May
30
2025
An up-close image of the hand of a woman who is holding a pen and using a calculator to work on her 401(k) plan.

What Is an Expense Ratio?

By | Growing Wealth, invest, Investing, Terminology | Comments Off on What Is an Expense Ratio?

An expense ratio is the annual fee that mutual funds and exchange-traded funds (ETFs) charge investors, to cover operating costs. The fee is deducted from your investment, reducing your returns each year — which is one reason why expense ratios have been shrinking.

Typically, investors may look for funds that offer lower expense ratios, as high expense ratios can take a substantial bite out of long-term returns, affecting investors’ financial plans. Here’s a look at how expense ratios are calculated, what they encompass, and other factors worth considering when choosing a mutual fund or ETF to invest in.

Key Points

•   Expense ratios are annual fees charged by funds to cover operating costs, calculated as total fund costs divided by assets under management.

•   Lower expense ratios benefit long-term returns, as higher fees can significantly reduce overall investment growth over time.

•   Management, custodial, and marketing fees are often included in expense ratios, but loads and redemption fees are charged separately.

•   Actively managed funds have higher expense ratios due to frequent trading and manager intervention, while passively managed funds are more cost-effective.

•   When evaluating funds, consider how they fit into your financial plan, investment objectives, and the components of the expense ratio.

How Expense Ratios Are Calculated

Though individual investors typically won’t find themselves in a situation where they need to calculate an expense ratio, it’s helpful to know how it’s done. To calculate expense ratios, funds use the following equation:

Expense Ratio = Total Fund Costs/Total Fund Assets Under Management

For example, if a fund holds $500 million in assets under management, and it costs $5 million to maintain the fund each year, the expense ratio would be:

$5 million/$500 million = 0.01

Expressed as a percentage, this translates into an expense ratio of 1%, meaning you would pay $10 for every $1,000 you have invested in this fund.

As you research funds you may come across two terms: gross expense ratio and net expense ratio. Both have to do with the waivers and reimbursements funds may use to attract new investors.

•   The gross expense ratio is the figure investors are charged without accounting for fee waivers or reimbursements.

•   The net expense ratio takes waivers and reimbursements into account, so it should be a lower amount.

Recommended: How Taxes, Fees, and Other Expenses Impact Your Investments

How Expense Ratios Are Charged

A fund’s expense ratio is expressed as a percentage of an individual’s investment in a fund. For example, if a fund has an expense ratio of 0.60%, an investor will pay $6.00 for every $1,000 they have invested in the fund.

The cost of an expense ratio is automatically deducted from an investor’s returns. In fact, when an investor looks at the daily net asset value of an ETF or a mutual fund, the expense ratio is already baked into the number that they see.

The Components of an Expense Ratio

The fees that make up the operating costs of a mutual fund or ETF can vary. Generally speaking, the investment fees included in an expense ratio will include the following:

Management Fees

The management fee is the amount paid to the person/s managing the money in the investment fund — they make decisions about which investments to buy and sell and when to execute trades. Management fees can vary depending on how much activity is required of these managers to maintain the fund.

Custodial Fees

Custodial fees cover the cost of safekeeping services, the process by which a fund or other service holds securities on an investor’s behalf, guarding the securities from being lost or stolen.

Marketing Fees

Also known as 12b-1 fees, marketing fees are used to pay for the advertising of the fund, some shareholder services, and even employee bonuses on occasion. FINRA caps these fees at 1% of your assets in the fund.

Other Investment Fees

Investors may be forced to pay other investment fees when they buy and sell mutual funds and ETFs, including commissions on trades to a broker. The cost of buying and selling securities inside the fund is not included as part of the expense ratio. Additional costs that are not considered operating expenses include loads, a fee mutual funds charge when investors purchase shares. Contingent deferred sales charges and redemption fees, which investors pay when they sell some mutual fund shares, are also paid separately from the expense ratio.

How to Research Expense Ratios

Luckily, you do not have to spend your time calculating expense ratios on your own. The Securities and Exchange Commission (SEC) requires that funds publish their expense ratios in a public document known as a prospectus. The prospectus reports information important to mutual fund and ETF investors, including investment objectives and who the fund managers are.

Online brokers often allow you to look up expense ratios for individual investment funds, and they may even offer tools that allow you to compare ratios across funds.

Average Expense Ratios

Expense ratios vary by fund depending on what investment strategy it’s using. Passively managed funds that frequently track an index, such as the S&P 500 index, and require little intervention from managers, tend to have lower expense ratios. ETFs are usually passively managed, as are some mutual funds. Other mutual funds may be actively managed, requiring a heavier touch from managers, which can jack up the expense ratio.

Expense ratios have been falling for decades, according to the most recent Morningstar Annual U.S. Fund Fee study, released in May 2025. In fact, that report notes that in 2024, the average expense ratio “paid by fund investors was less than half of what it was two decades ago.”


💡 Quick Tip: How to manage potential risk factors in a self directed investment account? Doing your research and employing strategies like dollar-cost averaging and diversification may help mitigate financial risk when trading stocks.

What’s a Good Expense Ratio?

When considering expense ratios across mutual funds and ETFs, it’s helpful to use average expense ratios as a benchmark to get an idea of whether a specific expense ratio is “good.”

Investors may want to target funds with expense ratios that are below average. The lower the expense ratio, the less expensive it is to invest in the fund, meaning more profits would go to the investor vs. the fund.

That said, some investors may prefer to invest in actively managed funds, which typically charge higher fees than passive or index funds.

Looking Beyond Expense Ratios

When comparing mutual funds and ETFs, an investor might choose to consider other factors in addition to expense ratios.

It can be a good idea to consider how a particular fund will fit in their overall financial plan. For example, individuals looking to build a diversified portfolio may want to target a fund that tracks a broad index like the Nasdaq or S&P 500. Or, investors with portfolios heavily weighted in domestic stocks may be on the hunt for funds that include more international stocks.

And it’s also a good idea to know the key differences between mutual funds and ETFs. ETFs, for example, are generally designed to be more tax efficient than mutual funds, which can also have a big impact on an investor’s ultimate return. ETFs are generally lower in cost than mutual funds as well.

The Takeaway

Expense ratios seem small, but they can have a big impact on investor returns. For example, if an individual invested $1,000 in an ETF with a 6% annual return and a 0.20% expense ratio, and continued making a $1,000 investment each year for the next 30 years, they would earn $81,756.91, and spend $3,044.76 on the fund’s expenses.

But expense ratios are only one of many factors to consider when choosing a mutual fund or ETF. Fundamentally your investment choices have to fit into your larger financial plan. But cost should always be a concern.

Invest in what matters most to you with SoFi Active Invest. In a self-directed account provided by SoFi Securities, you can trade stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, options, and more — all while paying $0 commission on every trade. Other fees may apply. Whether you want to trade after-hours or manage your portfolio using real-time stock insights and analyst ratings, you can invest your way in SoFi's easy-to-use mobile app.

Opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.¹

FAQ

What is an expense ratio?

An expense ratio in investing is an annual fee that many funds, such as mutual funds or ETFs, charge investors to cover operating and management expenses and costs.

How are expense ratios calculated?

Expense ratios, funds generally use a formula that divides total fund costs by the total fund assets under management.

What expenses does an expense ratio pay for?

Funds typically have many types of expenses and fees, and an expense ratio can wrap together management fees, custodial fees, marketing fees, and commissions together into a single annual charge for investors.

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.

For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.

Mutual Funds (MFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or clicking the prospectus link on the fund's respective page at sofi.com. You may also contact customer service at: 1.855.456.7634. Please read the prospectus carefully prior to investing.Mutual Funds must be bought and sold at NAV (Net Asset Value); unless otherwise noted in the prospectus, trades are only done once per day after the markets close. Investment returns are subject to risk, include the risk of loss. Shares may be worth more or less their original value when redeemed. The diversification of a mutual fund will not protect against loss. A mutual fund may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.

S&P 500 Index: The S&P 500 Index is a market-capitalization-weighted index of 500 leading publicly traded companies in the U.S. It is not an investment product, but a measure of U.S. equity performance. Historical performance of the S&P 500 Index does not guarantee similar results in the future. The historical return of the S&P 500 Index shown does not include the reinvestment of dividends or account for investment fees, expenses, or taxes, which would reduce actual returns.
Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by emailing customer service at [email protected]. Please read the prospectus carefully prior to investing.

Fund Fees
If you invest in Exchange Traded Funds (ETFs) through SoFi Invest (either by buying them yourself or via investing in SoFi Invest’s automated investments, formerly SoFi Wealth), these funds will have their own management fees. These fees are not paid directly by you, but rather by the fund itself. these fees do reduce the fund’s returns. Check out each fund’s prospectus for details. SoFi Invest does not receive sales commissions, 12b-1 fees, or other fees from ETFs for investing such funds on behalf of advisory clients, though if SoFi Invest creates its own funds, it could earn management fees there.
SoFi Invest may waive all, or part of any of these fees, permanently or for a period of time, at its sole discretion for any reason. Fees are subject to change at any time. The current fee schedule will always be available in your Account Documents section of SoFi Invest.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®


¹Probability of Member receiving $1,000 is a probability of 0.026%; If you don’t make a selection in 45 days, you’ll no longer qualify for the promo. Customer must fund their account with a minimum of $50.00 to qualify. Probability percentage is subject to decrease. See full terms and conditions.

SOIN-Q225-113

Read more
May
30
2025
What Is Crowdfunding? Definition & Examples

What Is Crowdfunding? Definition & Examples

By | Growing Wealth, invest, Investing | Comments Off on What Is Crowdfunding? Definition & Examples

Crowdfunding helps businesses and entrepreneurs raise capital for new ventures by pooling together small amounts of money from many investors. Crowdfunding is usually accomplished via an online platform that provides access to a wider network, but typically charges fees and may impose other terms.

While crowdfunding has a reputation for being business-focused, today many people use crowdfunding to help them accomplish a range of goals, from creating arts projects to paying medical bills.

Unlike angel or venture capital investors, crowdfunders can include private investors, institutional investors, friends, family, and even strangers.

Crowdfunding is an alternate take on traditional methods of financing a business through equity or debt. Crowdfunding offers some advantages to business owners who may not qualify for traditional loans or would prefer to avoid them. Crowdfunding does come with some downsides, and crowdfunding websites can be tricky.

Key Points

•   Crowfunding enables individuals or small businesses to raise small amounts of capital from a large pool of investors.

•   Unlike angel or VC investments, crowdfunding tends to be conducted via online platforms, many of which charge high fees.

•   Crowdfunders may include private investors, family, friends, or even strangers.

•   Crowdfunding is associated with startups, but these days many people use crowdfunding for a range of goals, even paying medical bills.

•   Crowdfunding platforms impose different terms; it’s important to understand the requirements in order to obtain the funds you raise.

What Is Crowdfunding?

Crowdfunding is more or less exactly what it sounds like: funding that comes from a crowd of people. Note, though, that regulators like the Securities and Exchange Commission (SEC) have their own definition of crowdfunding — but for our purposes, a broad definition will do.

Generally, crowdfunding for business is subject to federal securities laws. That means any efforts to raise capital through the crowd require SEC registration.


💡 Quick Tip: How do you decide if a certain trading platform or app is right for you? Ideally, the investment platform you choose offers the features that you need for your investment goals or strategy, e.g., an easy-to-use interface, data analysis, educational tools.

History of Crowdfunding

The concept of raising capital as a collective effort is not a new one.

For example, Ireland launched several loan funds in the 1700s and 1800s to help less-advantaged people gain access to credit. A group of wealthier citizens pooled their money together to provide the funding for those loans.

More recently, online crowdfunding began at the start of this century. In 2003, ArtistShare became the first crowdfunding website, allowing people to collectively fund the efforts of artists. At the time, the platform used the term “fan-funding” rather than crowdfunding to describe its mission.

In 2006, entrepreneur Michael Sullivan coined the term “crowdfunding,” using it to describe an ultimately failed video-blog project for which he was seeking backers.

Crowdfunding began to move into the mainstream in 2008, with the launch of Indiegogo, quickly followed by Kickstarter and GoFundMe. Many other crowdfunding platforms have since emerged, and these websites allow supporters to help people build projects or businesses, but they do not receive equity in return.

In 2012, President Barack Obama signed into law the Jumpstart Our Business Startups (JOBS) Act, which included a provision allowing equity crowdfunding. This permitted early-stage businesses to sell securities to raise funds via online platforms. The SEC followed up with the adoption of Regulation Crowdfunding to oversee the crowdfunding provisions included in the JOBS Act.

It’s important to bear in mind that crowdfunding was never meant solely for entrepreneurs. Historically speaking, across cultures, various types of group funding mechanisms have long existed. Even today, digital crowdfunding campaigns aim to help individuals with a range of financial needs, including charitable causes, personal emergencies, arts projects, as well as social or political organizations.

How Does Crowdfunding Work?

In general, crowdfunding works by allowing multiple people to contribute money to a common cause. To launch a campaign, an entrepreneur, artist, or other individual or entity will set up an account on an online crowdfunding platform.

Instead of presenting their product or service and their business plan to professional investors like venture capital firms, they’ll share it with the public and appeal for funds from them. The entrepreneurs will typically select a time period during which the investors can put money into the campaign to help it achieve its crowdfunding goal.

Crowdfunding is not a loan, in the traditional sense. The entrepreneur does not get the money they need to launch or scale their business from a lender. Instead, they tap into capital markets sourced from a group of people, which can include people they know as well as strangers.

With crowdfunding, anyone can invest, but there are limits on the amount that can be invested in Regulation Crowdfunding during a 12-month period. These limits reflect their net worth and income.

Here’s a brief look at how crowdfunding works:

•   If either your annual income or net worth is less than $107,000 you can invest up to the greater of either $2,200 or 5% of the lesser of your annual income or net worth during any 12-month period.

•   If both your annual income and net worth are equal to or more than $107,000 you can invest up to 10% of your income or net worth, whichever is less but not more than $107,000 during any 12-month period.

If you’re an accredited investor, there are no limits on how much you can invest. An accredited investor has earned income of at least $200,000 ($300,000 for married couples) in each of the two prior years and a net worth of over $1 million. Individuals who hold certain financial professional certifications can also get accredited investor status.

Crowdfunding vs IPO

It’s important to note that crowdfunding is not the same as launching an Initial Public Offering (IPO). IPOs involve taking a company public and offering shares to investors through a new stock issuance. This is another way businesses can raise capital.

The IPO process begins with getting an accurate business valuation. Once a company goes public, an IPO lock-up period prevents insiders who already own shares from selling them for a certain time period. This period may last anywhere from 90 to 180 days. When it’s over, investors can buy and sell shares of the company on public exchanges.

For businesses, an IPO could be an effective way to raise capital if there’s sufficient demand among investors who are interested in buying stock at IPO price. Meanwhile, IPO investing may be attractive to investors who are interested in getting on the ground floor of start-ups and early-stage companies.

How Many Types of Crowdfunding Are There?

There are different types of crowdfunding you can use to raise capital for your business. Each one works differently, though entrepreneurs may choose to use one or all of them for business fundraising. Here’s a closer look at how the various types of crowdfunding work.

Rewards-Based Crowdfunding

Rewards-based crowdfunding allows you to raise capital from the crowd in exchange for some type of reward. For example, say you’re launching a start-up that produces eco-friendly water bottles. In exchange for funding your campaign, you may choose to offer your backers samples of your product.

This type of crowdfunding can be helpful for testing the waters, so to speak, to gauge interest in your product. If your campaign succeeds, that could be a sign that there’s sufficient consumer interest in your offerings. But if your efforts to raise capital fizzle, it could mean your idea needs some tweaking.

Donation-Based Crowdfunding

Donation-based crowdfunding allows you to raise funds on a donation basis, with no rewards offered.

With this type of crowdfunding, you’re asking people to give money to your cause, e.g., rebuilding your home after a natural disaster or paying down medical bills. Succeeding with this type of crowdfunding campaign may depend less on the product or service you’re trying to launch than on the story behind your business.

Equity Crowdfunding

Equity crowdfunding allows you to raise capital for your business by offering unlisted shares or equity in your business to investors. This is the type of crowdfunding that falls under the Regulation Crowdfunding heading.

Equity crowdfunding can be better than rewards-based or donation-based crowdfunding if you need to raise large amounts of money for your business. The tradeoff, however, is that you have to be sure that you’re observing SEC regulations for launching this type of campaign, and you’ll need to spend time carefully determining the value of your business.

Peer-to-Peer Lending

Peer-to-peer (P2P) lending is another type of crowdfunding that allows businesses to raise capital through pooled loans. With this kind of crowdfunding, you borrow money from a group of investors. You then pay that money back over time with interest.

Getting a peer-to-peer loan may be preferable if you’d rather not give up equity shares in the business or deal with regulatory issues. And a P2P loan may be easier to qualify for compared to traditional business loans.

There is, however, the cost to consider. If you have a lower credit score, you could end up with a higher interest rate which would make this type of loan more expensive.

Pros and Cons of Crowdfunding

Relying on different crowdfunding methods can benefit businesses in a number of ways. Companies may lean toward crowdfunding in lieu of other financing methods, including debt financing with loans, or equity financing through angel investors or venture capitalists. There are, however, some potential drawbacks associated with crowdfunding for business. Here’s a quick rundown of how both sides compare.

Crowdfunding Pros

•   Raise capital without trading equity. Venture capital and angel investments require businesses to trade equity or ownership shares for capital. Depending on the types of crowdfunding you’re using, you may not have to give up any ownership to get the capital you need.

•   Increased visibility. Launching a crowdfunding campaign online through a funding platform and/or social media could help attract attention from investors and potential clients or customers alike, increasing brand awareness.

•   Get funding when you can’t qualify for loans. If you’re having trouble getting approved for a business loan or start-up loan, crowdfunding could help you access the capital you need without having to meet a lender’s strict standards.

Crowdfunding Cons

•   Requires time and effort. Launching a successful crowdfunding campaign means doing your research to understand who your campaign is likely to reach and what kind of response it’s likely to get. In that sense, it can seem more complicated than filling out a loan application.

•   No guarantees. Using crowdfunding to raise capital for your business is risky because there’s no guarantee that your campaign will attract the type or number of investors you need. It’s possible that you may put in a lot of work to promote a campaign only to come up short with funding.

•   Fees. Crowdfunding platforms typically charge fees — for example, a percentage of the money raised — to launch and run a campaign. The fees can vary from platform to platform but it’s important to factor the costs in if you’re considering this fundraising method.

•   Scams. Owing to the proliferation of crowdfunding platforms, some scammers have found ways to defraud potential investors.

💡 Quick Tip: Newbie investors may be tempted to buy into the market based on recent news headlines or other types of hype. That’s rarely a good idea. Making good investment choices shouldn’t stem from strong emotions, but a solid strategy.

How to Decide If Crowdfunding Is Right for Your Business

If you look at some of the most successful crowdfunding examples, you’ll see that it’s possible for companies to raise large amounts of capital this way. Some of the most successful crowdfunding campaigns, in terms of outpacing their original funding goals, include numerous crypto- and blockchain-related projects, entertainment (such as movies, video games, and even novels), wind farms, solar-powered cars and more.

•   The Micro, a 3D printer that raised $3.4 million in 11 minutes, easily surpassing its original $50,000 fundraising goal

•   Reading Rainbow, which raised over $5 million and broke the Kickstarter record for having the most backers of any project

•   Pono, which met its $800,000 goal within a day of campaign launch and went on to raise more than $6 million

•   Pebble smartwatch, which with more than $10 million raised is the most funded Kickstarter campaign of all time

Whether crowdfunding, an IPO, or some other source of capital is right for your business depends on how much capital you need to raise, whether you’re interested in or able to qualify for loans, and what types of crowdfunding you’re interested in. Weighing the pros and cons and comparing crowdfunding to other types of equity and debt financing can help you decide what may work best for your business.

The Takeaway

Crowdfunding involves raising capital for a business, the arts, or other ventures by soliciting a large number of small investors. Crowdfunding can also have appeal for investors as well, though it’s important to understand how SEC regulations work. It has pros and cons for both entrepreneurs and investors.

If you’re interested in funding up-and-coming companies without having to observe net worth and income requirements, you can consider a number of different avenues.

Invest in what matters most to you with SoFi Active Invest. In a self-directed account provided by SoFi Securities, you can trade stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, options, and more — all while paying $0 commission on every trade. Other fees may apply. Whether you want to trade after-hours or manage your portfolio using real-time stock insights and analyst ratings, you can invest your way in SoFi's easy-to-use mobile app.

Invest with as little as $5 with a SoFi Active Investing account.

FAQ

Do you have to pay back crowdfunding money?

Generally no. People contribute money to the business or cause, without the expectation of being repaid. In the case of debt-based crowdfunding, where the capital supplied is structured more like a loan, those funds would be repaid according to the terms investors agreed to.

What are four kinds of crowdfunding?

There are generally four common types of crowdfunding. Donation-based crowdfunding is when people donate money without expecting anything in return (reward-based means backers get a product or service in exchange for capital). Equity crowdfunding allows investors to get shares in the enterprise. Debt-based crowdfunding is like a collective loan, which has to be repaid with interest.

What is the downside of crowdfunding?

One downside of crowdfunding is that, while it can be easy to set up a campaign, it takes a lot of effort and energy to promote it, sustain it, and get enough attention that your crowdfunding campaign takes off. Crowdfunding can also include substantial fees — and there’s always the risk that your endeavor won’t raise enough money.

About the author

Rebecca Lake

Rebecca Lake

Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.


Photo credit: iStock/oatawa

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.

For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.

Investing in an Initial Public Offering (IPO) involves substantial risk, including the risk of loss. Further, there are a variety of risk factors to consider when investing in an IPO, including but not limited to, unproven management, significant debt, and lack of operating history. For a comprehensive discussion of these risks please refer to SoFi Securities’ IPO Risk Disclosure Statement. This should not be considered a recommendation to participate in IPOs and investors should carefully read the offering prospectus to determine whether an offering is consistent with their investment objectives, risk tolerance, and financial situation. New offerings generally have high demand and there are a limited number of shares available for distribution to participants. Many customers may not be allocated shares and share allocations may be significantly smaller than the shares requested in the customer’s initial offer (Indication of Interest). For more information on the allocation process please visit IPO Allocation Procedures.

Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOIN-Q225-100

Read more
May
30
2025
Why is the U.S. Dollar the World's Reserve Currency?

How the Dollar Became the World’s Reserve Currency

By | Growing Wealth, invest, Investing | Comments Off on How the Dollar Became the World’s Reserve Currency

The U.S. dollar bears a lot of responsibility when it comes to global finance: It’s the currency kept on hand by central banks and other major financial institutions around the world to make transactions and investments, and to repay debts overseas. The U.S. dollar is also the currency in which the world prices and trades vital commodities like gold and oil. And buyers and sellers in every country have to keep large amounts of U.S. dollars on hand to pay for them.

Historians disagree on exactly when the dollar became the reserve currency of the world. Some say the change took place right after the First World War, others say it happened closer to 1929, at the outset of the Great Depression. But all are in agreement that as the Second World War drew toward a conclusion in 1944, the U.S. dollar had unseated the British pound as the world’s undisputed reserve currency.

Key Points

•   The U.S. dollar became the world’s reserve currency due to the U.S. economy’s strength, the British pound’s decline, and the Bretton Woods agreement.

•   World War II significantly weakened the British economy, leading to the dollar’s dominance and the establishment of fixed exchange rates.

•   The Bretton Woods agreement in 1944 pegged the U.S. dollar to gold and required other countries to maintain fixed exchange rates with the dollar.

•   Today, the U.S. dollar dominates global trade, with 59% of non-U.S. bank reserves held in dollars, and is seen as a safe investment.

•   Factors sustaining the dollar’s status include the U.S. economy’s stability, low yields on Treasuries, and its widespread use in global transactions.

The Pound vs the Dollar

The U.S. dollar as we know it didn’t actually exist until 1913, under the Federal Reserve Act of 1913, which created the Federal Reserve System.

The new central bank was created to set monetary policy and stabilize the U.S. currency, which had been issued based on bank notes issued by a number of individual banks.

At that point, the British pound was the world’s reserve currency. Though the U.S. economy was the largest in the world when World War I started in 1914, Britain remained at the center of the world’s trade, and most international transactions took place in British pounds. Like most countries’ currencies at the time, the British pound was backed by gold.

World War I changed all of that. The fighting was so ferocious, so widespread, and so costly that many countries had to deviate from that gold standard just to pay their armies.

Great Britain took the Pound off the gold standard in 1919, and the pound plummeted — which was catastrophic for international merchants and banks that traded primarily in pounds. Some scholars maintain that that was when the dollar became the world’s reserve currency.

Other historians maintain that global trade, especially international debt offerings, were denominated equally in dollars and Pounds until 1929. They even point to data that shows the British Pound was regaining ground on the dollar as the currency of choice for international trade up until 1939. Then World War II began.


💡 Quick Tip: If you’re opening a brokerage account for the first time, consider starting with an amount of money you’re prepared to lose. Investing always includes the risk of loss, and until you’ve gained some experience, it’s probably wise to start small.

World War II and Bretton Woods

Although Germany didn’t surrender to the Allied nations until 1945, the outcome of World War ll was clear by the middle of 1944. In July of 1944, more than 700 delegates from 44 countries met in Bretton Woods, New Hampshire, to negotiate and come to an agreement on the kind of economy that would emerge from the ashes.

The Bretton Woods conference lasted three weeks, and established the U.S. dollar as the currency par excellence for the world. Attendees agreed upon the Bretton Woods system, which established a number of key global economic points:

•   The U.S. agreed that the dollar would be backed by gold, which was priced at $35 an ounce when the agreement took effect.

•   The countries who signed the agreement promised that their central banks would establish fixed exchange rates between their own currencies and the U.S. dollar. If their currency weakened, their central bank would buy up the currency until its value stabilized relative to the dollar.

On the other hand, if the country’s currency grew too strong compared with the dollar, their central bank would issue more currency until the price fell and the relationship with the dollar returned to normal.

•   Those countries also promised not to lower their currencies to goose trade. But it allowed them to take steps to increase or decrease the value of their currencies for other reasons, like stabilizing their economy, or to help with post-war rebuilding.



💡 Quick Tip: Newbie investors may be tempted to buy into the market based on recent news headlines or other types of hype. That’s rarely a good idea. Making good choices shouldn’t stem from strong emotions, but a solid investment strategy.

The Dollar Since Bretton Woods

By 1971, the gold owned by the U.S. government had reached a limit at which it could no longer cover the number of dollars in circulation. That’s when President Richard M. Nixon took the step of reducing the U.S. dollar’s comparative value to gold. This led to the collapse of the Bretton Woods system in 1973.

After the system fell, the countries took a wide range of approaches to how they valued their currency, and what policies their central banks would pursue. But the end of the system led to the creation of the foreign exchange or forex market, now the biggest and most active financial market in the world, with a daily trading volume of $6.6 trillion.

While the U.S. dollar — now considered a fiat currency — goes up and down in relation to other currencies every day, it is still the world’s reserve currency, with 59% of all non-U.S. bank reserves denominated in dollars, according to the International Monetary Fund (IMF).

The dollar retains its prominence not because of an international agreement, but because of a broad consensus about the size, strength and stability of the U.S. economy relative to other options. Globally, investors still see U.S. Treasury securities as an extremely safe bet, as is evidenced by their low yields.

The Takeaway

Most of the world’s trade happens in U.S. dollars. But it hasn’t always been that way. And while it’s been preeminent for about a century, the dollar’s status has changed over time. For investors interested in understanding the world’s currencies, the dollar’s rise to prominence has implications for the U.S. economy, as well as many other world economies.

Invest in what matters most to you with SoFi Active Invest. In a self-directed account provided by SoFi Securities, you can trade stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, options, and more — all while paying $0 commission on every trade. Other fees may apply. Whether you want to trade after-hours or manage your portfolio using real-time stock insights and analyst ratings, you can invest your way in SoFi's easy-to-use mobile app.

Opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.¹

FAQ

What was the world’s reserve currency before the dollar?

The British pound was the world’s reserve currency before the dollar, and World War I was the catalyst that led to the change from the pound to the dollar.

What is the gold standard?

The gold standard is the idea that one dollar is backed by gold, or one dollar’s worth of gold. The dollar is no longer on the gold standard, and is now considered a fiat currency.

Why does the dollar remain the world’s reserve currency?

The dollar remains the world’s reserve currency largely because of a broad consensus about the size, strength and stability of the U.S. economy relative to other options.

Photo credit: iStock/fizkes

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.

For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.


¹Probability of Member receiving $1,000 is a probability of 0.026%; If you don’t make a selection in 45 days, you’ll no longer qualify for the promo. Customer must fund their account with a minimum of $50.00 to qualify. Probability percentage is subject to decrease. See full terms and conditions.

SOIN-Q225-112

Read more
May
30
2025
10 Disadvantages of Modular Homes: What to Consider Before Purchasing

Pros and Cons of Buying a Modular Home

By | Home Ownership, mortgage | Comments Off on Pros and Cons of Buying a Modular Home

Modular homes are increasingly capturing interest as a fast and affordable housing option. The global market for modular homes is forecast to grow from $82.30 billion in 2020 to $139.03 billion in 2029. These houses are built from factory-made components and are then constructed on a permanent foundation on a building site. They must meet the Department of Housing and Urban Development standards, as well as local guidelines.

Not to be confused with manufactured homes (previously called mobile homes), which can be moved from location to location, a modular home can be a good alternative to what are known as stick-built or traditionally constructed homes.

Could one be right for you? Here are the pros and cons of these structures, to help you decide if this might be your next home sweet home.

Key Points

•   Modular homes have limitations in terms of customization and design flexibility compared to traditional homes.

•   Financing options for modular homes may be more limited and interest rates may be higher.

•   The resale value of modular homes may be lower than that of traditional homes.

•   Zoning and building code restrictions may limit where modular homes can be placed.

•   Some people may perceive modular homes as having lower quality or being less durable than traditional homes.

What Are Modular Homes?

A modular home is constructed in a way that differs from a traditionally built home. Many of the components are made in a factory and then shipped to the property, where they are assembled on a permanent foundation.

The process is typically less expensive and faster than a stick-built home (meaning one that is assembled piece by piece at the site).

As briefly noted above, modular homes are permanent structures and are subject to local and federal standards.

Recommended: Mobile vs. Modular vs. Manufactured Homes

How Are Modular Homes Constructed?

One of the biggest differences from a traditional homes is the way modular homes are constructed. The house’s components are assembled in a factory and delivered to the homesite in one or more trips. The modules may be akin to three-dimensional boxes that are connected to one another and the foundation at the job site.

The benefit of constructing modular home components in a factory is the controlled environment. Because the parts are assembled under ideal conditions (perfect temperature, humidity, etc.), buyers can usually expect a consistent, high-quality build.

In addition, the actual build can move more quickly. Estimates of the time to build a modular home range from 16 to 31 weeks, depending on how customized the plans are and other variables.


💡 Quick Tip: Don’t overpay for your mortgage. Get your dream home or investment property and a great rate with SoFi Mortgage Loans.

The Pros and Cons of Modular Homes

As with most things in life, there are pluses and minuses to modular homes. Consider these points to decide if one could be right for you. First, the upsides:

•  Modular homes are typically 10% to 20% less expensive than traditionally built homes.

•  They can be built up to 30% to 60% faster than stick-built homes.

•  Depending on the builder, they may be customized to suit your needs, both in terms of layout/square footage and finishes. You can get a very basic home or a truly luxe, mansion-like one.

•  They can be more energy-efficient than traditionally built houses, and the materials and building process may be more environmentally friendly as well.

•  They are considered better able to withstand environmental threats (flooding, hurricanes) than traditionally built homes.

That said, there are some disadvantages to modular homes to consider:

•  You need to add in some costs to your home-buying budget: the cost of the land, the foundation, and other related expenses. Yes, you are paying for those things when you buy a stick-built house, but the cost is already rolled into the price.

•  You will need to investigate how to finance your home. If it’s an already built home, then a home loan will work. But if you are building from the ground up? Rather than getting a mortgage (since you aren’t buying an existing home from a seller), you may want to look into construction loans. Some modular home companies offer their own financing and lending programs.

•  Depending on the modular home company, you may not be able to get every last detail you want. Shopping around can help you find the top features you want in your home.

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.

Questions? Call (888)-541-0398.

Modular Home Risks

There are several considerations prospective modular homeowners should be aware of:

•  Finding land can be difficult in some areas. If you love modular homes but want to live in a suburb that has a hot housing market, you may be hard pressed to find a lot that works for you.
(You also may need a land loan to purchase your property if you do find a lot you love.)

•  It may be difficult to make changes once construction has started because so much of the home is pre-built.

•  Bias exists. Some people confuse modular homes with manufactured or mobile homes, which don’t have a foundation, and may therefore avoid them. This could mean a real estate agent might not show buyers a modular home that’s for sale, for example, due to this misperception.

How to Find Modular Homes for Sale

You can shop for pre-existing modular homes on major real estate websites like Realtor.com® and also on specialized sites that list this type of home.

To construct a modular home, you can look at such sites as modularhome.org and modularhomeowners.com. Also, with the growing popularity of modular homes, you may well be able to get a word-of-mouth referral from someone in your circle.

How to Choose a Modular Home

When considering a modular home builder, much will depend on the following factors:

•  Do you like the style of the houses they build? The floorplans?

•  Are their prices lining up with your budget? Do they offer financing, if you need it?

•  Where are they located? Is their factory somewhat close to you, which can help reduce transportation expenses?

•  Are you impressed with the quality of their work? Their customer service?

•  Which brands do they partner with? Many manufacturers work with certain vendors for windows, doors, appliances, etc.


💡 Quick Tip: A home equity line of credit brokered by SoFi gives you the flexibility to spend what you need when you need it — you only pay interest on the amount that you spend. And the interest rate is lower than most credit cards.2

How to Finance a Modular Home

Financing a modular home will take different paths depending on whether the house is already constructed or you’re building it.

•  For already built homes, you may look into conventional mortgage loans and FHA, USDA, and VA loans, just as you would for any other property you are interested in.

•  If you are building your own modular home, then you will probably need to apply for a construction loan to have the funds to get your house over the finish line.

•  Some modular home companies offer financing options.

•  You might also see if a personal loan could help you afford a modular home. Some lenders will allow you to buy a property with the funds; check with your lender, and understand the interest rate you will be charged.

Are Modular Homes Worth It?

Whether a modular home is worth it is a very personal decision.

For some people, there may be no greater satisfaction than working with a modular builder to specify their dream home and seeing their home come together, usually more quickly and less expensively than with other building methods. They can collaborate with their builder and find a house plan that checks off all (or most) of the items on their home wish list.

Many people are thrilled with the eco-friendly aspects of these homes as well.

However, there are also people who find a vintage home more appealing or who would rather walk through an already-built home and know exactly what they are buying.

Recommended: How Much Does It Cost to Build a House?

Modular Home Tips

If you’re set on buying a modular home, here are things to consider:

•  Style of home. Modular homes come in various styles, from contemporary to log cabins. It can be wise for buyers to shop around and work with a modular home manufacturer that suits their taste.

•  Manufacturer location. The cost of transporting a modular home can be high. It may be essential for the budget-conscious modular homebuyer to work with a manufacturer close to the home’s final destination.

•  Custom builds. Some modular home manufacturers may offer more customizable options, from floor plans to finishes. Do your research, and find a builder who can check off most of the priorities on your wish list.

•  Timeline. Some modular homes go up relatively quickly, while other manufacturers could be dealing with back orders. If time is of the essence, choose your builder carefully.

The Takeaway

Modular homes are growing in popularity. Components (modules) are factory-built and then assembled on a foundation; this process can be faster and more affordable than buying a traditionally built home. They also often have environmental benefits.

However, they aren’t for everyone: Building your own home is very different than hitting the open houses, and financing a modular home likely takes you on a path that involves a construction loan. If, however, you fall in love with an already-built modular home, then you can usually apply for a mortgage from a number of lenders.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.


SoFi Mortgages: simple, smart, and so affordable.

FAQ

Is a modular home a good investment?

A modular home can be a good investment. They often offer energy efficiency which is a selling point. However, a modular home’s value will be dependent on the housing market in your area, just as it would be with any other kind of home.

Are modular homes dangerous?

The dangers of modular homes are minimal. As long as the assembly of the modular home complies with local building codes, modular homes are as safe as a traditionally built home.

Is the value of modular homes decreasing?

Modular homes appreciate and depreciate in a way that’s similar to traditional builds.

Where can you get financing for modular homes?

Among the possibilities for financing a modular home are a construction loan, financing from your builder, or a personal loan.

How long will a modular home last?

With proper maintenance and high-quality materials, a modular home should last as long as, or longer than, any traditionally built home. Some of the first modular homes, built in the early 1900s, are still standing today.

Photo credit: iStock/turk_stock_photographer


*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

²SoFi Bank, N.A. NMLS #696891 (Member FDIC), offers loans directly or we may assist you in obtaining a loan from SpringEQ, a state licensed lender, NMLS #1464945.
All loan terms, fees, and rates may vary based upon your individual financial and personal circumstances and state.
You should consider and discuss with your loan officer whether a Cash Out Refinance, Home Equity Loan or a Home Equity Line of Credit is appropriate. Please note that the SoFi member discount does not apply to Home Equity Loans or Lines of Credit not originated by SoFi Bank. Terms and conditions will apply. Before you apply, please note that not all products are offered in all states, and all loans are subject to eligibility restrictions and limitations, including requirements related to loan applicant’s credit, income, property, and a minimum loan amount. Lowest rates are reserved for the most creditworthy borrowers. Products, rates, benefits, terms, and conditions are subject to change without notice. Learn more at SoFi.com/eligibility-criteria. Information current as of 06/27/24.
In the event SoFi serves as broker to Spring EQ for your loan, SoFi will be paid a fee.


SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.


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


Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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

SOHL-Q225-173

Read more
May
30
2025
Mortgage Interest Deduction Explained_780x440

Mortgage Interest Deduction Explained

By | Growing Wealth, Home Ownership, mortgage | Comments Off on Mortgage Interest Deduction Explained

Homeownership has long been a part of the American dream, and it opens the door to benefits like the mortgage interest deduction for those who itemize deductions on their taxes.

Itemizing typically makes sense only if itemized deductions on a primary and second home total more than the standard deduction, which nearly doubled in 2018.

Here’s what you need to know about the mortgage interest deduction.

Key Points

•   Having a home loan means that homeowners who itemize can use the mortgage interest deduction.

•   The mortgage interest deduction applies to interest on loans for building, purchasing, or improving a primary or second home.

•   States with income tax may allow the deduction on state returns.

•   For mortgages taken out after Dec. 15, 2017, the deduction limit is $750,000 for an individual ($375,000 if married filing separately).

•   Homeowners insurance premiums and reverse mortgage interest are not deductible.

What Is the Mortgage Interest Deduction?

The mortgage interest deduction allows itemizers to count interest they pay on a loan related to building, purchasing, or improving a primary home against taxable income, lowering the amount of taxes owed.

The tax deduction also applies if you pay interest on a condominium, cooperative, mobile home, boat, or recreational vehicle used as a residence. The deduction can also be taken on loans for second homes, as long as it stays within the limits.

States with an income tax may also allow homeowners to claim the mortgage interest deduction on their state tax returns, whether or not they itemize on their federal returns.

What Are the Rules and Limits?

The passage of the Tax Cuts and Jobs Act of 2017 was a game-changer for the mortgage interest deduction. Starting in 2018 and set to last through 2025, the law greatly increased the standard deduction and eliminated or restricted many itemized deductions.

For the 2025 tax year, the standard deduction is $30,000 for married couples filing jointly and $15,000 for single people and married people filing separately.

If you itemize deductions, you’re good to go and can deduct the interest. There’s further good news, as you may also be able to deduct interest on a home equity loan or line of credit, as long as it was used to buy, build, or substantially improve your home.

The loan must be secured by the taxpayer’s main home or second home and meet other requirements. For tax purposes, a second home not used for income is treated much like one’s primary home. It’s a home you live in some of the time.

The IRS considers a second home that’s rented some of the time one that you use for more than 14 days, or more than 10% of the number of days you rent it out (whichever number of days is larger). If you use the home you rent out for fewer than the required number of days, it is considered a rental property—one that you never live in, and not eligible for the mortgage interest deduction.

Generally, your interest-only mortgage is 100% deductible, as long as the total debt meets the limits.

According to the Internal Revenue Service, you can deduct home mortgage interest on the first $750,000 ($375,000 if married filing separately) of debt. Higher limitations ($1 million, or $500,000 if married filing separately) apply if you are deducting mortgage interest from debt incurred before Dec. 16, 2017.

You can’t deduct home mortgage interest unless the following conditions are met:

•   You must file Form 1040 or 1040-SR and itemize deductions on Schedule A (Form 1040).
•   The mortgage must be a secured debt on a qualified home in which you have an ownership interest.

Simply put, your mortgage is a secured debt if you put your home up as collateral to protect the interests of the lender. If you can’t pay the debt, your home can then serve as payment to the lender to satisfy the debt.

A qualified home is your main home or second home. The home could be a house, condo, co-op, mobile home, house trailer, or a houseboat. It must have sleeping, cooking, and toilet facilities.

Know that the interest you pay on a mortgage on a home other than your main or second home may be deductible if the loan proceeds were used for business, investment, or other deductible purposes. Otherwise, it is considered personal interest and is not deductible.


💡 Quick Tip: Don’t overpay for your mortgage. Get your dream home or investment property and a great rate with SoFi mortgage loans.

How Much Can I Deduct?

In most cases, you can deduct all of your home mortgage interest. How much you can deduct depends on the date of the mortgage, the amount of the mortgage, and how you use the mortgage proceeds.

The IRS says that if all of your mortgages fit into one or more of the following three categories at all times during the year, you can deduct all of the interest on those mortgages. (If any one mortgage fits into more than one category, add the debt that fits in each category to your other debt in the same category.)

1. Mortgages you took out on or before Oct. 13, 1987 (called grandfathered debt).

2. Mortgages you (or your spouse if married filing jointly) took out after Oct. 13, 1987, and prior to Dec. 16, 2017, to buy, build, or substantially improve your home, but only if throughout 2020 these mortgages plus any grandfathered debt totaled $1 million or less ($500,000 or less if married filing separately).

(There is an exception. If you entered into a written contract before Dec. 15, 2017, to close on the purchase of a principal residence before Jan. 1, 2018, and you purchased the residence before April 1, 2018, you are considered to have incurred the home acquisition debt prior to Dec. 16, 2017.)

3. Mortgages you (or your spouse if married filing jointly) took out after Dec. 15, 2017, to buy, build, or substantially improve your home, but only if throughout 2020 these mortgages plus any grandfathered debt totaled $750,000 or less ($375,000 or less if married filing separately).

The dollar limits for the second and third categories apply to the combined mortgages on your main home and second home.

What Are Special Circumstances?

Just like you need to understand your home loan options, you need to know the special situations where the IRS says you might or might not qualify for the mortgage interest deduction.

You can deduct these items as home mortgage interest:
•   A late payment charge if it wasn’t for a specific service performed in connection with your mortgage loan.
•   A mortgage prepayment penalty, provided the penalty wasn’t for a specific service performed or cost incurred in connection with your mortgage loan.

Recommended: Guide to Buying, Selling, and Updating Your Home

Is Everything Deductible?

The government is only so generous, and there are many costs associated with homeownership. Some of them are not tax deductible under the mortgage interest deduction, like homeowners insurance premiums.

One caveat: You might be able to write off a portion of insurance, as well as utilities, repairs, and maintenance, if you have a home office and deduct those expenses on Schedule C.

Also not on the list for inclusion in the mortgage interest deduction are title searches, moving expenses, and reverse mortgage interest. Because interest on a reverse mortgage is due when the property sells, it isn’t tax deductible.


💡 Quick Tip: Have you improved your credit score since you made your home purchase? Home loan refinancing with SoFi could get you a competitive interest rate with lower payments.

How to Claim the Mortgage Interest Deduction

An itemizer will file Schedule A, which is part of the standard IRS 1040 tax form. Your mortgage lender should send you an IRS 1098 tax form, which reports the amount of interest you paid during the tax year. Your loan servicer should also provide this tax form online.

Using your 1098 tax form, find the amount of interest paid and enter this on Line 8 of Schedule A on your tax return. It’s not a heavy lift but gets a tad more complicated if you earn income from your property. If you own a vacation home that you rent out much of the time, you’ll need to use Schedule E.

Furthermore, if you’re self-employed and write off business expenses, you’ll need to enter interest payments on Schedule C.

The Takeaway

You can take the mortgage interest deduction if you have one or more mortgages and itemize deductions on your taxes. Keep in mind that it’s typically only worth taking if the write-offs exceed the standard deduction.

As with all matters that affect your taxes, you’ll want to consult with your financial advisor about claiming the deduction.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.


SoFi Mortgages: simple, smart, and so affordable.

FAQ

Do you get a bigger tax return if you have a mortgage?

Having a mortgage won’t necessarily help your taxes, though it might. When you have a mortgage, you may be able to deduct the interest you pay on that mortgage if you itemize on your federal income tax return. However, for itemizing to be worthwhile, your combined items would have to exceed the amount of the standard deduction, and your mortgage interest deduction, even in combination with other potential deductions, may not reach that threshold.

Is mortgage interest 100% deductible?

For loans taken out before December 16, 2017, qualifying mortgage interest may be deductible up to $1,000,000. For loans on or after that date, the limit is up to $750,000. The exception is that if you signed a legally binding mortgage contract on or before December 15, 2017, with the intention of closing by January 1, 2018, you can also deduct up to $1,000,000 (as long as you closed by April 1, 2018).

Can I deduct mortgage interest if I take the standard deduction?

No. If you want to deduct your mortgage interest, you must itemize your federal income tax and file a Schedule A.


SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.


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



*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

SOHL-Q225-177

Read more
Close modal

See what SoFi can do for you and your finances.

Select a product below and get your rate in just minutes.

Student Loan
Refinancing

Personal
Loans

Online
Investments

Other

Terms and conditions apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or other eligible status, be residing in the U.S., and meet SoFi's underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates reserved for the most creditworthy borrowers. If approved, your actual rate will be within the range of rates at the time of application and will depend on a variety of factors, including term of loan, evaluation of your creditworthiness, income, and other factors. If SoFi is unable to offer you a loan but matches you for a loan with a participating bank, then your rate may be outside the range of rates listed above. Rates and Terms are subject to change at any time without notice. SoFi Personal Loans can be used for any lawful personal, family, or household purposes and may not be used for post-secondary education expenses. Minimum loan amount is $5,000. The average of SoFi Personal Loans funded in 2023 was around $33K. Information current as of 2/26/24. SoFi Personal Loans originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org). See SoFi.com/legal for state-specific license details. See SoFi.com/eligibility for details and state restrictions.

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

©2026 Social Finance, LLC All rights reserved.
TLS 1.2 Encrypted
Equal Housing Lender