Transcription

• Speaker #0

  All right, here for another episode of Millennial Money Matters with Kelly Turner.

• Speaker #1

  And Derek Mazzarella.

• Speaker #0

  All right, what are we talking about today, Derek?

• Speaker #1

  We have, we're going to talk about the fickle world of interest rates. Oh,

• Speaker #0

  that one, that one, that's like a shot to the heart for me.

• Speaker #1

  I'm sure you get no questions on what's happening with mortgage interest rates ever, right?

• Speaker #0

  I would tell you probably 25% of my day, every day, is filled with questions about mortgage interest rates from clients, co-workers. strangers, people at the grocery store, anyone who finds like, you do mortgages? What's today's interest rate? Like it's the question that first question people ask me.

• Speaker #1

  Gotcha. Well, why don't we start with the basics again? Let's talk about what really goes into mortgage interest rate. Like what's it determined by? Because I feel like most people think it's a black box. It's like, well, you guys are holding out on us. You don't know, you know, the rates you're doing this and you don't, you know, you have this magical thing that we don't know about.

• Speaker #0

  Well, and I think the big thing is that people think that the rate is the rate. So they're like, oh, yeah, rates today are 6.875. There's no rates today. OK, there are daily average rates, which even if you Google, right, the powerful Google machine, if you Google daily average interest rate, you're going to get a million different versions of that. OK, so there's no there's no daily average rate, really. There's no the rate there is. What is the rate for you, your scenario, your situation and your personal profile and the house that you're purchasing? So number one, rates are really personal. Okay. So every borrower is essentially run through risk based pricing. And what that is, is there's a computer, a system that looks at you and says, how risky is this loan? All right. And the riskier the loan, the higher their interest rate, unless there's special programs to offset it. So they're looking at things like your credit score, your income, your assets, your down payment, your debt to income ratio. the loan to value. So how much are you putting down on the house versus what the value of the house is? All of these kind of come into play when we're talking about programs, okay? And different programs have different interest rates. The other thing that comes into play is, are you buying a primary residence? Are you buying a second home? Are you buying an investment property? Is it a condo? Is it a single family? Is it a multifamily? So there are so many moving parts. So one of the hardest things that we deal with is, I will tell somebody the rate and they'll be like, oh, well, my friends, they just bought a house, you know, a month ago and their rate was X. And it's hard to tell people, you don't know what that person's financial situation is. Maybe their credit was great. Maybe it was better than yours. Maybe their credit was worse and they qualified for a special first-time homebuyer program and this is your second house. Maybe they're purchasing a condo. Maybe they have a non-occupant co-borrower. There are just so many pieces. Now, on top of, right, your own personal piece, of interest rates. There's also things like market factors. So rates change and people don't realize this. Rates don't change every day. Rates change every minute.

• Speaker #1

  Oh, cool. That's easy to keep track of.

• Speaker #0

  Easy to keep track of. Now, as a lender, what I'm seeing for your rate doesn't change every minute. OK, there is somebody, a lock desk manager, a secondary manager. They have a lot of different names at different banks who is essentially watching the rates and they're determining what the rates are. Rates come out for most of us every day. We get. what is called a rate sheet. And back in the day, they were a faxed piece of paper that went to every lender. Now it's an online portal. They come at different times. I would say most bankers get their rate sheets between 10 and 11 a.m. So we kind of let the markets open. We let them settle a little bit and then they'll tell us what our rates for the day are. But in a rough day, like Monday, we could get what's called a price deterioration where you could have a set of rates that came out and at 2 p.m. you could get an email saying, hey, prices have deteriorated, new rate sheets. We also can get price improvements. So if things are looking good, hey, we opened at these rates, but it looks like the markets are a little bit better than we thought. So new rates for you. So it's it is an art. Locking interest rates as a mortgage lender are an art.

• Speaker #1

  That sounds challenging. Well, let me ask you, let's take a quick diatribe for one second. So outside of credit score, which is the obvious one. So better credit score, better rates, right? What are some things that people could do to put themselves in position to get a better rate?

• Speaker #0

  Sure. So I think the credit score is absolutely number one. So interest rates are actually bracketed in either 10 point or 20 point buckets of interest rates. So if you have a 720 and someone else has a 740, they're going to have a different interest rate than you do. So that's probably the single largest thing that impacts rates on a borrower by borrower basis. The other thing that really impacts interest rates is loan programs. Okay, so are you getting a conventional loan, an FHA loan? Is this a state bond program? Is it a USDA loan? All of these programs are essentially pulling from different rates because it's how they're going to get sold off into the secondary marketplace. So many of you know, way back in the day when your parents got a mortgage, they went to the local bank. So here in Glastonbury, it was Glastonbury Bank and Trust. And the bank physically lent them the money. Okay, these were dollars that the bank had in hand. And they said, yeah, we will reserve these dollars for you. And they lent you the money and they picked the rate. And then every month your parents or grandparents would go to the bank and they would write a check or give cash to that bank. And they collected the money to help pay the principal down. That's not how mortgages work anymore. So all mortgages are generally serviced into the secondary mortgage marketplace. So it's getting sold off. And everybody, right, when you close on your house, generally within 30 days, you're going to get a notice in the mail saying, hey. I know you closed your mortgage with X bank, but now Y bank is who is going to service your loan. This is who you're going to pay. Here's their information. And that could happen multiple times in the time that you have your mortgage. Some people, I will tell you, I've had my house for 13 years. We got serviced once. We've never been serviced again. Okay. I have clients that get serviced five times.

• Speaker #1

  Yeah. We're in our second one.

• Speaker #0

  Yeah. It just, it depends on your particular loan, the portfolio that that lender is holding, how you fit into it. So all of that really has a big impact on rates because when they're selling these loans off, they want to make a profit. That's the goal here. That's how we keep lending money. And that's what people don't really get is it's, yes, the bank is making money, but it's also to keep funds available to keep lending those funds to other people.

• Speaker #1

  Right. So if you're tying up all of your funds and all these mortgages and waiting for these checks to come in by a month for the next 30 years, you have no liquidity.

• Speaker #0

  Exactly. You don't have any money to give anybody else. Right. So that. you know, is a piece to the puzzle as well. But I think, you know, rates, again, super specific, change regularly. The other thing that has a big impact is loan to value. And loan to value is that if you're putting 3% down, if you're putting 5% down, 15, 20, 50, 75, all of that really makes a difference. One of the confusing things for clients or for borrowers is they'll go online, okay, the great Google. And they'll go like lowest interest rates and they'll see these rates. We call them teaser rates and it's like a 5.875. And they're like, they'll call me. Excuse me, Kelly. You said that my rate was a seven. And this says that the rate, the rate is a 5.875. I want that. And then I will tell people there's a little button that you have to press next to the rate that's going to open up the terms and conditions of that loan. And a lot of times the teaser rates you see will say things like 50% down, 800 credit score. a, you know, whatever loan program that you don't qualify for, it'll have $600,000 purchase in, you know, Massachusetts.

• Speaker #1

  Or the rate might be good for one year. Yeah. I was applying recently. It's like, okay.

• Speaker #0

  And we will be like, I'll be like, you are putting 5% down. You have a 710 credit score. You're, you know, like not nothing in your scenario is the same as a scenario. And honestly, that scenario is going to fit very few people. So generally the larger your down payment, the lower your rate is going to be. The only exception to that, and this is a fun one, ready, for a fun mortgage hack here. So a lot of times people want to put 20% down because then they don't have mortgage insurance, right, for a conventional loan. Mortgage insurance is like the dirty word of mortgages.

• Speaker #1

  PMI, we don't talk about that.

• Speaker #0

  Bye, everybody hates PMI, I'm paying for nothing. The trick with PMI is that is an insurer. So that company, their job is they're like any other insurance, they're insuring for risk. So they're insuring to the bank that you're not going to default on your loan because people with less money down are more likely. to foreclose. That's a fact. Okay. So they're going to ensure that if you do foreclose, that the bank is going to get paid for what they owed. Now, because that risk is shared, if you're putting, say, 15% down and you have a little bit of PMI, sometimes that rate is cheaper than the people who are putting 20% down because now the bank is holding all the risk for your foreclosure.

• Speaker #1

  Right. Well, now with the PMI, you're sharing it, which makes total sense. I mean, my little diatribe is I hate the fact that we have to pay for PMI there.

• Speaker #0

  To insure the banker.

• Speaker #1

  To insure their risk, right? It's always funny to me. But one of the questions I always get asked is like, all right, so do I go to my bank? You mentioned your bank back in the day with our parents and grandparents. Do I go to a broker? What is the difference?

• Speaker #0

  Sure. So there's generally three different places to get loans. There are banks, traditional banks, the big bank, small banks. They were historically where everybody got a mortgage. Well, why did that change? It's because banks'real job is to be a depository. right? That's their main function is to take deposits from people. They often have credit cards, checking accounts, savings accounts, maybe money markets, CDs, but they're a depository. They sort of did mortgages as a service to their clientele as opposed to a real function. Now, What that has done is that banks are just not really set up to be mortgage lenders.

• Speaker #1

  They want to have money moving through the economy. So holding a loan for 30 years does not do that.

• Speaker #0

  Exactly. It doesn't do that. And then the other piece to it is they're not necessarily hiring loan officers or originators. So a lot of the people there are wearing many hats. So the person doing your mortgage might also be doing someone else's car loan, someone's personal loan, opening a credit card for them. Often the product mix is much slimmer, so they might offer one or two loan options. You can get a conventional loan. You can get a FHA loan. Maybe they only lend on primary residences. So they're just a bit more restrictive. And they tend to be bankers. We joke about bankers hours. If you've ever tried to go to your bank these days and cash a check in person at 5 o'clock, good luck finding a bank that's open. No chance. Right? They're not open. they work banker's hours. So your loan officer is also going to work banker's hours. Okay. Nine to five. Real estate does not happen nine to five at all.

• Speaker #1

  Without the weekends too. So no weekends. No weekends. Nothing ever happens on the weekend.

• Speaker #0

  Nothing ever happens on the weekend. So banks tend to have it. And I always give people the example of a box, right? There's a big, I'm drawing, I'm drawing a box on the table here. There's a big box and all loans fit in that box. Okay. The banks have a smaller box drawn within that box. And that's the loans that they'll take. So it's not that you're not qualified for the loan. They just may not be interested in that particular loan. So we do sometimes have borrowers that will go to a bank and they will not be approved for a mortgage. And they're like, I guess I can't buy a house. And then we're like, hey, try a lender. We've got more options. So banks, option one. Independent mortgage banks, which is what I am, we're option two. So we're a bank, okay, but we do not have depositories. We only do mortgages and we only do residential mortgages. So I don't do, I don't lend on commercial properties, car loans, anything else. I only do mortgages. We essentially have warehouse lines where money comes in, we close loans with that money, and then it gets serviced off and then money gets returned to us. So it is just a cycle of money in and money out. What happens in this case? Well, we're specialized. So that's probably the biggest benefit of an independent mortgage banker is I only do mortgages.

• Speaker #1

  Strictly 80s Billy Joel. That's all you do.

• Speaker #0

  Exactly. I don't do anything else. I live the mortgage life. And we tend to have the biggest box. So we call, when you make the box smaller, we call it an overlay. Okay. I'm saying that, you know, yes, this loan can be done with a credit score down to a 620, but we'll only take a 680 or better. Okay. That's an overlay. Banks, again, tend to have a lot of overlays. We say, whatever the government agency that is in charge of this loan program says, we'll do. So if they say they'll take a 580. cool, we'll take a 580. If they say we'll do a 620, cool, we'll do a 620. So we tend to have more flexibility. And we also tend to have more products because we're not restricted by what the bank is willing to offer because we're servicing these out to other people. And we say, what are you willing to offer? So independent mortgage bankers, again, tend to be more specialized. We are, I work 24-7. I tell people this, every client who talks to me, I say to them, My phone is available 24-7. I'm not. Send me the text. Shoot me the email. Let me know the timeline of when you need this, and I will get it to you. But I carry my computer with me everywhere. I have written pre-approval letters on the beach, in Disney World, in restaurants, at birthday parties, anywhere that needs to happen. So it's just a different model, really, than the bank situation. The other thing that that allows us to do is we tend to be quicker. So banks, a little bit more bureaucratic. If you've had a home equity line of credit done by your bank, you know that it could take like 60 days, 75 days. I have closed full mortgages in eight days.

• Speaker #1

  So a little bit quicker.

• Speaker #0

  A little bit quicker. Now mortgage brokers sort of live in the middle. Okay. So a mortgage broker is a third party. So they own their own little company. And what they're doing is they're taking a credit package similar to an independent mortgage banker. They're kind of tying it up with a little bow and then they're going to shop. Okay. either independent mortgage bankers or big banks, or there's kind of products for them and say, hey, I've got this loan. Who wants it? Who's going to give me the best deal? They're great in that sometimes they have products that other people don't. So they might actually lend hard money, right? Which is like some dude with cash.

• Speaker #1

  Yeah. Hi, interest rate. I'm going to like, here you go.

• Speaker #0

  Here you go. Here's your cash. I don't really care what you got to do to make this happen, but you know, we'll, we'll close the loan. Sometimes they have again, products for really non-traditional borrowers or non-traditional people who don't fit in the big box, who really need their own separate box.

• Speaker #1

  Right. You need cases. Snowflakes.

• Speaker #0

  Exactly. They'll do those. The other piece to that, too, is like residential mortgage loans. Like, I could only lend on a four unit. or lower. So what does that mean? Multifamily. If you have four units, I can lend on that. If you go to five units, I can't. Brokers can often lend on five units, six units, eight units without it being considered a commercial loan. So there is a place for all of them. Lenders in these different categories kind of like to like poop on each other, like, oh, they're terrible. There's a place for all three. And I will actually sometimes have clients that come to me and I will say, listen, you're better served by this type of lender. You were better served by a broker. Here's why you actually should go to your local bank. Yeah.

• Speaker #1

  It's all about finding the right fit for the situation.

• Speaker #0

  Exactly. And I'm not trying to like close a deal to make a buck. Like I want people to be where they should be.

• Speaker #1

  Okay, great. Well, let's get back to interest rates. Cause so what actually goes into the underlying part of interest rates? Like how do they even determine like that guy in the back office was a little fax machine back in the day. Like what is he looking at? He's like, not just looking at the stock market, right? He's just saying, I don't know.

• Speaker #0

  Some of it. So they're looking at bond yields. That's probably one of the bigger places. The cost of borrowing, the risk, federal reserve policies. So what's happening with the federal reserve? We are always, we're not looking at interest rates today. And that's probably one of the things that's the most confusing for people is that when you lock your interest rate, you're locking it in advance. Okay. So if say you go under contract today and you're closing at the end of September, that rate that you're locking is based on what they think is going to happen. at the end of September, not what's happening right now. So it's really a lot of future hedging. What is happening coming up? I would tell you five or six years ago, that was really easy. And rates would stay really steady across many days because we kind of knew what was going to happen. Well,

• Speaker #1

  they're already low. They weren't really moving anywhere. Nothing was really crazy going on with the economy where we need to worry about inflation or any of the other things that would affect rates.

• Speaker #0

  Where now... it is so the the markets are so volatile inflation is so volatile fed policy has been volatile that it's much harder for them to determine what rates are going to look like five days from now let alone 30 or 40 days from now so all of that sort of underlying policy that they're using to determine we look at the economic calendar so that's a big thing for us is what is what what news is coming out The other thing that's hard too is we are impacted not only by what's happening in our markets, but as you know, as a financial advisor, Derek, we were talking about it earlier, is it's also what's happening worldwide, right? How does that impact ours? Things like war has an impact on interest rates. Things like COVID had huge impacts on interest rates, both in the Fed's cutting rates, but also in what that did to other markets and how they then impacted ours. So there's a lot that goes into it. I will tell you, if you ever meet a head of secondary or head of lock desk for a bank, these people have really big brains. They have really big brains. They're in charge of a lot, a lot of money moving. But knowing that the closer you are to your closing date, generally the more accurate a rate estimate is going to be. And I always tell my clients too, like if they start shopping and they're like, I'm not going to buy for six months. I'm like, cool, I'm going to put a number on here, but this number doesn't mean anything right now.

• Speaker #1

  Total moving target.

• Speaker #0

  Total moving target. Every single day, I'm going to give you a new number. who knows? And sometimes you're like, well, I heard that rates went down, but why did the rate that I have on here go up? And I'm like, well, you heard that rates went down on Friday and today's Monday.

• Speaker #1

  Yeah. As you said, they change every day or every hour.

• Speaker #0

  Every hour.

• Speaker #1

  Well, let me ask you this. So that gets into like, all right, I'm going to lock my rate in. Like, what goes into the thought process behind like, yes, this would make sense versus, we should probably maybe wait this out a little bit. So how are you kind of determining that for clients?

• Speaker #0

  So generally, the longer you are till closing, the higher your rate is going to be on a daily basis. So if you are closing. 60 days versus 45 day. And we tend to do things in 15 day increments, 60, 45, 30, 15, the fit on the same day, right? If I'm lacking today, a rate for 60 days versus a rate for 15 days, the rate for 15 days is going to be lower. Okay. Then the rate for 60 days, because again, over time, there is more certainty over the next 15 days than there is over the next 60 days.

• Speaker #1

  Because they're taking that quote unquote risk on you're paying for that with your rate.

• Speaker #0

  Exactly. Because if you lock at a six and a half today and rates spike up and 60 days, the bank still has to keep your loan at that six and a half percent, even though that's not what the rate is today. So that sort of hedging is a piece of it is what is this going to look like? The other piece to that puzzle is you do have to get locked in generally a minimum of seven days prior to your closing. So like right now, that's sort of an interesting world that we're living in. in that rates are super volatile. And so I have some rates that are going down and I feel like, well, I don't want to lock it. I want to see if it keeps going down. And I'm like, cool, but we got to close this loan. So we can't keep it unlocked indefinitely. The conversation that I have with a lot of borrowers is I will tell them, here's the deal. We can do this one of two ways. You can be in charge or I can be in charge. OK, if you're in charge, I will educate you about what this looks like. I will give you updates. But you at the end of the day are going to tell me, yeah, Kelly Lockett, if you want me to be in charge, we're still going to have conversations about it where I'm going to kind of show you, hey, this is sort of what I think it would look like if I were you. This is what I would do. And I am very transparent with my borrowers. I tell them why. And in this current market, I tend to err on the side of being conservative because like a lot of. lenders two years ago were telling people not to buy any points. Don't buy any points. Rates are going to drop. Don't buy any points. They're not going to be worth anything. Just take the high rate and in six months we'll refi you. Well, here we are two years later and rates went up and not down. And so people could have bought points cheaply, had a lower interest rate for the last two years and didn't because somebody was kind of playing fast and dirty with them. So I will have conversations with buyers about like, what's our recoupment for this rate? Why is our rate this? What if we took X rate? What's the long-term benefit? That way people just feel educated about it.

• Speaker #1

  Oh, great. Well, I can have two questions follow up. So you have this, let's say, 60 to seven day window, right? You're kind of locking rates in. So how much have you seen typically rates move in that span? Like you probably don't know that at the top of your head exactly. Oh, I had this one move like 4%. Like I'm sure that's not happening, but it's probably... On average, like half a percent, maybe? Is it more?

• Speaker #0

  Maybe. And people think, yeah, it's generally rates are shifting anywhere between an eighth of a point and a point in any given span. An eighth of a point, right, is the difference between a 6.875 and a seven. Now, that sounds like a lot. For a lot of people, that might be like 10 bucks a month. And so that's the other piece that you really have to educate people on is that what are we talking about here, right? The difference between a 7% rate and a 3% rate is enormous. the difference between a 6.875 and a seven is very small um so it's not huge now we have had periods of time where it's been huge right so march of 2020 with a huge rate drop in a very short period of time that made a big difference um truthfully you know this summer there's been a lot of big rate swings in one direction or another depending on the economic news so inflation data cpi reports that tends to be our big economic news that has large impact on us So we've seen some bigger swings, but generally we can see them coming. And if you have an educated loan officer who is educating you, they're going to say to you, hey, listen, you know, tomorrow is the CPI report. This is sort of what they're guessing. I would probably tell you we should lock your rate today. It could go down a little bit, but there's also a bigger predictor that it might go up. The rates might go up. And so we want to lock it in knowing that we're comfortable where we are. It's also the question of, are you a gambling man? And that's what I ask people all the time. Are you a gambling man? If we wake up tomorrow and your rate is a half a point lower, are you going to feel good? If it's a half a point higher, are you going to be real mad? Or are you going to be like, all right, that was the risk that I took. And if people are like real mad, I'm like, cool, we're going to lock today then. Yeah,

• Speaker #1

  that makes sense. All right. So you're talking about buying points. I still have no idea exactly what the purpose of doing that is, how much it costs. Like, what does that mean buying? Am I throwing money at you or am I just paying more in rate? I should probably know the answer to these questions, but I don't because I don't do mortgages every day.

• Speaker #0

  what to understand exactly what buying points is what is worth more to you cash on hand or cash over time that's literally the concept of points okay what's worth more cash on hand cash over time so points are essentially it's money that you pay up front at closing to your lender in exchange for a lower interest rate okay i would liken it to like prepaid interest that i'm gonna give you a little bit of money and in exchange you're gonna give me a lower rate now in the probably 25th 2015 to 2020, very few people were buying points. And if they were, they were buying maybe $100 worth of points, very minimal points, often to just get from one eighth of a point to another cleanly. And back in those days, you could even do things called get lender credits, where you would take a slightly higher rate in exchange for some money towards your closing costs. Those days are gone. Points have become just a part of this current market. So I would tell you, and I actually have statistics here about how many people currently have points. Somewhere around 58% of borrowers in 2022 paid at least one point to get their mortgage. And one point is 1% of your loan amount.

• Speaker #1

  So if I was at a 7%,

• Speaker #0

  now I'd be at a 6%. No. Oh. No. So if you were buying a house and had a $300,000 mortgage, okay, you are going to pay $3,000 at closing. That's the 1%. Okay. And what you got in exchange for that could vary depending on the date. It could be an eighth of a point lower. It could be a quarter of a point lower. It could be a half a point lower. So you're not exchanging 1% for 1%. You're exchanging one point, so 1% of your loan amount, for a varied amount depending on the day and where rates are. Okay. Confusing.

• Speaker #1

  Yeah. Well, now I have to do extra math, which as much as I like math, it seems like too much.

• Speaker #0

  It's a lot. And the question comes into play of, and I always tell people, right, like cash on hand versus cash over time. So what is worth more to you? Are we going to put the, say you've got an extra three grand, do you want to put it towards your principal and pay less interest on principal? Do you want to keep that money and buy a new couch? Do you want to pay slightly lower on a monthly basis? And it's not as much as people think it might be. So for example, I've got a 7% rate with no points and my principal and interest is $1,996. What size mortgage is that? $300,000. Okay. It's a $300,000 mortgage. So my monthly savings and months to break even, zero. I paid no points. It's $1,996. I am going to get... I'm going to buy one point. And in this scenario, one point gets me a six and a half percent. So I drop a half point. Okay. The cost of that points is one point. So it's $3,000. That brings my payment ready to $1,946.

• Speaker #1

  Ooh, it's a 50 bucks roughly.

• Speaker #0

  Yeah. So you're not, people again, think that this is going to be all the money in their pocket. So that's going to save you $50 a month, but it's going to take you 60 months to break even.

• Speaker #1

  55 years for you math nerds.

• Speaker #0

  Correct. So something to consider, 60 bucks a month, five years. Next version is what if that same amount was two points? If it was two points to get to a six and a half.

• Speaker #1

  So six Gs.

• Speaker #0

  Six Gs. You're now at the same payment, but you're at a double recoupment. Okay, it's gonna take you twice as long to recoup those funds, 10 years. Are you even gonna be in this house in 10 years? Are you gonna have refinanced this mortgage in 10 years? And a lot of lenders... like to confuse people and they like to amortize all of this over 360 months. Oh, well, you're going to save, you know, $80,000 over the life of your loan. Guys, 1%, 1% of people stay in their original mortgage and pay off 360 payments over 30 years in that market.

• Speaker #1

  No one does that. You're the refi, you're going to move, most likely.

• Speaker #0

  Exactly. So I really like to look at those recoupments with people. And I would say in this current market. I'm doing generally 24 to 36 month recoupments for people. Because my thoughts are is if you do, say, a 24 month recoupment, you're going to buy points, you're going to have a lower payment, you're going to feel good about it, and you're going to have recouped those funds in 24 months. If you refi at the 24 month mark, you've net zeroed this, right? You've gained and lost nothing. When you close on a mortgage, you really cannot refi it for six months or seven payments, or you're doing something called an early payoff. This is a whole other podcast episode that we You really got to stay in that loan for six to seven months, or you've taken out a short-term loan, which is not the purpose of a residential mortgage transaction. So six months, right? Maybe you've lost a little bit, but you kind of played the slots and you gambled. You're going to save more in that refi than the points that you paid, and you're still going to kind of win. The flip side is, is say you get to the 24-month mark and your financial situation has changed, you can't sell, you can't refi. And now you're going to ride this interest rate for the next five years. You're saving money every single month on a lower interest rate. So that 24-month to 36-month recoupment is kind of what my aim is these days, knowing that we are most likely entering a falling rate environment. We've been saying that for a while, and then they like to fall and kind of go back up again. But we kind of think, right, inflation is finally getting under control. We're sort of headed south. So that's a good recoupment. Now, I do have people that occasionally say to me, zero points, Kelly. I want zero points. There's not a lot of... rate available for zero points. So you might say, see that rates are a six and a half and that's with one point, but a zero point rate might be an 8.125.

• Speaker #1

  Also really incentivize you to pay down.

• Speaker #0

  They really incentivize you to pay down your rate. And there are also, and this is confusing words, well, there can be coupons in the points. So you might see that like it's a half a point to get down a quarter, but maybe you're going to get down another 50 basis points. by only paying, you know, another 25. we call the basis points, 0.25% of the loan, you'll see like a big jump. And what I will do for my clients is I kind of will give them a graph that I'm like, here's all the rate options, here's all the point options, here's all the recoupments. And then I will highlight and I'll say, you can see the break here where all of a sudden to get to the next eighth lower is a huge, maybe it's a whole nother point.

• Speaker #1

  There's definitely some nexus point where it makes sense to do the points or do absolutely nothing.

• Speaker #0

  And it almost, for most clients currently, it makes sense for them to buy at least one point. um two points in some situations three for a primary residential a primary house primary residence three is usually the max that you can do um because then you turn into this thing called a high-cost mortgage loan it's a whole other scenario um so three points is generally the max i will also sometimes get the universal people like all the points i want every point you can give me 10 points and i'm like okay well number one this is not great financial advice and number two you can't do it sorry it's impossible yeah i mean at some point um you know if you're if you're

• Speaker #1

  buying a house, you need to factor in the cash flow piece of it. And if it's not affordable and you have to buy that many points, you're probably in the wrong situation.

• Speaker #0

  Well, and sometimes it's the math between, am I better off buying points or am I better off having a lower principal? And I will often show people those two scenarios, right? Say you're getting a $500,000 mortgage. One point's five grand, right? That's a lot. So two points is 10 grand. Are you better off taking a $490,000 mortgage or buying $10,000 in points? There's no right answer to that. It depends on the rates that day. We have to do the math out. But I will do that math out for people. So I always tell people to contemplate their cash to close as a bucket of money. And it's my job as a lender to stuff that money in the places where it makes the most sense and is the most beneficial.

• Speaker #1

  OK. Well, Kelly, this is awesome. I learned a lot. I'm now a mortgage expert. So I'm going to start writing some mortgages myself.

• Speaker #0

  Perfect. Love it.

• Speaker #1

  Well, just to recap, I think in terms of stuff you can control, there's a lot of stuff we talked about today that you... can't necessarily control we can't control what's going on the market interest rates inflation blah blah blah moving forward right so one of the things you need to absolutely do is make sure your credit score is good because that's the number one way you can control narrative you know talk to someone that understands your situation and can help you fit the right product for you because that's going to make a big impact on what the

• Speaker #2

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