WHEN MY FIRST WIFE and I bought a home in New Jersey in October 1992, we took out a $150,000 30-year fixed-rate mortgage at 7.7%. I had to remortgage the house in 1998, when we got divorced and I had to cash Molly out. At that juncture, I borrowed $148,500 using a 15-year fixed-rate mortgage at 7.125%.
Still, I was mortgage-free by 2005, thanks to regular—and occasionally large—additional principal payments. To some, this might seem like the height of foolishness: Mortgage rates are typically low and the interest is usually tax-deductible,

IS PAYING AHEAD ON a mortgage a good investment? We have more on the “invest vs. pay down debt” question later in this chapter. But even if prepaying a mortgage isn’t your best investment, retiring debt-free should be a priority. That way, you’ll eliminate a major expense, thus making retirement more affordable. What if your last scheduled mortgage payment is after your likely retirement date? Consider making extra principal payments.
When you make additional principal payments on a fixed-rate mortgage,

MOST MORTGAGES are designed so that, with each payment, you not only pay the interest owed on the outstanding loan balance, but also you pay down part of the loan’s principal balance. That means that, in the following month, the principal is slightly smaller, so you owe less interest and even more of your monthly payment can go toward reducing the loan balance.
As time goes on, the amount earmarked for principal starts growing by leaps and bounds.

MY BIGGEST FINANCIAL transaction in 2015 involved my daughter, Hannah, who was age 26 at the time. I lent her $381,000 at 3.97% to buy her first home, with the loan structured as a 30-year fixed-rate mortgage. Because I’ve written articles about family loans, I know many readers think they’re a recipe for family tension and financial disaster. But I believe much depends on who’s doing the borrowing. Hannah had a secure job and impeccable financial habits,

AS YOU STRUGGLE to save enough for a house down payment, it’s easy to forget that the down payment is just the beginning. To close the deal, you will face a slew of other costs, including legal fees, mortgage-application costs, title insurance and a home inspection. Together, these costs might add up to $5,000, though they can be substantially more, especially if you have to pay state or local transfer taxes. One rule of thumb puts closing costs at 2% to 6% of a home’s purchase price.

A CONFORMING LOAN is one that meets the standards used by Freddie Mac and Fannie Mae, making them eligible for purchase by either institution. Result: A conforming loan often charges a somewhat lower interest rate, perhaps 0.25 percentage point less than a comparable nonconforming loan.
To qualify as a conforming loan, a mortgage has to meet a number of conditions, the most notable of which is size. Each year, the Federal Housing Finance Agency announces the conforming loan limit for the year ahead.

MOST FOLKS instinctively opt for a fixed-rate mortgage, where your principal-and-interest payment stays the same every month. But in all likelihood, an adjustable-rate mortgage, or ARM, will be cheaper. ARMs are priced off short-term interest rates, while fixed-rate mortgages are priced off intermediate-term rates—and short-term rates are generally lower than intermediate-term rates.
Moreover, when interest rates drop, homeowners with ARMs will likely see their monthly payment fall when their rate next resets. By contrast,

THE FEDERAL RESERVE’S 2022 Survey of Consumer Finances found that 63.9% of homeowners had a mortgage or other debt that was secured by their home. That isn’t surprising, given how much homes cost. It also isn’t especially alarming: A mortgage is typically the cheapest way for most folks to borrow. Because your home is collateral for the loan, the interest rate will usually be low—and it’s even lower once you figure in the tax deduction.

YOU CAN POTENTIALLY take a tax deduction for the interest on the three types of loan: mortgages, education loans and margin debt. Education loans are discussed in the money guide’s college chapter.
Suppose you take out a loan costing 6% and you’re in the 24% federal income tax bracket. If the interest is tax-deductible, your after-tax cost is just 4.56%. Keep that tax-deductibility in mind as you consider how best to borrow. Tax deductibility also comes into play as you weigh which debts to pay down first or whether,

IT’S HELPFUL to think about your debts in two buckets: secured and unsecured. What’s the difference? Secured debt is backed up by an asset you own. For instance, your mortgage is secured by your home, your brokerage-account margin loan by your portfolio and, in most cases, your auto loan by your car. Because lenders have an asset they can seize if you fail to make your debt payments, the interest rate tends to be relatively low.

HOW MUCH CAN YOU prudently borrow? You might check on yourself the way a banker would. If you apply for a mortgage, lenders will often assess your borrowing ability using two key measures: your housing and debt ratios.
The housing ratio looks at your expected or current monthly mortgage payment, including principal, interest, property taxes and homeowner’s insurance. As a rule, this shouldn’t be more than 28% of your pretax monthly income. For instance,

IF YOU FEAR YOUR identity has been stolen or you’re very concerned about the risk, one option is to freeze your credit. Once your credit is frozen, the credit bureaus can’t release information from your credit reports without your permission, effectively stopping someone from borrowing money using your identify.
To freeze your credit—also known as a security freeze—you have to contact the three major credit bureaus. You can get details at each of their websites,

IDENTITY THEFT OCCURS when someone uses your name, address, Social Security number and other personal information to borrow money, open a credit card account, take out a loan or commit fraud in some other way.
To guard against identity theft, take the usual precautions: Don’t give out financial information to anybody who calls. Ignore emails that seek account information and never click on embedded links. If you think a call or email could be legitimate,

CREDIT SCORES ARE a source of shame for some, pride for others and confusion for pretty much everybody. Whatever the case, it’s worth understanding how they are calculated, because your credit scores don’t just affect whether you get accepted for a loan or a credit card and what interest rate you’ll pay. They are also looked at by insurance companies when setting premiums and by landlords when vetting tenants. In addition, while potential employers can’t see your credit score,

YOUR CREDIT REPORTS and credit scores are, more than anything, a reflection of how responsible you are in handling your debts. Lenders are quick to report late payments and other issues to the credit bureaus. What about other aspects of your financial life? When it comes to your credit scores, the items that don’t matter are quite surprising:

Your income and net worth don’t directly influence your credit scores or appear in your credit reports.