joining us today, Dan, we appreciate your insights into this market and I hope you enjoy the new house.

Daniel Bortz: Thank you.

David Muhlbaum: We started out today talking about investment options that are speculative, and we’re going to close by talking about gambling straight up, being in the middle of March Madness and all. Now, I must confess that while I don’t pay much attention to spectator sports, I pay even less to gambling. I just missed those genes or something. But what I have noticed is that plenty of people who don’t necessarily know much about NCAA basketball are perfectly happy to fill out a bracket and throw $10 or whatever into the pool.

Sandy Block: Oh yeah, for sure. I mean 11 months a year, I don’t do any sports gambling and my mom used to say about basketball that you could get it all by watching the last two minutes. But come March, I am all in. And this year I really miss the whole thing where someone comes around and picks up my sheet and my money and then we have whole weeks of gloating or moaning in the office kitchen about how our brackets are doing and how there were these big upsets. And since I always put West Virginia in the final four, which hasn’t happened in a long time, I never have to worry about winning or paying taxes on my winnings. It’s just a social thing.

David Muhlbaum: Right, social. I get it, even if I don’t do it. You mentioned taxes though, and that’s the personal finance angle here. In theory at least, if you won your pool, you don’t owe taxes on that.

Sandy Block: You’re right. In theory, gambling winnings are taxable income.

David Muhlbaum: But in practice?

Sandy Block: Not so much. Now, I’m not here to say you shouldn’t report it if you won big in your bracket pool, and God knows we’re not in the business of telling people to cheat on their taxes. But as far as I can tell, there aren’t a lot of people putting their bracket winnings on their 1040s. And I haven’t heard anything about the IRS pursuing people for under-reporting their brackets. The agents might be too busy worrying about their own brackets.

David Muhlbaum: Well, okay. There’s a national mania for you I guess. So fine, a little fun money with friends, whatever, but the legal sports gambling industry is very much on the rise these days. I hear radio ads and such all the time and they too, they’re looking to cash in on basketball betting. People who are experienced sports betters, they presumably know the drill when it comes to gambling, winning, losing, and the taxes on that. But I’m just wondering about people whose office pool got canceled this year, maybe because they’re literally not in an office anymore and who are neophytes to online gaming, if they’re going to be in for a surprise if they play — and win — and then next January get a form from whatever site they used, which is basically the gaming site telling them and the IRS exactly how much they won.

Sandy Block: Well, yeah. You can do all sorts of March Madness stuff online at the gaming sites. And I’ve seen those commercials too; they’re ubiquitous. You can try to do the traditional brackets and the payouts, they could be huge. Or you can get in during the tournament, busted brackets, round by round, all sorts of stuff. But here’s the deal. If you win more than $600, generally you will get a W-2G form, which is what you mentioned earlier, David, maybe now, maybe later. And yes, you’d be an idiot as well as a cheat if you don’t report that income and pay taxes on it because the IRS gets it too.

Sandy Block: But also if you win really big, generally, if you win more than $5,000 on a wager and the payout is at least 300 times the amount of your bet, the IRS requires the payer to withhold 24% of your winnings for income taxes, just like a paycheck.

David Muhlbaum: And the actual rate will be whatever your income turns out to be once you’ve considered all the other lah-di-dah and income.

Sandy Block: You could owe more than that.

David Muhlbaum: More or less. Yeah, and maybe the state too?

Sandy Block: Well, that depends on the state.

David Muhlbaum: I thought you didn’t gamble on sports, or at least you didn’t win at it.

Sandy Block: I don’t, but I know taxes!

David Muhlbaum: Okay, fair enough.

And that will just about do it for this episode of Your Money’s Worth. If you like what you heard, please sign up for more at Apple Podcasts or wherever you get your content. When you do, please give us a rating and a review. If you’ve already subscribed, thanks. Please go back and add a rating or review if you haven’t already, it matters.

To see the links we’ve mentioned in our show, along with the other great Kiplinger content on the topics we’ve discussed, go to kiplinger.com/podcast. The episodes, transcripts and links are all in there by date, and if you’re still here because you want to give us a piece of your mind, you can stay connected with us on Twitter, Facebook, Instagram, or by emailing us directly at podcast@kiplinger.com. Thanks for listening.

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Good news for retirees who are concerned about retirement income — because your home could provide the key to long-term security. Housing wealth, better known as home equity, hit a record $11.8 trillion for homeowners 62 and older in the third quarter of 2022, according to a report from the National Reverse Mortgage Lenders Association.

There are more ways than ever to turn your equity into a source of retirement income. Outside of a plain-vanilla mortgage refinance, retirees can access their home equity through a cash-out refinance, a home equity line of credit or a reverse mortgage. Or you can downsize (more on that below) and use the proceeds to beef up your nest egg. Read on to help determine the best option for you.

1. Refinance your mortgage

For many retirees, refinancing is the best option if you need to make your money work harder for you. It’s easy to do and even though rates have climbed since the historic lows of 2020 and 2021 if you can find a lower rate it can often be worth it. 

If you’re closing in on retirement, you probably don’t want a 30-year term. You can save even more on in­terest if you shorten the life of your loan, says Mari Adam, a certified financial planner for Mercer Advisors in Boca Raton, Fla. She advises clients to look into refinancing to a new 15-year mortgage. With a 15-year loan, your payments may be higher, but you’re accelerating the payoff, which means you’ll be mortgage-free quicker and save thousands on interest.

If your current mortgage rate is at least one percentage point above current rates, it’s usually a sign that it makes sense to refinance. But you may benefit from a refi even if your new rate would be less than a full point lower. You can compare rates from various lenders using our mortgage refinance tool, in partnership with Bankrate. Experts suggest getting at least three quotes before pulling the trigger.

Closing costs for refinancing typically range from 3% to 6% of your new loan amount, so knowing how long it will take to recoup closing costs — and when you plan to sell your home — is essential. You also want to double-check how much home equity you have, as it could affect your chances of qualifying for refinancing. Some lenders may allow you to refinance with as little as 5% equity, but you will get a better interest rate if you have 20% or more.

Another option for retirees who need extra income is a cash-out re­finance. With a cash-out refi, the existing mortgage is replaced with a new, larger one that reflects the home’s current appraised value. Lenders will let you borrow up to 80% of your home’s value, including the new mortgage and the cash you take out. Interest rates on a cash-out refi are typically up to one-fourth of a percentage point higher than rates for a traditional refi. And even though cash up front is appealing, there are risks to this strategy, financial planners say.

“You don’t want to pull equity out of your home to finance your lifestyle,” says Lori Atwood, a certified financial planner and founder of Atwood Financial Planning. If the mortgage payment goes up, you might have to draw more from your savings to cover your larger mortgage payment each month, which could put you back into the cycle of needing cash, she says.

2. Borrow with a home equity line of credit (HELOC)

Another way to tap your home equity that won’t increase the size of your mortgage permanently is a home equity line of credit (HELOC). A HELOC is a revolving line of credit that you can tap whenever you need money by using a check, a credit or debit card connected to the account, or an electronic transfer. The rate is typically based on the prime rate plus a couple of percentage points. You’ll qualify for a better rate if you have a good credit score.

You may also be offered a much lower introductory rate on a HELOC. If you qualify for a deal, make sure you know how long it lasts. You may qualify for a discount of 0.25 to 0.5 percentage points on the standard rate if you already have a bank account with the lender (or agree to open one), sign up for automatic payments or agree to pay an annual fee of, say, $50. Look for a rate cap to keep borrowing costs manageable.

“If you run into periods when the market’s not returning what you hoped, a HELOC could tide you over so that you’re not selling your investments at a bad time,” says Keith Gumbinger, vice president of financial publisher HSH. “It’s kind of a temporary subsidy.” But temporary is the key word here — eventually, you won’t be able to withdraw any more from your line of credit and will have to start paying it back.

HELOCs provide an initial withdrawal period — usually 10 years — when you can borrow up to your limit. During that time, you may choose to make a minimum payment — typically 1% to 2% of the loan balance — or an interest-only payment if you qualify. You can usually prepay more without penalty. As you repay the principal, your available credit is replenished. After the draw period ends, you must begin making principal-and-interest payments, typically over 10 to 20 years. Closing costs for a home equity loan or line of credit run about 2% to 5% of the loan amount.

3. Take out a reverse mortgage

The number of reverse mortgages — a product well-known to anyone who watches daytime television — is expected to continue to rise this year. Part of the reason is that the pandemic forced some workers to retire earlier than planned.

A reverse mortgage allows retirees 62 and older to convert home equity into a lump sum or a line of credit. However, instead of making monthly payments as you would with a traditional mortgage, withdrawals ac­cumulate and interest on them accrues until the loan is due. And you don’t have to repay the loan as long as you live in the home. Typically, repayment is triggered once the last surviving owner dies or moves into an assisted living facility or some other type of housing for more than 12 months. The house remains in your name as long as you pay property taxes and insurance.

When you or your heirs sell your home to repay the reverse mortgage, you’ll never owe more than the value of your home. If your home sells for more than you owe, you or your heirs keep the excess amount. If your heirs want to keep the home, they can refinance the reverse mortgage, or pay the outstanding debt or 95% of the home’s appraised value, whichever is less.

The requirements for who qualifies have gotten tighter over the years, so just being 62 isn’t enough. You must own the property outright or have paid down a considerable amount of the mortgage. You must also occupy the home as your primary residence. Lenders will review your income and credit history to ensure you can afford to stay in the home and keep it in good condition. They will also determine if your income is sufficient to cover property taxes, insurance and any other fees, such as closing costs and account-service fees. If the lender determines you can’t handle those costs, it will set aside funds from your payout in an escrow account and pay those bills for you, reducing the amount of the loan you have access to.

The maximum payout, or principal limit, or claim amount that you qualify for depends on your age, as well as current interest rates and the appraised value of your home. The maximum payout for reverse mortgages was increased, by the Federal Housing Association (FHA) for 2023 to a record $1,089,300.

Before you take out a reverse mortgage or any other product that taps your home equity, talk it over with your family, says Gumbinger. “No one wants to talk about their finances, but you are thinking about making changes that could affect your spouse or your kids in the future — especially in the case of taking out a reverse mortgage,” he says. If you have a financial adviser, set up a session to discuss the pros and cons before signing on the dotted line.

4. Downsize and invest the cash

All good things come to an end, including the need for a family-size home. You may have believed you were going to live there forever, but don’t let nostalgia keep you in a home you no longer can afford or need.

Ideally, downsizing allows you to buy a smaller home outright without needing a mortgage or shrinking the size of your mortgage payments. Both scenarios free up cash for other retirement needs, such as paying for health care costs. It also allows you to reduce withdrawals from your retirement accounts, giving your investments more time to grow. Plus, adding proceeds from your home sale to your retirement savings will give your nest egg a boost.

If downsizing is part of your retirement plan, get ready for some trade-offs as you move from home seller to home buyer. The inventory of homes for sale is at a record low, which means homes aren’t staying on the market long. Many sellers are receiving multiple offers at or above list price, says Len Sarvela, a realtor in Duluth, Minn. Once you’re in the market as a buyer, however, you may have a hard time finding the house you want, even if you’re downsizing. If you decide to rent, you’re set.

The $2 trillion coronavirus stimulus package is providing a $1,200 check for millions of Americans. Parents are getting an additional $500 for each child age 16 or younger. The stimulus package also significantly expands unemployment benefits to include part-time workers, the self-employed, and people who ordinarily wouldn’t qualify.

Although both of those initiatives are supplying much-needed cash for many families, the funds may fall short if you’re out of work or furloughed for a prolonged period of time or have big health care expenses. If you’re cash-strapped, you may be tempted to run up credit card debt—but before you do, explore these sources of emergency cash. They could tide you over until the crisis has passed.

If you’re age 62 or older and own a home, a reverse mortgage is another way to turn your home equity into cash. But, unlike with a home equity line of credit, you don’t have to repay the loan as long as you live in your home. (If your heirs decide they want to keep the home, they’ll have to pay off the loan first.)

The most popular type of reverse mortgage is the Home Equity Conversion Mortgage (HECM), which is insured by the federal government. You can take out a reverse mortgage as a lump sum, monthly payments or a line of credit. The line of credit may offer the most flexibility, and if you don’t use it, the untapped credit line will grow as if you were paying interest on the balance.

Ideally, you should allow your Roth investments to continue to grow tax-free. But if you need the money, a Roth is a low-cost source of funds. That’s because Roths have a feature that other retirement plans lack: You can always withdraw the amount of your contributions tax- and penalty-free. That money comes out first, so you won’t pay taxes on withdrawals until you’ve depleted your contributions.

You won’t pay an early-withdrawal penalty when you take out money from these accounts, as you do with withdrawals from retirement plans (if you’re younger than 59½). Bond funds or other fixed-income investments in your brokerage account are good options for raising cash, because they probably haven’t declined in value as much as your stock investments, says Daniel Flanagan, a CFP in Framingham, Mass.

The economic stimulus package enacted in March doubles the amount you can borrow from your 401(k), from $50,000 to $100,000, or 100% of the vested balance. This option is available to workers (or family members) who have been diagnosed with COVID-19 or have suffered adverse financial consequences because of the pandemic.

• The interest rate on 401(k) loans is low — about 5% — and you usually have five years to repay the loan. The stimulus package allows borrowers who have been affected by the pandemic to skip payments for 2020, essentially giving them another year to repay the loan (interest will continue to accrue). If you’re unable to repay the loan within the repayment period, however, it will be treated as a distribution, meaning you’ll owe taxes and, if you’re younger than 59½, penalties on any unpaid balance.

A permanent life insurance policy has two components: the death benefit, which is the amount that will be paid to your beneficiaries when you die, and the cash value, a tax-advantaged savings account that’s funded by a portion of your premiums.

• You can withdraw your basis — the amount in the cash-value account you’ve paid in premiums—tax-free. Just make sure you don’t take out more than the basis in your cash-value account, because the excess will be taxable. The death benefit will be reduced by the total amount you withdraw.

Alternatively, you can borrow against your policy. You’ll pay from about 6% to 8%, depending on market rates and whether the loan is fixed or variable. If you don’t repay the loan, or pay back only part of it, the balance will be deducted from your death benefit when you die.

Ordinarily, withdrawing money from a 401(k) or traditional IRA should be an absolute last resort, because you must pay taxes on the money, plus a 10% early-withdrawal penalty if you’re younger than 59½ (or 55 if you leave your job and take a withdrawal from your 401(k) account).

The stimulus package includes provisions that will make such withdrawals a little less painful — although you should still avoid them until you’ve explored all other options. Through December 31, you can withdraw up to $100,000 from your traditional IRA or employer-provided retirement plan without paying the 10% early-withdrawal penalty.

You’ll still owe taxes on the money, but the law allows you to spread the tax bill over three years. You can also repay the amount of the distribution over three years. As with enhanced 401(k) loans, you will need to certify that you have suffered hardships because of the pandemic.

Rose Swanger, a CFP in Knoxville, Tenn., usually recommends that clients let HSA money grow tax-free until they have retired, instead of using the funds for current out-of-pocket medical expenses. But “desperate times call for desperate measures,” she says. You can use money in your HSA for a variety of medical expenses that aren’t covered by insurance, from dental work to co-payments. Better yet, if you lose your job, you can use money from your HSA to pay premiums under COBRA, the federal law that lets you continue group coverage after you leave your job. You can also use money from your HSA to pay health insurance premiums while you’re receiving unemployment benefits.

Don’t take money out of your HSA for nonmedical expenses unless you have exhausted all other options. If you withdraw money from your HSA for a nonqualified expense before age 65, you’ll pay taxes and a hefty 20% penalty.

If at all possible, you’ll want to leave this account alone to pay for college expenses. But if you really need the money, the penalties for withdrawals from 529 plans aren’t as severe as they are for other tax-advantaged accounts. When you withdraw money from a 529 plan, the earnings portion will be taxed, plus you’ll pay a 10% penalty on the earnings. Some states may impose an additional penalty on earnings (in California, it’s 2.5%). However, your contributions won’t be taxed or penalized because they were made with after-tax money.

If the value of your home has been heading steadily higher, you may be able to take out a home equity line of credit to tap your equity. With a HELOC, you can borrow up to your limit whenever you need the money. Interest rates are low — averaging about 5% — and you can make interest-only payments until the initial withdrawal period ends, typically after 10 years. Unfortunately, this lifeline may be getting shorter. Several major financial institutions, including JPMorgan Chase and Wells Fargo, temporarily stopped accepting applications for new HELOCs in April, citing uncertainty in the market.

When you apply for a HELOC, lenders will look at your credit score, the amount of equity you have in your home, and your income. For that reason, if you’re still working, it’s a good idea to apply for a HELOC even if you’re not sure you’ll need it. Once you’re unemployed, it’s difficult to qualify for a loan, says Danielle Harrison, a certified financial planner in Columbia, Mo.

Generating retirement income has rarely been as challenging as it is right now, thanks to a combination of market volatility in the midst of the coronavirus, low interest rates, disappearing pensions and an uncertain future for Social Security.

This is no time to be stuck in “conventional wisdom” paradigms.

For example, despite the popularity of 401(k)s and IRAs, it can be risky to save almost exclusively in tax-deferred retirement accounts. The strategy of putting off paying taxes as long as possible, which seems so appealing in one’s working years, can result in a significant tax burden for retirees, or for the beneficiaries who inherit those accounts.

On the other hand, tools that may have developed a bad reputation in the past, such as reverse mortgages, may deserve a second look. While their history of misuse is well documented, the industry has repositioned itself so that today’s reverse mortgages might be considered an important and sophisticated financial tool for some. The intelligent use of a reverse mortgage, particularly a federally insured home equity conversion mortgage (HECM) line of credit, could extend an individual’s or couple’s retirement resources in a way that more traditional strategies cannot.

What is a Home Equity Conversion Mortgage?

An HECM is a way for homeowners 62 and older to turn a portion of their home’s equity into tax-free cash. Borrowers can eliminate their monthly mortgage payments while also gaining access to any additional eligible equity.

Unlike a traditional home mortgage or home equity line of credit, paying off this type of loan while you’re alive is optional, but borrowers must continue paying property taxes, along with maintenance, mortgage insurance premiums and homeowner’s insurance.

The proceeds from a reverse mortgage can be used to pay for unexpected costs in retirement, including the kinds of long-term health care expenses that can cripple a financial plan. But strategic use of an HECM can help with other retirement outcomes, as well.

Using an HECM as a Tool to Help Preserve Residual Net Worth

If you’re nearing retirement, hopefully your financial adviser has spoken to you about “sequence of returns risk.” It was already a legitimate concern before the coronavirus pandemic and recent market volatility. Now, it is even more important. When the market experiences a downturn early in your retirement, when you’re no longer contributing to your retirement accounts and you’ve begun to take withdrawals, it can be tough to recover from a major loss. An HECM line of credit can be used as a buffer to help protect against adverse portfolio returns, because retirees can carefully coordinate distributions from their portfolio and their HECM line of credit based on their needs and current market conditions.

According to research by Barry and Stephen Sacks published in the Journal of Financial Planning, using home equity to supplement retirement income can have a dramatic impact on a retiree’s residual net worth (defined as the value of the retiree’s portfolio plus the equity in his or her home at the end of a designated period of time). Their research suggested that investors who use an active strategy with an HECM line of credit during stock market down years could be up to twice as likely to have a higher residual net worth after 30 years.

Using an HECM to Pay for Unexpected Expenses

The use of a tax-free HECM line of credit for unexpected (or even planned) purchases or shortfalls in cash flow can be extremely beneficial in retirement — and not just because it can provide much-needed funds. An HECM also can protect against the raiding of other retirement resources when those costs come up.

Another bonus: An HECM line of credit has a clear-cut advantage over the use of a traditional credit line in that it has a guaranteed growth option (the growth applies to unused funds) and a “non-recourse” feature. Unlike traditional home equity loans or lines of credit, an HECM line of credit can never be prematurely closed and collected.

The costs associated with the HECM include mortgage insurance premiums, an origination fee, servicing fees and third-party charges for items such as appraisals, title checks, and more. In many cases, these fees can be deducted from the proceeds of the HECM loan, reducing the amount of cash available to you. While the cost of setting up an HECM line of credit can be somewhat higher than more traditional tools, for some people the advantages can outweigh the costs. That’s because unused funds are guaranteed to grow regardless of fluctuations in the economy, mortgage interest rates, or the appreciation/depreciation in an investor’s home value. The earlier homeowners set up an HECM line of credit, the more growth they can expect. Depending on local real estate market appreciation rates, it’s possible for that growth to outpace the value of the home.

Who is Eligible for an HECM?

• HECM borrowers must be 62 years old or older;
• They must either own their home outright or have significant equity, and the home must be their primary residence (they must live there six-plus months per year);
• Borrowers must meet minimal credit and property requirements;
• They must receive reverse mortgage counseling from a HUD-approved counseling agency;
• They must not be delinquent on any federal debt; and
• The property must be a single-family home, a two- to four-unit dwelling or an FHA-approved condo.

What are Some Risks of an HECM?

Probably the most talked about (and misunderstood) aspect of HECMs is the possibility that the homeowners’ heirs may not receive the full value of the home. I’m always dumbfounded when grown children — who often helped set up their parents’ HECM in the first place — seem surprised when this happens. When the borrower dies, the home is sold and the proceeds are used to repay the loan, so it’s important that you consider your legacy wishes when deciding if an HECM is right for you.

Anyone considering an HECM should be fully informed regarding this major decision. Investors who wish to transfer their home as an inheritance may certainly do so. According to National Reverse Mortgage Director of Fairway Mortgage Harlan Accola, in his experience, few heirs indicate they want their loved one’s home transferred to them in an estate. More importantly, those who use their home equity responsibly as an active part of their retirement strategy may be able to leave their children a more valuable inheritance.

An HECM certainly isn’t for everyone. However, for some it might be a mistake to overlook this strategy based on misinformation. There are a number of safeguards in place for FHA loans, including FHA insurance and limits on the fees that can be charged.

If an HECM sounds like it might be a fit for your needs and goals, talk to a financial adviser who understands the pros and cons of responsibly using home equity in retirement. Then, if you decide it makes sense for you, enlist the assistance of a properly licensed mortgage lender who specializes in reverse mortgages.

Securities and advisory services offered through Sunbelt Securities, Inc. Member FINRA/SIPC. Fixed life insurance and annuities offered through Charles W. Rawl & Associates, LLC. Charles W. Rawl & Associates, LLC and Sunbelt Securities, Inc. are unaffiliated companies and neither provides tax or legal advice. Charles W. Rawl & Associates, LLC does not offer real estate mortgages or reverse mortgages, as these are available only through properly licensed mortgage lenders/brokers.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

Kim Franke-Folstad contributed to this article.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

As the coronavirus scare pushed the 10-year Treasury note to an all-time low and the Fed slashed the federal funds rate, interest rates for consumer loans also fell, creating money-saving opportunities for smart borrowers.

In early March, the 30-year fixed-rate mortgage stood at 3.36%, and the 15-year fixed mortgage averaged 2.8%. Those are the lowest rates ever recorded in Freddie Mac’s survey, which dates back to 1971. But rates ticked up as mortgage brokers struggled to keep up with demand for refinancing, and many lenders chose to keep rates higher than they would ordinarily be based on the level of the 10-year Treasury.

If your mortgage rate is more than one percentage point above current rates, it’s usually a sign that it makes sense to refinance. But you may benefit from a refi even if your new rate would be less than a full point lower.

Closing costs for refinancing typically run between 3% and 6% of your new loan amount, so knowing how long it will take to recoup closing costs—and when you plan to sell your home—is essential. To crunch the numbers, use The Mortgage Professor’s refinance calculator. You can enter the details of both your current mortgage and your new loan to see how long you’d have to stay in your home to start saving money.

If you are a candidate for a refi, consider waiting until the rush settles down; rates should settle down, too. Would-be home buyers who have been kept out of the market by rising prices stand to benefit from lower rates, but they could also feed home price increases, says The Kiplinger Letter, because inventories remain tight, especially in the hot markets of the South and West.

Credit cards and other loans. Many consumer loans are tied to the prime rate, and the Fed’s March rate cuts pushed the prime down to 3.25%. If you carry a balance on your credit card, you may see rates fall a bit. The rate on many home-equity lines of credit will move lower, in line with the prime rate. You may get a break on a new auto loan, too—the average rate for a 60-month new-car loan was recently 4.46%, down a bit from before the Fed cut, according to Bankrate.com. A 36-month used car loan averaged 4.95%.

Student loans. The plunge in the 10-year Treasury could reduce borrowing costs for students who take out federal loans for the 2020–21 academic year—and their parents could get a break, too. Interest rates for federal undergraduate, graduate and parent PLUS loans issued after July 1 are tied to the rate for the 10-year Treasury at the May auction, which will be held on May 12. If the 10-year Treasury remains at or below current levels—which is highly likely—the rate on undergraduate loans would fall below 3%. Graduate students would pay less than 4%, while the rate on parent PLUS loans would fall just below 5%.

Rates on federal loans are fixed for the life of the loan, so the new rates will only apply to loans issued after July 1. The only way borrowers with existing federal student loans can reduce their interest rates is by re­financing to a private student loan, and interest rates on private student loans have fallen to as low as 3% for a 10-year, fixed-rate loan, says Travis Hornsby, founder of Student Loan Planner, which helps borrowers manage student loans. However, those low rates are typically limited to high-income borrowers with good credit. And when you refinance to a private loan, you give up some federal loan benefits, such as forbearance or deferment.

Even if you’re a good candidate to refinance your federal loans, you may want to put it on hold for now. In response to the coronavirus pandemic, which led hundreds of colleges and universities to send students home, Trump announced plans to tempo­rarily waive interest and payments on federal student loans for 60 days. The details of the waiver were unclear at press time.

If you need to apply for forbearance on a federal student loan, the interest respite could provide real savings. Ordinarily, interest accrues while a student loan is in forbearance, but that won’t happen if interest on the loan is waived.

The coronavirus (COVID-19) outbreak is crushing the U.S. economy. The stock market is tanking (we're now in a bear market), businesses are closed, unemployment claims are spiking, consumer spending is down sharply, 2020 GDP estimates are dropping fast, and a recession is on the way. We're in a bad place.

But the federal government has made several moves that we all hope will turn things around. Congress and the Trump administration worked together on stimulus legislation, the Federal Reserve lowered interest rates, and the IRS provided relief to taxpayers. Other government agencies and institutions are pushing forward with additional measures to stop the bleeding and get the economy back on track. It will take time, and we have a bumpy road ahead, but action is being taken.

While some of the economic stimulus will prop up businesses, many initiatives will flood the economy with cash and directly benefit ordinary Americans who are facing a financial hit. There are also other ideas being discussed at the highest levels of government that could be rolled out later. Here are 11 coronavirus stimulus measures already in place that could help you financially in 2020. They all won't necessarily apply to you, but one or two of them could significantly impact your financial health.

TOOL: Stimulus Check Calculator

Americans will be getting stimulus checks in the mail soon. The idea is to pump massive amounts of cash into the economy as quickly as possible.

The stimulus checks will actually be advanced payments of a new tax credit added by the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The checks will be worth up to $1,200 for each taxpayer ($2,400 for married couples who file a joint return), plus $500 for each qualifying child 16 years old or younger that you have. The check amount will be gradually reduced for single filers with an adjusted gross income above $75,000, joint filers with an AGI above $150,000, and head-of-household filers with an AGI above $112,500. To see how much your check will be, go to our Stimulus Check Calculator. For additional information about the economic stimulus checks, see Your 2020 Stimulus Check: How Much? When? And Other Questions Answered.

People are losing their jobs because of the coronavirus crisis, and spiking unemployment just makes things worse. The Families First Coronavirus Response Act pumps an additional $1 billion into the unemployment compensation system to ease the burden on states processing and paying unemployment benefits. States with greater unemployment increases will receive more funds, and employers are encouraged to reduce the number of hours worked by employees in lieu of layoffs. States are also directed to ease eligibility requirements and access to unemployment benefits for workers who do lose their job. The federal government will also pay 100% of coronavirus-related extended unemployment compensation, instead of the usual 50%. Many people who lose their job because of the coronavirus outbreak will benefit from these changes.

The CARES Act provides even greater benefits. For example, it provides up to 39 weeks of unemployment benefits for self-employed people, independent contractors and others out of work because of the coronavirus pandemic who don't otherwise qualify for benefits. Weekly unemployment checks are also increase by $600 through July. The federal government is also reimbursing states for the first week of unemployment benefits until the end of the year (states normally impose a one-week waiting period before paying benefits). An additional 13 weeks of benefits is included, too.

We don't want sick or potentially infected people going to work simply because they don't want to miss a paycheck. To address this concern, paid sick and family leave for many workers affected by the coronavirus outbreak was expanded when President Trump signed the Families First Coronavirus Response Act on March 18, 2020. Under the new law, employers with fewer than 500 workers are required to provide up to 80 hours of paid sick leave to employees affected by the virus. Workers can take paid leave if they are sick or quarantined, or if they have to stay home to care for someone else. Leave can also be taken to care for minor children who are home from school. Full pay is available for workers who are sick or quarantined (up to $511 per day), but workers taking qualified sick leave for other reasons only get two-thirds of their normal wages (up to $200 per day).

The new law also extends the existing Family and Medical Leave Act (FMLA) to cover a worker's absence to care for a child home from school or daycare. After 10 days away from work, employees will receive two-thirds of their regular salary while on coronavirus-related FMLA leave. However, this pay is limited to $200 per day ($10,000 in total). The expanded FMLA provisions generally apply to employers with fewer than 500 employees.

For more information on the new paid sick and family leave provisions, see Tax Credits Included in Coronavirus Paid Leave Law.

While they don't get the same sick and family leave benefits available to employees, the Families First Coronavirus Response Act provides self-employed people with two refundable tax credits tied to the amount of time they can't work because of the coronavirus outbreak. The sick leave credit compensates self-employed people for up to 10 days away from their business for a reason that would entitle them to coronavirus-related sick leave if they were employees. The family leave credit covers up to 50 days away from work for any reason that would qualify an employee for coronavirus family leave. Both credits have limits based on the business owner's average daily self-employment income and specific reason for missing work. For more information, see Tax Credits Included in Coronavirus Paid Leave Law.

With everything else that's going on, at least you don't have to worry about filing your tax return by April 15. The IRS extended the deadline to help taxpayers, and tax preparers, who are struggling with the coronavirus crisis. The new deadline is July 15, which applies to both return filing and tax payments. Penalties and interest won't apply if you pay any tax due before the extended deadline. This relief also applies to 2020 estimated tax payments, and 2019 contributions to an IRA or HSA, that would otherwise be due on April 15. For more information, see Income Tax Returns and Payments Extended.

You should also check with your state's tax agency to see if the filing and/or payment deadline for your state income tax (or other state tax) is changed because of the coronavirus crisis.

Student loan debt can be a heavy burden in the best of times. During an economic meltdown, it can drag you under water. Lawmakers recognize this, and that's why there are several student loan relief measures in the CARES Act.

First, student loan payments are deferred until September 30, 2020, without penalty or interest for all federally owned loans. This covers over 95% of student loan borrowers. Collection activities against borrowers who were already behind on payments will also be suspended.

In addition, students who leave school for a coronavirus-related reason will also have student loan obligations cancelled and won't have to return grants. Likewise, students participating in work-study programs will still be paid if they're unable to fulfill their obligations because of the coronavirus pandemic. For students who drop out of school as a result of the coronavirus, their grades also won't affect the academic requirements to continue receiving Pell Grants or student loans.

Finally, if your employer pays some of your student loan debt through the end 2020, up to $5,250 of that benefit won't be taxed. The $5,250 cap applies to both student loan repayment benefits and other educational assistance (e.g., tuition, fees, books, etc.) offered by your employer under current law.

In any crisis or emergency situation, people look to churches, food pantries, and other charitable organizations for help. It's no different with the coronavirus crisis—charities will provide relief to those who are suffering like they always do. So, to encourage charitable giving in 2020, the CARES Act includes two tax provisions that reward people who donate to charity.

First, a new "above-the-line" deduction of up to $300 is allowed for cash donations to charity in 2020. Donations to donor advised funds and certain organizations that support charities are not deductible. You can't claim this deduction if you itemize deductions on your 2020 tax return (i.e., you must claim the standard deduction).

For taxpayers who do itemized on their 2020 return, the 60% of adjusted gross income limit that normally applies to cash contributions is waived. That means you can deduct more of your charitable cash contributions this year. As with the new above-the-line deduction, donations to donor advised funds and supporting organizations don't count.

Taxes are generally deferred when you save money in IRAs, 401(k) plans and other retirement accounts. However, once you turn age 72 (70½ before 2020), you have to start withdrawing money out of those accounts whether you need it or not. And that's when the IRS claims its cut. These withdrawals are called required minimum distributions (RMDs), and failure to take an RMD triggers a stiff penalty equal to 50% of the amount you should have withdrawn. First-time RMDs are due April 1, while others are due by the end of the year.

Many seniors were worried about having to take RMDs when the stock market is in the dumps. Since there probably won't be enough time for the market to recover before their RMDs would be due, a lot of retirees would be forced to sell their investments for a loss or at a low price to avoid the hefty RMD penalty.

To avoid this result, the CARES Act suspends RMDs for 2020. This applies to both first-time RMDs due April 1 and to other RMDs that aren't due until December 31. For more information, see A Hidden Benefit of the Coronavirus Stimulus Bill: You Can Wait to Take Your RMD.

People in a financial pit often just need access to cash in order to climb out of the hole they're in. One way to get cash quickly is to withdraw it or borrow it from a retirement account, such as a 401(k) plan or IRA. However, anyone younger than 59½ who withdraws money from a retirement account is hit with a 10% penalty. That's in addition to the taxes you'll have to pay on the amount you take out. If you want to borrow from a 401(k) plan, you can only take out 50% of your account balance, up to $50,000. Plus, most loans must also be repaid within five years.

The CARES Act includes a number of provisions that make it easier to get money out of a retirement account (up to $100,000) if you're infected by the virus, have family members who catch it, or experience adverse financial consequences because of it. First, the 10% penalty for withdrawals by people age 59½ or younger is waived if you're affected by the virus. Taxes on withdrawals by people affected by the coronavirus will also be spread out over three years. You can also recontribute the money to an eligible retirement plan within three years, without regard to that year's cap on contributions, and have it treated as a tax-free rollover.

In addition, the amount a person affected by the coronavirus can borrow from a 401(k) plan is doubled from $50,000 to $100,000, and repayment requirements are relaxed.

The Federal Reserve took one of the first coronavirus-related stimulus measures when it cut interest rates to nearly zero. While this is bad news for savers, its good news for borrowers. For instance, low interest rates reduce the cost of mortgages, which helps would-be homeowners and current homeowners looking to refinance. The plunge in interest rates could also reduce borrowing costs for students who take out federal loans for the 2020-2021 academic year. Parents taking out PLUS loans could get a break, too. Expect lower rates for car loans and home equity lines of credit as well.

If you have credit card debt, you may also see interest rates on the balance fall. But even if your rate falls from, say, 17% to 16%, that will result in just a few dollars in savings per month for someone making the minimum payment on credit card debt of $5,000 (which is close to the average balance). So, paying down credit card debt should still be a high priority.

Note: Anyone still looking for savings opportunities in this coronavirus-driven environment should check out Finding the Best Savings Account After the Coronavirus Interest Rate Cuts and Strategies for CD Savers After the Coronavirus Interest Rate Cuts for our latest advice.

For anyone laid off from work or otherwise suffering financially because of the coronavirus-induced slowdown, losing the roof over your head is one of the scariest outcomes. That's why the CARES Act includes mortgage relief provisions for certain homeowners. First, any American with a federally backed mortgage can stop making payments for up to one year if they are experiencing financial hardship due to the coronavirus crisis. The relief is not automatic, though. You have to request it and affirm that you are suffering financially from the COVID-19 emergency. Mortgage payment relief will initially be granted for up to 180 days, but you can submit a second request for up to 180 additional days. No additional fees, penalties, or interest can be imposed by the lender during the time a homeowner is not making mortgage payments.

The CARES Act also imposes a 60-day foreclosure and eviction moratorium for homeowners with federally-backed mortgages. The 60-day period starts on March 18, 2020; however, the moratorium does not apply to vacant or abandoned property.

Federally-backed mortgages include those purchased by Fannie Mae and Freddie Mac, insured by the Federal Housing Administration (FHA), guaranteed or insured by the Department of Veterans Affairs (VA loans) or Department of Agriculture (USDA loans), and others.

As the coronavirus scare pushed the ten-year Treasury note to an all-time low and the Fed slashed the federal funds rate, interest rates for mortgages also fell, creating money-saving opportunities for would-be homeowners and current homeowners looking to refinance.

In early March, the 30-year fixed rate mortgage stood at 3.36% and the 15-year fixed mortgage averaged 2.8%. Those are the lowest rates ever recorded in Freddie Mac's survey, which dates back to 1971. But rates ticked up as mortgage brokers struggled to keep up with demand for refinancing and many lenders chose to keep rates higher than they typically would be based on the level of the 10-year Treasury. The spread between the 10-year Treasury yield and the 30-year fixed mortgage rate is near its largest since 2009.

If your mortgage rate is more than one percentage point above current rates, it's usually a sign that it makes sense to refinance. But you may benefit from a refi even if your new rate would be less than a full point lower. It depends on how long you plan to stay in your home and how long it would take to recoup closing costs.

Keep in mind that closing costs for refinancing will typically run between 3% and 6% of your new loan amount, so knowing when you plan to sell your home is essential. Say you have a $300,000, 30-year, fixed-rate loan at an interest rate of 4.4% that you took out in 2014, and you're making a monthly payment of $1,688 a month in principal and interest. If you refinance to a 30-year loan with an interest rate of 3.0% and closing costs of 3% and finance the closing costs, you would lower your mortgage payment to $1,303, saving you $385 per month. You could break even and begin saving after a bit more than three years. If you sold your home in 10 years, you would save a total of $17,457.

For help crunching the numbers, use The Mortgage Professor's refinance calculator (www.mtgprofessor.com) to enter the details of both your current mortgage and your new loan to see how long you'd have to stay in your home to start saving money on a refi.

If you are a candidate for a refi, consider waiting until the rush settles down. Would-be home buyers who have been kept out of the market by rising prices stand to benefit from lower rates and the lower monthly payments. But that could lead home prices to jump, because inventories remain tight, especially in the hot markets of the South and West.

Retirement has finally arrived, and you've checked all the right boxes. Mortgage paid off, check. Loans to help kids through college paid, check. Nest egg ready for the future, check. You've found a great spot to build your retirement dream home and you're ready to bring your blueprints to life. But there's one step you haven't yet navigated: getting a construction loan to finance the project.

Sure, you've borrowed from the bank before. But construction loans can be quite a bit more nuanced than traditional mortgages. A common step for borrowers is to start the process by getting pre-qualified for a home construction loan.

Construction Loan Options

There are two primary varieties of construction loans: construction-to-permanent and stand-alone. The distinction is important and there are benefits of each, depending on your financial situation.

A construction-to-permanent loan, sometimes referred to as a single-close construction loan, converts into a permanent mortgage after the house is built. There is just one closing at the start of construction, so you only pay closing costs once. What's more, you can lock in your interest rate for the lifetime of the loan. Once your build is completed, your lender converts the construction loan into a permanent fixed- or adjustable-rate mortgage.

By contrast, a stand-alone construction loan covers just the home build. Once the work is completed, you'll need to secure a separate mortgage to pay off the construction debt, therefore requiring two closings and sets of fees. Another disadvantage of a stand-alone loan is that you can't lock in a mortgage rate. That means you run the risk of rates rising before you are ready for that second loan. However, stand-alone construction loans tend to require lower down payments and do allow borrowers to shop around for a mortgage once their home build is complete.

Both construction-to-permanent and stand-alone loans only require you to make interest payments while your dream house is being built, and it's typically a variable rate during construction. Your lender will pay funds directly to the contractor in installments at various pre-defined benchmarks, known as a "draw schedule." Your lender and your builder will work closely to ensure your project and your payments stay on track.

Qualifying for a Construction Loan

Even if you have a stellar credit score, it's a good idea to get your ducks in a row before submitting a construction loan application. You'll need to prepare all of the same documents required for securing a traditional mortgage, plus a comprehensive list of the construction details.

Here's a basic checklist of what you may need to supply to your lender as part of your construction loan application:

• Current financial statements covering debt, income and asset information.
• A signed construction or purchase contract with your builder or developer that includes project plans, specs and budget details.
• A timetable for construction that includes start and completion dates.

Your lender will closely review the project plans and contract to ensure your builder's quoted costs are aligned with market costs. They will also consider factors like budget overrun and unanticipated upgrades — as it's not uncommon to splurge on granite countertops once kitchen construction begins. Some lenders may also request financial information from the builder to ensure they will be financially solvent throughout the project.

Getting Started

Because construction loans have higher underwriting standards, many people work with a bank they already have a relationship with. That said, you might want to comparison shop to ensure that your bank's fees and interest rates are competitive. It's important to remember that this will be a long-term relationship, so you should find a knowledgeable loan officer who will take the time to talk through your options, provide personalized guidance based on your financial situation and do due diligence on your contractor's plans.

Building a retirement nest to your own specs requires a bit of legwork, but the result will be enjoyed for years to come. And it means you can whittle one more box off your list: Dream home ready to go, check.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Retirees face plenty of financial challenges these days, from volatile markets that can upend their security to low interest yields that in some cases don’t even allow them to keep up with inflation.

But with all the issues that confront them, perhaps the most significant financial burden is this one: taxes. After all, many retirees — and people approaching retirement — have stashed much of their savings in traditional IRAs or 401(k)s, which are tax-deferred methods for accumulating wealth. Also, taxpayers may elect to use other tax-deferred accounts in order to avoid interest, dividends and capital gains from spilling onto their tax returns. These methods can allow taxpayers to potentially lower their income and taxes.

However, once we “turn on the faucet” and withdraw money from these tax-deferred accounts, additional income will need to be claimed on our tax returns.

That is, unless the retirees take steps that will help them reduce how much they owe the government. After all, designing a strategic income plan to help mitigate the tax burden of income in retirement is an essential, but often neglected, part of financial planning.

I refer to such a plan as “TAP,” or tax-advantaged payout. One lesser-known tool to consider tapping into for tax-free income is a home equity line of credit, or HELOC, on your home.

Here are two scenarios in which a HELOC may make sense in your retirement:

IRA drawdown.

Consider the example of an average married retired couple wanting to stay in the 12% tax bracket as joint filers. They can take up to $78,950 of taxable income from their IRAs to stay under this threshold in 2019, and that amount increases to $103,350 after adding the standard deduction of $24,400. Then, for any additional funds they may need during the year, they can tap into the HELOC. For example, if they take $15,000 out, they will actually receive $15,000 tax-free.

By comparison, taking the same amount from their IRA would push them into the 22% tax bracket, resulting in $3,300 in federal taxes being due in addition to any state or local income taxes. Thus, they may only receive roughly $10,000 after taxes from their IRA withdrawal. Not only is the HELOC tax-free, the interest rate charged on a HELOC is generally low at this point in time. In addition, depending on what you use the money for, that interest may be tax deductible, and repayments can be planned over a multiyear term to be covered by future IRA distributions or other investment income. This strategic “TAP” approach spreads out the tax impact to continuously stay under tax bracket thresholds, keeping as much of your money in your hands as possible.

Emergency money.

Unexpected expenses can crop up throughout a lifetime, whether for significant home repairs, health care needs or other costly surprises. If you do not have the funds available in a checking or savings account, don’t let the emotion of a stressful emergency drive you to make impulsive (and costly) financial decisions. Rather than turning to a high-interest credit card or cashing out investments at an inopportune time in the market, a HELOC can be a smart place to turn. This can give your financial adviser time to plan an exit strategy rather than rushing to liquidate securities. This also allows time to design a repayment plan that maximizes both tax and investment advantages to your favor.

As a bonus potential savings opportunity, if you are considering purchasing a new home or refinancing an existing home, you may consider setting up a HELOC at the same time. Many banks will offer a discounted or “free” HELOC closing, making it an even more cost-effective tool to consider.

Of course, like most things in life a HELOC does have disadvantages. For example, the interest rate is variable, which means the monthly payment can be unpredictable, especially during times of rising interest rates.

While there are other ways to leverage the equity of your home to create cash flow in retirement, a HELOC may be most desirable for some retirees, based on its flexibility for scenarios such as future downsizing or the potential need for assisted living facilities down the road.

In short, a HELOC can be a powerful tool as part of a proactive and comprehensive cash-flow plan in retirement.

Ronnie Blair contributed to this article.

Investment advisory services are offered through Calibre Investment Management, LLC, a Registered Investment Adviser. For a list of full disclosures, please click here and scroll to the bottom of the page.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

In 2018, the number of unconventional mortgages increased to the highest level since the mortgage meltdown in 2008. Unconventional mortgages include subprime loans, which are made to borrowers with blemished credit; loans made to borrowers without a Form W-2 or other standard documents; and other loans that don’t meet the standards set by the Consumer Financial Protection Bureau.

Does that mean we’re headed back to the bad old days that led to the housing meltdown? Probably not, although if there’s a rise in delinquencies, it could signal trouble ahead, says Guy Cecala, publisher of Inside Mortgage Finance.

While the number of unconventional mortgages has grown, they were still less than 3% of loans made in 2018, compared with 39% in 2006, right before the housing bust began. In addition, many of the loans are only slightly unconventional, says Cecala. For starters, most lenders must, by law, make a good-faith effort to determine that a borrower has the “ability to repay,” he says. And lenders that underwrite these mortgages usually look for ways to offset risk. For example, they’ll use a high credit score and a large down payment to offset the risk of a high debt-to-income ratio, limited documentation or an interest-only loan.

Most of the bad-apple loans that contributed to the housing crisis are long gone. Loans that result in negative amortization—the loan balance grows rather than shrinks—have disappeared. Interest-only loans have returned to their traditional role as short-term loans for wealthy people buying expensive homes with a down payment of, say, 50%, says Cecala.

The primary reasons that borrowers took unconventional loans in 2018 were that they had limited or alternative documentation, they had a debt-to-income ratio above 43%, or they wanted an interest-only loan, according to CoreLogic, a financial data and analytics company. Borrowers who are self-employed or earn commissions may have a harder time verifying their income, so lenders may rely on bank statements rather than tax returns. Qualifying with a higher debt-to-income ratio is common among younger borrowers, who may have student loans, and retirees with fixed incomes, who spend a higher portion of their income on housing.

Before the mortgage meltdown, a large percentage of questionable loans were securitized and sold to investors. In 2018, about $100 billion in non-agency mortgage securities were created (that is, mortgages that weren’t backed by Fannie Mae, Freddie Mac, the Federal Housing Administration or Veterans Affairs). That’s the most since 2007, but it’s still just 10% of what it was during the boom. Lenders may be more willing to loosen underwriting to drum up business, especially if it would distinguish them from competitors, Cecala says. But in the worst case, only a handful of lenders or investors will fail, he says.

Susan, a referral from a colleague, is a recent widow. She called and wanted to know my thoughts on using her late husband's life insurance proceeds to pay off their mortgage.

On the surface this seems like a reasonable idea, however, I didn't want Susan to make a quick decision she may regret later. We met to review the pros and cons of her idea, including a special rule on the home sale exclusion amounts for widows. Here's what we discussed:

Reasons to pay off the mortgage

There are times when it makes sense to pay off a mortgage after a spouse passes away, here are six examples:

1. The surviving spouse wants to stay in the house and doesn't plan on moving.

If a client wants to stay in the house, paying off the mortgage can provide peace of mind. However, it's not a good idea to pay off a mortgage if that leaves the widow or widower house rich and cash poor. It's best to ensure there is enough left over for living expenses. Also, if the surviving spouse plans on staying in the house, the house may need updating or improvements. It's a good idea to keep some money on the side for renovations.

One caveat is if the homeowner is at the age of possibly needing long-term care. If that is the case, perhaps it's best not to pay off the mortgage but keep the money in a safe, conservative and liquid account. This money is then earmarked for purchasing a future residence in a community or skilled nursing care facility. The last thing I want a client to do is pay off the mortgage then in two years need to sell to move in with a family member or need to move into an assisted living facility, the risk being that the real estate market may not be favorable at that point.

2. There are plenty of other assets available.

If the client has sufficient other assets and paying off the mortgage does not leave him or her cash poor, then paying off the mortgage can seem like a reasonable idea. A better approach to analyzing this scenario is to run retirement cash flow projections so the surviving spouse sees the numbers for him or herself. I ran two scenarios to show Susan the impact that paying off or not paying off the mortgage would have on her future balance sheet.

I also showed Susan the impact that varying rates of return can have her on her nest egg in both scenarios. We call this a Monte Carlo simulation. The Monte Carlo runs her situation through about a thousand different iterations of the stock market and gives a probability of success. I showed her how different rates of return on her investment portfolio could impact her decision. All in all, retirement projections and a Monte Carlo simulation are a nice way for the client to see the numbers for him or herself and can help provide a framework to make an educated decision.

3. The surviving spouse is financially conservative.

If the surviving spouse is ultra-conservative and doesn't want anything to do with the stock market, then the most conservative option is paying off the mortgage — assuming again, the client has an emergency cash fund at hand and can meet his or her monthly bills with other assets or income like Social Security.

4. The mortgage is an adjustable rate mortgage.

If the client has an adjustable rate mortgage, rather than waiting for the rate to reset at a potentially higher level and incur refinancing costs, paying off the mortgage can make sense.

5. It makes sense from an income tax perspective.

Though I don't advocate a widow or widower keeping a mortgage for a tax write-off, it helps to understand how paying off the mortgage will affect his or her income taxes. If the standard deduction (which for 2019 is $24,400 for married couples filing jointly) is larger than the client's itemized deductions, then paying off the mortgage may make more sense from an income tax perspective. Keep in mind, the surviving spouse is eligible to file jointly in the tax year their spouse passed away as the IRS considers you married for the entire year. Filing jointly means you have two standard deductions instead of one.

6. Peace of mind.

Emotional desires usually trump logical choices. If paying off the mortgage provides peace of mind and helps the client worry less and sleep better, that is a very persuasive argument for paying off the mortgage.

There are also reasons to keep the mortgage

1. A surviving spouse is confident he or she can earn a higher return on his/her portfolio than the mortgage interest rate.

For a more market savvy or sophisticated investor who understands the risks and rewards of investing and is confident he or she can earn a rate of return higher than the mortgage interest rate, then investing the money versus paying off the mortgage can make sense. In my research, one doesn't have to earn much more than a mortgage rate, usually 1.5% more. The downside is obviously if the stock market craters, then the client is left with a smaller portfolio and still has a mortgage payment to make, not an ideal scenario.

2. The homeowner may decide to relocate or downsize.

If the surviving spouse plans to move, it may be too risky to pay down the mortgage. Paying off the mortgage yet planning to move in the near future can backfire if real estate values drop. The equity can evaporate. In this case, it's best to leave the money in a bank account, CD or short-term Treasury bill.

If a widow or widower does decide to sell, he or she needs to be aware of the capital gains exclusion rules for selling a house. According to the IRS, "If you sell your home within two years of the death of your spouse and you haven’t remarried at the time of the sale, then you may include any time when your late spouse owned and lived in the home, even if without you, to meet the ownership and residence requirements."

Equally important, a single widow or widower can increase his or her home sale exclusion amount from $250,000 to $500,000 if he or she meets certain criteria, such as selling the home within two years of the spouse passing. This may be extremely valuable for the surviving spouse who wants to sell the house but may incur a large capital gain. See IRS publication 523 (2018) or speak to a qualified tax adviser or financial planner. It's also important to understand if the house "stepped up in value." If there was a full step up in value on the date of death, and not much of a taxable gain, then the capital gain exclusion amounts may be a moot point if immediately selling.

3. Liquidity is a concern.

If the client uses up his or her cash to pay off the mortgage, that is a risky proposition if something goes wrong. A surviving spouse may want to consider having at least a year's worth of expenses readily available for home repairs or other emergencies. Looking at the cash outflows for the past three to six months can help in developing a budget and a spending plan.

A compromise: It doesn't have to be an all-or-nothing decision

1. Take a wait-and-see approach.

The surviving spouse may want to stay liquid for the time being until his or her housing situation is clearer. Then he or she can use the money to purchase a new house or pay down the existing mortgage if moving is not an option. This is a conservative and safe choice.

2. Pay down some of the loan and refinance or recast the mortgage.

Recasting a loan involves making a sizable payment, then asking the mortgage company to recast — or reset — the loan payment based on the new balance. For example, if a surviving spouse has a 30-year mortgage with a $300,000 balance at 5%, he or she may choose to make a one-time payment of $50,000 and keep the rest of the money in cash, then ask the mortgage company to recast the loan. The loan payment is now based on a 30-year $250,000 loan at 5%, which will mean a lower monthly payment going forward.

3. Invest the money conservatively to increase liquidity, but have it ready to pay off the mortgage if need be.

One doesn't have to invest to beat the mortgage rate, but rather earn a return that keeps pace or close with the mortgage rate. For example, owning a bond that pays interest comparable to the mortgage rate. If an investor can do this, then he or she can maintain liquidity and keep the opportunity cost of owning the mortgage low. Most intermediate bonds can come close to earning what mortgage interest rates cost. One can also build a laddered bond strategy, buying short-term and intermediate-term bonds to achieve a blended rate of return with less risk than owning all intermediate bonds. Doing this allows the client to maintain their liquidity and have the peace of mind knowing the mortgage can be paid off at a moment's notice if need be. The client should be made aware bonds can lose value if interest rates go up. If that is a concern, owning short-term bonds to maturity may make more sense.

What Susan decided to do

In the end, Susan decided to take a wait-and-see approach. She wanted to see how things would go this upcoming year and hold off on making any big decisions till then. From our discussion, she is also now aware of the two-year window for using the $500,000 home sale exclusion. This proved extremely helpful for her, given how long they had the house, their low basis in the property and only half the value of the house had a step up in value when her husband passed since they owned it joint tenants in common with a 50% ownership each.

To provide income and liquidity, we also built a portfolio of high-quality short-term Treasury bonds and municipal bonds for Susan. Municipal bonds provide tax-free interest, which is unlike a CD where the interest is fully taxable. Municipal bonds are not FDIC insured like CDs, but the ones we bought were AAA rated. Unlike a CD too, there are no withdrawal penalties with bonds, so her money was not locked up for a long time. Though if she sold prior to the bond maturing, she may lose value if she sold the bond for less than it is worth, an important consideration and reason you have to ensure the bonds are not too long in duration or maturity.

For now, she enjoys the extra liquidity, the security of the Treasury bonds, and the tax-free interest from the municipal bonds. Susan said it best when she called me and said she appreciates the extra liquidity and the bond income but also the peace of mind knowing she has the money available to pay off the mortgage at a moment's notice. All this gives her the best of both worlds.

If you lost a loved one, or know someone who did, please feel free to download my complimentary Survivor Planning Brochure. You can also learn more by visiting my website at www.survivorplanning.com.

Investment advisory and financial planning services are offered through Summit Financial, LLC, an SEC Registered Investment Adviser, 4 Campus Drive, Parsippany, NJ 07054. Tel. 973-285-3600 Fax. 973-285-3666. This material is for your information and guidance and is not intended as legal or tax advice. Legal and/or tax counsel should be consulted before any action is taken.

Investment advisory and financial planning services are offered through Summit Financial LLC, an SEC Registered Investment Adviser, 4 Campus Drive, Parsippany, NJ 07054. Tel. 973-285-3600 Fax. 973-285-3666. This material is for your information and guidance and is not intended as legal or tax advice. Clients should make all decisions regarding the tax and legal implications of their investments and plans after consulting with their independent tax or legal advisers. Individual investor portfolios must be constructed based on the individual’s financial resources, investment goals, risk tolerance, investment time horizon, tax situation and other relevant factors. Past performance is not a guarantee of future results. The views and opinions expressed in this article are solely those of the author and should not be attributed to Summit Financial LLC. Links to third-party websites are provided for your convenience and informational purposes only. Summit is not responsible for the information contained on third-party websites. The Summit financial planning design team admitted attorneys and/or CPAs, who act exclusively in a non-representative capacity with respect to Summit’s clients. Neither they nor Summit provide tax or legal advice to clients. Any tax statements contained herein were not intended or written to be used, and cannot be used, for the purpose of avoiding U.S. federal, state or local taxes.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Deborah Thorne knows a thing or two about debt’s dangers for older consumers. As an academic, she has studied the issue for decades, and she’s the lead author of a recent study documenting a surge in bankruptcy filings among older Americans.

And yet, at the age of 57, Thorne herself is approaching retirement carrying a load of debt. “I’ll be 65 before my student loans are paid off, and I did not take out huge student loans,” says Thorne, an associate professor of sociology at the University of Idaho. What’s more, “I will be going into retirement with a mortgage,” she says, a move she believes is “financially foolish.”

The debt persists despite Thorne’s frugality, and the financial anxiety it generates touches every aspect of her life. She plans to work until age 70, and she teaches extra classes so that she can boost her savings. She drives a 1989 pickup truck and took only a two-day vacation this year. She sticks to a vegetarian diet and exercises “out of fear” of medical bills, she says. “A lot of people are living on the edge,” she says, “and we’re scared.”

For a growing number of retirees, the golden years are awash in red ink. Four in 10 retirees cite paying off debt as a current priority, according to a recent survey by the Transamerica Center for Retirement Studies. Older Americans are increasingly filing for bankruptcy, and their representation among the bankrupt population is at an all-time high, according to the recent study by Thorne and her colleagues, which is based on data from the Consumer Bankruptcy Project. One in seven bankruptcy filers is 65 or older, the study found, a nearly five-fold increase over 25 years ago. “If I’m 65 and get really sick and have unexpected medical bills or don’t have enough retirement savings, there’s no rebound,” Thorne says. “There’s no room to screw up in retirement.”

Declining income and medical expenses are the leading causes of older Americans’ financial distress, the study found. In inflation-adjusted terms, the median income of households in their fifties to mid sixties still lags below 2010 levels, according to Harvard University’s Joint Center for Housing Studies. Unplanned early retirement, often caused by job loss or health problems, contributes to retirees’ debt woes, says Catherine Collinson, chief executive officer of the Transamerica center. Nearly 60% of retirees retired sooner than planned, according to the Transamerica survey.

Ideally, you would enter retirement debt-free, with the possible exception of a low-interest-rate mortgage. But if job loss, surprise medical bills or other obstacles have made that seem like a long shot, don’t despair. Savvy financial moves and strategic belt-tightening can tame even the most fearsome debt loads and help put your golden years back in the black.

“If someone is facing a mountain of debt, the first step is taking an inventory,” Collinson says, listing all sources of debt, amounts owed, interest rates and repayment terms. From there, she says, “you can start prioritizing how you’re going to pay it off,” focusing first on high-interest debt.

Credit cards. For those in financial distress, a credit card can be like “a loaded handgun in your pocket with the safety off,” says Robert Bell, 59, a retired patent attorney who lives in Jekyll Island, Ga. He should know. After selling some investment properties about a decade ago, he was socked with a $40,000 capital-gains tax bill that he couldn’t afford to pay. So he put it on a credit card. After one late payment, the card issuer jacked up his interest rate, “and I couldn’t get out from underneath” the debt, he says. “I was making a $500 credit card payment, and $250 of it was interest.”

As of July, the average credit card interest rate for borrowers with decent credit was a record 17.76%, says Ted Rossman, industry analyst at CreditCards.com. Baby boomers are less likely than younger consumers to carry credit card debt, but when they do, they owe higher balances: $3,900 on average, versus $3,300 for Gen Xers and $2,500 for millennials. Younger boomers approaching retirement are in the biggest hole, with an average $4,500 in credit card debt, Rossman says.

Older consumers are using credit cards to supplement their income as well as to help adult children with cell-phone bills, car payments and other expenses, says Melinda Opperman, executive vice president at Credit.org. If that sounds familiar, your first step may be to rein in your financial support of the kids (see “Don’t Let the Kids Wreck Retirement” ).

Resist the urge to pull out the plastic when faced with an unaffordable tax bill or medical bills. An IRS installment plan will likely give you a lower rate and may allow you to pay off your tax tab over a period of up to six years. For medical debt, you may be able to negotiate discounts or payment plans directly with health care providers or benefit from government programs that help eligible families with medical bills. If you slap these debts on a credit card, you may lose access to such options.

If you’re trying to pay off hefty credit card debt, see if you qualify to transfer your balance to a card that offers a 0% introductory rate for a certain number of months. Divide the amount owed by the number of months that the 0% rate applies, Rossman says, and “be really disciplined” about paying that amount each month to wipe out the debt before the rate rises.

The Citi Simplicity card offers one of the more generous introductory periods, Rossman says, with a 0% rate on balance transfers for the first 21 months. But it also charges a 5% fee on the amount transferred. The Chase Slate and Amex EveryDay cards charge no balance transfer fee and offer a 0% rate on balance transfers for the first 15 months.

Bell transferred his credit card debt to a 0% interest card, aggressively paid down the balance and ultimately was able to retire debt-free. Although he still has a credit card, he says, “I treat that thing like it’s a bomb ready to go off.”

Mortgages. A growing number of homeowners are hitting retirement with a heap of mortgage debt. More than 40% of homeowners age 65 and older had a mortgage in 2016, up from 20% in 1989, according to the Joint Center for Housing Studies. And older homeowners’ loan-to-value ratio tripled over that period, to 39%.

For some wealthier homeowners with low-rate mortgages and sound financial plans, carrying a mortgage into retirement may be little cause for concern. But many people with more moderate income—and even some higher-net-worth retirees—find it problematic. Rick Brooks, a principal at Blankinship & Foster, in Solana Beach, Calif., works with a client who had a sizable mortgage on his primary residence and put most of his taxable savings into a down payment on a second home. “In every other meeting since he retired, the question has come up, ‘How do I get this debt monkey off my back?’ ” Brooks says. Unfortunately, “every dollar he spends comes out of a retirement account,” he says, “so the tax cost of getting that monkey off his back is enormous.”

When considering whether to pay off a mortgage before retirement, look at your expected cash flow in retirement, says Ilyce Glink, chief executive officer of financial-wellness firm Best Money Moves. If you have guaranteed income that’s more than sufficient to cover the mortgage and other essential expenses, there may be little pressure to pay off the note before you retire. But many people spend too much cash in the early retirement years, Glink warns.

Be wary of the argument that you should hold on to a lower-rate mortgage because you can earn more in the market than you’re paying in interest. Sure, Standard & Poor’s 500-stock index was up about 18% this year through mid August, but “next year the S&P might be down 15%, and you’re still paying that mortgage,” Brooks says. Also consider how you’re actually investing the money that you would use to pay off the mortgage. If it’s in conservative bonds or certificates of deposit, you’re unlikely to earn more than your mortgage interest rate.

For some homeowners, the 2017 tax reform also tips the scales toward paying off the mortgage. Mortgage interest can still be deducted if you itemize, but tax reform raised the standard deduction and put a $10,000 cap on state and local tax deductions, limiting or eliminating many taxpayers’ ability to itemize deductions.

With mortgage rates falling, homeowners approaching retirement might consider refinancing as part of a plan to pay off a mortgage before they retire, Glink says. Let’s say you’re 15 years from retirement and have 20 years left on a mortgage with a 4.5% rate. You might be able to refinance that down to a 15-year loan with a rate closer to 3%, she says, and be debt-free by the time you stop working.

If you’re just a few years from retirement, refinancing may not help you retire debt-free. But if you live in one of the many areas of the U.S. where home values have skyrocketed, Glink says, you might consider downsizing. Sell your home, and use cash to buy something smaller and less expensive. You would save yourself years of mortgage payments, plus the taxes and other expenses of living in a larger property, and you can plow the savings into your retirement kitty.

Medical debt. Among older Americans who have filed for bankruptcy, nearly two-thirds say medical expenses were a catalyst, according to data from the Consumer Bankruptcy Project. Medicare falls far short of covering seniors’ health care costs. More than one-third of traditional Medicare beneficiaries spent at least 20% of their total per capita income on out-of-pocket health care costs in 2013, and that figure is expected to rise to 42% by 2030, according to the Kaiser Family Foundation.

While medical debt can be overwhelming, it generally should not be prioritized over other types of debt, credit experts say. Medical debt typically carries low or zero interest, and it won’t show up on your credit report for at least six months—whereas delinquent credit card debt affects your credit score right away, according to the National Consumer Law Center.

Use the National Council on Aging’s Benefits Checkup tool to find out whether you qualify for a Medicare savings program or other health care cost assistance that may be offered in your area.

If you’re seeking treatment at a nonprofit hospital, ask the hospital for a copy of its financial assistance policy. The Affordable Care Act required nonprofit hospitals to develop these policies, which may include free or discounted care for low-income patients. Each hospital can set its own eligibility guidelines.

If your insurer has denied a claim, you may have the right to appeal. For help filing an appeal, contact your state health insurance assistance program. Find your local program at shiptacenter.org.

Negotiating payment plans with health care providers may be easier than you think. When Bell, the retired patent attorney, was in the depths of his financial difficulties, his partner had to have an MRI that cost $1,500. “We didn’t have any cash laying around,” Bell says. “I called and said, ‘Can I pay you $150 a month for 10 months?’ They were like, ‘Sure.’ They were happy as a clam,” he says.

Deal with debt collectors. For older consumers, interactions with verbally aggressive debt collectors can be harrowing. Debt collection is a chief source of complaints that older consumers file with the Consumer Financial Protection Bureau.

But a recent CFPB rule proposal governing third-party debt collectors may only make matters worse, consumer advocates say. One issue: The rule authorizes debt collectors to call an individual seven times per week per debt. “We’re very concerned that will particularly affect people with medical bills,” says April Kuehnhoff, staff attorney at the National Consumer Law Center. If a single medical issue leaves you owing money to a health care facility, a physician, a lab and a medical-device company, for example, that could mean 28 debt-collection calls per week.

When dealing with debt collectors, understand your rights. Debt collectors sometimes threaten to garnish retirees’ Social Security or veterans’ benefits, for example—but these federal benefits are typically protected from garnishment if they are direct-deposited in your bank account. You also have the right to tell a debt collector to stop contacting you. To see a sample “stop contact” letter, search “debt collector sample letter” at consumerfinance.gov. This won’t cancel the debt, but it should stop the harassing phone calls.

Get help. If debt has been a persistent problem and you’re unable to make headway on your own, it may be time to contact a nonprofit credit counseling agency. A credit counselor will conduct a comprehensive financial review, analyzing all sources of income and expenses, and look for additional benefits or other resources that may help you bridge the gap, says Barry Coleman, vice president of counseling and education programs at the National Foundation for Credit Counseling.

If necessary, a credit counselor can set up a debt management plan—a voluntary agreement between you and your creditors that typically pays off debts within three to five years and may help reduce your finance charges and fees. Typically, the first counseling session is free, but a debt management plan comes with monthly fees of roughly $20 to $75 a month, depending on the state, Coleman says. Search for nonprofit credit counselors at nfcc.org.

Mortgage rates have dropped to levels not seen since 2016, and homeowners are rushing to refinance. You can benefit even if you don’t cut your rate by a full percentage point—a rule of thumb you can safely ignore. The question is whether you will stay in your home long enough to recoup the closing costs with savings on your monthly payments. For a quick answer, run the numbers using the refi break-even calculator at Bankrate.com.

Borrowers who closed on their loans in 2018 are leading the charge, according to Black Knight, a mortgage data, analytics and software provider. Say you got a $300,000 mortgage with a 30-year fixed rate of 4.5% last fall. If you refi to a rate of 3.8%—the national average rate reported by Freddie Mac in mid July—you would cut your monthly payment of principal and interest by $145, to $1,375, and you’d pay for your total closing costs (estimated at 2% of the loan balance) with monthly savings in 41 months.

Borrowers with adjustable-rate mortgages (ARMs) are refinancing to fixed rates in the highest numbers since 2007, presumably to lock in a low rate they’ll never need to think about again. In mid July, the average rate for a 5/1 ARM (the interest rate is fixed for the first five years and adjusts annually after that) was 3.5%, and for a 7/1 ARM, the rate was 4%, according to Bankrate.com.

If you originally took out an FHA loan but have since improved your financial profile or accumulated 20% equity, you can refi into a loan backed by Fannie Mae or Freddie Mac and not only reduce your interest rate but also eliminate the cost of mortgage insurance, which applies permanently on most FHA loans.

If you want to build equity more quickly or pay off your mortgage sooner—say, in anticipation of retirement—you could refinance into another, cheaper 30-year mortgage and use the monthly savings to prepay your mortgage. Or, if you can handle a higher monthly payment, you could take a new mortgage with a shorter term of, say, 15 or 20 years. In mid July, the average 15-year rate was 3.2%.

Gather your information. You can find an estimate of the market value of your home at Zillow.com or Trulia.com. Or ask a real estate agent, who may get your business down the road, to provide a market valuation of your home based on recent comparable sales.

Next, check your credit. The stronger your qualifications (the more equity you have, the higher your credit score and the less debt you carry), the lower the interest rate you’ll be able to get. Rates will be higher if you take cash out, take out a super-conforming mortgage (with a loan balance of $484,351 to $726,525), or are refinancing a multi-unit or investment property.

Well before you shop, double-check your credit reports from Equifax, Experian and TransUnion, the three major credit-reporting agencies (free annually at annualcreditreport.com) to ensure that no errors drag down your score. You may be able to check your credit score for free on the website of your credit card issuer, and everyone can see their credit score at Discover.com. (See 6 Ways to Boost Your Credit Score—Fast.)

Shop a variety of lenders, including the originator of your existing loan; your current loan servicer, bank or credit union; Quicken Loans; or a mortgage broker who may be able to pass along wholesale rates to you (look for an independent broker at findamortgagebroker.com). If you need a jumbo mortgage and are a client with your bank’s wealth advisory group, it may offer you the best deal, says Adam Smith, a mortgage broker in Denver. (The average jumbo rate in mid July was 4.1%, according to Bankrate.com.)

When you’re shopping for a mortgage, multiple credit checks won’t diminish your credit score if they occur within 30 days prior to calculating your score. And in the newest versions of the FICO score, those multiple inquiries made within a 45-day period count as only one inquiry.

Lenders will typically charge you from 1% to 3% of the loan balance to refinance. Closing costs will include the lender’s origination fee, third-party costs (including the cost of an appraisal, title search and so on) and recording costs.

You could pay the closing costs out of pocket. But before you do, consider how you could deploy the money for a better return. If you have enough equity, you can add the closing costs to your loan balance and finance them. With rates so low, the impact on your monthly mortgage payment could be negligible. But a higher loan balance and loan-to-value ratio could tip you into a higher risk category with a higher interest rate.

Or you could pay a higher interest rate in exchange for a lender credit that offsets closing costs. You can use the Tri-Refi Calculator at HSH.com to estimate the difference in outcome, but your loan officer should help you make the right decision to maximize the benefit of the refi.

Once the refinancing is under way, don’t open new credit lines or increase the balances of your existing credit because lenders will reverify your debt-to-income ratios just before closing. If the ratios exceed the lender’s limit, it must requalify you.

Prove it. Before a lender can approve your loan, it must document and verify your employment, income, assets and more. But lenders are trying to streamline the process, from application to closing, with technology. For example, at Quicken, customers can import their account statements directly from their bank or brokerage.

You will need an appraisal of your home’s value. Your lender may accept an automated valuation. But if it can’t access enough data or you’re taking cash out, the lender probably will send an appraiser to visit your home.

Cashing out

Homeowners have amassed nearly as much home equity as they had before the housing bust, but they have been cautious about extracting it. Although Fannie Mae and Freddie Mac will let you borrow up to 80% of your home’s value, and FHA will let you go up to 95% if you’ve made your payments on time for 12 months (85% otherwise), most borrowers are being more conservative, borrowing only 65% to 70% of their home’s value on average, says Bill Banfield, an executive vice president at Quicken Loans.

Freddie Mac says that homeowners who are tapping their home equity through cash-out refinancing are using the money to pay off more-expensive debt, make repairs or improve their homes, add to their savings, buy a car or other major purchase, or save or pay for college expenses.

Under the new tax law, if you don’t use the money to substantially improve your home, the interest on that portion of the loan isn’t deductible if you itemize.

She’s done all the right things: She’s worked hard in school, earned an advanced degree and has laid the groundwork toward finding a job in a well-paying career. Impressive as this recent graduate’s successes are, banks aren’t in the habit of giving mortgages to the unemployed.

So why not remove the bank from the equation?

A popular workaround when someone without enough cash on hand is looking to make a major purchase is an intrafamily loan, where a parent or other family member lends money in a formally structured agreement. These types of loans come without the hurdles of those offered by a bank, and there can be other tangible benefits as well, including lower interest rates, versatile payment options and estate planning opportunities related to how the loan is structured.

These benefits come with the common drawbacks inherent to lending money — no matter how closely related the parties are, there is always an element of risk — but a well-rounded understanding of intrafamily lending can potentially provide significant upside for both parties. And oftentimes, intrafamily loans can make sense even when the recipient has a job that pays well or another source of income.

Just helping out

The types of loans implemented in intrafamily lending don’t necessarily have to be in the family. In fact, anyone can lend to anyone, any amount, for any number of reasons, from an aunt helping a niece secure a new vehicle, to a friend helping another with capital to help start a business, to a grandparent establishing a trust to provide for a grandchild while moving assets outside their taxable estate.

Smaller loans don’t necessarily have to be structured the way a regular bank loan is. If the amount is small enough — say, $10,000 from a parent to help pay off a child’s vehicle — the lender can simply transfer the funds and allow them to be qualified as a gift. Because the amount is below the $15,000 gift tax exclusion threshold for individuals ($30,000 for married couples) there would be no associated gift tax due, assuming that total gifts for the year do not exceed the annual exclusion.

Carrying the full load

A common, and more complicated, form of intrafamily lending is a mortgage. Let’s say our overachieving-yet-cash-strapped grad wants to buy a $300,000 home. Unless she has already landed a good job and squirreled away enough savings for the down payment, the bank isn’t likely to be interested in lending to her. But if her parents have the means, they can loan the child a portion of the mortgage, or the entire mortgage amount. With the guidance of their financial adviser and an attorney, the parents can construct a home loan with advantageous terms for their family — one with no money down, no pre-approval, no credit check and no background check. The child is just getting a loan from the “Bank of Mom and Pop.”

Perhaps the best part of this arrangement is that the interest payments stay in the family and will likely come back to the borrower one day as part of their inheritance. But in the short-term, the interest rate they will be paying will not only be lower than those on mortgages from commercial banks — it will be the lowest rate allowed by the IRS. As of July 2019, the compound annual applicable federal rate (AFR) is 2.13% for a short-term period (three years or less), 2.08% for mid-term loans (more than three years on up to nine years), or 2.50% for a longer term (more than nine years).

Crafting loans

When drawing up a loan with your attorney, there are several key considerations and procedural steps to take. If the loan is a mortgage, the lender needs to create a promissory note and file the mortgage within their county to make it official. In this, intrafamily mortgages are different than other types of loans.

Two of the most important factors when designing the loan is making sure it stays distinct from a gift. Lenders can do this by establishing it with an interest rate based on the current AFR and setting up an appropriate payment structure. Failure to do so may bring scrutiny from the IRS, leading to a potential penalty or a gift tax being imposed. And, just to be clear, the gift tax would be owed by the person who gave the gift, not the one who received it.

Tips on structuring the loan: I typically recommend to my clients that they make their mortgages interest-only, with a balloon payment scheduled for the end of the loan’s term. If at the end of the loan the lender wishes to refinance, they of course have the option to do so. Likewise, if the recipient is unable to keep the payment schedule, the lender may decide to forgive the interest at the end of each year. Again, the lender could use their annual gift tax exclusion to forgive the required payment without money being exchanged and the IRS would consider the payment “made.”

It’s worth noting that for a loan recipient to pay down the principal, they are really just shifting cash back to the lender’s estate, and they probably don’t need the money if they’ve just lent the child hundreds of thousands of dollars. Another way to look at is it that the recipient of the loan is also likely going to inherit a portion of the lender’s estate. So, they might they ask themselves, who will benefit more from the incremental cash they would apply to principal, the younger version of themselves just starting out, or the future version, who is more established in their career and is a beneficiary of the lender’s estate?

Intrafamily loans can provide families a simplified way to make complex purchases, with more flexibility and favorable terms compared with what they would get from a traditional bank. The key to making such a solution work is to align the structure of the loan with the financial means and goals of both parties, and to manage the note and all related payments and documentation in accordance with regulatory requirements.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

The term “shadow banking” often elicits thoughts of shady back-alley dealings and loan sharks waiting to take drastic measures against debtors who can't pay. While that makes for an interesting story, it couldn’t be further from the truth.

Most consumers may not pay much attention to shadow banking because they don’t feel like it affects them personally. The problem is that the industry has grown so large that many people have loans originated through shadow banking, and they don’t even realize it.

Quicken Loans surpassed Wells Fargo recently to become the largest mortgage lender in the country, according to a 2018 press release. Quicken has approximately 17,000 employees and closed nearly a half-trillion dollars of mortgage loans from 2013 through 2018. The most interesting fact of all? Quicken isn’t a bank. It’s a prime example of the vastness that shadow banking represents in the economy.

What Is Shadow Banking?

Like many complex parts of our economy, shadow banking is often misunderstood. However, it is important to know what shadow banking really is, how it supports the economy and the risks it poses. According to the latest Financial Stability Board report, non-bank financing provides an alternative to traditional bank loans and is a major contributor to overall economic activity and growth. However, the benefit of that growth also comes with major risks to the economy.

When most people think of banks, they think of traditional commercial banks like Wells Fargo, Bank of America, Citibank and others. What makes these institutions true banks is the fact that they take deposits from savers and lend them out to borrowers in the form of mortgages, car loans and other debt. These traditional commercial banks are heavily regulated by federal and state authorities and must abide by Federal Reserve bank restrictions.

Shadow banking, on the other hand, refers to any type of lending provided by financial institutions that are not commercial banks and not regulated as banks. Like traditional banks, shadow banks rely on short-term funds to make longer-term loans. That’s where the similarities end. Since shadow banks are not depository institutions, they do not have deposits to lend out to borrowers. Instead, they rely on money from investors for making loans.

The difference? Unlike deposits that are FDIC insured, investor dollars collected through the shadow banking industry are not insured. It seems simple and straightforward, but that simple difference alone creates a major risk for investors and for the entire financial system.

Risk No. 1 – Investor Safety

Bank deposit accounts and money market accounts are insured by the FDIC and pose very little risk to account holders. Money market funds and other short-term, non-bank savings vehicles — the funding source for many shadow bank lending operations — are not insured. There’s really nothing wrong with providing investors with a decent short-term return in exchange for using their funds to make longer-term loans at higher rates, and conceptually, if investors understand these risks, then there should not be a problem. That’s how commercial banks have operated for centuries.

The difference lies in what happens when things go wrong. During the 2008 financial crisis, commercial banks were able to borrow money from the Federal Reserve to help weather the storm and provide account holders with access to their deposits. Shadow banking institutions cannot do that. They do not have access to short-term, government-backed funding and instead are forced to sell assets to raise cash and return money to investors. When asset prices are falling, as they were in 2008 and 2009, institutions are forced to sell assets at depressed prices just to be able to return money to investors, and it creates a downward spiral. This could make the next recession worse as dropping assets are sold at lower and lower prices to pay off investors.

That leads to much broader problems and bigger shocks to the overall economy and financial system.

Risk No. 2 – Liquidity

Just as an engine needs gasoline to run, the financial system needs access to short-term capital in order to operate. Banks and nearly every other monetary institution rely on access to short-term funds to meet liquidity needs and financial obligations. Real banks can access short-term funding in many ways that shadow banks cannot. When there is no short-term funding available, institutions that rely on it will suffer and possibly even fail in a short period of time. This is the reason the 2008 financial crises became so dangerous so quickly.

Since 2011, the Financial Stability Board, an international body that monitors and makes recommendations about the global financial system, has been monitoring the shadow banking system worldwide. Their latest report showed that shadow banking assets increased 7.6% to $45 trillion in 2016, growing faster than the rate of banks and insurance companies worldwide. To put things in perspective, shadow banking is now larger than the world economy in terms of total GDP, according to the report.

The good news is that shadow banking has been a major contributor to economic expansion since the 2008 financial crisis. The bad news is that there is always a balance between risk and reward. When the reward seems too great, the risk probably is too.

Risk No. 3 – Recession

It’s very difficult to predict a recession ahead of time, and the real causes often only become clear well after the fact. Looking back to the 2008 financial crisis, there were a lot of factors at play. Regardless of the specific cause or causes, there is no doubt that shadow banking played a major role in the severity of the crisis. A late 2018 Bloomberg article on shadow banking summarizes the role it played and points out that the most devastating liquidity problems were not due to a “run” on traditional banks as in the Great Depression. Rather, they were a result of problems caused by non-bank institutions like Lehman Brothers and Bear Stearns. With any portion of the economy being so dependent on an industry as large as shadow banking, there are bound to be risks involved.

The real question is whether post-2008 regulations and scrutiny of the shadow banking world will be enough to avert or minimize another similar crisis in the future.

In the meantime, it’s hard to decide whether to be thankful that we have shadow banking institutions to support the growth of the economy or to be fearful of what the future may hold as a result of that unchecked growth.

What Does All This Mean for Borrowers and Investors?

If you’re an investor who's in or near retirement, the main thing to take away from this is to make sure you don’t have more risk than you’re comfortable with at this age and stage of your life. If during the last crash you saw your 401(k) turn into a 201(k), now that we’re 11 years into this current bull market (the longest bull market in history) don’t let your guard down by having more risk than you’re comfortable with.

Don’t be lulled into a sense of complacency believing that stocks are “safe” just because they’ve been going up for almost 11 years straight. Remember that stocks are designed for potential growth and non-guaranteed dividends, they are not designed for safety of your principal. And don’t let the next recession, whenever it comes, catch you by surprise. Since World War II, the U.S. has had a recession on average every five years, and it’s been 11 years since our last recession, so make sure you have a well-diversified portfolio that has the right amount of risk for you.

People often ask me how much in stocks they should have in their portfolio, and I always say that if you’re a retiree who doesn’t have a high appetite for risk then you shouldn’t have more than 45% of your retirement portfolio in stocks. The other 55% should be in safer assets, such as bonds, preferred stocks, CDs, structured notes and guaranteed, fixed annuities (NOT variable annuities) from A+ rated household-name insurance companies. A truly diversified portfolio is one of the most important rules of retirement.

Investment advisory services offered only by duly registered individuals through AE Wealth Management, LLC (AEWM). AEWM and Stuart Estate Planning Wealth Advisors are not affiliated companies. Stuart Estate Planning Wealth Advisors is an independent financial services firm that creates retirement strategies using a variety of investment and insurance products. Neither the firm nor its representatives may give tax or legal advice. Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Any references to protection benefits or lifetime income generally refer to fixed insurance products, never securities or investment products. Insurance and annuity product guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. Any media logos and/or trademarks contained herein are the property of their respective owners, and no endorsement by those owners of Craig Kirsner or Stuart Estate Planning Wealth Advisors is stated or implied. #168554

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Parents spend more than $500 billion annually assisting young adults with student loans, housing, groceries, car payments, cell phone bills and other expenses, according to a recent Merrill study. For many families, that largesse is in the form of a gift, but some parents may call it a loan—and treat the transaction as a lesson in money management.

When gifting or lending is done right, it can help young adults get a first home, a car or a college education that they otherwise wouldn’t be able to afford. Or the money may be just what a relative needs to get back on his feet. But done wrong, handouts can undermine a young adult’s independence and generate hard feelings among other family members who don’t get gifts or loans. If it’s a loan that’s never repaid—whether you wrote the check or co-signed for a loan from a lender—it may create a lasting rift with the borrower and potentially leave black marks on your credit history.

Giving or lending money can also affect your lifestyle and retirement plans. Jennifer Myers, a certified financial planner in McLean, Va., says she usually runs projections for clients on how a potential gift—or a loan that might never be repaid—might affect their ability to retire when they want. “You have to make sure you can afford to help that family member or friend and still be financially secure yourself,” she says. But Myers acknowledges that it’s hard to say no to someone you love. “A lot of times, people follow their heart and put their finances second,” she says.

Lending or giving money to family members can be rewarding, but you need to be aware of the risks. Here are some smart ways to give or lend money without sacrificing family harmony.

Skin in the Game

Many parents worry that giving money to an offspring will spoil the child’s ambition or drive, says Ryan Thomas, a CFP in Indianapolis. “It’s human nature that you don’t appreciate it as much if you didn’t work for it,” he says.

To avoid this, parents can require a commitment from the child. For example, parents who have saved enough for college can encourage students to apply for scholarships—which often require maintaining a high GPA—by promising to match the amount of scholarships awarded after graduation, Thomas says. Or parents can help young adults build a nest egg by reimbursing the money they put in a Roth IRA or 401(k)—once they’ve provided proof of their contributions.

Making a Loan

Never lend more money than you can afford to lose. “You hope you are going to get the money back, but you always have to go into a family loan with the notion that you might not see the money again,” says Myers.

Make loans a business transaction. Memories fade, and to avoid disputes over whether the money was a gift or a loan, write the terms—including the amount, repayment schedule and any interest to be charged—in a promissory note and have both sides sign it.

Loans that aren’t documented are often not repaid. That’s what Alex Tran, a digital marketing strategist in Seattle, found. She lent $500 to a relative 11 years ago but was never repaid despite her efforts to collect. After that, whenever she lent money, she drew up a contract with the loan terms. She’s made about 10 loans and hasn’t had one go bad since creating the contracts. “It looks professional and also keeps them accountable for returning my money,” says Tran.

Another reason to put loans in writing: If you’re not repaid, you could deduct the loss on your tax return as a bad debt, says Blake Christian, a CPA with accounting firm HCVT in Park City, Utah. “The IRS is absolutely going to scrutinize any bad debt,” he says. The agency also requires you to document your efforts to collect the money.

The IRS will assume that a family loan is a gift unless you can prove otherwise, says Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting. To avoid issues with the IRS, document the loan and charge interest on large loans, he says. (You’re not required to charge interest if the loan is for less than $10,000 and won’t be used to purchase an investment—or up to $100,000 if the borrower’s investment income for the year is less than $1,000.) The IRS offers guidance on interest rates. Each month, it publishes a minimum amount of interest—called the Applicable Federal Rates—that must be assessed on new private loans, depending on the duration of the loan. In June, the annual interest rate was 2.33% on loans for three years or less, 2.38% on loans for up to nine years and 2.76% for longer loans. You must report the interest income on your tax return. To get the most recent AFRs, go to www.irs.gov and search for “Applicable Federal Rates.”

If you’d prefer to make a gift, you may also be able to use the tax code to your advantage. Although cash is nice, you might save on taxes by giving appreciated securities instead, if your income is higher than the recipient’s. (Your cost basis and holding period on appreciated securities will transfer to the recipient.) The federal long-term capital gains tax rate for investments held more than a year can be as high as 23.8%, depending on your income. But if the recipient’s income is low enough, the gains on the sale of securities could be taxed at a rate of 15% or even 0%.

Help Buying a House

If they were a business, friends and family would be the seventh-largest mortgage lender in the U.S., according to a recent study sponsored by Legal & General, a financial services company.

Sylvia Wu, 30, of Kailua, Oahu, bought a $210,000 condo as an investment property while in college in 2009 with the help of her parents, who saw the weakened housing market at the time as a prime opportunity. Wu says she had $35,000 for the down payment, but she couldn’t qualify for a mortgage because she worked only part-time. Her parents borrowed against their home and lent $175,000 to Wu so she could buy the condo outright. Her mother drew up a promissory note with the terms. Wu, now an education specialist at the University of Hawaii at Manoa, used rental income from the condo and her paycheck to repay the debt with interest.

Her parents provided a similar loan to Wu’s sister. “My sister and I are totally fine with making this arrangement very formalized and paying interest to my mom,” says Wu.

The easiest way to help a family member with a home purchase is to provide the down payment as a gift. You’ll need to supply recent bank statements and a “gift letter”—signed by you and the home buyer—that verifies the money isn’t a loan that must be repaid, says Rick Bechtel, head of residential lending at TD Bank.

If you want to lend money to help finance part of the home purchase, the process is more complicated. A lender will take into account the monthly debt payment due you when deciding whether the home buyer can qualify for a mortgage, says Bechtel.

Whether your loan will cover just part of the purchase or the full amount, documentation will be key. Besides creating the promissory note, many parents also opt to file a mortgage or deed of trust with their local government—such as the registrar of deeds or county clerk’s office—creating a lien on the property, says Timothy Burke, founder and CEO of National Family Mortgage, which helps administer loans between immediate family members. This step is necessary if the homeowner wants to deduct the mortgage interest she pays you, Burke says. The lien also protects you in case of default. You could foreclose, although your loan would be second in line for repayment if the homeowner has a first mortgage with a lender—and it would be difficult to make such a decision with a child or other relative.

A lawyer—and in some states a title-company attorney—can help you draw up the promissory note and file the paperwork. National Family Mortgage can also help you create and service the loan. The company can set up the promissory note, help with filing the necessary paperwork with local authorities, manage the payments, send out late-payment notices if needed, and generate year-end IRS tax forms (a 1098 mortgage interest statement to the borrower and a 1099 income statement to you). The cost, depending on the size of the loan, is a one-time fee ranging from $725 to $2,100, plus a minimum of $15 a month for servicing the loan.

The Risks of Co-Signing

Many college students who have maxed out on federal student loans turn to private loans to fill in the gaps, but they usually need a co-signer to qualify. This can have repercussions for the co-signer. If the primary borrower doesn’t repay, the co-signer is responsible for the debt. Plus, a co-signer’s credit history can be damaged if the borrower misses payments or makes them late, says Jeremy Heckman, a CFP in Edina, Minn. You might not be aware of the problem until you apply for credit, says Heckman, who discourages clients from co-signing.

But some people put their credit on the line with their eyes wide open. Phil La Duke, 56, of Allen Park, Mich., agreed to co-sign private student loans for his daughter Jennifer. “I made a commitment to her early on: ‘You worry about getting into the best school you possibly can, and we’ll figure out how to finance it,’ ” he says, adding that he expected to help her repay the loans.

She was accepted at Loyola University Chicago, where she graduated in 2009 with degrees in journalism and English—and $145,000 in private loans. Jennifer found a job as an editor at a trade publication and was making loan payments until she was laid off in late 2010. Her dad continued the payments, and now about half of the debt has been repaid.

La Duke, a safety consultant and author of workplace-safety books, says he would have a more comfortable retirement if the money had gone into his savings instead, but he has no regrets about investing in his daughter’s future. “I can’t think of a better way to spend my money,” he says.

Jennifer, 32, has been working in early childhood education for the past nine years and plans to go back to school this fall to get a master’s degree in the field. This time, she says, she anticipates that a scholarship and an employer-assistance program will cover nearly all of the tuition. “I feel like I learned my lesson with my undergraduate degree,” she says.

Know the Tax Limits

You can give up to $15,000 a year to an individual without having to file a gift tax return (married couples can give a total of $30,000 per person). Any sum over the limit chips away at the amount you’ll be able to exempt from federal estate and gift tax. (This is likely not an issue for many, given that an individual can now exempt up to $11.4 million in lifetime gifts and bequests from federal gift and estate tax.)

There are ways to give higher amounts without having to file a gift tax return. You can pay a student’s tuition directly to the school or help with a relative’s medical bills and health insurance premiums by making payments directly to the hospital, doctor or insurer, says Christian.

Besides estate and other tax issues, parents often grapple with guilt and worries about family harmony. When parents give or lend money to one child, siblings may feel resentful. Being up front with family members about why you’re providing assistance can help prevent ill feelings, says Heckman. For instance, parents can explain that they are giving one child the down payment for a house and will do the same for the others when they’re ready to buy, he says.

Some parents and grandparents try to balance things out by making equal gifts to other family members at the same time. Others make things fair through estate documents. If one child is given $50,000 to, say, buy a home or pay for grad school, that child’s inheritance will be reduced by that amount and adjusted for inflation (see Estate Planning: A Family Affair).

Fund College the Right Way

Many grandparents want to help their grandchildren pay for college by funding some of their tuition. But this generosity could backfire if the student is eligible for financial aid.

If the student won’t qualify for need-based aid, you can pay the child’s tuition directly to the school. Or you can contribute to a state-sponsored 529 college savings plan when the child is young and the money has time to grow. Contributions are after-tax, but the principal and earnings can be withdrawn tax-free for qualified education expenses. More than 30 states offer a tax deduction to residents contributing to the home-state plan.

If the student is likely to qualify for need-based aid, grandparents should consider different strategies. Withdrawals from a grandparent’s 529 account are considered untaxed income to the student, which can significantly reduce aid in subsequent years. And if a grandparent pays tuition directly to the school, the money will be viewed either as untaxed student income or as a funding resource that will reduce aid eligibility, says Mark Kantrowitz, publisher of the website SavingforCollege.com. An easy way to avoid this problem is for grandparents to contribute to the parent’s 529 account because those withdrawals will have less impact on aid, says Kantrowitz. Or they can wait until the student graduates and help repay any education loans.

Whatever your age, retirement planning is important to a happy retirement. And that includes deciding where you're going to spend your retirement, either full-time or as a snowbird.

The nation's first active adult retirement community sprouted in Youngtown, Arizona in 1954, and since then, many retirees have settled in Arizona year-round. In fact, almost 22% of the state’s nearly 8 million residents are 65 and older.

Is Arizona calling to you, too, as you plot your retirement? Here are nine things you should know before deciding to retire in Arizona.

Arizona retirees have many options with 100,000+ homes in 55+ communities scattered across the state. One of the most popular is Sun City in Sun City, Arizona, an age-restricted retirement community for folks 55 and older. It offers seven recreation centers, "one of the highest rates of golf holes per capita of any active adult community in the country," indoor and outdoor swimming pools, clubs, restaurants, craft and fitness centers, as well 30 churches, a synagogue, two libraries, a performing arts center, two on-site hospitals and more.

In 2024, Arizona was one of the top states where people 60 and older moved to, according to Smart Asset, with a net inflow of 23,515 individuals. And Arizona's population is still growing, increasing by 1.46% in 2024, according to Macrotrends. Current estimates put the 65+ population at 1.35 million, per a 2025 study by Neilsberg.

You knew that already, didn’t you?

But perhaps you’ve never really experienced it. “Yes, that ‘dry heat’ thing is real,” says Bob Burwell, a retiree from New York state now living in Mesa. “Even in the low 100s at 8% humidity, it is way more tolerable than 85 degrees with 90% humidity. Once the sun sets, the temperature drops rapidly.”

Annual precipitation ranges from 3 inches in the arid southwest to roughly 40 inches in the mountains of east central Arizona, according to the Arizona State University climate office.

“The most obvious reason to retire in Arizona is the beautiful climate,” says Damian Bruno, an affiliate agent with the Sedona–Village of Oak Creek office of Coldwell Banker Residential Brokerage. “However, many do not realize that it is a varied climate, with the northern part of the state receiving four seasons.”

Yes, but those extremes: Arizona, like much of the Southwest and West Coast in the summer of 2024, endured days of record-setting high temperatures. In the state's capital of Phoenix, it was over 100 degrees on 113 days in the summer of 2024.

All that heat translates to a high risk of wildfires. Before you buy property in the state, be sure to check the community's wildfire risk.

Indeed, the state isn’t one big arid desert. There are a variety of climates that offer seasonal changes.

For example, the temperature in Lake Havasu City averages a high of 109°F in July and a low of 42°F in December and January. Realtor Patty Caperon, an affiliate agent with the Coldwell Banker Residential Brokerage office in Lake Havasu, describes it as a “very laid-back, relaxing city whether you’re having dinner overlooking the channel, a night at Grace Arts Live Theatre or hanging with friends.”

Jim and Molly Pfennig moved to Lake Havasu City from Bozeman, Mont., where Jim was in the construction business. They built a house in the Arizona town after having lived there since 2012. “The town was founded in 1968, so pretty much everyone is from somewhere else originally,” says Jim. “And it’s not lacking for things to do. There’s the lake if you want to boat or ski. In the winter, there are concerts and car shows, something every weekend.”

For an even smaller town, look to Payson (population: 16,900). It’s located in the center of Arizona, a 90-mile drive northeast of Phoenix. At 5,000 feet above sea level, the town’s motto is “Arizona’s Cool Mountain Town.” Active retirees enjoy the surrounding Tonto National Forest for everything from hiking and bird watching to mountain biking and canoeing.

Retired Arizonans can find plenty to do across the state, says Coldwell Banker’s Caperon.

“There's skiing, professional sports, boating, golfing, hiking, biking, off-roading, sightseeing, fishing. . .” she says.

There’s also the Grand Canyon, of course, and plenty of national parks within driving distance throughout the Southwest. Consider buying a National Parks and Federal Recreational Lands Senior Pass (good for access to the 108 National Park Service sites that charge admission; the majority of the 422 NPS sites are free) if you are 62 or older. Annual passes are $20, and a lifetime pass is $80 per person. (Regular admission to the Grand Canyon, for comparison, is $35 per vehicle for a seven-day pass.)

Baseball fans can enjoy the relaxing atmosphere of Major League Baseball’s “cactus league” across Arizona — spring training for 15 teams in cities such as Phoenix, Tempe, Scottsdale, Surprise, Goodyear and others. And golfers can tee it up at more than 300 courses across the state.

Gambling and all the entertainment that comes with it is easily accessible in Arizona. The aforementioned Lake Havasu City, home to the transplanted and restored London Bridge, is across the Colorado River from Laughlin, Nevada, and its casinos.

In Scottsdale (not far from Phoenix), the Salt River Pima-Maricopa Indian Community operates the sprawling Talking Stick Entertainment District, It contains, among other things: the Talking Stick Resort Casino; Salt River Fields at Talking Stick, Major League Baseball's spring training facility that's home to the Arizona Diamondbacks and Colorado Rockies; the 36-hole Talking Stick Golf Club; a Topgolf complex; Octane Raceway, a high-performance indoor-outdoor go-kart facility; a bowling alley; an aquarium; iFly indoor skydiving; and Butterfly Wonderland, a butterfly conservatory and indoor rainforest.

Planning to rent before you buy to assess different communities? In most places, January through March or April is peak snowbird season. Migrators often book the same place for the coming year before they leave in the spring, and others begin booking their rental as early as August. Early birds get the biggest blocks of time and the most-desirable rental properties.

Carol and Phil White of Bend, Ore., had tried wintering in Hawaii, southern California and Texas before settling on Phoenix. In 2014, after looking at more than 30 communities, they found a home in Sun City Grand, on the west side of Phoenix. It had everything they wanted: friendly people, good home values, a reasonable homeowners association fee, four golf courses, and lots of amenities and activities.

The Whites paid $184,000 for a 1,580-square-foot home with two bedrooms, two baths and a den, and they pay an annual HOA fee of $1,480. They split their time between Bend and Phoenix. Many of their friends from Bend winter nearby, too. “We have a whole ’nother life down there that we totally love,” says Carol, 71.

-- Reporting by Patricia Mertz Esswein

The best time to buy a home in Arizona is usually in the late spring, when much of the competition from snowbirds has dissipated. In summer and fall, you’ll have fewer options to look at, but the remaining sellers may be more motivated and willing to negotiate.

And just like nearly everywhere in the U.S., it's a seller's market in Arizona. Demand for housing is high and supply is low. The average Arizona home value is $429,140, according to Zillow.

In the 55-and-older gated community of Sun City West, for example, Zillow recently showed 147 homes listed for sale. They ranged in price from $249,000 for a two-bedroom, two-bathroom, 1,221-square-foot home to $850,000 for a two-bedroom, four-bathroom, 2,781-square-foot home. That includes the home and property and, in some cases, an attached golf-cart garage. (Gated communities often tack on mandatory homeowners association dues to cover property maintenance and amenities).

But housing and other rapid development in Arizona can get the locals fired up. "Growth is still rampant. If the pandemic slowed anything you couldn't prove it by me. Construction is everywhere," says Burwell.

In the town of Gilbert, near Mesa, some residents are organizing to stop the growth of apartment complexes. Bumper stickers read "No More Apts — We're a Town, Not a City." And the former 500-acre GM Proving Grounds in Mesa is redeveloped as Eastmark, a planned retirement community with more than 1,500 adult and luxury homes.

Your state tax bill in Arizona will depend greatly on the sources of your retirement income.

Arizona does not tax your Social Security benefits (unlike these 8 states that tax Social Security benefits). And on most other income that is taxed, rates are relatively low — Arizona has a flat individual income tax rate of 2.5% that took effect in 2023.

Arizona does not have an estate or inheritance tax, a perk that's quite attractive to retirees. See Kiplinger's Arizona state tax guide for more information.

Arizona’s state sales tax is 5.6%. But, because localities can add their own sales taxes, you could pay much more in sales tax depending on where you land (and shop) within the state. The average Arizona local sales tax rate is about 2.7%, and the average combined (state and local) Arizona sales tax rate is over 8.38%.

Burwell, the retiree from New York state now living in Mesa, has learned his way around the sales-tax discrepancies. “I can leave my community, turn left and go one mile to a CVS where I will incur the City of Mesa 2.0% sales tax [on top of the 5.6% state sales tax],” he explains. “But if I turn right, I will hit an equidistant Walgreens that is in unincorporated Maricopa County and not pay that tax.”

Arizona is one of only two states (Hawaii is the other) that doesn't observe daylight saving time, when clocks “spring forward” an hour (with the exception of the Navajo Nation, which does follow DST). That aligns Arizona with Pacific Daylight Time in spring, summer and part of fall, then with Mountain Standard Time during four months in most of fall and winter.

Says Burwell, “The only havoc this raises is in regard to live TV, mainly sports. In September and October, the NFL games start at 10 a.m. The sports bars open at 9 and serve breakfast. Consequently, I don't fall asleep before the World Series games or Monday Night Football are over.”

Related Content

• 8 Things You Must Know About Retiring to the Carolinas
• 10 Things You Need to Know About Retiring to Florida
• 6 Great Places to Retire in New England

The Zestimate, the first free online home price estimate, is getting closer to helping buyers and sellers determine the actual sale price of a home.

In response to complaints that its estimates gave homeowners unrealistic expectations, Zillow, an online real estate marketplace and creator of the Zestimate, conducted a competition to improve its accuracy. Almost 4,000 teams of data scientists and engineers in 91 countries participated. The winner was announced in January.

When Zillow launched the Zestimate in 2006, its margin of error for home price estimates was about 14% nationally, says Skylar Olsen, director of economic research at Zillow. That improved to 4.5% by early 2019, she says. As the winning improvements are made this year, the margin of error will fall below 4% nationally, says Olsen. That means half of Zestimates will be within 4% of the actual sale price of homes, and half will be outside that margin of error, says Olsen.

Even with the improvements, Zillow says, homeowners should supplement the Zestimate with a comparative market analysis from real estate agents or a professional appraisal.

If you're a homeowner looking to rake in some extra money, whether to fund a much-needed renovation or to afford a much-needed dream vacation, don't dismiss using your house as a means to generate additional income. We're not talking about the typical work-from-home business opportunities that were commonplace years ago, either. No hours spent stuffing envelopes on your couch here.

Our round-up of money-generating opportunities for homeowners range from the off the beaten path (renting out your home for a film shoot) to the tried and true (tapping into your home’s equity). Check out all of them and decide for yourself which ideas are right for you.

Why pay for a house sitter when someone will pay to stay in your home while you’re away on vacation. Renting out your home through sites such as Airbnb.com, FlipKey.com and HomeAway.com is a relatively easy and reliable way to earn some additional income. For each site, you'll need to register to create a free listing that travelers in search of a place to stay in your area can view. You set the rental amount, dates of availability, as well as establish a refund policy in the event a renter decides to cancel the reservation. Airbnb and FlipKey charge a 3% service fee based on the rental amount for confirmed bookings. HomeAway charges 5%.

Keep in mind that some municipalities have restrictions on short-term rentals. Check with your local government before you list your property for rent. Note as well that condo, co-op and homeowner associations may have their own rules on short-term rentals. On the plus side: The rental income you collect is tax-free as long as you don’t rent out your house for more than 14 days per year.

Major cities including Washington, D.C., San Francisco and New York City are notorious for lacking ample street parking. Tourists looking to explore local hot spots, renters who don't have designated parking of their own and daily commuters are often left battling for metered parking spots during peak drive times or having to rely on overpriced and overcrowded parking garages. This is where your driveway or privately-owned parking space can turn into an income source.

When you’re not using it, you can rent out the space to those in need of hassle-free parking options through sites such as JustPark.com and CurbFlip.com. Both allow you to create free listings to rent out your parking spot at an hourly, daily or monthly rate. You’ll need to register to create a listing and link your bank or PayPal account in order to receive payment from renters. It’s important to note that those with parking that's close to public transportation or major attractions (stadiums, performance venues, trendy neighborhoods and such) will likely experience the highest demand.

JustPark charges a 3% fee on all short-term bookings. For long-term bookings (more than two consecutive months), the charge is 20% for the first month and 3% thereafter. CurbFlip charges 16% of your listed parking rental price for completed transactions, while PayPal (required to use CurbFlip) deducts an additional 3% from your rental payment.

Ever wonder how those iconic homes from some of your favorite television shows and films made it on screen? You know the ones we're talking about: The quaint North Hollywood rambler that housed the “Brady Bunch" or the infamous red brick Chicago McMansion from the "Home Alone" franchise.

If you think your place has the stuff that screen magic is made of, you may be able to cash in by connecting with location scouts for television and film productions. How do you get started? "Collect a few good pictures of your property and send them with your contact information to location scouts and film commissions in your area," says Jim Baldwin, owner of Baldwin Production Services, a San Francisco-based location scouting company that specializes in commercial media. Baldwin suggest searching online and contacting your state’s film office.

In California and New York, for example, the state film commissions maintain an online directory of vetted location scouting websites homeowners can contact. In Georgia and Maryland, the state film commissions encourage interested homeowners to submit images of their properties and contact information directly to them. Then, the film commission forwards this information to film production crews slated to shoot in the area.

How much money you can make? "Fees can range from hundreds to tens of thousands of dollars per day, depending on what and where the location is, how long [the home is] used and what the shoot entails," Baldwin says. However, make sure you’re really prepared to open up your personal space to this type of experience before committing to it in writing, advises Patti Brashears, owner of Featured in Films, a location scouting company based in the New York area that has worked with TV shows including NBC’s “30 Rock” and HBO’s “Boardwalk Empire.” The experience can be overwhelming for some owners, even though the home will be restored to its original state once the production ends.

Love animals? Apply to be a pet sitter through an online-based service such as Rover.com, which claims to have more than 60,000 sitters who provide in-home boarding for dogs only, its most popular service. Professional certification isn’t required, though you will need to undergo a background check. The site provides training resources, and sitters set their own schedules and prices (of which the site charges a 20% fee per booking). Rover sitters are considered independent contractors.

You can also try to pick up in-home pet sitting gigs by contacting local pet boarding providers. Each company will operate differently, so be sure to ask lots of questions upfront: Do you need to have a pet sitting certification? Do you need to be insured and bonded? How are reservations and payments handled? Rates will vary based on where you live. Care.com, a site that connects caregivers (for both pets and people) to clients, has a handy calculator that spits out suggested hourly rates for pet sitting based on your zip code.

If actual pet sitting in your home isn’t your cup of tea, consider creating a dog park on your property instead and charging space-challenged pet owners to use it. Look no further than Sniffspot.com, “the Airbnb for dog off-leash areas,” for help monetizing you lawn.

Sniffspot’s stringent procedures and safeguards include verification of pet vaccinations and flea prevention, screenings for aggressive dogs (they’ll be banned) and insurance against damage to your property. Pet owners are responsible for cleaning up after their dogs.

All types of properties are welcome to be listed on the site. The default starting price is $4 an hour per dog, but property owners can set their own rates. Sniffspot collects the funds and keeps 12%, plus a 10% marketing surcharge for hosts joining the site since July 2018.

You've got a closet full of clothes that you no longer wear, and there's that rice cooker that's been sitting in your kitchen pantry unused for years. Don't forget about all that baby gear that your kids no longer need that's collecting dust in the basement.

Instead of throwing out unwanted items the next time you declutter, consider selling them online at sites such as Tradesy.com and Poshmark.com for clothing and accessories items, or Gazelle.com for mobile devices and computers. There’s also the LetGo mobile app for household goods. The items you're looking to resell must be in good condition.

Here’s how it works: For Tradesy, Poshmark and LetGo, you'll need to create an account before posting a free listing to attract buyers. (Gazelle doesn’t require listings because you're selling your unwanted electronics directly to the site rather than to an individual buyer.) On Tradesy and Poshmark, the transaction process is done completely online with the seller shipping the sold items to the buyer. LetGo urges sellers and buyers meet in person in a public place to complete the transaction and to pay with cash.

Tradesy deducts a flat fee of $7.50 on all sales under $50 and takes 14.9% of the purchase price on items sold over $50. Poshmark charges a flat fee of $2.95 for sales under $15 and takes 20% of the purchase price for those over $15. LetGo doesn't charge users a fee; rather, it makes money off ads on the app.

Reverse mortgages allow older homeowners who are house-rich but cash-poor to borrow against the equity that’s built up in their primary residence. To qualify you must be at least 62 years old, live in the home and have already paid off most or all of your mortgage.

The only reverse mortgage insured by the federal government is a Home Equity Conversion Mortgage, or HECM. After meeting with a HECM counselor, you apply for a reverse mortgage through an FHA-approved lender. The amount you get depends on your age, current interest rates and the appraised value of the property. You can receive your money in several ways including as a lump sum, as fixed monthly payments or as a line of credit. There are limits on how much the reverse mortgage can pay out in the first year.

Be aware that a reverse mortgage isn’t free money; it’s a loan that must be repaid when the homeowner dies, sells the home or moves out. Meantime, property taxes and insurance premiums must be kept current. If you can’t afford to pay out of pocket to cover the costs associated with the reverse mortgage – such as origination fees and mortgage insurance premiums – they can be covered by the loan proceeds. However, financing the various closing costs will reduce the total amount of money you receive.

If you’ve been steadily paying off your mortgage for years while the value of your home has been on the rise, then you probably have a fair amount of equity built up. Under the right circumstances, it can be smart to borrow against this built-up value when you need cash.

There are two common ways to tap into your home equity: a home equity loan or a home equity line of credit. A home equity loan offers a lump sum that you usually pay back monthly at a fixed interest rate. A HELOC is a line of credit that your access only when you need the cash. Interest rates on HELOCs tend to be variable, meaning they might go up or go down over time. A third option is a cash-out refi, in which you receive cash back when you refinance your primary mortgage. A cash-out refi tends to have higher closing costs, plus you might lengthen the time it’ll take to pay off your mortgage depending on the new loan term you choose.

Think hard about how you’ll spend the money. As long as you use it to buy, build or substantially improve your home, Uncle Sam allows you to deduct the interest you pay on up to $100,000 of home equity loans or HELOCs. But use the money to pay for, say, a new car or a Caribbean vacation, and the interest is no longer deductible.

Unlike short-term rentals, renting out a spare room in your house on a long-term basis can create a predictable monthly income stream that can be used to pay off your mortgage faster. Putting an extra $250 a month toward a $150,000, 30-year mortgage at 5% would erase the debt 12 years early. Even an extra $100 a month retires the mortgage six and a half years early.

You’ll need to pay taxes on the rent you collect, but you may be able to write off some of the rental expenses such as insurance premiums and utilities. Tax software or your tax adviser can help you sort out the deductible amounts of certain expenses based on the portion of your home that’s rented out. Also, the IRS has an interactive tool that can help you determine if your rental income is taxable and your rental expenses are deductible.

Seek out roommates through word of mouth or place an ad on a site such as Craigslist.org. Looking at Craigslist and other classified listings for your area will also help you figure out how much to charge in rent. Bonus: If you live alone, a roommate can provide companionship as well as rent check.

It's a lazy weekend and you’re plunked down on the couch channel surfing. Before you know it, you've gotten caught up in a "Tiny House Hunters" marathon on HGTV. Several hours later, you're seriously considering downsizing your entire life to fit into 400 square feet or less, because you're now an expert on tiny home living, right? Not so fast. Those reality TV shows only provide a heavily edited snapshot of what it's like to house hunt for and live in such a small abode.

We talked with several seasoned tiny homeowners and industry experts to find some of the little-known things novice buyers don’t realize until after they've signed on the dotted line. Here's what they had to say about the realities of tiny home living.

Don't believe the hype the next time you read a glossy home magazine or see a reality TV show featuring a tiny home buyer who purchased their dwelling for under $10,000. That too-good-to-be-true price tag usually never includes the cost of labor, says Randy Woodman, a sales manager for Tiny Innovations, a Portland, Ore.-based tiny home builder.

What's also not mentioned is that "[those homes] are almost always constructed with donated or found materials," he says. The true cost -- including all labor and materials -- for a professionally built tiny home that sits on a trailer and has been inspected for quality usually starts around $40,000 for a 20-foot structure, Woodman notes.

Keep in mind that once you start adding high-end finishes, such as quartz countertops and bamboo floors, as well as top of line appliances (think: an energy-efficient washer/dryer combo) to the design plan, that final amount will increase.

Since a tiny home isn't a typical housing structure, you'll need to seek out a tiny house-specific homeowners insurance policy. Having such a policy helps protect the house and its belongings from a destructive event, as well as theft. Stationary tiny homes, which are permanently attached to a foundation on a plot of land, are typically viewed by insurance companies as being comparable to traditional single-family homes. That makes it easier for them to get approved for coverage.

Homeowners who live in movable tiny homes that sit on a mobile trailer may face a bigger challenge. If your tiny home on wheels is registered as a certified RV, you can get a recreational vehicle insurance policy, which is similar to an automotive policy, according to TinyHouseBuild.com, an online resource for the tiny home community. Coverage includes collision, content protection and liability. The caveat with this type of policy is that many insurers exclude anyone living in the dwelling full time, the site notes. Also, RV insurance typically only covers certified RVs constructed by a manufacturer approved by the Recreational Vehicle Industry Association (RVIA).

If your movable tiny home isn't registered as a certified RV, once you find a willing insurer, you'll need to get creative with the type of policy you're able to obtain. For example, inland marine insurance policies have been used to cover tiny homes on wheels, but such policies don't come with liability coverage, according to TinyHouseBuild.com. Some tiny homeowners even use renter's insurance, which provides liability coverage, covers personal belongings in the event of theft, as well as living expenses for a short period if the home becomes inhabitable. However, the structure itself isn't covered under this type of policy, the site states.

Having less house doesn’t necessarily mean you'll have less housework. Rather, you may find that dirt and clutter accumulate more quickly in such a small space, forcing you to clean more often, suggests Jenna Spesard, a Los Angeles-based tiny homeowner and travel blogger at TinyHouseGiantJourney.com. “Although it only takes a few minutes, I seem to be constantly cleaning in order to keep it tidy. It's a never-ending cycle,” she says. Kahla McRoberts, a Durango, Colo.-based tiny homeowner and blogger at ToLiveTiny.com, mentions that she has to clean her floor and carpet daily -- sometimes twice a day -- because it’s obvious when they’re dirty.

To prevent becoming overwhelmed by clutter, keeping your tiny home organized at all times is key, McRoberts notes. Forgetting to fold a huge pile of laundry immediately after taking it out of the dryer or leaving dishes stacked in the kitchen sink can wreak havoc on an already limited living space. Investing in storage containers that easily fit into a closet or slide underneath a table or bed can help keep things tidy without adding to the mess.

At less than 400 square feet, a typical tiny home doesn't leave much room for storage. If you have a shopping habit, you'll need to get it under control fast. When you become a tiny home owner, trips to the store must be planned in advance to prevent over-buying. Even something as simple as purchasing groceries requires taking inventory of the food and household items you already have on hand and meal-planning ahead of time, notes TinyHouseGiantJourney.com's Spesard. "If I accidentally bought a gallon of milk when there was already one waiting for me at home, it would be a disaster," she says.

Kerri Fivecoat-Campbell, a longtime tiny homeowner based in Arkansas and author of Living Large in Our Little House, says that she and her husband adhere to the "one in, one out" philosophy to help combat over-buying, which can quickly lead to clutter. "We can't just buy something because we want it. There's no room to keep adding . . . If we bring in something else, it must have more function and we must love it more than what we need to donate."

QUIZ: How Smart of a Home Buyer Are You?

Sure, the flexibility of living in a movable tiny home is enticing. You can pack up and relocate to a new city at a moment's notice, or take a road trip without having to worry about lodging. However, travel-related expenses can add up fast depending on how much you're on the road, warns TinyHouseGiantJourney.com's Spesard.

Spesard, who traveled 25,000 miles during her first year of tiny homeownership, quickly found that related costs were taking a huge chunk out of her monthly budget. "With the amount of miles I was going, I was getting about nine miles per gallon [in gas on her Ford F250 used to transport her home]," she recalls. "I was spending about $700 per month on gas. Then I had to pay for campsites [to park overnight or for extended periods] and car maintenance.” Now, Spesard says she no longer travels with her tiny home and her lifestyle has become more affordable as a result.

If you have a tiny home that's movable and prefer to travel for leisure, consider venturing to a destination where you have family and friends nearby. That way you can camp out for a night or two with permission in their driveway or backyard free of charge.

Unless you own a plot of land, you'll need a place to legally park a movable tiny home; you can't just park it anywhere, says Tiny Innovations' Woodman. Many states have zoning laws in place that heavily restrict where you can park such a dwelling and for how long. And if you're interested in buying a stationary tiny home, it's illegal in some states to live in such a structure if the square footage doesn’t meet the required minimum, according to Realtor.com.

If you have a tiny home on wheels and it's registered as a recreational vehicle, you can legally park it at an RV campground for a fee. Depending on the length of your stay, you'll either be charged a daily, weekly or monthly rate, which includes utility and sewer hookups. For example, at Cherry Hill Park, an RV park in College Park, Md., prices range from $77 to $98 per night. At Archway RV Park in Mt. Vernon, Ill., the daily rate is $38 and the weekly fee ranges from $150 to $175. In Portland, Ore., movable tiny-home dwellers can park at Columbia River RV Park on a daily ($40-$45), weekly ($240-$280) or monthly basis ($400-$595). Some campgrounds offer additional amenities including access to WiFi, a laundromat, swimming pool and picnic areas.

Keep in mind that some RV parks have restrictions including age requirements (for example, retirement-focused campgrounds targeting guests 55 and over), limits on the length of stay or no-pets policies.

If you enjoy hosting dinner parties or summertime barbeques with family and friends, get ready to pare down that invite list significantly once you move into a tiny home. Less living space means less room to entertain guests, ToLiveTiny.com's McRoberts reminds would-be buyers. For example, instead of having 10 friends over for wine and cheese on a Saturday night, you may only be able to comfortably accommodate four to six people.

McRoberts, who currently lives in a 220-square-foot tiny home that sits on a trailer, says she'd like to one day move it to her own plot of land where she'd create a large outdoor space that allows for entertaining more guests. It would also provide room for her dog to run around.

Believe or not, theft is an ongoing issue in the tiny home community for those that own movable dwellings. Thieves can literally pull up to an unoccupied home, hitch it to a truck and drive off with all the owner’s possessions in tow never to be seen again. In many of these incidents, the home was situated in plain sight of a road, which can attract unwanted attention from curious passersby and thieves, according to TheTinyLife.com, an online resource for the tiny home community. With that in mind, the site recommends situating your tiny home in a place that's hidden from heavily trafficked areas, perhaps by shrubbery or trees. While doing this doesn't guarantee your home won't be stolen, it can help lessen the chance that someone with ill intentions will spot it, the site notes.

There are a few other tactics tiny homeowners can employ to help combat theft. Tumbleweed Tiny House Company, a Colorado Springs, Colo.-based tiny home builder, recommends doing the following:

• Use a hitchlock to help stop a potential thief from unhitching your tiny home from your vehicle.
• Block the trailer wheels by piling bricks or cinder blocks in front of each wheel in conjunction with using a wheel lock on at least one wheel to prevent the trailer from moving forward or backward.
• Chain your trailer using a heavy-duty chain to a tree or other permanent structure.

A tiny home can be ideal if you’re single or sharing it with a partner. But add a child (or even a pet or two) to the mix and your cozy household will get really crowded really fast -- a big reason why some people would never live in a tiny home in the first place. So if you find yourself in a position that you need to sell your tiny home to afford the down payment on a larger, traditional house, you’ll need patience and luck. While the tiny home market is growing, it’s a sliver of the overall housing market. According to the National Association of Realtors, just 1% of the homes sold in the U.S. in 2017 were under 1,000 square feet.

Adding to the challenge, most tiny homes were customized to fit the original owner’s specifications. This can significantly shrink the already small pool of potential buyers and “make it difficult to recoup the cost of materials and labor,” says Ryan Mitchell, blogger and owner of TheTinyLife.com, an online resource for tiny homeowners. For example, a retiree may want a single level tiny house without stairs or a sleep loft ladder to climb. A younger buyer may prefer a sleeping loft that requires climbing a ladder to access, because it allows for more living space to entertain on the lower level.

If you must sell your tiny home, be sure to emphasize its space- and money-saving features in the listing, advises Judy Dutton, deputy editor for Realtor.com. This includes low monthly utility bills and built-in furniture such as a Murphy bed. If you live in a stationary tiny home that has yard space for entertaining, you’ll want to mention that and include high-resolution photos with the listing.

While there are some things that can be frustrating about tiny home living, there are other aspects that make it worthwhile to the bottom lines of owners. Top of the list: Nearly 70% of tiny home dwellers don't have a mortgage compared to just 30% of traditional home owners, according to a survey conducted by TheTinyLife.com.

The potential financial upsides don't end there. TheTinyLife.com's Mitchell says since becoming a tiny homeowner, he's been able to travel the world, pay off his student loan debt much earlier than expected and only works about 10 hours per week to cover his living expenses. He's even able to stash away some cash each month -- and those savings can quickly add up. That same survey found that 55% of tiny homeowners have more savings than the average homeowner, with a median amount of about $11,000 in the bank.

Question: Will I be able to save on taxes if I prepay my January 2019 mortgage bill before the end of the year in 2018? Can I also still deduct my charitable contributions in 2018?

Answer: The answers to both questions depend on whether you itemize your tax deductions for 2018. The new tax law made some major changes to the deduction rules for 2018. The standard deduction nearly doubled, to $12,000 for single filers and $24,000 for joint filers, plus an extra $1,600 for single filers age 65 or older, or an extra $2,600 for a couple who are both 65 or older. The law also limited some deductions, including placing a $10,000 annual cap on deductions for state and local taxes (including property, sales and income taxes) if you itemize.

Because of these changes, many people who itemized in the past will now take the standard deduction instead. If you take the standard deduction, you won’t be able to take a separate tax break for charitable contributions, state and local taxes, mortgage interest, or other itemized deductions.

This is a good time of year to add up the deductions you’ve amassed so far and estimate whether you’re better off using the standard deduction or filing an itemized return. If you’re near or over the cutoff, consider moves to maximize your deductions for 2018, such as prepaying your January mortgage and donating more money to charity this year rather than next year. One way to bunch up your charitable contributions is by opening a donor-advised fund. You can make a large contribution to the fund this year (which counts for your 2018 taxes) and then have an unlimited amount of time to decide which charities to support.

If you aren’t close to the cutoff this year, you can postpone some of these moves until next year, when you might be able to file a 2019 itemized return. For instance, you can make charitable contributions in 2019 rather than 2018, make your January 2019 mortgage payment after January 1 and prepay your January 2020 mortgage payment in 2019, too.

With the new tax law, your best strategy is to plan your deductions several years in advance to make the most of tax breaks. That way you can take the standard deduction some years and maximize your itemized deductions in others.

For more information, see Last Minute Tax Tips to Lower Your 2018 Tax Bill.

Most retirement plans blend hard work and diligent saving with a lot of what-ifs. What if the stock market doesn’t cooperate? What if we encounter massive unexpected expenses? What if all our calculations are wrong and our savings run dry mid retirement?

Wouldn’t it be nice to replace that element of chance with some solid guarantees? Imagine a stream of income, locked in for the rest of your life, that covers all your essential living expenses. That could allow you to take that bucket-list vacation without fear of derailing your retirement, greatly simplify your financial life in the event you face cognitive decline in your later years—and let you shrug off market dips like the one we saw in October. “Why should what you hear on the 6:30 news upset your retirement plan?” asks Jerry Golden, chief executive officer of retirement-planning firm Golden Retirement.

Lifetime guaranteed income—and the accompanying peace of mind—is within reach. By maximizing Social Security benefits and any available pension income, incorporating plain-vanilla immediate or deferred income annuities, and perhaps adding in a reverse mortgage that allows your home to bolster your retirement-income plan, most retirees can build an income floor that will support them as long as they live.

Given longer life spans and rising health care costs, interest in guaranteed income is growing fast. In a 2018 survey of 55- to 75-year-olds with more than $100,000 in household assets, 73% said that guaranteed income was a highly valuable addition to Social Security, up from 61% a year earlier, according to research firms Greenwald & Associates and Cannex.

Yet retirees are often left on their own when it comes to generating retirement paychecks. In the Greenwald survey, only half of people working with an adviser said they’d had a conversation about retirement-income strategies. And most employers have done little to fill the guaranteed income vacuum left by the extinction of defined-benefit pension plans.

No single retirement-income recipe will work for everyone. Each retiree must pick and choose the ingredients that best fit his or her goals—and confront some tricky trade-offs. Delaying Social Security, for example, may mean a few more years in an office that you’re eager to leave, and buying an annuity can mean giving up access to a substantial part of your nest egg.

For retirees who find the right retirement-income formula, however, the rewards can include financial security and the freedom to live on their own terms. By cobbling together various sources of guaranteed income, Walt Gajewski, of Farmington, Mich., freed himself from worries about a stock market crash—and from the need to remain in a stressful job. For most of his 35 years in the auto industry, the 61-year-old invested aggressively in his company 401(k) plan. But as he entered his late fifties, he worried that a market slide could crush his nest egg—and working well into his sixties wasn’t an appealing back-up plan. If he continued on the same high-pressure career path, he says, “you would have carried me out of there.”

After consulting a financial planner, Gajewski realized that he didn’t need to swing for double-digit returns in the stock market or work himself into the grave. Instead, he invested about 12% of his nest egg in a couple of annuities that will pay him a steady income in retirement. He decided to pump up his Social Security paycheck by delaying claiming benefits until at least age 67. Throw in some additional income from rental real estate and a pension, and his guaranteed income sources can cover his basic living expenses “by a wide margin,” says Gajewski.

Confident that his essential expenses were covered, he retired and now works 30 hours a week managing a farmer’s market. It’s a lower-paying job, he says, but one that offers “a lot more personal reward.”

Build Your Retirement-Income Portfolio

How much income will you need? Some retirees rely on rules of thumb—such as aiming to generate 80% of their preretirement income in retirement.

But there are a couple of problems with that formula. One issue: It “sets up an impossible goal” for retirees who may not have sufficient assets to generate that much income, says Steve Vernon, consulting research scholar at the Stanford Center on Longevity and author of Retirement Game-Changers (Rest-of-Life Communications, $19). What’s more, every individual has different ideas about what constitutes an acceptable retirement lifestyle—and those ideas must be reconciled with what’s realistic for his or her portfolio.

Instead of aiming for an arbitrary income-replacement rate, ensure that your income is greater than your expenses, Vernon says. Tally up essential expenses such as food, housing and utilities, then turn to discretionary spending such as travel and entertainment. You may be pleasantly surprised. Retirees who are downsizing or paying off a mortgage, for example, may be able to live on 60% or 70% of their preretirement income, he says. Others may have “pent-up demand as they approach retirement”—perhaps planning to spend more on travel in the first five or 10 years, says Dan Keady, chief financial planning strategist at TIAA. “That’s important to build in, too.”

Next, rethink the word portfolio. You probably spent your working years building a stock and bond portfolio. In retirement, expand that concept to include everything that helps you generate income. Social Security, pensions, annuities and any other guaranteed income sources can be considered the “bond” portion of your retirement-income portfolio. Ideally, these dependable income generators will cover your essential living expenses. Now, stocks and other riskier assets can be invested for growth, because they’ll be used to cover discretionary expenses that can be trimmed if the market slides.

The bonus: Knowing your essential expenses are covered by guaranteed income sources, you’re less likely to panic and sell when stocks tumble.

Maximize Your Income

Social Security is the starting point for maximizing your retirement income. These benefits are typically retirees’ largest single income source, and they’re better than any annuity you can buy. “It’s actuarially impossible to generate the same level of income today from buying a private annuity,” says David Blanchett, head of retirement research at Morningstar, in part because Social Security is only partially taxed, it’s adjusted annually for inflation, there’s a survivor benefit, and it’s not based on today’s paltry interest rates.

For each year you delay claiming from your full retirement age to age 70, your benefit increases 8%. It typically makes sense for the primary wage earner to delay claiming as long as possible, Vernon says, but couples’ claiming decisions can be complex. It may be well worth enlisting experts to help you maximize your benefits. Social Security Solutions, for example, offers personalized Social Security claiming strategies starting at $19.95.

Of course, delaying Social Security can leave a gaping hole in your retirement-income plan if you want to retire in your sixties or earlier. Taking larger withdrawals from a volatile investment portfolio isn’t an attractive solution, says Wade Pfau, professor of retirement income at The American College, because it increases the risk that poor investment returns in the first years that you’re drawing down your portfolio will decimate your nest egg. A better option, he says, is to carve out a piece of your portfolio in advance that can be invested in a ladder of bonds or certificates of deposit to help provide income until you claim Social Security.

Working full- or part-time while you delay claiming can bring great rewards. Vernon offers this example: A couple both age 62 have $350,000 in savings, no pension and $100,000 in household income. If they work full-time to age 66, contributing 10% of pay to their retirement savings each year, they could then draw about $15,500—or 3.5%—from their portfolio and claim Social Security benefits of about $41,300. Their total annual retirement income would be just under $57,000. Alternatively, they could work part-time—just enough to cover their living expenses—while forgoing further retirement-account contributions and delaying Social Security until age 70. Those extra years of portfolio growth and Social Security delayed-retirement credits would bring their total annual retirement income to more than $69,000 at age 70—a 22% increase.

Get More Guarantees

If your Social Security benefits and other guaranteed income sources don’t cover your essential expenses, it’s time to consider an annuity that can fill the gap.

Although annuities come in infinite variety and complexity, advisers say most retirees should focus on two simple products: single premium immediate annuities (or SPIAs), which offer monthly guaranteed income that starts immediately, or deferred income annuities, which offer a guaranteed income stream starting years in the future.

Deferred income annuities are the more natural hedge against the risk of outliving your assets, Blanchett says. “When people first retire, they’re not going broke the next day,” he says. With a deferred income annuity, payments can start when you’re more likely to deplete your savings and need the money—perhaps at age 75 or 85. This type of annuity also offers “the highest leverage, in the sense that for a little bit of money you get a significant amount of income at a future date,” Golden says. A 65-year-old man, for example, could fork over $100,000 today and get about $16,000 in annual income starting at age 75, versus just $6,800 if he wants payments to start immediately.

You can also ladder deferred income annuity purchases to lock in stock market gains in your preretirement years, Pfau says. As you get closer to retirement, he says, market returns impact all the contributions you’ve made over the years, and you become more vulnerable to market losses. You can take some of that risk off the table starting 10 years or so before retirement. In years when market returns are particularly good, use some of those gains to buy a deferred income annuity that offers guaranteed payments starting at your retirement date. That way, you not only trim your market risk but also “get to retirement with most of your spending goal set into place,” Pfau says.

If you have substantial savings in a taxable account, that’s the best way to fund an annuity purchase, Blanchett says. That’s because annuities are relatively tax-efficient compared with traditional stock and bond investments. If you can keep those investments in tax-deferred accounts and buy an annuity in your taxable account, “that increases your effective rate of return over the long term,” he says.

Of course, many people don’t have sufficient funds in a taxable account for an annuity purchase. Those looking to buy an annuity with retirement-account money can consider a new twist on the deferred income annuity: a qualified longevity annuity contract, or QLAC. In a traditional IRA or employer-sponsored plan, such as a 401(k), you can invest up to $130,000 in a QLAC that will provide guaranteed income starting as late as age 85. The payouts are taxable, but the amount invested in the QLAC is excluded from required minimum distribution calculations until age 85—so this approach can ease your RMD tax burden after age 70½. “If you want that deferred income, here’s an extra tax benefit,” Pfau says.

Compare annuity quotes using ImmediateAnnuities.com or Income Solutions (available through Vanguard and other major firms). For tips on choosing an immediate annuity, read “How to Shop for an Immediate Annuity” in the October issue. And at press time, Golden was launching a free Income Allocation tool to show how income annuities can affect annual retirement income. Go to go2income.com.

Home Sweet Retirement Paycheck

For some retirees, the numbers just don’t add up. They can’t afford an annuity that will fill their retirement-income gap, and they’re at high risk of outliving their savings. For those who own a home, the answer might be a reverse mortgage.

Homeowners age 62 and older can tap their home equity through a reverse mortgage—a loan that doesn’t come due until you move out for 12 months or more, sell the home or die. You can take the loan proceeds in the form of monthly payments that continue as long as you live in the house and pay your property tax and insurance. These “tenure” payments are “not the same as having an annuity, where you have that income for life,” says Shelley Giordano, founder and chair of the Funding Longevity Task Force at The American College. But this approach keeps your retirement cash flow intact, she notes, whereas an annuity purchase requires carving a large slice from your nest egg. (You can also take reverse mortgage proceeds as a lump sum or set up a line of credit to tap in an emergency.)

But set-up costs can be high, and recent changes in rules governing the federal government–insured reverse mortgage program have altered many experts’ thinking on how best to use these loans. The changes raised the up-front mortgage insurance premium for many borrowers, lowered the annual mortgage insurance premium and reduced the amount that seniors can draw.

The new higher set-up costs make the reverse mortgage line of credit less attractive, Pfau says. But other strategies are still appealing, he says, such as refinancing a large traditional mortgage into a reverse mortgage—thereby removing that fixed expense from your retirement budget. “That approach has been strengthened by the new rules,” given the lower ongoing insurance premium, he says.

To get a sense of the amount of retirement income you could generate with a reverse mortgage, use Pfau’s calculator at retirementresearcher.com.

A lot of financially savvy people make a distinction between good debt and bad debt. Good debt is used to finance goals that will improve your net worth—such as a home purchase, a college education or a small business. Good debt is even better if it carries a low interest rate and is tax-deductible. Bad debt is the kind you incur to buy things you can’t afford with your paycheck—the big-screen TV you put on a credit card or the Caribbean trip you paid for with your home-equity line of credit. In some people’s book, it’s a bad idea to borrow to buy any depreciating asset, including a car.

But even good debt turns bad when you overindulge, as happened in the years leading up to the financial crisis. The bursting of the housing bubble and the stock market bust forced many Americans to go on a debt diet, and in the last decade, even though credit has been historically cheap, we’ve been pretty careful borrowers. Household debt has increased since the Great Recession, but that’s largely a desirable side effect of the strong economy and a healthy relaxation in lending. Mortgage balances have been rising (although they are still way below the peak reached in 2008), and student-loan, auto-loan and credit card debt levels have also gone up.

There are a few worrisome trends: Borrowers age 60 and older now hold 22.5% of total outstanding balances for all types of loans, up from 15.9% in 2008. Older borrowers are also taking on more student-loan debt to help pay for the education of children and grandchildren. The average amount of student-loan debt owed by borrowers age 60 and older nearly doubled from 2005 to 2015, to $23,500, according to the Consumer Financial Protection Bureau. Another worry: Among younger student-loan borrowers, delinquencies are rising.

Now the days of supercheap money are coming to an end. Interest rates on consumer credit are rising, buoyed by Federal Reserve rate hikes designed to keep the economy from overheating and higher yields on long-term Treasuries. The 30-year fixed mortgage rate rose by about one percentage point in 2018, to a national average of 5%, according to Freddie Mac. The prime rate—the benchmark tied to home-equity borrowing, credit card rates and other consumer debt—also rose one percentage point in 2018, to 5.25% (as of mid November). Once plentiful 0% offers for auto loans are now scarce.

More rate hikes are coming: The Fed ratcheted up the federal funds rate by one-fourth percentage point three times in 2018 as of mid November, and Kiplinger expects an increase in December and three more increases by the end of 2019.

Rate hikes aren’t the only trend changing the borrowing equation: The new tax law puts a crimp in how much debt you can deduct. If you’re in the market for a home with a mortgage that exceeds $750,000, new limits on deducting the interest may limit how much you choose to borrow. And until 2018, you could deduct interest on up to $100,000 of a home-equity loan or line of credit—which made a HELOC a strategic way to finance a new car or college tuition or to pay off credit cards. Now the debt must be related to acquiring or improving .

Your Home

If you’re a homeowner with a fixed-rate mortgage, you don’t have to sweat rising mortgage rates. (If you are mortgage-free, congratulations.) Even so, the new tax law may upend the familiar tax-time ritual of deducting mortgage and home-equity interest, property taxes, and other state and local taxes. For many Americans, the newly doubled standard deduction will eliminate the need to itemize deductions. But if you have a high-priced home in a high-cost area—notably California, Connecticut, New Jersey or New York—you may hit a wall that prevents you from sharing the cost of homeownership with Uncle Sam. That’s because of new limits on deductions for mortgage interest as well as state and local taxes.

Strategies for homeowners. If your mortgage payments are locked in at a low rate and you’re still saving for retirement or college or have other compelling needs for your income, you probably want to let your mortgage ride, even if you will no longer deduct the interest. But if you are approaching or in retirement and being mortgage-free improves your cash flow and gives you a psychological lift, you may want to pay it off.

First, consider your whole financial picture, says Lyle Benson, a certified financial planner in Towson, Md. Do you have high-cost credit card debt? Do you need to put more money in an emergency fund? Are you still funding your children’s or grandchildren’s education? Will your adult children and aging parents need your support? If the answer to those questions is no and you have savings you could use to pay off the loan, compare the return you could get from investing the money with the after-tax cost of the mortgage. After taxes and inflation, the long-term return from investing may not be much higher than the “return” you get from paying off your mortgage. At that point, the decision hinges on your comfort level.

Short of paying off the mortgage in one fell swoop, you could accelerate payments so you retire the loan faster. Even if you already have a low rate on your mortgage, you may still come out ahead if you refinance to a shorter term of 15 or 20 years before rates go much higher. Your monthly payments will increase, but you’ll build equity more quickly, retire the mortgage earlier and pay less in total interest. Or you could prepay your mortgage. Ask your lender if it offers a biweekly mortgage payment program in which you can enroll free. If not, just make a 13th mortgage payment annually, which is the equivalent of paying half of your monthly mortgage payment every two weeks. Or simply add principal to each monthly payment.

If you have a home-equity line of credit, it’s probably tied to the prime rate, and each Fed hike boosts your rate. After the draw phase of the HELOC—usually the first five or 10 years—you’ll begin repaying principal as well as interest. But you can make principal-and-interest payments at any time during the draw phase. Alternatively, most HELOCs allow you to “lock” a portion of the line with a fixed rate and term. Lenders typically set a minimum amount for a lock and limit the number of locks.

Even if the interest isn’t deductible, home-equity borrowing is often one of the cheapest sources of credit. If you have a HELOC in the draw phase but you’re not using it, you may want to keep it open, just in case an emergency pops up. But if you can’t make any more withdrawals because you’ve tapped out your line or entered the repayment phase, consider paying off the entire balance.

Strategies for home buyers. If you’re in the market for a new home—perhaps you’re trading up—even if you aren’t in a high-cost area, you’ll encounter higher mortgage rates that have been pushing payments higher and perhaps limiting how much house you can afford.

The prospect of higher rates persuaded Adam P. Smith and his wife, Elizabeth, to move quickly to trade their family home of 16 years for a larger one with more space for their family, including Asher, 3, Alex, 14, and (when she visits) Lisa, 23. Smith, a Denver mortgage broker, was in a good position to navigate both rising mortgage rates and the overheated Denver housing market.

The Smiths sold their three-bedroom, 2.5-bath home for $480,000 and bought a five-bedroom, 3.5-bath home for $555,000. With the $240,000 they took from the home sale, they could have put down nearly half of the purchase price, but they had a different strategy: They committed just 3.5% to the down payment and locked in a 30-year fixed rate of 3.875% on a Federal Housing Administration loan. They used their remaining equity to pay off other, higher-cost debt and beef up their retirement accounts.

Smith says he’s aware that if he had put down 20% or more, he would have qualified for an even better interest rate on a non-FHA loan (and eliminated the FHA loan’s up-front and monthly mortgage insurance premium). But he believes he’s getting a better overall return by paying off debt and investing the rest. Smith doesn’t know yet whether he will take the new $24,000 standard deduction or itemize deductions. It may be a wash: The interest for the first full year in the new home will be about $21,000 and the property taxes will be about $3,100.

As homes have become less affordable and interest rates have ticked up, mortgage borrowing has slowed down, says Guy Cecala, publisher of Inside Mortgage Finance. To compete for fewer borrowers, lenders have loosened their underwriting requirements, allowing smaller down payments (as little as 3%) and higher debt-to-income ratios. For example, Fannie Mae and Freddie Mac will allow the total of all monthly debt payments to reach 45% to 50% of your before-tax monthly income with compensating factors, such as a big down payment, a stellar credit score and plenty of assets.

For most home buyers, it makes sense to make at least a 20% down payment to avoid private mortgage insurance. With a larger down payment, you may qualify for a lower interest rate, too. To ensure that your rate doesn’t rise before you close, ask the lender to lock the rate for 45 days. If it wants your business, it should do it free, says Mat Ishbia, president of United Wholesale Mortgage.

Student Loans

For students who borrow to attend college, the average debt at graduation is $28,500, according to the College Board. That doesn’t sound all that onerous—until you consider how much the payments on that debt limit the financial opportunities of millennials trying to save for retirement, a home and perhaps a new car. A student who graduates with this amount of debt and pays it back over 10 years at an interest rate of 5% is on the hook for payments of $302 a month; including interest, the total comes to $36,274.

You can consolidate federal (but not private) loans to combine them into one new loan (go to studentaid.ed.gov). But the interest rate of this new loan will be the weighted average of the interest rates of the debts you combine, meaning you won’t save money on interest. If you go this route, consider excluding your highest-rate loan and targeting that one for early repayment.

To lower your rate, you’ll have to turn to a private lender. That’s what Teresa Ruiz Decker, a communications consultant in Santa Cruz, Calif., did. Decker used federal loans to help fund her undergraduate degree in communications at Cal Poly Pomona, graduating with about $14,000 in debt. Then she earned a two-year master’s degree in communication management at the University of Southern California, taking on another $40,000 in federal loans. After graduate school, she combined all of her loans into one direct consolidation loan. But she grew concerned when she realized that at least two-thirds of her monthly payments were going toward interest, and she was barely making a dent in her balance, which had grown to $60,000. “It was incredible to see that I would end up paying about as much in interest as I would for my original loan,” she says. “That was my wake-up call to take action.”

Decker earned extra income through side jobs and as an Airbnb host to accelerate her payments. After her balance shrank, she refinanced her loans through CommonBond, a private lender that also supports education in developing countries. She snagged a variable rate of 3.29%, which she later converted to a fixed rate of 4.58%. Decker completed her final payment this past June. “I didn’t want to be paying off loans when I sent my own kids to college,” she says.

If you turn to private loans, note that payments on an initially low variable rate will increase as rates rise. That may make sense if you plan to pay off the loan early. But with a fixed-rate loan, the payments will be more predictable. Fixed-rate private loans from reputable lenders recently ranged from 5% to 15%, depending on the credit history and income of you or a cosigner; variable private loans hovered between 4% and 10% (and even higher) on StudentLoanHero.com, a website that offers student-loan management and repayment tools.

Also compare the term over which you’ll repay the debt. “The majority of savings are due to a shorter repayment term rather than a lower interest rate,” says Mark Kantrowitz, publisher of Savingforcollege.com. You can also shorten the repayment term by directing extra cash toward your student loans. For the graduate with $28,500 in loans, adding an extra $100 each month to payments would retire the debt nearly three years early and save $2,435. Signing up for automatic debit would cut the interest rate by 0.25 percentage point and trim $416 in interest over the life of the loan.

Notify your loan servicer that each extra payment should be credited to principal; otherwise your servicer might—and sometimes must—treat the extra money as an early payment of your next installment.

To refinance with a private lender, you will likely need a credit score of at least 700 as well as a history of on-time payments to beat the rate you currently have, says Joe DePaulo, CEO of College Ave Student Loans, a private lender. You’ll typically lose such benefits as deferment and forbearance on your federal loans if you include them in the mix. To compare options, go to Studentloanhero.com or Credible.com. Apply to multiple lenders and compare offers; the lowest advertised rates are reserved for borrowers with the strongest credit histories.

If you or your college-bound student are planning to apply for financial aid, max out federal aid first because interest rates are fixed and generally lower than fixed private loan rates. Undergraduates can take out federal loans of up to $5,500 in their first year, $6,500 in their second year and $7,500 in their third year and beyond (only a portion of those limits may be in subsidized loans). Parents can borrow through a PLUS loan up to the cost of their child’s attendance minus any financial aid the child receives. Graduate students can get up to $20,500 in unsubsidized loans per year.

Federal loans typically don’t require a cosigner and come with protections that private loans may lack, such as flexible repayment plans and postponement options. The fixed rates on federal loans reset on July 1 of each year; in 2018, the rate on undergraduate direct loans disbursed on July 1 or later rose to 5.05%, from 4.45% the previous year. Parent PLUS loans increased from 7% to 7.6%, and direct loans for graduate or professional students ticked up from 6% to 6.6%.

Auto Loans

The annual percentage rate on a new-vehicle loan in October averaged 6.2%, the highest level since January 2009, according to Edmunds, an automotive information website. Fewer than 4% of new-car sales snagged 0% finance deals in October—the lowest level since 2007.

Auto-loan terms are stretching longer as well, with five to seven years becoming more common, says Matt DeLorenzo, senior managing editor of Kelley Blue Book. Popular 72-month loans recently had an average rate of 7.4%. Longer-term loans translate into lower monthly payments but more in interest over the life of the loan.

With loan rates ticking up, you’re usually better off paying cash. But if you need to finance the vehicle, you’ll find the best deal, maybe even 0% financing, by scouring carmaker and dealership websites. Be sure to look at all incentives because a low-rate loan on one vehicle could be outweighed by a generous rebate on another, says DeLorenzo. Matt Jones, senior consumer advice editor at Edmunds, notes that manufacturers as a whole aren’t in the same rush to sell vehicles as in past years, but consumers can still find plenty of hefty rebates.

Banks and credit unions may offer competitive rates as well—as low as 2.99% from banks and 2.74% from credit unions for new cars, assuming you have a good credit score and put down at least 10%, says Bankrate—and they may match the best rate your dealer offers (but not 0%). You can also negotiate with your dealer for a lower rate by coming armed with a preapproval, or evidence of lower rates at banks or credit unions.

For a low or 0% rate, you will likely need a credit score of at least 700. If your credit is on the cusp, you might be able to qualify for a low rate as a loyal buyer of the brand or if you come up with a larger down payment.

Credit Cards

If you carry a balance on your credit cards, the interest rate is likely to bump up with each hike in the federal funds rate. The “low end” of credit card rates, or the percentage the most creditworthy customers could snag, recently averaged 17.14%, according to CreditCards.com. That’s the highest “low end” average the site has observed since it started surveying credit card rates in 2007. The “high end,” for cardholders with less than stellar credit, recently averaged 24.5%.

When you’re paying down debt, credit card balances should usually be your highest priority. One way to get credit card debt under control is to shift your balance onto a new credit card that charges no interest on transfers for a set period of time. For example, Chase Slate and BankAmericard offer a 0% rate on balance transfers and new purchases for the first 15 months, as well as no transfer fee if you move your money within 60 days of opening the account (see Stop Paying Pesky Fees). The U.S. Bank Platinum card extends its 0% balance-transfer deal to 20 months but charges a 3% transfer fee. This strategy works only if you have the discipline to pay off the balance before the interest-free term expires.

Now is a good time to apply for a balance transfer because card issuers are trimming the term for which the 0% rate applies. You can still find 0% offers with no transfer fees for as long as 15 months, says Ted Rossman, industry analyst at CreditCards.com. But he predicts that after a few more Fed rate hikes, the best no-interest, no-fee balance-transfer offers will shrink to 12 months.

If you don’t qualify for a balance-transfer card or need more time to pay off your debt, try negotiating with your issuer for a lower rate. To bolster your case, mention your loyalty as a customer or competing offers that have come your way.

Or you could pay off the card with a personal loan from a bank, credit union or online lender, such as Prosper. Personal loans can start at about 5% (the best rates go to the most creditworthy customers, though 5% will be harder to find as rates rise), and rates are fixed for the life of the loan—typically two to five years, according to NerdWallet. When comparing offers, watch out for origination fees, late fees and prepayment penalties.

New Limits on Homeowners

If you closed on a mortgage on or before December 15, 2017 (or had a binding purchase contract for a home by that date and it closed by April 1, 2018), you can still deduct the interest on up to $1 million of mortgage debt. If you took a mortgage or home-equity loan or line of credit after December 15, 2017, to buy, build, improve or refinance a primary residence or second home, you can also deduct the interest on $1 million of debt. That includes debt on a home-equity loan or line of credit.

However, interest on home-equity debt, old or new, is deductible only to the extent that you used the money to buy, build or improve your home. If you used it to buy a car, pay college tuition or take a vacation, you can’t deduct the interest. If you refinanced your mortgage, cashed out some equity and didn’t fold the money back into your home, the interest on the cash-out portion of the loan isn’t deductible, either.

Deductions for any combination of state and local income, sales or property taxes—sometimes known as SALT—are now capped at $10,000. “SALT is a good acronym, as in rubbing salt into a wound,” says certified financial planner Peter Palion. Palion lives in the high-cost New York metro area, where property taxes for even modest homes often exceed $10,000.

Suppose you took a mortgage of $1 million with an interest rate of 4.5% in 2017 or before. You could have deducted nearly $54,000 in interest incurred in the first year on the entire loan amount, and in the 33% tax bracket, you would have saved about $18,000 in federal income taxes. If you took the same mortgage now, you could deduct about $30,000 in interest on $750,000 of the loan, and in the new 32% bracket, you’d save about $13,000 in taxes, or about $5,000 less than before.

We asked Gerri Detweiler, a credit expert and education director at Nav, a small-business financial management platform, about UltraFICO and consumer credit.

FICO recently announced a new credit score called Ultra­FICO. How is it different from the traditional FICO score? Traditional credit scores rely primarily on information from the credit bureaus. UltraFICO also looks at how you handle your banking accounts. Consumers who have a monthly balance of $400 or more in their checking or savings account for the previous three months and have no bounced checks or overdrafts could use their UltraFICO score to boost their traditional score. A consumer gets to choose the bank account to be scored. Presumably, you would use your primary account. It could help people who don’t have much of a credit history, such as younger adults and immigrants.

Could some older adults benefit from this score as well? Some older adults don’t have much of a credit record because they’ve paid off their mortgages and car loans. If they wanted to apply for a new auto loan and take advantage of a low interest rate, UltraFICO could show lenders that they have plenty of money in the bank.

Can I request that credit bureaus use an UltraFICO score instead of a traditional credit score? No. You don’t choose the score a lender uses. The lender will run its preferred credit score first, and if there isn’t enough information to produce a score or the score is close to qualifying but not quite there, the lender can use the UltraFICO score if the consumer opts in.

Traditional credit reports and scores aren’t going anywhere. But we are moving into an era of using other data to help lenders make financial decisions, and that can help put consumers in the driver’s seat.

How can consumers improve their credit scores? Be vigilant about making sure that everything gets paid on time. Payment history is the strongest factor in your credit score. If you don’t qualify for a credit card, consider a secured credit card, with which you get a credit line based on a cash deposit you make when you open the account. The other option would be a credit-builder loan. With these, which are usually offered by credit unions or community banks, you’re actually borrowing against a savings account offered by the financial institution. Once the loan is paid off, the funds are available for you to use.

The national median sales price for existing single-family homes hit $269,000 in the second quarter of this year, according to the National Association of Realtors. However, depending on where you choose to live, that much money may get you a large, single-family home with plenty of amenities -- or a studio apartment.

In cities such as New York City and San Diego, you’ll find only small studio and one-bedroom condos or even mobile manufactured homes at that price point. Meanwhile, in Jacksonville, Fla., or Houston, for instance, you can snag a single-family home with some acreage and a pool in the backyard.

We rounded up to $300,000 and looked for homes for sale in 21 of the largest U.S. cities from coast to coast to see just how much homebuyers can get for their money. Here’s what we found.

NOTE: Listing prices and other details accurate as of October 5; cities are listed in order of population, starting with the largest.

• Square footage: 400
• Bedrooms: Studio
• Bathrooms: 1
• Acreage: N/A
• Was listed for: $297,500

At $300,000, studio apartments are typically all you’ll find for sale in New York City’s housing market. This studio unit is part of a co-op building, which means rather than owning your individual apartment, you’d own a percentage of the building along with the other residents who own and live there.

It’s a corner unit located on the third floor and has been recently renovated. There are hardwood floors throughout the space, a remote-control ceiling fan in the main living area, a window air-conditioning unit and radiant heating. There’s an eat-in kitchen with granite and wood countertops, as well as lots of cabinetry for storage. The bathroom has an all-glass shower stall and floor-to-ceiling tiles.

This studio apartment is located in the Hudson Heights neighborhood in Upper Manhattan. Earlier this year, the New York Times dubbed the area a hidden gem due to relatively low rental rates and home sale prices.

• Square footage: 2,370
• Bedrooms: 6
• Bathrooms: 3
• Acreage: 0.09
• Listed for: $300,000

This bungalow-style home was built in 1920. It’s since been renovated and now has a modern aesthetic complete with an open floor plan in the main living area, hardwood floors and recessed lighting. In the kitchen, there are granite countertops, a subway-tile backsplash and stainless-steel appliances.

The master bedroom and a second bedroom are located on the main level. There are two additional bedrooms on the second floor, as well as two more bedrooms in the basement. The basement-level bedrooms have carpet flooring. There’s also a separate laundry room in the basement. The backyard is fenced in and has a detached two-car garage.

In the Chicago metro area, homes for sale are sitting on the market for just 47 days (down from 53 days in 2017 but still longer than the national average of 29 days), and median sale prices are up 4% ($242,500 in the metro area; $299,000 in the city of Chicago), reports the Chicago Tribune.

• Square footage: 3,830
• Bedrooms: 4
• Bathrooms: 3.5
• Acreage: 0.19
• Listed for: $299,950

Built in 1983, this traditional-style home is in the Olde Oaks neighborhood and has plenty of curb appeal. There’s a large front yard with a U-shaped driveway, landscaping and a three-car garage. Inside the home, the main living level has an open floor plan with tiled floors, large windows (with a picturesque view of the backyard) and ceiling fans. The kitchen has a contemporary feel with white cabinetry, a mosaic-tile backsplash, marble countertops and stainless-steel appliances. The living room has a stone fireplace and built-in shelving units.

The master bedroom is located on the first floor and has a private patio area. There’s also a home office on the same level. On the second floor, there are three bedrooms. Two of the bedrooms are connected by a Jack-and-Jill-style bathroom. The third bedroom has a Hollywood-style bathroom, which means the sink, toilet and tub/shower stall are separate from the mirror and vanity area.

The backyard is fenced in, has a partially covered patio area and a pool with an attached hot tub. The home comes with a new air conditioner, furnace, two water heaters and a sprinkler system.

In Houston, single-family home sales are up 9% year-over-year, according to the Houston Association of Realtors.

• Square footage: 1,548
• Bedrooms: 2
• Bathrooms: 3
• Acreage: 0.11
• Listed for: $299,700

This two-story, Spanish-style, single-family home was built in 1976 and is located in the Goldwater Lakes community. There’s a two-car garage. At the rear of the home, there’s a private pool, a partially covered patio area and a small green space.

Inside, the first level has an open floor plan with several large windows that allow for plenty of natural sunlight. This home has been renovated and includes several trendy design features such as tile plank flooring on the first level, granite countertops and a tile backsplash in the kitchen, and recessed lighting. On the second floor, the bedrooms have wall-to-wall carpeting and closets with built-in organizational systems. The community’s amenities include a public pool and tennis court.

On average, homes for sale in the Phoenix metro area are on the market for 62 days before being sold, according to the Arizona Regional Multiple Listing Service. That’s more than twice as long as the national average of 29 days.

• Square footage: 1,583
• Bedrooms: 3
• Bathrooms: 1.5
• Acreage: 0.04
• Listed for: $295,000

You might mistake this home for a duplex, but it’s not. It’s considered a twin home, which means it shares a center wall with an attached neighboring house, but is situated on its own lot, according to Realtor.com. This allows each homeowner to maintain their property as they wish (for example, each owner can paint the exterior of their home whatever color they’d like). With a duplex, both homes share a lot, and the owners must follow the same maintenance guidelines.

This three-story home was built in 1949 and has been completely renovated. There are bamboo hardwood floors throughout the main living level. In the kitchen, there’s a large center island with room for seating, new stainless appliances, granite countertops, a subway-tile backsplash and a wine fridge. The bedrooms are located on the second floor, and there’s also a finished basement.

This property is located in the West Germantown section of Philadelphia, which is one of the city’s oldest neighborhoods. There are several local shops, restaurants and historical sites nearby.

• Square footage: 629
• Bedrooms: 1
• Bathrooms: 1
• Acreage: N/A
• Listed for: $308,500

This is a corner condo unit with a private patio. The living room area has several large windows, which allow plenty of natural sunlight. The kitchen has granite countertops, stainless steel appliances and plenty of cabinetry for storage. There’s carpeting throughout the home. This condo also comes with an assigned parking space in a gated underground parking garage.

The condo building is located in the Hillcrest/Mission Hills neighborhood. It was constructed in 1988, but all of the units were renovated in 2005. The building has an elevator, a community rooftop sundeck with a grill, and a courtyard with seating and a waterfall. It’s within walking distance of public transportation, a shopping center and several restaurants.

The volume of existing condo and townhome sales in the San Diego metro area in August 2018 was down 17% year-over-year, according to the Greater San Diego Association of Realtors. The median sale price for such homes in the area hit $425,000; this property falls about 25% below that price point.

• Square footage: 1,542
• Bedrooms: 3
• Bathrooms: 2
• Acreage: 0.19
• Listed for: $294,000

This is a single-story dwelling built in 1974. It has plenty of curb appeal thanks to the unique landscaping at the front of the home. Inside, there’s an open floor plan that has several large windows in the main living area. That space also has vaulted ceilings, tiled floors, a ceiling fan and a fireplace. The kitchen comes with granite countertops, a mosaic backsplash and a pantry closet.

The backyard is fenced in and has a large covered patio and a pool. At the rear of the home, there’s an automatic gate with rear alley access that leads to an attached garage. The roof on this home was replaced earlier this year.

This home is located in the Lake Highlands neighborhood where nearly 40% of residents are homeowners and the average length of residency is 16 years, according to D Magazine, a lifestyle publication highlighting the Dallas metro area.

• Square footage: 1,620
• Bedrooms: 3
• Bathrooms: 2

The housing market in the San Jose metro area is tight for would-be buyers on a strict budget. In the $300,000 range, you can expect to find only mobile manufactured homes for sale.

The double-wide mobile manufactured home featured here is located in Sunnyvale, which is part of the San Jose metro area, and was built in 2015. It’s situated in a corner space in the Plaza Del Ray manufactured home community. There’s a small front porch, an automatic sprinkler system in the front yard area and a covered carport that can fit up to three cars.

Inside the home, there’s laminate flooring throughout, double-pane windows, pendant and recessed lighting and crown molding in the main living area. The kitchen has granite countertops, stainless steel appliances, and a center island with a breakfast bar. The master bedroom has a walk-in closet, a linen cabinet, and granite countertops in the en-suite bathroom. The second and third bedrooms have several windows that allow for plenty of natural sunlight. There’s also a separate laundry room area with cabinets to store supplies. The community amenities include three swimming pools, a playground, gym and clubhouse for resident use.

In addition to your mortgage on the home itself, you’ll also have to pay a monthly $2,000 space rental fee for your specific lot.

• Square footage: 2,154
• Bedrooms: 4
• Bathrooms: 2.5
• Acreage: N/A
• Listed for: $295,500

Located in a gated community, this single-family home is situated in a cul-de-sac. Built in 2003, it’s a two-story property with vaulted ceilings and a spacious layout on the first level. There’s a fireplace in the living room. The kitchen has a center island and a separate space for a small table with chairs.

Upstairs, you’ll find the bedrooms: The master has a bay window, a ceiling fan, a bathroom with a separate shower stall and tub, and a walk-in closet. The two additional bedrooms share a separate bathroom also located on the second level.

In the backyard, there’s a covered patio, and this home also has a two-car garage.

The median home price in the city of Austin hit $393,000 in August, up 9% from the same time last year, according the Austin Board of Realtors. The home featured here falls below that amount by 25%.

• Square footage: 2,146
• Bedrooms: 3
• Bathrooms: 2.5
• Acreage: 0.35
• Was listed for: $294,000

This single-story home is located in the Beauclerc neighborhood. It was built in 1985 and has high ceilings, a surround-sound system and LED lighting throughout the home. The main living area and kitchen have tile flooring, while the bedrooms have Brazilian hardwood floors.

The living room has a fireplace with built-in bookcases on either side. The kitchen has a breakfast bar and separate dining area that’s large enough to fit a small table with two chairs. There are two large windows in this space with a view of the backyard area. There’s also a formal dining room that’s adjacent to the kitchen.

The master bedroom has a walk-in closet and an en-suite bathroom with a separate shower stall and bathtub. It also has private access to the backyard patio area. One of the additional bedrooms is attached to the second full bathroom that can also be accessed from the hallway.

The backyard is fenced in and there’s a pool that’s surrounded by tropical-themed landscaping on one side. There’s a partially covered patio area with a wooden deck and ceiling fan. A small storage shed is also located in the backyard.

Over the summer, Jacksonville experienced some of the highest increases in home prices and rental rates in the nation, according to the Jacksonville Daily Record. That’s thanks to a declining inventory of homes for sale in the area.

• Square footage: 506
• Bedrooms: Studio
• Bathrooms: 1
• Acreage: N/A
• Was listed for: $312,647

This studio condo is compact, but it has a large window in the living area with a city view that helps give it the illusion of being larger. The kitchen has modern finishes including stainless-steel appliances and cabinetry with frosted glass. This unit, which was built in 2004, comes with a garage parking space. The condo building has a community pool for residents.

This is a “below market rate” (BMR) property that has income restrictions for potential first-time buyers. Many homes currently on the market in the San Francisco area that sell for around $300,000 are BMR properties.

• Square footage: 2,200
• Bedrooms: 2
• Bathrooms: 1.5
• Acreage: 0.10
• Listed for: $289,900

This two-story, Spanish-Mediterranean-style bungalow is an attention-grabber before even setting foot inside. The exterior of the home has a stucco finish. There’s a front porch with a pergola that has double doors leading to the home’s living room.

On the main level, there’s a semi-open floor plan with hardwood floors. The living room has a fireplace with built-in shelving on either side. The kitchen has stainless steel appliances, a subway-tile backsplash, a farmhouse sink, a breakfast bar and herringbone tile floors. There’s a separate dining space adjacent to the kitchen with French doors that lead to the backyard. The full bathroom is located on this floor and has built-in storage cabinetry, a tiled floor and tiled walls.

There’s one bedroom located on the main level that has hardwood floors. The other bedroom is on the basement level and has an attached half-bathroom, a walk-in closet, recessed lights and carpeted floors. The backyard area has a small deck space, as well as a detached two-car garage.

In Indy, the housing market still favors sellers. Homes are on the market for an average of 32 days (near the national average of 29 days) and the inventory is low. A growing population of millennial buyers has added to this demand, according to the Indianapolis Star.

• Square footage: 2,260
• Bedrooms: 5
• Bathrooms: 3
• Acreage: 0.47
• Listed for: $299,900

Originally built in 1962, this home has undergone a full renovation. Its exterior consists of siding and painted brick. There’s a front porch constructed from brick tiles in a mosaic pattern.

The interior of the home has a mix of modern and traditional design features. The main living level has tiled and carpeted flooring, as well as vaulted ceilings and recessed lights. There’s a brick fireplace in the living room, which is adjacent to the kitchen. Just off the living room, there’s a sunroom with an exposed brick wall, several windows and a sliding door that leads to the backyard. The kitchen has granite countertops, a tile backsplash, stainless steel appliances, a breakfast bar and tiled floors. The laundry room is located near the kitchen and has a sliding barn door for entry.

On the second level, there are hardwood floors. The master bedroom has an en-suite bathroom. The additional bedrooms have closets with built-in shelving. This home also has an attached two-car garage and is situated on a nearly half-acre of land.

The housing market in Charlotte is becoming more and more competitive, according to a recent article in the Charlotte Observer. For home buyers in this area, the selection of houses is slim, prices are steadily rising and the demand continues to grow.

• Square footage: 867
• Bedrooms: 2
• Bathrooms: 1
• Acreage: N/A
• Was listed for: $300,000

This condo has an open floor plan with oak hardwood floors, including in the bedrooms. There are several large windows throughout the main living area that allow for plenty of natural sunlight to enter the space. The kitchen has a center island with a breakfast bar, as well as a separate dining area that can fit a small table and two chairs. The master bedroom has a walk-in closet.

This home also has a private outdoor patio that can be accessed from the dining area. There’s a designated off-street parking space. The condo building is located in the Highland Park neighborhood. It was built in 1947 and renovated in 2008.

The housing market in the Seattle area is slowly starting to shift from a seller’s market to favor buyers, according to the Seattle Times. Homes are sitting on the market much longer than in months past, and sellers are having to resort to dropping prices to attract offers.

• Square footage: 779
• Bedrooms: 2
• Bathrooms: 1
• Acreage: 0.15
• Was listed for: $298,500

This ranch-style, single-family home was built in 1948 and still has the original hardwood floors. Today, there are a few modern updates including an open layout in the main living area and granite countertops in the kitchen.

There’s a separate dining area just off the kitchen that can fit a small table and two chairs. Both bedrooms have ceiling fans. There’s also a separate laundry area that can fit a stacked washer and dryer. The backyard is fenced in and has a wooden deck with a pergola and a hot tub.

This house is located in the East Colfax neighborhood, which is known for its lively restaurant and music scene.

• Square footage: 945
• Bedrooms: 1
• Bathrooms: 1
• Acreage: N/A
• Listed for: $300,000

This condo unit is located in a mid-rise building in the Cleveland Park neighborhood, which has multiple public transportation options, restaurants and shopping nearby.

It has parquet wood floors throughout, large windows, built-in bookcases in the living room area, a separate dining room with a chandelier, and two closets that can used for storage in the hallway leading to the bedroom. There are electric appliances in the kitchen, as well as under-cabinet lighting. The bedroom has two closets and a large floor-to-ceiling window that allows for plenty of natural light.

The condo building’s amenities include secured entry, a 24-hour concierge, a community roof deck and a laundry room for residents with multiple washers and dryers.

• Square footage: 450
• Bedrooms: 1
• Bathrooms: 1
• Acreage: N/A
• Was listed for: $324,000

This condo is a unit within a multi-level rowhouse and has an open floor plan in the main living area. The kitchen has stainless steel appliances and granite countertops and opens into the living room, which helps make it easier to entertain guests. The bedroom has an en-suite bathroom and offers access to the unit’s utility closet and storage area.

Located in the Telegraph Hill neighborhood, there are several nearby attractions including Castle Island, the Harbor Walk, local yacht clubs, bike trails and a community center.

Strong job growth has contributed to an uptick in sales and median selling prices for single-family detached homes and condos in the Boston metro area, says the Greater Boston Real Estate Board.

• Square footage: 3,026
• Bedrooms: 4
• Bathrooms: 3
• Acreage: 0.21
• Listed for: $296,000

This two-story home was built in 2005 and is located in a cul-de-sac in the Chapparal Park neighborhood. In addition to an open floor plan, the formal living area has high ceilings and wall-to-wall carpeting. There’s an eat-in kitchen with tiled floors, ample cabinet space, a small center island, stainless steel appliances and a pantry for additional storage. Located just off the kitchen is a family room with a fireplace, built-in shelving, a ceiling fan and carpet flooring. There’s also a separate laundry room on this floor with cabinetry to store related supplies.

On the second floor, there’s a common area with access to an outdoor deck area. The bedrooms are also located on this floor, which has carpeting. The master bedroom has an en-suite bathroom with a separate shower stall and a jet bathtub.

The backyard has a covered patio, as well as an array of fruit trees including plums, pears, pomegranates and figs. The home also has a two-car garage.

El Paso took the number four spot on Trulia.com’s top 10 ranking of hottest real estate markets to watch in 2018. The real-estate site credited the area’s economic development, reasonable housing costs and growing millennial population.

• Square footage: 2,650
• Bedrooms: 6
• Bathrooms: 2.5
• Acreage: 0.12
• Listed for: $294,000

This colonial-style home was built in 1916 and is located in the Boston Edison Historic District (whose former residents include Ford Motor Company founder Henry Ford, professional boxer Joe Louis and former U.S. senator James Couzens). It has three floors and was fully renovated earlier this year.

On the main level, the living room has a fireplace and a large window with a view of the historic neighborhood. The kitchen has recessed lights, a stainless-steel oven and dishwasher, as well as a subway-tile backsplash. There’s a formal dining room just off the kitchen with an attached sunroom. You can access the backyard from the kitchen or the sunroom. There’s also a half-bathroom on this floor.

Most of the bedrooms and one of the full bathrooms are located on the second floor. The third floor houses a single bedroom and the second full bathroom. There’s built-in shelving, bookcases and storage drawers, as well as hardwood floors throughout the entire home. The property comes with radiant heating and a detached two-car garage in the backyard area.

Detroit made QuickenLoan’s 2018 list of the most affordable places to live in the U.S.

• Square footage: 1,152
• Bedrooms: 2
• Bathrooms: 1.5
• Acreage: 0.05
• Listed for: $299,900

Built in 1985, this two-story townhouse is located in the Edgefield neighborhood. It’s an end unit with hardwood and tile floors on the main level. The living room has a fireplace and recessed lights. The kitchen has stainless steel appliances, a tile backsplash and ample cabinetry. There’s a separate dining area directly across from the kitchen that can fit a dining table and four chairs. You can also access the backyard from the dining area.

On the second floor, you’ll find the bedrooms. The full bathroom is located on this level and has a shower stall with a waterfall faucet in addition to a standard faucet. There’s a small backyard area that’s fenced in. It has some green space for gardening, as well as a storage shed.

The Nashville metro area has seen an uptick in millennial first-time homebuyers, thanks to affordable housing prices, according to Tennessean.com. They’re specifically looking for “urban-light” areas such as the cities of Gallatin and Hendersonville, which are located just outside the downtown core, but still allow them to enjoy the same recreational amenities.

• Square footage: 2,415
• Bedrooms: 4
• Bathrooms: 3
• Acreage: 0.26
• Listed for: $284,900

Built in 1958, this mid-century ranch-style home is located in Memphis’s Pigeon Estates neighborhood and is situated on a corner lot. Inside the home, the main living area has parquet wood floors and a foyer area with a built-in bookcase that runs the entire length of the wall. There’s a den nearby with slate tile floors, a fireplace and several large windows for plenty of natural sunlight.

The kitchen has new cabinets and butcher-block countertops, stainless steel appliances, a farmhouse sink and a center island with room for two bar stools. The bedrooms all have closets with built-in organization systems. There’s a separate laundry room that can accommodate a standard side-by-side washer and dryer and has built-in storage for related supplies. The backyard is fenced in, and the home has driveway parking.

Memphis has become one of the hottest housing markets for home-flippers, according to Realtor.com. There’s an abundance of lower-priced properties in the area. Investors are buying, rehabbing and renting out these homes, because many residents can’t afford to buy or qualify for a mortgage, Realtor.com says.

Editor’s note: This column has been updated from an earlier version.

You recently bought a home. Congratulations. Your new mortgage company just sent you a payment statement, which includes the teaser: “You can save a lot of money by paying extra each month.”

Well, maybe, but that’s only one part of the picture. Many investment advisers, myself included, might argue that if you invested the extra money you were pumping into your mortgage, you could come out ahead.

With mortgage interest rates as low as they’ve been, it’s likely that your investments could out-earn the interest you’d be paying.

In addition, there’s inflation to consider. Unless you have an adjustable rate mortgage (ARM), mortgage payments are fixed, meaning they remain constant. Thus, when adjusted for inflation, they become progressively smaller over time. Unfortunately, the message of “pay extra and save” fails to consider the Time Value of Money.

Is it ever OK to pay off a mortgage early?

Yes! There are some valid reasons why someone might want to pay off their mortgage early.

1. Income issues. If you expect your retirement income will be less than your earning years, then timing the completion of house payments for retirement may make sense.
2. Peace of mind. There are people who simply do not like having a house payment loom over their heads. This would be particularly true for someone in an uncertain job situation. Having no mortgage payment protects the home from foreclosure if employment is suddenly terminated and prospects of finding a new job are low.
3. Medical issues. A person who has a developing or worsening chronic illness may find getting out from under a mortgage before the disease worsens to a point of being very expensive is a big financial advantage and in line with good planning.
4. You have an adjustable rate mortgage (ARM). Less common now than a decade ago, these lending devices are structured to provide a low monthly payment in the initial years and rises later when (presumably) you earn more and can afford more – at least that’s the “official” theory. However, it was ARMs that contributed to the mortgage default bubble in 2007. If you have one, paying it off sooner than later is a good idea, as interest rates are on the rise these days.

Are There Other Ways to Reduce a Mortgage Payment?

Yes. Rather than paying your mortgage off early, you may want to consider refinancing, although as interest rates rise, the value of this option may be vanishing.

The decision to pay off a mortgage ahead of schedule is something to discuss with an independent financial planner. While there are times when paying off a mortgage early can make sense don’t buy into the canned line “you’ll save so much,” because in some ways, it simply may not be true.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

If you're planning for retirement, downsizing is likely near the top of your to-do list. After all, it's a lot of work and expense to maintain the 2,426 square feet that makes up the typical single-family house.

Enter the tiny retirement home. Generally at under 400 square feet of living space, a tiny home requires much less upkeep and is much more affordable than a traditional house. That's an attractive combination for retirees on fixed incomes. According to the National Association of Home Builders, 45% of baby boomers would consider buying a tiny home.

Affordability is a compelling factor. On average, it costs $23,000 to build a tiny home yourself, according to TheTinyLife.com, a resource for the tiny home community. The average sale price for a single-family home is $384,900, according to the U.S. Census Bureau. Just 3 out of 10 tiny home owners have a mortgage.

Despite the small size, tiny homes come in all shapes. Here are several great tiny homes uniquely suited to the needs of retirees. Take a look.

• Square footage: 300
• Bedrooms: 1
• Bathrooms: 1
• Price: $150,000
• Model name: Escher
• Builder: New Frontier Tiny Homes (Nashville, Tenn.)

Enjoy the views from just about every angle of this tiny home on wheels. There's a sliding glass door as well as a garage-style glass door on either side of the home, which allow for plenty of natural sunlight. The exterior is constructed using red cedar siding, Shou Sugi Ban (charred wood) siding and metal accents.

The kitchen has a luxe look thanks to porcelain countertops, a farmhouse-style sink, a pull-out dishwasher, a full-size stainless-steel refrigerator and a hammered copper backsplash. There’s also a washer/dryer combo located next to the sink. The bathroom has a sliding barn door, porcelain tile shower, composting toilet, bowl sink and built-in shelves to store toiletries. The bedroom is large enough to fit a king-size mattress, has floor storage underneath the bed box, pendant lights and two sliding doors for privacy.

At the opposite end of the home, there's a hallway with a walk-in closet, as well as a fold-out table along the wall that can serve as an office space. There's also an L-shaped loft area that can be used as an additional sleep space for guests (it can fit a twin-sized bed) or as a storage area.

• The Escher is built on a mobile trailer, which means you can haul it from one location to the next. It can take up to three months to build and New Frontier Tiny Homes delivers anywhere within the contiguous U.S. Rates vary based on the drop-off location.

• Square footage: 452
• Bedrooms: 1
• Bathrooms: 1
• Price: $131,885
• Model name: Saltbox
• Builder: Designer Series by Clayton Homes (Maryville, Tenn.)

Many high-end finishes that are considered "upgrades" with other tiny home builders come standard with this home. This includes shiplap wood siding on the exterior, energy-efficient aluminum-clad windows and doors, oak hardwood flooring inside the home and a tankless water heater.

The kitchen has quartz countertops and stainless-steel appliances (stove, dishwasher and refrigerator). There's an adjacent dining area that can fit a table for up to six people. The hallway leading to the bedroom has a desk area and a designated space for a washer/dryer combo and storage for laundry supplies.

The bedroom can fit a queen-size bed and has an attached private outdoor porch. The bathroom has a shower/tub combo, a flush toilet and a vanity with a sink and double cabinet underneath.

The Saltbox was designed to be built on a permanent foundation and lived in year-round just as you would a traditional single-family home. It can take up to two months to build and the price listed here doesn't include delivery (fee varies depending on location), installation or the optional exterior awning (as pictured).

• Square footage: 102
• Bedrooms: Studio
• Bathrooms: 1
• Price: $32,000
• Model name: Nugget
• Builder: Modern Tiny Living (Columbus, Ohio)

Despite being the tiniest of the tiny homes featured here, Modern Tiny Living's Nugget model offers many of the same comforts as a home twice its size. Built on a mobile trailer, the exterior has a metal roof and is constructed using pinewood siding. Inside, the kitchen has a large bowl sink, mini-fridge, butcher block countertops and a two-burner cooktop. The built-in bed area is surrounded by windows and has a storage drawer underneath. The bathroom has a shower and composting toilet.

• There's built-in wall shelving throughout the entire space for additional storage. If you're hoping to lessen your carbon footprint, you can upgrade to a solar power grid system to operate the home.

Depending on the finishes and any customization requests, it can take up to four months to build this tiny home. Delivery is free for buyers located within a three-hour drive from Modern Tiny Living's headquarters. If you're outside that radius, the delivery fee is $2 per mile.

• Square footage: 185
• Bedrooms: Studio
• Bathrooms: 1
• Price: $54,995
• Model name: The Vantage
• Builder: Tiny Heirloom (Portland, Ore.)

The exterior of this tiny home is constructed using tight knot cedar siding, and it has energy-efficient vinyl double-pane and tempered windows. It comes with many features you'll find in a traditional single-family dwelling including recessed LED lighting, an electric water heater and a porcelain flush toilet. There's also the option of adding a washer/dryer combo space to the design plan.

The kitchen has butcher block countertops, a single-burner cooktop, a stainless-steel tile backsplash, and an undercounter mini-fridge. The bathroom has a fiberglass shower, a vanity area with a cabinet and a wall-mounted sink.

The sleeping area, which is surrounded by windows, has a bed platform that can fit a queen-size mattress with built-in storage underneath. If you still need more space to store your stuff, there are two shelving areas located near the kitchen. During the colder months, an electric space heater helps keep things warm and cozy.

The Vantage is mounted onto a bumper pull trailer. The build time can take up to four months. Tiny Heirloom delivers within the contiguous U.S. for a fee of $2.50 per mile.

• Square footage: 400
• Bedrooms: 1
• Bathrooms: 1
• Price: $93,500
• Model name: The Wedge
• Builder: Wheelhaus (Jackson, Wyo.)

The unique shape of this tiny home is a definite conversation starter. It's a wedge -- hence, the model name -- and despite its compact size, can sleep up to four adults.

The sliding glass door located at the front of the home serves as the entry and helps illuminate the main living area with natural sunlight. This gives the illusion of more space. The living room can fit a pull-out sofa for overnight guests. There's a full bar located in this same area that can be used for dining. The kitchen has soft-close cabinets, a two-burner cooktop, dishwasher, microwave and a mini refrigerator with a freezer. The bathroom has a designated space for a washer/dryer combo. Located at the rear of the home, the bedroom can fit a king-size bed and two side tables. It has built-in storage and a sliding door for privacy.

The Wedge has cable and internet hookups. Upgrades are available and include a fireplace in the living room, exposed timber ceiling beams and air conditioning.

Moderate modifications can be made to the design plan upon request. Build time can take up to four months. This tiny home can be built on a steel frame with wheels and skirted once set in place, or it can be built as a modular home placed on a permanent foundation. Wheelhaus delivers anywhere in the U.S. and the fee starts at $6 per mile.

• Square footage: 204
• Bedrooms: 1
• Bathrooms: 1
• Price: $78,900
• Model name: Amelia
• Builder: Tiny Innovations (Gresham, Ore.)

If the modern aesthetic is more your style, this tiny home might be what you're looking for. It's built on a mobile trailer. So if you plan to travel during your retired life to see family and friends, this home can hit the road with you.

• The kitchen has a stainless-steel sink, a propane cooktop range/stove combination and butcher block countertops. In the bathroom, there's a vanity with a porcelain sink and cabinet, dual flush toilet, shower and a vent fan to help prevent moisture build-up. There are several upgrades to the standard design plan including a washer/dryer unit in the bedroom, quartz or granite countertops in the kitchen, a decorative backsplash in the kitchen and a fireplace in the living room area.

If you have specific requirements -- for example, you need a walk-up ramp at the front of the home instead of steps -- the design plan is customizable. It takes three months from the date of purchase to complete construction. Tiny Innovations delivers anywhere in the U.S. and the fee varies based on the final destination.

• Square footage: 160
• Bedrooms: Studio
• Bathrooms: 1
• Price: $69,884
• Model name: Degsy
• Builder: Tiny Living by 84 Lumber (online or store locations nationwide)

The exterior of this single-level tiny home, which sits on a steel trailer, is constructed using UV-resistant cedar siding. Inside, the kitchen is situated on a raised platform and has two steps that separate it from the main living area. There's an Energy Star-certified refrigerator, butcher block countertops, an electric cooktop and an island that can be used as a food-prep area, dining table or even as a desk.

• The main living area has recessed LED lighting, a built-in storage drawer and a closet. It can also fit a pull-out couch. The bathroom has a shower stall, a bowl sink with a cabinet underneath, a composting toilet and built-in shelves along the wall.

The price listed here is for a move-in ready dwelling, but you can purchase the design plan and custom trailer for $6,884 and build it yourself. Or purchase the pre-built shell (house frame is placed onto the custom trailer and comes with the windows, front door and bathroom intact) and design plans for $24,884. Potential buyers who plan to go the DIY route should know that this tiny home is designed specifically for a mobile trailer and isn't intended to be placed on a foundation.

It can take up to 10 weeks to complete construction. Delivery is available, and the fee varies based on the drop-off location.

• Square footage: 160
• Bedrooms: Studio
• Bathrooms: 1
• Home model name: Simple Living
• Builder: Tiny Home Builders (DeLand, Fla.)
• For budget-conscious buyers, this is Tiny Home Builders' least expensive model. To help keep costs low, they've swapped pricier materials for less expensive versions that are still durable. For example, you'll get plywood siding instead of cedar wood and vinyl windows instead of aluminum-clad solid wood versions.

The home is constructed on a mobile trailer. The main living area can fit a small couch. If you plan on having a TV, you'll want to consider hanging a flat screen version on the wall to help maximize space. The kitchen comes with most standard appliances including a refrigerator, oven and microwave. The bathroom has a 36-inch wide shower stall.

The purchase price includes builder construction and labor costs. However, you do have the option of purchasing the design plan only for $197 and building this structure on your own. Depending on the types of materials used (for example, reclaimed wood), Tiny Home Builders estimates that DIYers can construct it for as little as $10,000.

If you have the builder deliver a finished home to a desired location, it costs $3 per mile.

• Square footage: 218
• Bedrooms: Studio
• Bathrooms: 1
• Price: $69,000
• Home model name: Ashmere
• Builder: B&B Tiny Houses (North Adams, Mass.)

The exterior of this home is an instant conversation piece. There’s an asymmetric roof, large windows and a glass front door. Inside, recessed lighting is situated throughout the space and the walls are constructed using horizontal shiplap wooden boards.

The kitchen has a full-size refrigerator, a sink, an L-shaped countertop with a two-burner cooktop, as well as upper and lower cabinetry. The designated dining space has a breakfast bar that faces a window. Nearby, there’s a built-in bench with storage underneath. The main living area can fit a loveseat and small bookshelf.

In the bathroom, there’s a toilet (you can choose from a regular flush, macerating, dry-flush or composting version), a sink, shower/tub combo and linen storage shelves. The bed area can fit a queen-size bed and there are built-in storage shelves and a drawer located in this same space.

The Ashmere can be built on a trailer and lived in as a mobile home for road travel. Or it can be built as a modular structure and permanently attached to a foundation. It can take up to two months to construct this tiny home model. B&B Tiny Houses delivers anywhere in the U.S. and the fee varies based on the destination.

• Square footage: 374
• Bedrooms: 1
• Bathrooms: 1
• Price: $78,000
• Model name: Aurora
• Builder: ZeroSquared (Calgary, Canada)

ZeroSquared's Aurora model is versatile. It has an expandable living room and bedroom design and can be lived in as a mobile structure or a permanent one. If you prefer to put the home in a permanent location, you'll need to sit it on blocks and skirt the wheels just as you would a park model RV home. The builder will provide an interior and exterior trim kit that insulates and seals the openings that allow the home to expand and contract. If you plan to travel regularly, the mobile set-up is ideal and operates using a heavy-duty motor system that expands the living room and bedroom areas when parked and contracts for road travel.

Inside the home, the kitchen has a full-size refrigerator, stainless-steel sink, full-size microwave, food pantry, oak countertops, a stainless-steel refrigerator and gas stove. There's also a drop-leaf table near the kitchen area that can double as office space when not being used for dining. The bathroom has a full-size shower, a wall-mounted sink with space underneath to fit a washer/dryer combo unit, cabinetry and a full-size RV toilet. In the bedroom area, there's a queen-size Murphy bed. There are built-in storage drawers and cabinets throughout the space.

Upgrades are available including a dishwasher and an off-grid solar package. The builder is based in Canada but delivers to most locations in the U.S. The delivery fee varies based on the drop-off location.

If you're thinking about downsizing to a tiny home in retirement, these are some of the most important aging-friendly design features to look for in any tiny home:

• Main-level bedroom. Going up and down a ladder to reach a loft bed increases the risk of falls and strains already achy joints.
• A full bath. Opt for a raised toilet, walk-in shower, grab bars and slip-resistant flooring for safety and comfort.
• Easy-to-reach storage. Storage space should be easily accessible -- no ladders. Add built-in drawers beneath beds and sofas.
• Accessibility. Build low to avoid steps, if possible, or install a ramp entryway. Doorways should be wide enough to accommodate walkers and wheelchairs.

• Author: Michael Lewis
• Publisher: Norton, W. W. & Company, Inc., 320 pages

Dive into the financial crash of 2008 and the world of bond and real estate derivatives. Michael Lewis makes matters such as subprime mortgage bonds, credit default swaps and collateralized debt obligations more interesting – and comprehensible – than you would expect. His conversational tone breaks down complex topics for the layperson, without talking down to the reader (Lewis wrote in Vanity Fair that “[my mother] has always been my standard: if my mother can’t understand what I’m saying, there’s no point in saying it”). Plus, since he tells the story through a quirky crew of investors who predicted the crisis and bet against it – to their own profit – the book reads almost like a novel.

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As more and more baby boomers and Gen Xers eye a happy retirement, thoughts turn from worry over the workday slog to concerns about how to fund their golden years. How prepared are you? How much money do you need to retire? The 2026 Planning & Progress Study by Northwestern Mutual says that number is $1.46 million.

Do you know the ins and outs of your pension (if you're lucky enough to have one)? How about your 401(k), IRA, and other retirement accounts that make up your nest egg? Do you have a good handle on when to claim Social Security benefits? These are just some of the questions to contemplate as retirement approaches.

Long before you punch out for the last time, make sure you're making the right choices now.

To help, we've compiled a list of the 16 biggest retirement planning mistakes you'll regret forever and how to avoid making them. Take a look to see if any sound familiar.

The lure of warmer climates has long been the siren call of many approaching retirement. So, you're cooking up a plan to retire in Florida, or maybe you're considering relocating to one of the many places near the beach.

Our advice: Test the waters and visit your destination before you make a permanent move.

Too many folks have trudged off willy-nilly to what they thought was a dream destination, only to find that it's more akin to a nightmare. The pace of life is too slow, everyone is a stranger, and endless rounds of golf and walks on the beach can quickly grow tiresome. Well before your retirement date, spend extended vacation time at your chosen destination to get a feel for the people and the lifestyle.

This is especially true if you're thinking about retiring abroad, where new languages, laws and customs can overwhelm even the hardiest retirees.

You can also check out some of our helpful articles to learn more about things you should know before retiring in Florida, retiring in Arizona, or retiring in the Carolinas. And as these areas are getting more popular, you can also read about some of the challenges (and costs) that might hit your wallet.

Along with that, before you buy a new home, either on the coast or inland, make sure you understand if your new house will flood in a storm. Flood insurance is expensive, if it's offered at all.

Once you do make the plunge, consider renting before buying. A couple I know circled Savannah, Georgia, for their permanent retirement nest. But wisely, as it turned out, they decided to lease an apartment downtown for a year before building or buying a new home in the suburbs. Good thing, too. It turns out the Deep South didn't suit their Philadelphia get-it-done-now temperament. They instead joined the ranks of "halfback retirees" — people who head to the Deep South, find they don't like it, and move halfway back toward their former home up north.

Hard work, careful planning and many decades of wealth-building are the keys to reducing stress for a secure retirement. There are no shortcuts. Yet, Americans lose hundreds of millions of dollars a year to get-rich-quick and other scams, according to the FTC, as elder fraud runs rampant. My parents constantly receive calls from scammers trying to persuade them to hand over their hard-earned retirement savings.

Credit card fraud was the most common type of identity theft in 2025 and is expected to reach $43 billion worldwide this year, according to Merchant Cost Consultant. Add in the more than 360,000 cases of identity theft that were reported in 2025 — enough to make your blood curdle. In fact, every 14 seconds, someone in the U.S. falls victim to identity theft, and 150 million Americans will be victims of credit card fraud in 2026.

State Attorney General offices and the FTC offer tips for spotting too-good-to-be-true offers. Telltale signs include guarantees of spectacular profits in a short time frame without risk; requests to wire money or pay a fee before you can receive a prize; or unnecessary demands to provide bank account and credit card numbers, Social Security numbers, or other sensitive financial information. Oh, and those pesky phone calls for donations to the police or fire department could also be a scam.

Be wary of — in fact, run away from — anyone pressuring you to make an immediate decision or discouraging you from getting advice from an impartial third party. If they want your money, they can mail you an envelope.

What do you do if you suspect a scam? The FTC advises searching for the company or product name, along with "review," "complaint," or "scam," on Google or another search engine. You can also check with your local consumer protection office or your state attorney general to see if it has fielded any complaints. If it has, add yours to the list. Be sure to file a complaint with the FTC, too.

In a 2025 Transamerica survey, many baby boomers said they have every intention of staying on the job beyond age 65, either because they want to, they have to, or they plan to maximize their Social Security checks. The 2026 updates from Transamerica’s Life and Money: Retirement Security in the USA (pdf) and Employers, Workers, and the New World of Work reports confirm the trend continues, with 44% expecting to retire after age 65 or not retire at all — and Baby Boomers remaining among the most likely to work longer

But that plan could backfire.

Consider this: Fidelity’s 2026 State of Retirement Planning survey showed that more than six in ten Americans (61%) plan to continue working in some capacity as they transition into retirement, with many phasing into retirement via part-time work, consulting, gig work or side hustles indefinitely.

Or, you could be forced to stop working and retire early for any number of reasons. Health-related issues — either your own or those of a loved one — are a major factor. So, too, are employer-related issues such as downsizing, layoffs, and buyouts. Failing to keep skills up to date is another reason older workers struggle to get hired. The actionable advice regarding this: Assume the worst, and save early and often.

Per the Transamerica survey, almost four in 10 workers expect to retire at age 70-plus, while 23% do not plan to retire at all, citing financial and healthy-aging reasons for doing so.

Although working past retirement age may be necessary, it could be a mistake you regret down the road.

In Northwestern Mutual’s 2026 Planning & Progress Study, nearly one in four Americans (23%) who have retirement savings say they have one year or less of their current income saved for retirement. For Gen X’ers, many of whom are approaching retirement, one-third have 3x or less of their current annual income saved. What is even more concerning is that while significant differences exist across generations, about 1 in 5 of each believe they will never be financially independent.

The truth is, while many retirees understand they should save for retirement, many have no idea how much money they will need to retire comfortably.

"Many people do not start to aggressively save for retirement until they reach their 40s or 50s," says Ajay Kaisth, a certified financial planner with KAI Advisors in Princeton Junction, N.J. "The good news for these investors is that they may still have enough time to change their savings behavior and achieve their goals, but they will need to take action quickly and be extremely disciplined about their savings."

Here's how much you need to sock away monthly to build a $1 million nest egg by age 65, according to Dutch Point Credit Union. Assuming an annual interest rate of 8%, an annual inflation rate of 2%, and $0 in prior savings, you'd need to save $300 a month if you start at age 25; $700 a month, starting at age 35; $1,700 per month, starting at age 45; and $3,000 each month, starting at age 50.

Uncle Sam offers incentives to procrastinators. Once you turn 50, you can start making catch-up contributions to your retirement accounts. In 2026, older savers can contribute an extra $8,000 to a 401(k) (up from $7,500 last year) on top of the standard $24,500, up from $23,500 in 2025.

In addition, people aged 60 to 63 can now make “super” catch-up contributions of up to $11,250 in eligible workplace retirement plans on top of the standard limit and any regular age-50+ catch-up, which remains unchanged at $11,250 for 2026.

For IRAs (Traditional or Roth), the catch-up amount for those age 50 and older is $1,100, on top of the standard contribution limit of $7,500 (for a total of $8,600).

You're entitled to start taking Social Security benefits at 62, but you might want to wait if you can financially. Most financial planners recommend holding off at least until your full retirement age (FRA) — 67 for anyone born after 1959 — before tapping Social Security. Waiting until 70 can be even better.

Let's say your full retirement age, the point at which you would receive 100% of your benefit amount, is 67. If you claim Social Security at 62, your monthly check will be reduced by 30% for the rest of your life. But if you hold off, you'll get an 8% boost in benefits each year between ages 67 and 70 thanks to delayed retirement credits. There are no additional retirement credits after you turn 70. Claiming strategies can differ for couples, widows and divorced spouses, so weigh your options and consult a professional if you need help.

"If you can live off your portfolio for a few years to delay claiming, do so," says Natalie Colley, a financial analyst at Francis Financial in New York City. "Where else will you get guaranteed returns of 8% from the market?" Alternatively, stay on the job longer, if feasible, or start a side gig to help bridge the financial gap. There are plenty of interesting ways to earn extra cash these days.

Taking a loan from your 401(k) retirement savings account can be tempting. After all, it's your money. As long as your plan sponsor permits borrowing, you'll usually have five years to pay it back with interest.

But short of an emergency, tapping your 401(k) is a bad idea. It's one of the eight worst 401(k) mistakes you can make that could tank your retirement.

According to Meghan Murphy, a vice president at Fidelity Investments, you're likely to reduce or suspend new contributions during the period you're repaying the loan. That means you're short-changing your retirement account for months or even years and sacrificing employer matches — free money. You're also missing out on the investment growth from the missed contributions and the cash that was borrowed.

”As you think about loans from retirement plans, the first thing we say is, is there anywhere else you might be able to borrow from?” says Murphy. “We think through the importance of having an emergency fund. But, of course, if that’s not available, is there any other place that you’re able to draw from? Something you might want to think about is: if it’s a medical emergency, do you have a health savings account (HSA) that you might be able to take money from?”

What’s becoming more popular, says Murphy, is employees drawing money from stock plan options through their employer. “If you draw money from there, there’s not necessarily a penalty associated with it or the requirement that you have to make payment on the loan directly through your paycheck.”

Another huge downside to borrowing from your retirement plan is the payback. Usually, loans are paid back to the fund over five years. If you were to leave that employer before the loan is paid off, you’re obligated to pay it back in full within 60 to 90 days, says Murphy, or it becomes a taxable distribution. “And if you’re below the age of 59-1/2, there’s now a 10% tax penalty associated with it.”

Keep in mind, too, that you'll be paying the interest on that 401(k) loan with after-tax dollars, then paying taxes on those funds again when retirement rolls around. And if you leave your job, the loan usually must be paid back in as little as 30 days. Otherwise, it's considered a distribution and taxed as income.

Before borrowing from a 401(k), explore other loan options. College tuition, for instance, can be covered with student loans and PLUS loans for parents. Major home repairs can be financed with a home equity line of credit (HELOC), though that comes with considerable risks, too.

My parents are in their late 80s, early 90s, and have been living in the same house for decades. In recent years, they have started getting rid of a lot of the "stuff" they've accumulated. Their goal is to make it easier for my brother and me down the road when we inherit the home.

There hasn't been much junk among the items they've parted with — save for the wall clock they gave me and swore it worked (it doesn't). But there were also items my father wisely ran past his lawyer before dumping: Bookkeeping records from the business he owned for years. He was cleared.

Still, that's a fair warning: Be careful about what you throw out in haste. Sentimental value aside, certain professionals, including doctors, dentists, lawyers and accountants, are typically required by law to retain records for years after retirement.

As for tax records, the IRS generally has three years to initiate an audit, but you might want to hold on to certain records, including your actual returns, indefinitely. The same goes for records related to the purchase and capital improvement of your home, purchases of stocks and funds in taxable investment accounts, and contributions to retirement accounts (in particular, nondeductible IRA contributions reported on IRS Form 8606). All can be used to determine the correct tax basis on assets to avoid paying more in taxes than you owe.

Plus, who knows? Maybe you have one of these old things in your home that could be worth a fortune.

Sure, you want your children to have the best — the best education, best wedding, best everything. And if you can afford it, by all means, open your wallet. But footing the bill for private tuition and lavish nuptials at the expense of your retirement savings could come back to haunt you.

As financial experts note, you shouldn't borrow from your retirement fund. Instead, explore other avenues other than your 401(k) plan to help fund a child's education. Parents and their kids should explore 529 plans, scholarships, grants, student loans and less expensive in-state schools rather than raiding the retirement nest egg. To save money, consider having your child attend community college for two years before transferring to a four-year institution. Just make sure all credits earned will transfer. (There are many smart ways to save on weddings, too.)

No one plans to go broke in retirement, but it can happen for many reasons. One of the biggest reasons, of course, is not saving enough to begin with. If you're not prudent now, you might end up being the one moving into your kid's basement later. Maybe all of that spoiling will pay off after all.

It's easy to see the appeal of a timeshare during retirement. Now that you're free from the 9-to-5 grind, you can visit a favorite vacation spot more frequently. And if you get bored, simply swap for slots at other destinations within the time-share network. Great deal, right? Not always.

Buyers who don't grasp the full financial implications of a timeshare can quickly come to regret the purchase. In addition to thousands paid upfront, maintenance fees can add up. There are also travel costs, which run high to vacation hotspots such as Hawaii, Mexico or the Bahamas.

And good luck if you develop buyer's remorse. The real estate market is flush with used timeshares, which means you probably won't get the price you want for yours — if you can sell it at all. Even if you do find a potential buyer, beware: The timeshare market is rife with scammers.

Want to get rid of a timeshare? Experts advise owners first to contact their time-share management company about resale options. If that leads nowhere, list your time-share for sale or rent on established websites such as RedWeek.com and Tug2.net. Or, take a look at these seven exit companies.

Alternatively, hire a reputable broker. The Licensed Timeshare Resale Brokers Association has an online directory of its members. If all else fails, look into donating your timeshare to charity for the tax write-off. But first, check with your tax adviser.

Shying away from stocks because they seem too risky is one of the biggest mistakes you can make when saving for retirement. That's true even if you're averse to risk. Historically, the market has plenty of ups and downs, but since 1926, stocks have returned an average of about 10% a year. Bonds, CD rates, bank accounts (and mattresses) don't come close.

"Conventional wisdom may indicate the stock market is 'risky' and therefore should be avoided if your goal is to keep your money safe," says Elizabeth Muldowney, a financial adviser with Savant Capital Management in Rockford, Ill. "However, this comes at the expense of low returns and, in fact, you have not eliminated your risk by avoiding the stock market, but rather shifted your risk to the possibility of your money not keeping up with inflation."

We favor low-cost mutual funds and exchange-traded funds (ETFs) because they offer an affordable way to own a piece of hundreds or even thousands of companies without having to buy individual stocks. And don't even think about retiring your stock portfolio once you reach retirement age, says Murphy, of Fidelity Investments. Nest eggs need to keep growing to finance a retirement that might last 30 years. You do, however, need to ratchet down risk as you age by gradually reducing your exposure to stocks.

We all want to believe we'll stay healthy and in good shape both mentally and physically long into our retirement years. A good diet, plenty of exercise, and regular medical check-ups help. But even the hardiest of retirees can fall ill. Even without a serious illness, time will take its inevitable toll on mind and body as you progress through your 70s, 80s, and 90s.

When the day arrives that you or a loved one requires long-term care, be prepared for sticker shock. A Place For Mom breaks down the costs for different levels of care: In 2025, assisted living: $5,190 per month. Memory care: $6,200 per month. Independent living: $3,145 per month. In-home care: $30 per hour (for 20 hours per week). With these prices, even a sizable retirement nest egg can be wiped out in a hurry. And remember, Medicare doesn't cover most of the costs associated with long-term care.

There are options for funding long-term care, but they're pricey too. If you can afford the high premiums, consider long-term care insurance, which covers some but not necessarily all nursing home costs.

According to the most recent information from the American Association for Long-Term Care Insurance, a traditional long-term care insurance policy providing $165,000 in initial lifetime benefits will cost a 65-year-old single male an average annual premium of over $1,750. The same policy for a couple (both age 65) averages $3,750 annually.

You can also look into purchasing a qualified longevity annuity contract, known as a QLAC. In exchange for investing a hefty lump sum upfront when you're younger, the QLAC will pay out a steady stream of income for the rest of your life once you hit a certain age, typically 85.

Estate planning isn't just for the wealthy. Even if your assets are modest — perhaps just a car, a home and a bank account — you still want a valid will to specify who gets what and who will be in charge of dispersing your money and possessions (a.k.a. the executor).

Die without a will and your estate is subject to your state's probate laws. Not only could your assets get tied up in court, possibly creating financial hardship for your heirs, but absent a will, a judge might ultimately award your assets to an unintended party, such as an estranged spouse or a relative you never liked.

Retirement is an ideal time to review existing estate planning documents and create any you've long ignored. Start with the aforementioned will. You might have had one drawn up years ago when your kids were young. Decades later, what's changed? Are you divorced? Remarried? Richer? Poorer? Maybe you prefer that your grandkids or a favorite charity inherit what you originally earmarked for your now-grown children? Remember, too, that some assets, such as retirement accounts, fall outside your will. Be sure the beneficiaries you have on file with financial institutions are up to date.

A will is just the start. You should also draft a durable power of attorney that names someone to manage your financial affairs if you need help or become incapacitated. And your healthcare wishes should come into sharper focus now that you're older. Advance directives, such as a living will, which spells out the treatments you do and don't want if you become seriously ill, and a power of attorney for healthcare, which names someone to make medical decisions for you if you can't make them yourself, are essential.

Whether you need to save money on estate planning as you're on a tight budget or you are a millionaire, you should at least get started today.

It's tempting for retirees who are house-rich but cash-poor to tap the equity that's built up in a home. This is especially true if the mortgage is paid off and the property has appreciated substantially in value. But tempting as it might be, think hard before taking on more debt and monthly payments at precisely the time when you've stopped working and your income is fixed.

Rather than borrow against the value of your home, explore ways to lower your housing costs.

Downsizing. Consider downsizing. Sell your current home, buy a smaller place in the same area, and put your profits toward living expenses.

Tiny Homes. For the ultimate in downsizing, consider a tiny home for retirement — seriously. Tiny homes are inexpensive, upkeep is easy and utility bills are low. A tiny home with a loft bed up a ladder, however, is hardly designed to help you age in place, so only invest in a dwelling that could accommodate your needs as you age.

Recreational Vehicles (RVs). Retiring in an RV and traveling have their advantages, too, though you should be aware of potential regrets if you retire in an RV.

Move to a cheaper location. If you're willing to relocate, sell, and move to a cheaper city that's well-suited for retirees.

Or, stay put and find a roommate. The rental income will supplement your Social Security and savings.

But if you must tap your home equity, tread carefully. If you still have a mortgage, look into a cash-out refinance. Just try to keep the length of the refinanced mortgage to a minimum to avoid making repayments deep into retirement. Otherwise, investigate a home equity loan or home equity line of credit (HELOC).

However, be forewarned that under tax law, you won't be able to deduct the interest on these loans unless the money is used to substantially improve your home, such as replacing the roof. In the past, the interest could be deducted even if you spent the money on, say, a vacation or a new car.

Yet another option for retirees is a reverse mortgage. You'll receive a lump sum of money or access to a line of credit that, in most cases, doesn't need to be repaid until you or your heirs sell the home.

A friend of mine had a nice government job. One of the perks was early retirement in his fifties. He went for it. But not long after, he informed me he was going back to his old position, albeit two days a week. "There's only so many movies to see alone during the day in an empty theater," he said. "That got old fast."

Our careers provide structure to our lives five days a week, and weekends can be consumed by chores and rest. The cycle starts all over again on Monday morning. But once you leave your job for good, there's suddenly a lot of time to fill. Have you truly thought through how you will avoid boredom in retirement?

It's critical to plan your free time in retirement as thoroughly as you plan your finances. How about a part-time job or side hustle — just doing something you love? My happy place, the summer between high school and college, was working at a theme park in New Jersey. No one was unhappy there. I've always kept "theme park job in retirement" in my back pocket. You could also take a casual hobby to new levels now that you have the time to devote to it.

You could also ease into retirement by taking on a freelance gig like driving for Uber, pet sitting, using your talents as a remote consultant or tutor, or selling your crafts and art on places like Etsy. There are all kinds of part-time and seasonal jobs for retirees, not to mention a variety of side hustles.

You could even return to school. Many public colleges and universities (and some private ones) offer free (or cheap) college for retirees. Check a school's website for details or call the registrar's office.

For more inspiration, check out these 9 habits for a happy retirement.

Unusually large tax bills in our household forced us to scale back on contributions to our retirement savings last year. That’s an area to tread lightly in, financial experts note.

”If [people are] thinking of decreasing how much they are currently saving, make sure you choose very carefully and ensure you’re taking advantage of any 401(k) employer match that you might be eligible for, and save at least enough to get that match,” says Murphy. “That’s free money that your employer is willing to give you, and we wouldn’t want people to miss out on that benefit.”

Many retirement plans offer the option of automatically increasing your savings rate. “Check that box that you increase at some point in the future,” says Murphy. “That might be helpful to make sure you get back on track with your retirement savings.”

Half of 401(k) savers are 100% invested in a target date fund, says Murphy of Fidelity Investments. That target date is an approximation of when you are going to retire. These funds become more conservative the closer the date approaches. That means the other 50% are investing on their own and may not be keeping a close eye on how much equity exposure they have, notes Murphy.

”So make sure you understand how much equity you’re holding, how much investment risk you’re willing to take on, and if those are two things you’re uncomfortable making decisions about, there are solutions within those retirement plans: A target date fund, a professionally managed account that could bring peace of mind to the process,” says Murphy.

But things change, too. You may want to retire earlier than the target date fund — or later. Murphy encourages savers to check in on their funds at least annually.

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Most of the time, the buy-vs.-rent debate revolves around the best financial decision. That’s for good reason: As you’ve undoubtedly heard more than once, buying a home is the biggest purchase you’ll probably ever make. Most people need to borrow hundreds of thousands of dollars to make it happen.

It’s not a decision to make lightly, and the numbers involved are something you need to take seriously — especially when the adage that buying is always better than renting is a myth, not fact.

In some cases, you shouldn’t buy a home because it’s not the financially sound choice. Taking on a large amount of debt for the long term after shelling out that much cash up front could put you in a precarious financial position.

But let’s just say the numbers do check out for you, and you want to buy a home. In that case, you still need to consider one other factor that might make buying a bad choice: your career.

The Finances Check Out, But That Still Doesn’t Mean You Should Buy

At worst, buying a home could sabotage your career opportunities. Even in a less-dramatic situation, your house could seriously limit how much you could advance in your career — and affect how much money you can make.

It’s not that employers ask, “Do you have a house?” and put you on some sort of weird blacklist for being a homeowner. It’s that owning a home reduces your flexibility to pursue jobs and opportunities that may make it easier for you to build serious wealth over your lifetime.

This doesn’t apply to everyone. You may find yourself on a highly stable career track that you have no intention of leaving, and the time is right to deeply root yourself and your family in one spot. If committing to one location would have zero impact on your career opportunities and you want to buy a home, it might be the right move.

But for many other people, committing to living in a single location for years could seriously interfere with their ability to grow their career, expand their business, and earn more money.

It’s Difficult to Move to Follow Career Opportunities

It’s hard enough to move from one place to another when you rent. Moving is a hassle, to put it mildly, and seeking out a new place to live before you can move from your old one is a process in itself. But moving as a renter is considerably easier than moving as an owner, because you can’t just up and leave any time you want when you own your home.

As a renter, you always have the ability to break your lease if you need to. You could also negotiate with your landlord to end the lease early without penalty (or with a smaller penalty than what the lease originally stipulated). Depending on the terms of your lease, subletting or even putting your apartment on Airbnb until your rental agreement expires could be options, too.

But as a homeowner, you can’t just call up the bank or anyone else and ask them to take the house off your hands. You need to go through the entire process of selling your home, which could take far more time than you actually have.

If you’re trying to move to chase down a career opportunity, you need the ability to be fast and flexible. Depending on what the real estate market looks like at the time you want to move, that may not be possible.

It might be hard to remember what it was like in the past thanks to our tendency to fall victim to recency bias, but less than 10 years back the idea of easily selling your home — and making money on it — was laughable. The market looks good now, but we know it won’t always be a seller’s market. Eventually, when the supply and demand inevitably shifts, buyers will have the advantage again.

And that could put you in a tough spot as an owner looking to sell fast.

You Might Not Be Able to Afford to Move

Assuming you have more time to move and you’re willing to put up with the difficulties of relocating, that doesn’t mean you can afford it (even in a good real estate market).

If you bought within the last three years, you sunk a lot of cash into your home. In an average market, it’s unlikely that home prices will have risen to a point where you could break even, let alone make a profit. Unless you’re willing to lose money on the house you might have bought as an “investment,” you might be in a position where you can’t afford to move.

In this case, your career is stuck where you are, whether you like it or not.

A Lack of Career Flexibility Could Lead to a Lack of Wealth

The inability to move to explore a new position, role or career opportunity could limit your ability to earn a higher income. Taking new jobs or calculated career risks are both great ways to potentially earn more money than to sit at your existing job and cross your fingers hoping for a raise.

When you’re in your prime, what you earn matters. It’s what drives your cash flow — and the more you earn, the easier it is to save and invest. If you can put away large amounts of money now, you could find your way to financial independence easier and faster.

When you earn more money, you get to choose how much to save for the future, which puts the power in your hands rather than at the whim of the real estate (or stock) market.

Buying a Home Limits Your Flexibility

Of course, all of this is just something else to think about when you’re making a decision on whether or not to buy. You may not need much career flexibility at all, and that’s fine. But failing to account for this could turn into a big financial mistake.

You do need to understand how buying a home can limit your career flexibility. It can limit your ability to chase down an opportunity if it arose unexpectedly. It also limits your financial flexibility and liquidity over the short term, because it requires you to put a good chunk of your liquid cash into an illiquid asset.

A house payment can weigh on your cash flow, too, meaning you have less choice about where your money can go each month — especially when considering home maintenance and upkeep costs, homeowners association (HOA) or condo fees, property tax and home insurance increases, or even the amount of mortgage interest you pay if you have an adjustable rate increase that bumps up your monthly payment unexpectedly. All of these combined make housing costs a much larger variable than a one-time annual rent increase.

“Less flexibility” is a trade-off you make when you buy a home. Whether that’s acceptable or not is up to you — but the bottom line is that you must think about this factor if you want to make a fully informed, responsible decision around buying real estate.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Once again, Wells Fargo is opening its checkbook to compensate consumers, this time for charging customers excessive mortgage fees or for car insurance they didn't need. But if you think you're eligible for restitution, prepare to be persistent.

Under a settlement reached in April, the bank is paying $1 billion in fines to the Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau. Half of that money goes to a CFPB fund earmarked for compensating consumers. But regulators left it to Wells Fargo to develop a plan for how—and how much—to repay customers.

More than 500,000 customers who had a Wells Fargo auto loan and had car insurance through a different company between October 2005 and September 2016 were charged insurance premiums by Wells Fargo. And from September 2013 to February 2017, more than 100,000 mortgage holders were hit with a fee (often topping $1,000) to lock in an interest rate when the bank delayed their loan.

Refunds are in the mail for some auto-loan borrowers and mortgage holders who complained, but details about the repayment process are still emerging. If you think you were fleeced, check your account statements for unexpected charges and fees and submit copies of the documents to Wells Fargo, says Karl Frisch, executive director of Allied Progress, a consumer advocacy group. Follow up with the bank if you don't get a response.

The rate on the benchmark 10-year Treasury note has moved from 2.06% in September 2017 to a temporary high above 3.12% in May. The roughly 1-percentage-point increase is not much for those of us who remember when interest rates were in the double digits, but it is not the absolute level that matters. The important point here is that after many years of impossibly low rates, interest rates are trending higher.

Rising rates have implications for your finances. They affect the interest you earn on your investments. They affect the interest you pay on your loans, from mortgages to credit cards. They also affect the overall economy, which can then trickle down to your mutual funds and retirement plans. It also means there is a greater demand for money from businesses wishing to expand, hire more workers or build new plants.

Should you pay attention? You bet you should.

Kiplinger sees rates moving slowly higher thanks to rising government deficits and slightly higher inflation. The Federal Reserve already is committed to raising short-term rates during the next several months because it’s concerned about the tightening labor market.

Here are seven ways higher interest rates can affect your pocketbook – and some moves you can make to protect yourself and even prosper.

Data is as of June 4, 2018.

For most homeowners, the investment in their home is likely the biggest part of their overall financial situation. Many purchasers over the past few years liked the idea of a variable-rate loan because they started with a lower rate than fixed-rate loans. With interest rates in general projected to stay low for a long time, risk seemed minimal.

A homeowner financing his or her castle in the early part of this decade might have gotten a 5/1 ARM at about 3%. This is an adjustable-rate mortgage loan that is fixed for the first five years, then readjusts annually based on then-current interest rates.

For argument’s sake, let’s say your mortgage is now more than five years old. Let’s also say the variable rate was tied to a short-term interest rate such as LIBOR (London Interbank Offered Rate), which is a widely used short-term benchmark. Since September, this rate jumped from 1.3% to 2.3%. That means your mortgage interest rate went up by 1%, too. Your monthly payment jumped 1% times the principal of the loan divided by 12.

For a $200,000 house, financed with 20% down, that means an additional $133 per month payment. While that may not sound like a lot, if rates continue to climb, so will your payments.

With rates still relatively low, refinancing to a fixed-rate mortgage could be the right move to lock in a reasonably low rate for the next 15 or 30 years. Current rates are near 4.6% for a 30-year fixed. That’s about 60 basis points above where the 5/1 ARM would have been after its first adjustment. And if the ARM were a year older than that, the new fixed rate could actually be below the adjusted variable rate.

Everyone must look at the specifics of their current mortgage to see if it makes sense to switch. If rates continue to climb, refinancing today at a fixed rate higher than your current variable rate could break even in a year or two, then provide lower rates for many years after that.

If you will be in the market to buy a new home, a car or some other big item that you will lease or otherwise finance, you might want to do it sooner, rather than later. As with a mortgage, you can lock in a lower fixed rate now because it will cost more to finance your purchase later if rates do move higher.

There is no magic formula here. If you buy a car now and finance with a loan, you are in the same position as a homeowner looking to secure a mortgage to buy a property. Rates can move higher across the board, from a three-year car loan to a 30-year mortgage.

Even if you plan to lease your car, remember: Leases do come with an imbedded interest rate. It might not seem that way because you make a fixed payment every month, but that payment is calculated from the purchase cost of the car, any down payment, the prevailing interest rates and the presumed value of the vehicle at the end of the lease (called the residual value).

Just be sure that your rate is fixed so your payments will not go up no matter what happens with interest rates.

The thought behind this is similar to making financed purchases. If you think you will need a large amount of money in a year or two, why not secure that loan now and lock in a low fixed rate?

Perhaps you think you will buy a vacation house in a few years. Or start a business. Or pay for a wedding.

According to CostOfWedding.com, the average cost for a wedding in the U.S. in 2017 was $25,764. That does not even include the honeymoon.

But that is nothing compared to the cost of four years of college. CollegeBoard.org estimates that a private four-year college costs $32,410 per year for tuition and fees. That does not include room and board.

You get the idea. If you are fairly sure you will need money later, you can take out the loan now. It can be a personal or business loan, or simply a home equity line of credit (HELOC). If you take an outright loan, you can offset some of the cost by investing in bonds that mature when you will need the funds.

If you carry a balance on your credit cards (and if you do, you are not alone – the average household credit card debt is about $16,000), pay attention to rising interest rates. Many credit cards have variable rates, which can move higher when general interest rates move higher. Moreover, they are very sticky and tend not to fall quickly when other rates drop.

The silver lining is that credit-card rates are already lofty and do not have much room to continue even higher.

Variable-rate cards base the rate you pay on an index, possibly LIBOR or the prime rate, so an increase in the index means an increase in your payments. Therefore, a 1% rise in the index could mean an extra $12.50 per month to your payments – month after month after month.

Switching to a fixed-rate credit card could solve this problem. Again, you have to compare the rate you have now and how fast it can potentially increase to the fixed rates available in replacement credit cards.

Just be aware that even fixed-rate cards can see increases, albeit only periodically and not directly due to changes in interest rates.

Years of low interest rates took their toll on savers. With banks paying as little as 0.1% on your money, there was not much incentive to save at all. However, with short-term interest rates rising, things look a little brighter for mattress stuffers.

Rates for savings accounts are still a bit stingy at 0.6%, but that is a five-year high. Brokerage account money-market funds top 1.5% and higher. If you have $10,000 to $15,000 to park in your account, you can find checking accounts that pay 3%.

The bottom line here is that rising rates will favor savers over borrowers. Bank and money-market rates still are not going to make you rich, but at least they will give you a little bit back.

Rising interest rates will hurt bonds and other fixed-income investments, but they also eventually will provide healthier interest payments down the road when you put new money to work. The task is to preserve your capital until that time.

It would be very simple to tell you to sell all your bond holdings and wait. But there are two big problems with that:

First, being completely out of the market puts you at the mercy of the market itself. What if rates do not go up? What if they go down? Tweaking your bond portfolio can be a good idea, but timing the whole portfolio is a high-risk maneuver. Second, you own bonds for a reason. Either you wanted to diversify against the risks in the stock market or you needed the steady income stream they provide. Parking all your money in cash, still earning a low amount, is probably not a good idea, either.

What you can do is bring down the overall exposure you have to rising rates. You can sell some of your long-term bond holdings and reinvest in shorter maturities. For example, the spread, or difference between a seven-year Treasury note and a 10-year Treasury note, is negligible right now. However, if rates move higher, the shorter note will hold its value better than the longer note. This is because prices move inversely with interest rates, and the longer the maturity, the more exaggerated the move.

Another strategy would be to take the money you get from your portfolio, either from interest payments or maturing bonds, and invest in things with shorter maturities, whether they be three-year corporate bonds or even bank CDs. That way, you will be assured to have at least some money coming due to reinvest at higher rates in a few years.

Not all sectors of the stock market are created equally. Some portions get hurt when rates rise. Others actually benefit.

For example, since September of last year, when rates started to climb, the utilities sector is down about 10%, as measured by the Utilities Select Sector SPDR Fund (XLU). Utilities traditionally offer higher dividend yields, and many investors consider them to be “bond equivalents.” That means they act a lot like bonds.

Bank stocks, on the other hand, usually react positively to rising interest rates. Small bank stocks in particular got a boost from the pending changes to the Dodd-Frank Wall Street Reform and Consumer Protection Act and the rollback of restrictions. Since September, the SPDR S&P Regional Bank ETF (KRE) is up about 31%, compared to the Standard & Poor’s 500, which is up about 12%.

Other stock sectors that do better when rates are higher are natural-resource-based groups such as energy and precious metals. The reason is that rates can move higher on inflation and inflation favors hard assets.

The strategy here would be to trim positions in interest rate sensitive areas, such as utilities and consumer staples, and move into areas such as financials and natural resources. It does not mean getting out of all stocks, despite the warnings from pundits who think rising interest rates will severely damage the stock market.

Colette Leavitt faced a difficult financial decision a few years ago, as she approached her sixties. She originally planned to retire early, at age 62, with her mortgage paid off. She would be free and clear of the financial burden of monthly payments. “It would open up some income to do things for enjoyment, as opposed to obligation,” says Leavitt, of Hooksett, N.H.

But in the end, Leavitt, now age 60, decided to keep her loan. She owes just $49,000, at a rock-bottom 3.25% interest rate. Despite the low balance, she felt the peace of mind of building up her savings and keeping cash in hand for future expenses outweighed her initial desire to be mortgage-free.

Although she worked with her longtime financial planner, Peter Canniff, who is with Advanced Portfolio Design, in Westford, Mass., it was still a hard choice to make. Dealing with mortgage debt isn’t always just about the finances. The decision is often emotional. “You think about it, think about it, and think about it,” says Leavitt, an administrative assistant at a utility company. “It can cause a lot of anxiety.”

These days, more retirees are carrying mortgage debt into retirement. About half of all retirees ages 65 to 69 were mortgage-free in 2015, down from nearly 60% in 2000, according to mortgage giant Fannie Mae. But you’ll need to carefully consider whether carrying a mortgage into retirement is right for you.

You may be in a position similar to Leavitt’s, wondering whether to pay off your mortgage, particularly if you are a few years away from the payoff date and have the balance whittled down. Should you pursue the relief of having no monthly payment hanging over your head anymore, or find other uses for your money that could potentially be more beneficial to your bottom line?

You can start to answer that question by considering a variety of factors, such as whether you plan to stay in your house, your cash flow needs in retirement and how much investment risk you can tolerate.

Your feelings about debt and financial security could affect the decision you make. Investing in stocks may deliver a higher return than paying off a mortgage with a low interest rate—but you may not be able to sleep at night. And changes under tax reform also may affect your choice.

Will You Itemize Your Taxes or Not?

Under the new law, the standard deduction is significantly more generous, while some housing-related itemized deductions have been squeezed. The standard deduction for a married couple this year is $24,000, with an additional $1,300 for each spouse over age 65. So a couple with both partners over age 65 will get a $26,600 standard deduction. Those who itemize deductions face a $10,000 cap on the write-off for state and local taxes, which includes property taxes on the house; that cap applies to both individual and joint filers. In addition, interest on up to $750,000 of new mortgage debt is deductible, while the prior cap was interest on $1 million of mortgage debt.

A homeowner with sizable charitable deductions or medical expenses may still find it advantageous to itemize deductions. But many seniors who have itemized in the past likely will find themselves switching to the standard deduction in 2018. Not itemizing means losing the tax benefit of a mortgage because the taxpayer won’t be able to write off the interest on the loan. “The new laws obviously change the dynamic on this,” says Lyle Benson, president of LK Benson and Co., a financial-planning firm in Towson, Md.

For retirees who are homing in on their mortgage payoff date, the loan may not be throwing off enough tax-deductible interest to help make itemizing worth it. If your original mortgage had a balance of $350,000 and it’s down to only $60,000, most of the monthly payments will be principal, says Michael Landsberg, director of Homrich Berg, an Atlanta wealth-management firm. Mortgages throw off the most interest—and provide the most tax benefits—on the front end, so an older mortgage won’t provide much of a mortgage interest deduction. “The hurdle for itemizing becomes even higher,” says Landsberg, a certified public accountant.

If you won’t benefit from itemizing, paying off the loan could be a sensible route tax-wise. But if you snagged a low interest rate for your mortgage, consider where the money you would use to pay off the loan is coming from and how much it earns. If you’re earning about 4% or so on the bonds in your portfolio, and paying about the same or less in mortgage loan interest, “you really have to step back and say ‘Am I better off paying off my house and reducing my bond portfolio a bit?’ ” says Robert Keebler, a partner with Keebler & Associates, a tax advisory firm, in Green Bay, Wis. Assess your asset allocation if you plan to draw from your portfolio. If your portfolio is overweighted in stocks, you might pull cash out to pay off the mortgage when you rebalance. Or if you are taking required minimum distributions from your retirement accounts, consider using that money to pay off a mortgage early.

But before you pay off your mortgage, take a look at any other debts you have. If the interest rates are higher, consider knocking those debts off first. If you have a home equity loan, you might want to pay it off before the mortgage. The new tax law doesn’t allow a deduction for interest on either old or new home equity loans, except when used for home improvements.

And don’t forget to factor in the opportunity costs for the money you are using to pay down your mortgage. You could invest it instead, if you feel confident that you can generate higher returns than your mortgage rate. Or, like Leavitt, you could put it toward your living expenses and an emergency fund.

Even if the numbers don’t favor paying off the mortgage, finances may not be your only consideration. Some older homeowners feel more secure with their homes totally paid off. Others worry about running out of money in retirement, so they want a paid-off home as a lifeline, says Canniff.

If you are still a decade or so away from retirement and are sure you don’t want a mortgage in your future, take some steps now to reach that goal. Make an extra mortgage payment each year, apply a bonus or other windfall to your mortgage payments, or refinance into a 15-year mortgage to pay it off as quickly as possible, while you have income, says Ann Thompson, a Bank of America senior vice president.

You've found your dream house and made a winning offer on it. Now all that's left is a transfer of funds to get you in the door. That's when the closing-cost scammers strike.

Posing as real estate or settlement agents, these con artists swindled home buyers out of nearly $1 billion last year, up from $19 million in 2016, the FBI says. The scheme works like this: Thieves hack into a real estate professional's e-mail account to track upcoming transactions. When a deal's closing date nears, they send the home buyer an e-mail that appears to come from the real estate agent or title company that's handling the closing. The e-mail directs the home buyer to wire funds for the closing costs and the down payment to a fraudulent account.

To protect yourself from this scam, don't trust e-mails containing money-wiring instructions. Don't click on links or call phone numbers provided in such e-mails, and don't share your financial information with the sender.

Talk to your real estate or settlement agent about the closing process and wire-transfer protocols. Once you've made the transfer, confirm that the funds were received. If you're victimized, catching problems quickly increases your chances of getting the money back.

Admit it: Whether you're 35 or 65, the prospect of retiring without a mortgage is an attractive one. No more monthly mortgage payments to your home lender means extra money to spend on having fun in retirement. After years of punctual principal-and-interest mortgage payments, it's the least you deserve, right?

And yet, more and more Americans are still carrying a mortgage when they reach retirement age. According to a 2019 report from Harvard's Joint Center for Housing Studies, 46% of homeowners ages 65 to 79 have yet to pay off their home mortgages. Thirty years ago, that figure was just 24%.

There are several smart ways to retire without a mortgage. We've come up with seven that fit a variety of retirement scenarios. Some approaches benefit from an early start, so plan as far ahead as you can. Other mortgage-free retirement options can be pursued even if you're close to signing up for Medicare and Social Security. If your goal is the peace of mind that comes with paying off your home loan before you reach retirement, check out these seven ways to retire without a mortgage.

Over time, a few bucks here and there tacked on to your mortgage payment can translate into thousands of dollars saved on interest and years shaved off the repayment period. The trick is to find small ways to cut corners on other household expenses so that you can apply those modest savings toward your mortgage. Simply swapping out traditional incandescent light bulbs for LEDs, for example, can save you $100 a year over 10 years in energy costs. A programmable thermostat can save you up to $180 annually.

A little extra goes a long way. A $225,000 mortgage at 5% over 30 years works out to a monthly payment of about $1,200 (excluding taxes and insurance). You'll pay about $210,000 in interest alone over the life of the home loan. But put an extra $100 a month toward the same mortgage and you'll save nearly $40,000 less in interest and retire the loan five years early.

A surefire way to trim the bill on your home loan is to refinance your mortgage to a lower rate for an equal or greater period of time. You'll enjoy reduced monthly payments and less strain on your bank account. Not a bad idea if money is tight. What you won't gain by doing this is a mortgage-free retirement.

• To pay off your mortgage early via refinancing, you'll need to switch to a shorter-term loan. Let's say you're 50 years old and you have 25 years left on an original 30-year, $225,000 mortgage at 5% and still owe around $200,000. You'd pay about $155,000 in interest on the original mortgage over the remaining quarter century -- and be mortgage-free at 75 years old. For about $320 more per month, plus one-time closing costs, you could refinance to a 15-year mortgage at 4% and save $87,000 in interest. And, of course, you'd be mortgage-free a decade earlier at 65 years old.

Think about it: At a time when you're supposed to be enjoying the simple life, do you really need a formal living room, separate dining room and two spare bedrooms that you never set foot in? If your answer is no, think about downsizing.

• The beauty of downsizing to a smaller home in the same area is that you don't need to say goodbye to your friends, family and community. Of course, beauty can also be found in the fact that you might be able to pay cash for your new, smaller abode. That means no mortgage.

And don't limit your notion of downsizing. Just because you spent the past 30 years in a traditional ranch doesn't mean you need to purchase another ranch with less square footage. Check out conventional alternatives (condos, townhouses) as well as unconventional options (houseboats, RVs or even tiny retirement homes).

Can't find the right place at the right price to retire in your hometown? Retire somewhere cheaper. Sure, there will be sacrifices, but what you'll give up in familiarity you'll make up for financially. The best places to retire combine ample activities with affordable real estate. And moving to an affordable locale will boost the odds that you won't have to take out a new mortgage.

• Home prices aren't the only factor when considering relocation. You need to weigh taxes, too. In New Jersey, for example, annual property taxes alone run $2,530 per $100,000 of assessed home value. You'd pay just $1,000 per $100,000 of assessed value in Georgia, one of the 10 most tax-friendly states for retirees in the U.S.

Don't discount the financial advantages of taking on a roommate. By letting out a spare bedroom and applying the rent you collect to your mortgage, you can knock years off the time it'll take to repay the loan. An extra $250 a month toward a $150,000, 30-year mortgage at 5% will erase the debt 12 years early. An extra $100 a month retires the mortgage six and a half years early.

The benefits to your bottom line extend beyond the mortgage. Rental income can help defray the cost of utilities (gas, electricity, cable, Internet), maintenance and other home-related expenses. GoBankingRates, a personal-finance website, puts the cost of maintaining the average home at $1,204 a month. As a bonus, a roommate can help with chores and provide companionship.

A guaranteed way to retire without a mortgage is to sell your current home at a profit and use the proceeds to rent a place to live in during retirement. Although it might seem as if you'd just be writing a check to a landlord instead of a lender, the differences between renting and owning can be considerable.

• Among the advantages of renting in retirement: no leaky roof to replace, no property taxes to pay and no equity tied up in illiquid real estate. There's also no residential albatross around your neck preventing you from moving around as you wish in retirement. You can even save a few bucks on living expenses such as insurance when you rent. The average annual premium for renters insurance is $185, compared with $1,192 for homeowners insurance, according to the Insurance Information Institute.

As for the popular tax breaks that have long supported arguments in favor of homeownership, some of those home-related deductions were limited or eliminated by the new tax law passed in 2017. The doubling of the standard deduction that started with 2018 returns also means fewer taxpayers are itemizing, which further limits access to remaining home-related tax breaks.

Sure, for some families the idea of parents retiring to the granny suite above their kid's garage is a nightmare of clashing generations and crimped styles. But, in your case, perhaps it's a dream scenario whereby you get to watch and help the grandkids grow up. You can provide care now and, later, be cared for.

• Aging parents moving in with adult children is on the upswing. According to a Pew Research Center study, of the 79 million adults in the U.S. living in shared households, 14% are parents residing in their kids' homes. In 1995, the share of parents living under their kids' roof was 7%.

Everyone can win on the financial front. Not only will the adult kids save on child care, but retired parents can help out with the household bills, too. And, of course, by moving in with their son or daughter, the retired couple can ditch their mortgage, pocket the equity and spend it on, say, an RV to get away from the crowd whenever they want.

The federal tax code is undergoing its first significant makeover in 30 years. The new tax law, most of it effective just days after President Trump signed it right before Christmas, installs a bevy of changes, some sweeping, some tweaking.

Although every group of taxpayers will be affected, some may save a bundle, while others might find their tax cut a little thin -- some will even pay more.

Here, we outline changes in key areas that preretirees and retirees should pay particular attention to. Some provisions have been highlighted in news headlines, but some have flown under the radar. Most are scheduled to sunset by 2026, but whether that will happen is up to future Congresses.

A new tax law brings opportunities to implement tax-planning strategies to trim future tax bills. We’ll highlight eight big tax changes along with the related smart tax strategy for each. We encourage you to add them to your tax-trimming to-do list.

A change that all taxpayers will feel: Federal tax rates and the income thresholds for each bracket have dropped. “Lower tax rates are across the board at nearly all levels of income,” says Tim Steffen, director of advanced planning at Baird, an investment and financial planning firm. A single filer with $70,000 of taxable income in 2017 is in the 25% tax bracket, while in 2018 that same income falls in the 22% tax bracket, saving the taxpayer roughly $2,100. The seven tax brackets in 2018 will be 10%, 12%, 22%, 24%, 32%, 35% and 37%.

The alternative minimum tax still exists, but the exemption has been raised. For single filers, the exemption climbs from $54,300 to $70,300, and for joint filers, it rises from $84,500 to $109,400. How the exemption amount phases out has also been changed. The result: “Fewer people should be hit by AMT,” says Steffen.

The new law keeps the tax rates for long-term capital gains and qualified dividends of 0%, 15%, 20% or 23.8%. Previously, the tax bracket you fell into determined which rate you would pay on profits from assets you've owned for more than a year. Going forward, Congress wrote income thresholds into the law. For 2018, for instance, the 0% rate applies for individual taxpayers with taxable income up to $38,600 and for joint filers about $77,200. Short-term gains from assets held for a year or less are still taxed at ordinary income tax rates.

Those who are self-employed may qualify for a sweet tax break under the new law. If your business qualifies as a pass-through entity, such as a sole proprietorship or LLC, you may be able to shield 20% of that income from taxes.

• Go to the next slide to see the smart tax strategy for retirement.

Convert money from a traditional IRA to a Roth IRA. Assuming your tax rate has dropped, you will pay less for a Roth conversion this year than you would have last year. If the tax changes expire as scheduled and tax rates rise, you could find yourself in a higher bracket down the road. You will pat yourself on the back for paying tax on the conversion at lower rates than future withdrawals from a traditional IRA would have faced. The sooner the money is in the Roth IRA, the sooner earnings will be tax-free rather than simply tax-deferred.

Another big change is the doubling of the standard deduction. About 70% of all taxpayers have taken the standard deduction in the past, but this change is likely to tip the scale for millions of longtime itemizers. Some 30 million who itemize on their 2017 returns will likely be better off taking the standard deduction going forward.

For individuals, the standard deduction climbs to $12,000, from $6,500, for 2018. For married taxpayers filing jointly, the standard deduction rises to $24,000, from $13,000.

Seniors age 65 or older retain the extra standard deduction of $1,300 if married or $1,600 if single. For a married couple both 65 or older, their standard deduction climbs to $26,600. “That’s a big number,” says Steffen.

One trade-off for the increased standard deduction: the loss of the personal exemption, which was expected to be $4,150 for 2018. That loss trims the actual increase in tax savings from the boosted standard deduction, but many will still come out ahead with the standard deduction.

Those who still itemize face a mountain of changes in what’s deductible and what’s not. You can no longer deduct miscellaneous expenses, such as investment-management and tax-preparation fees. But you can still deduct some state and local taxes, mortgage and investment interest, and charitable contributions.

The medical deduction remains and, in fact, is temporarily sweeter. For 2017 and 2018, you can deduct unreimbursed medical expenses that exceed 7.5% of your adjusted gross income. The 10% threshold returns in 2019.

Bunch deductions to take advantage of itemizing in one year and use the standard deduction the next. “It’s an old strategy that has greater meaning now,” says Thomas Alvare, senior lead advisor of JFS Wealth Advisors, in Doylestown, Pa. If you give $15,000 a year to charity, for instance, donate $30,000 in one year and itemize, and skip donations and take the standard deduction the next year.

Bunching deductions could offer an extra advantage if it pulls your taxable income to a level that reduces the tax rate on capital gains. If so, consider harvesting gains to take advantage of the lower rate, says Maria Bruno, senior investment analyst at the Vanguard Group.

Many taxpayers in high-tax states scrambled at year-end 2017 to try to make use of the unlimited deduction for state and local income or sales taxes and property taxes. Starting in 2018, taxpayers are limited to an annual federal deduction of $10,000 for all state and local taxes. “There is a marriage penalty built in,” says Mark Luscombe, principal federal tax analyst for Wolters Kluwer Tax and Accounting, who notes that filing status doesn’t change the amount. Two singles living together can deduct $10,000 each in state and local taxes; a married couple is capped at $10,000, period. And there is no inflation adjustment, so the limited SALT deduction could become even more painful over time.

In low-tax states and localities, this limit may not be a big deal. But property owners in high-tax states, such as New York and California, and those with second homes are likely to suffer from the loss of the unlimited deduction. While many states and localities are trying to come up with ways to offset the loss, as of now, there isn’t much taxpayers can do to ease the pain if they want to continue to own the property.

Those who split time between states, though, might have a tax-saving opportunity. “Snowbirds may need to look more seriously at being a resident of a more attractive state,” says David Levi, senior managing director at CBIZ MHM.

Be sure to strictly follow state rules for full-time residency, though; high-tax states have become increasingly aggressive in preventing taxpayers from improperly claiming residency in a low-tax state.

If you’ve been thinking of moving in retirement, take a good look at the state and local tax burden of the destinations you’re considering. You can delve into the tax-friendliness of states by using Kiplinger’s State-by-State Guide to Taxes on Retirees. There’s a good chance this change in federal tax law could prompt more retirees to consider relocating.

The mortgage interest deduction gets squeezed under the new law. Previously, you could deduct interest on up to $1 million in mortgage debt incurred to buy or build a principal residence and second home, plus the interest on up to $100,000 of home equity debt used for almost any purpose.

The new law grandfathers in existing mortgages, but for debt incurred after December 14, 2017, the $1 million cap drops to $750,000. You can still deduct mortgage interest on a second home, but the lower limit applies to total debt used to buy, build or improve both homes. Steffen says if you have an existing mortgage of $500,000, but buy a new second home this year, you’ll be limited to deducting interest on $250,000 of the new mortgage.

The new law also abolishes the write-off for interest on home equity debt. And this crackdown applies to both old and new loans. But if you use a home equity line of credit to pay for “substantially improving” a home, you could still deduct interest related to the loan proceeds you used to cover those costs. If you use the money to buy a new car or take a big trip, though, you’re out of luck on deducting the interest.

If you plan to renovate your home to age in place, keep all your receipts and documentation of expenses. Besides being able to use those to potentially deduct home equity loan interest, you’ll also need them to prove that you increased the basis in your home. If you earn a substantial profit when you sell your home, that higher basis helps reduce any profit subject to tax.

Even though more taxpayers will take the standard deduction, there are still a couple of ways under the new law to maximize tax savings while doing good. And taxpayers who still itemize could actually benefit from a new, more generous limit on how much you can deduct, Luscombe notes. In the past, the deduction for cash gifts was capped at 50% of your adjusted gross income. The new law raises that to 60%.

If you regularly give to charity, consider bunching donations in one year to surpass the standard deduction amount so you can itemize for that year, while taking the standard deduction in other years. An easy way to do this is to set up a donor-advised fund, which lets you contribute a chunk of money in one tax year, but gift the money out whenever you like.

But generous seniors have another tax-advantaged route: the qualified charitable distribution. “QCDs will be a more valuable planning tool than in the past,” says Jamie Hopkins, co-director of the retirement income program at The American College of Financial Services. For most seniors, the QCD move will be the only way to get tax savings from charitable contributions, he says.

The law allows traditional IRA owners age 70-1/2 or older to directly transfer up to $100,000 from a traditional IRA to a qualified charity. The distribution can satisfy your required minimum distribution, killing two birds with one stone. Better yet, the income doesn’t show up in AGI, which could help rein in taxes on Social Security benefits or avoid Medicare premium surcharges.

It’s so smart, we’ll say it again. The QCD move offers multiple benefits. Those eligible are “one group of people who can take charitable contributions off the top,” says Levi. “It’s kind of a home run.” If you are charitably inclined and you qualify for the move, it’s a tax-saving no-brainer.

The new law makes several changes that could affect how you give money to the grandchildren. First off, the law expands the use of 529 education savings plans. Besides college costs, you can now use up to $10,000 per year per child tax-free for private or parochial elementary and high school costs. Although there is no federal tax deduction for 529 contributions, many states offer a state tax break.

Taxpayers can now also roll 529 money into an ABLE account to help provide a financial cushion for people with special needs, while still maintaining their eligibility for government benefits.

For those who plan to gift grandkids assets that will throw off investment income, be aware that the new law changes the “kiddie tax” rules. Previously, unearned income above $2,100 received by a dependent child under age 19 (or age 24, if a full-time student) was taxed at the parents’ tax rate. Unearned income includes dividends, interest, capital gains and inherited IRA distributions.

Now, the parents’ tax rate doesn’t matter; the kiddie tax applies the trust tax rates, instead, and they rise much faster than individual rates. The top tax rate of 37% kicks in at $12,500 for trusts in 2018, for instance, but not until $600,000 for married couples filing jointly.

You can frontload a 529 account with five years’ worth of gifts protected by the annual $15,000 gift tax exclusion. So a grandparent could gift $75,000 to a grandchild’s 529 account in one fell swoop.

While the estate tax wasn’t repealed, the federal estate-tax exemption doubled -- for 2018, the estate tax won’t apply until an estate exceeds $11.2 million. For couples, that means $22.4 million can pass tax-free to heirs. (Like most of the individual provisions in the new law, the higher exemption, which is inflation adjusted, is scheduled to sunset by 2026; if a future Congress doesn’t change the rules again, the tax-free amounts will be cut in half at that point.)

Experts worry that with the exemption so high people won’t do proper planning if there are no tax savings to be concerned about. “We see a big drop in estate planning when the exemption goes up,” says Hopkins. But any change in estate tax law should serve as a good reminder to review wills, trusts and other estate-planning documents to make sure they still meet your wishes.

The rule that steps up the tax basis of inherited assets remains under the new law. As in the past, consider passing capital assets such as appreciated stock, mutual fund shares and real estate to heirs. The heirs’ basis will be the value of the assets on the date you die, making all prior appreciation tax-free.

While some lawmakers proposed a major overhaul to the rules for retirement accounts, in the end those scary headlines turned out to be a false alarm. “The big thing for saving for retirement is that nothing changed,” says Steffen. You can still stash $18,500 for 2018 into a 401(k), with a $6,000 catch-up contribution for those age 50 and older. And you can put up to $5,500 into an IRA, with an extra $1,000 catch-up contribution for those 50 and older.

But taxpayers did lose the ability to recharacterize Roth conversions. Under old law, you could reverse a conversion until mid October of the following year and wipe out the tax bill you paid to move the money from a traditional IRA to a Roth.

Under the new law, you’re stuck with the move -- and the tax liability. Roth conversions can still make plenty of sense, but you'll need to be more careful about when and how much money you convert. “It adds a little anxiety to the decision,” says Nathan Rigney, lead tax research analyst at H&R Block's Tax Institute.

You might want to hold off converting until you have a better sense of your tax liability for the year. “These decisions will have to occur later, into November or December,” says Hopkins.

Note, you can still recharacterize Roth contributions. If your income passes the thresholds to be eligible to contribute to a Roth, the new law lets you undo the Roth contribution and put the money into a traditional IRA instead.

The new law provides some relief for workers who borrow from their 401(k) plans. Borrowers who leave their company can now wait until the tax filing deadline of the year they left the job to put the unpaid balance into an IRA. That gives these borrowers more time to avoid having the loan balance turn into a taxable distribution.

While you can no longer reverse a Roth conversion done on or after January 1, 2018, the IRS confirmed in mid January that you can still recharacterize a 2017 Roth conversion by October 15, 2018. If the market falls and your Roth goes down in value, or your tax rate has dropped significantly, consider recharacterizing the Roth by the October deadline.

With so many changes to so many areas of the federal tax code, expect a slew of regulations from the IRS to explain things and potential technical corrections by Congress to fix unintended consequences. “There are always gray areas that are created, and aggressive accountants will take advantage of it,” says Alvare. “Things get clarified over time.” Stay tuned: As the IRS clears up sticky issues with guidance, we’ll keep you up to date.

As interest rates climb, higher yields on bank accounts aren’t the only bright spot. Don’t overlook these perks.

Increased annuity payouts. If you’re looking to buy an immediate annuity, you may get a larger monthly payout than those who invested when rates were lower, says Hersh Stern, of Annuity Shopper Buyer’s Guide. On deferred income annuities, which delay the payout for a specified period, higher interest rates could also increase the payouts.

Relief on long-term-care insurance premiums. In recent years, premiums spiked as low interest rates hampered insurance companies’ investment returns. Plus, fewer people dropped their policies before receiving payouts than insurers expected. But insurers have accounted for lower lapse rates in new policies, says Jesse Slome, of the American Association for Long-Term Care Insurance. And rising interest rates should help stabilize premiums on new policies.

A larger credit line on a reverse mortgage. The unused portion of a line of credit will grow as interest rates rise (the rate on debt you’ve accumulated will also rise). If you’re thinking of getting a reverse mortgage, consider making the leap soon to maximize growth in a credit line over time.

Is it possible for you to delve into home ownership without all the facts? YES.

One of my three biggest financial mistakes was buying a home just one year out of college without truly considering all financial implications. Read this article if you’re looking to purchase a home and don’t want to make similar missteps.

Here are several places where I went wrong when I bought my first home, years ago. I didn’t do my homework. I failed to investigate historical housing prices to judge whether the asking price was greater than the true value. I saved aggressively as a young adult and managed to scrimp together 10% for a down-payment on a $150,000 starter home in Saint Louis at age 23. Ideally, you should save at least 20% for a down-payment. Otherwise, you must take out an extra loan or pay private mortgage insurance (PMI). I choose PMI and regret it.

The home was old and charming — built in the 1920s — and lacked energy-efficient upgrades. Heating bills easily ran $300 monthly in the winter, and the tiny window air conditioning unit on the second floor did not suffice during hot summers. I poured over $20,000 in renovations to improve my first house and sold it four years later for the same $150,000 purchase price. Ouch!

When you purchase a home, steer clear of traps and focus on these recommendations instead:

1. Improve your credit score prior to the purchase.

Annualcreditreport.com allows you to access your credit report for free every 12 months from each of the three major credit bureaus — Equifax, Experian and TransUnion. Review the report in detail for errors or issues. Here’s a full list of tips to repair and increase your credit score.

2. Plan to stay in your home at least five years.

The newly proposed House and Senate tax overhaul bills stipulate that you will need to live in your primary residence at least five of the prior eight years to exclude the gain on the subsequent sale of your home. Right now, the law uses two of the prior five years for the gain-exclusion calculation, but legislators are hoping to expand the look-back period to five years. This should curtail flippers, who move from house to house every two years without paying income tax when they sell. Regardless of whether this bill passes, real estate commissions and other closing costs make it very difficult to turn a profit (outside of rehabbed houses) if you spend less than five years in the property.

3. Hire a buyer’s agent who is looking after your best interest.

As a buyer, you don’t pay a commission to your real estate agent; that cost is borne by the seller. However, not all real estate agents are created equal. Some are focused exclusively on acting as a seller’s agent or buyer’s agent. Others run both sides of the table. Exercise caution if your agent is also the listing agent for the home you are most interested in purchasing — there’s an inherent conflict of interest.

4. Do your homework.

If you are looking to buy in an area with young families, school districts are very important for resale value. Explore the price history on sites like Zillow to understand when and for how much the home previously sold. Pay attention to how long the home has been on the market and others like it to negotiate purchase price.

5. Consider “hidden” costs of homeownership.

Have at least 20% available in cash for a down-payment. Without that target percentage, you will either pay PMI until the loan value is 80% of the appraised home value, or you might take out a “piggyback” home equity line at a higher interest rate than a traditional mortgage to make up the difference in order to avoid PMI. Closing costs, moving expenses, new furnishings and appliances should also be considered. Contemplate ongoing costs like real estate taxes, homeowners insurance and utility bills as well.

6. Budget for home improvements early.

Make a list, prioritizing the improvements you want to make and the timeline for completion. Don’t focus strictly on aesthetics like new flooring, painting or enhancing an unfinished basement. When will the roof and windows need to be updated? Driveway refinished? Air conditioning unit and furnace replaced? As a woman who spends most of her time inside the house, it’s tempting to focus on the interior. Yet the exterior and home systems are more costly projects that should not be ignored.

7. Get pre-approved.

Pre-approval for a mortgage gives you a better idea of how much house you can afford. Just because you are pre-approved for a $400,000 loan doesn’t mean you need to go and find a home in that price range. Determine your monthly payment and see if it fits into your personal budget. Don’t forget about the hidden costs and home improvement projects discussed above. Give yourself some wiggle room. I encourage many clients to stay under the maximum pre-approval amount to meet other saving and lifestyle goals.

This list was not intended to scare you. Rather, knowledge is power. Purchasing your first home or moving into a new home is a big decision, one that makes sense to get some expert guidance on. As a comprehensive financial planner, I help clients reach their big-picture financial goals, and homeownership is an important piece of the puzzle.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

In a surprise move, the government is changing the reverse mortgage rules again. And the changes, which affect the cost of insurance and borrowing limits, are a mixed bag for borrowers.

Upfront mortgage insurance premiums will be a flat 2% for every loan, a change that means some applicants will pay more, while others will save. If you qualify to take up to 60% of the eligible loan amount in the first year with the remainder available the following year, your upfront cost will rise one and a half percentage points from the previous 0.5%. For those who qualify to take more than 60% in the first year, generally because of an outstanding mortgage that must be paid off, the upfront cost drops by half a point, from 2.5%.

Ongoing insurance costs will drop for all borrowers, with the annual premium falling from 1.25% to 0.5%. “Over time, that could have a significant impact,” says Peter Bell, president of the National Reverse Mortgage Lenders Association. For every $100,000 in loan balance, you’ll save $750 a year. The lower ongoing cost may offset much or all of the higher upfront cost.

The calculation for maximum loan proceeds is also being tweaked. The adjustments will hit most new borrowers, cutting potential proceeds by 10% to 12%. The new rules “reduced the percentage of home value that’s available to borrowers at most ages and at most interest rates,” says Bell. The older you are and the lower the interest rate, the more proceeds you get, but most everyone will now qualify for less than before.

These changes, which go into effect on October 2, are the latest in the government’s effort to shore up the federal Home Equity Conversion Mortgage program and ease concerns about the health of its insurance fund. Other recent efforts to keep the program alive have included instituting a financial assessment for applicants and limiting the drawdown of loan proceeds in the first year

The government has a vested interest because most reverse mortgages are federally backed HECMs. Homeowners age 62 or older can tap home equity in the form of a lump sum, line of credit or monthly draws. The loan does not have to be repaid until the homeowner dies, sells the house or moves out for at least 12 months, and borrowers never owe more than the home’s market value. With a HECM, the government covers any gap if the house sells for less than the loan’s balance.

Impact on Borrowers

The changes are “raising costs across the board, while simultaneously lowering borrowing power,” says Cliff Auerswald, president of All Reverse Mortgage, in Orange, Cal., and the combination could push reverse mortgages out of reach for some seniors. One recent applicant would have $12,000 left over after his forward mortgage was paid off under the old rules, but under the new rules that same applicant will be $70,000 short, he says, and wouldn’t be able to complete the loan.

It’s not only applicants on the edge who may no longer be able to turn to reverse mortgages. The rule changes undercut the “standby strategy,” too, says Auerswald. That strategy calls for setting up a reverse mortgage line of credit as a reserve that a retiree can tap as needed. The falling costs of reverse mortgages heightened the strategy’s appeal in recent years. “It didn’t cost much to set up that reserve,” says Auerswald.

Now the upfront costs will be higher. On a $600,000 house, the upfront mortgage insurance premium will now be $12,000, compared with just $3,000 under the old rules. (In addition to the upfront insurance premium, borrowers owe closing costs that typically run about $2,500. Some lenders may charge an origination fee of up to $6,000.)

While the lower ongoing insurance cost is helpful, the savings may be muted because you don’t pay the annual premium on the untapped line of credit, only on any balance you’ve racked up. (For more on how that strategy works, read Using Home Wealth as Emergency Fund.)

There’s a quickly closing window to take advantage of the old rules before the new ones go into effect in October. It will be tough for anyone just starting the process to beat the deadline, though. Before you can apply for a reverse mortgage, you must set up and complete a counseling session, which is required by the government. Only then can you apply for a reverse mortgage. “The window is crazy short,” says Auerswald.

One morning in early August, my husband and I put our three children on the bus and entered a new phase in life — early empty nesting. I periodically work from home, so with our twins beginning third grade and our youngest child starting kindergarten, we now have a very quiet house for eight hours a day.

At the other end of the spectrum, we have many friends who are either sending their youngest child off to college next month, or will see the last one graduate in spring 2018.

Regardless of your stage in life, if you are marking a major family milestone, your finances are likely entering a new phase, too. It’s an opportunity to make a real difference in your own financial future.

Empty Nesters, Phase 1

Parents sending their youngest child off to public school have likely celebrated paying their last day care tuition bill, a savings that could amount to $1,000 a month. But rather than rush out to buy a new car, consider using this cash to pay down debt instead.

By taking that $1,000 and applying it each month to pay down your mortgage — in addition to your regular mortgage payment — it could cut the number of years to pay off the mortgage in half.

Here’s a great example. A couple with a $450,000, 30-year mortgage at a 4% interest rate could pay off their mortgage in 16 years by making the extra $1,000 payment each month — vs. 30 years if they don’t. And if that family can also add one extra mortgage payment each year, they could be mortgage-free by the time their kindergartner starts college.

Another way to use this cash is to sock it away in a college savings 529 plan for your little one. By the time they are 18 years old, $1,000 in monthly savings could equal almost $230,000 to pay for their college education. Even if pre-school expenses were only $200 a month, setting this amount aside for college each month for next 13 years could build a 529 plan portfolio worth $50,000 by the time college comes around (assuming a 6% annual rate of return; not indicative of a specific investment).

For parents with children entering private school, expenses are likely increasing instead of going down. If that’s the case, review your budget and determine if daily expenses can be reduced to ensure your finances aren’t going in reverse.

Many of my clients are grandparents who enjoy paying some or all of their grandchildren’s private school tuition. It’s a great idea for them to pay the school directly. These payments won’t count against the $14,000 annual gift tax exclusion, thus avoiding gift taxes and possibly saving the grandparents estate taxes down the road.

Empty Nesting Phase 2

If they started saving early enough that they had the full cost of college covered by the time their children graduated high school, couples sending their youngest child off to college can see their disposable income soar. For those who still need to come up with the funds to pay all or part of their child’s college tuition, this bump in disposable income will likely come four years later, when their child graduates. Regardless of the timing, keep your eye on the financial finish line and understand how to get there.

Once a couple’s youngest child is out of the house and graduated from college with a job, grocery bills will be lower, and vacations for two people will cost less than for trips for three or four. Everyday expenses, such as gasoline will be gone, with fewer $20 bills flying out of your wallet on the weekends.

More important, the couple will begin to envision their own retirement. I often watch my clients begin to ramp up their savings and focus on a plan for retirement once they know all of their children’s college expenses are behind them.

For couples in this situation, I recommend starting an automatic transfer of funds each month from a checking account to an Individual Retirement Account or brokerage account. By saving an extra $1,000 a month for the next four years, a person can generate an extra $200 a month of spending money for the next 30 years in retirement (assuming a 5% annual rate of return; not indicative of a specific investment).

Time to Evaluate Your Own Goals

It’s also a good time for these empty nesters to re-run their retirement projections. This exercise helps people understand their total personal living expenses in retirement, which is the most important factor in determining how much money is needed to retire.

Once a person develops a budget and knows their current spending, they can better answer the question “how much is enough for retirement?” One common method is to use the 4% withdrawal principle, which means having enough funds to last through retirement by annually withdrawing 4% of your total portfolio.

For example, if someone determines that they need to withdraw $100,000 (pre-tax) per year from their investments in retirement, they will need to have a nest egg of $2.5 million. Understanding the amount needed in retirement will help anyone realize how much more they need to save, or how much longer they should plan to work.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.