Ah, the good old. Wall Street Journal Bad advice for home buyers here and you should know it. In fact, this is a mistake if you're a home buyer. Hate to say it.

A lot of people make all the time, yet almost nobody talks about this obvious thing that you could do to save potentially a lot of money over the long term. Let's talk about this. We'll also balance it obviously with the risks and we'll give the Wall Street Journal credit where credits do. But first, let's make this very clear: The Wall Street Journal runs an article on tips for how to get a 6% mortgage and their argument use points.

Buyers can use Mortgage points to lower their interest rate if getting to 6% or under 6% is important to them. Each point reflects 1% of the loan amount and might be paid upfront to your lender. One point on a $300,000 loan would cost $33,000 Each point lowers your interest rate by about a quarter of a percentage point for the life of your your loan. So initially, that might sound like a good advice.

Wait a minute. I Can pay a little bit of money now to have a lower interest rate forever H That could be a good investment, right? We could argue for hey. I'd rather pay a little bit more now and then save money over 30 years, right? Because those are a lot of payments. That's usually the way lenders like to sell the idea of points.

The idea of selling points is very simple. It makes people feel like they got a better deal even though they're paying for it. The reality is, they're probably making a massive mistake. First, let's understand the game a little bit.

Okay, when you go, get a quote from A lender. Let's say the quote is 7% Usually you'll get or you can ask for what's known as the zero point rate. It's basically what's the best interest rate right now. Now, if you want to pay points, you might be able to get a lower interest rate.

For example, if we want to get down to 6% maybe we have to pay Four Points just like the Wall Street Journal suggests. Or maybe you want to pay two points and you want to get to about 65% or one point to get to 6.75 The point for the lender is it's more desirable to sell a 7% loan so they don't have to charge you anything because they can go to the market and go I got 7% Who wants it? If you want a lower rate, they'll give it to you. They'll just charge you for that debt. So they'll charge you a couple points.

And rather than getting paid by the market, they're getting paid by you for a portion of that loan. So basically make that payment up front and you're compensating the lender for giving you a lower rate. That's great. Everybody always talks about getting a lower rate this way, just like the Waller Journal.

But they're making a fatal mistake. They're totally forgetting that you could actually go in the opposite direction. and why might that be beneficial? Well, let's think that through for a moment. What if I could get -2 points for a 7 and 1 12% loan? Or what if I get -4 points for an 8% loan? Whoa Whoa whoa.

Why would I want to go up an interest rate? Oh, because you're getting money. Negative points would mean you are getting money. Now there's a limit to how much money you can get. The limit is what your closing costs are.

But let's say your closing costs on a deal or $116,000 and you're buying a $400,000 property. Well, Four Points times $4,000 1% of a $400,000 loan would be 16. Grand You'd basically have no closing costs, so all the money you would have taken out of your pocket to pay for closing costs you're not paying. Now that's interesting.

If somebody then comes to you and says, hey, would you like to pay a higher interest rate for a little bit of time but have $16,000 more dollars in your pocket? Well, you might say, well, how long that is the magic. See, the magic you've got to consider is, are you going to refinance this loan Most people refinance their loan with normal interest rates every seven years, but interest rates are expected to plummet very soon as the Federal Reserve starts cutting interest rates. So basically anybody who gets a home loan now is probably going to want to refinance within the next few years, assuming they can. Now that's a danger.

Anytime you assume you can refinance and you don't consider the potential for job loss or you're income going down or whatever, there is a risk that you get stuck with that loan. But if you're comfortable with that risk I Think most of us would argue. Yeah, I Mean look, if rates right now are 7% or whatever Plus or Midus, we'll probably refinance as rates come down great. If that's your point of view, you should not pay points.

You should take negative points. So let's consider two options at a time. Here for a moment, let's say your lender goes to you and says, hey, you could get a $400,000 loan at 7% or 400 at 6% You might say oh well, of course I want the 6% but then they say hey, but that's going to cost you four points or $116,000 Well, you better have that darn loan for at least 5 years because it's going to take you about 5 years to break even on just having paid $116,000 just to save $263 per month. The stupidest thing you could do would be to pay all of these points and then refinance after one, two, three, or four years because you've then literally lost money.

Bad investment decision. You'd be better off taking the zero point loan, but you could be even more extreme if you think you're going to refinance, you could jump over to the negative. Point Side: Take the 8% rate assuming you qualify, which is going to cost you $274 more per month, about $3,288 per year. But wait a minute.

The difference between 6% and 8% is actually 16,000 that you're not paying, plus another 16. Which means the difference between the 6 and 8% is 32 ,000 in fees. You could literally pay $32,000 in fees for roughly 10 years if you look at that annual difference. 10 years.

So you literally have 10 years to refinance if you go for the negative option versus the positive If you compare it in that direction, right? usually I don't like to compare it that way. I Generally like to say if you're going to take negative points, it's because you think you're going to refinance within the next 5 years. Usual Rule of Thumb: you're going to refinance. You could even say if you want to include opportunity cost, call at 7 and a half years because you have more cash in your pocket today, right? Cash today is more valuable in the future.

So I Usually say rule of Thumb 5 to 7 and a half years if you're going to refinance, always go negative. Now this is not personalized Financial Advice for you I'm a real estate broker I'm also a licensed financial adviser is just a way to wake people up to this. Now the other items they in here look, they do make an argument here. Oops, wrong side over here.

They do say boost your credit score. Yes, boosting your credit score will help you get your rate down. Usually the best score is 740 Above 740. It doesn't make much of a difference anymore.

Finding a discount on a home? Yes. great idea. But they don't actually talk about finding a discount on a home. They're talking about shopping lenders to find a discount on the actual loan.

Fine, Yes, you could do that as well. You just have to be careful. Sometimes the cheapest lenders have the poorest service in actually getting your loan done. Now maybe that's not a big deal because maybe you're an easy borrower who's an easy borrower.

W2 You get a paycheck every week or two weeks and you got like no debt. easy. The hardest borrowers: self-employed run businesses, multiple tax returns, crazy writeoffs, crazy debts. whatever.

The more in that direction you are, the more you probably want a really good lender handh holding you through this because it's kind of hard to get approved for a loan these days. Then of course, yes, you could get a discount on a house now. I Do want to give a fairness here to the Wall Street Journal They do say think about whether you will refinance in the next 5 years if you're considering buying points. They say that, but they literally don't say why.

They don't say why. and that's the big mistake. Not only do they not tell you why, which I just explained, they also don't tell you that you could go negative. So I don't understand what it is with people's problem, but nobody ever thinks about taking negative points and that is a substantial mistake that people made.

You want to learn more? Go to Meetkevin.com and you can check out my videos on how to actually get a good deal in real estate. Can potentially save you tens to hundreds of thousands of dollars. A lot of people have followed the same steps: Go to Meetkevin.com check out the Zero Millionaire Real Estate investing course. But yes, boost credit, Get a discount on the home shop the loan.

But be careful, it's not worth losing a deal because your lender sucks cuz you're using some you know, random broker that uh, doesn't have a local reputation to protect and then consider negative points. But just be careful if you can't refinance in the future you get stuck with that higher rate. Thanks so much for watching. If you like this, consider subscribing and see you in the next one.

Why not advertise these things that you told us here I Feel like nobody else knows about this? We'll We'll try a little advertising and see how it goes. Congratulations man, you have done so much People love you People look up to you Kevin Pafra there financial analyst and YouTuber Meet Kevin Always great to get your take even though I'm a licensed financial adviser, real estate broker and becoming a stock broker. This video is neither personalized Financial Advice nor real estate advice for you. It is not tax, legal, or otherwise personalized advice tailor to you.

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However, I have no relationship to any issuers other than House Act nor am I presently acting as a market maker.