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Jon Kutsmeda

Low Rate does NOT equal a better Mortgage


Yes, you read that correctly.

You have been misled to think that low rate “always” means a better loan … however this is FALSE.

Banks and amateur loan officers love to push low rate on homeowners.

They try to convince you to pay “points”, closing costs, and a bunch of unnecessary fees.

This makes them money, but in the end never actually saves you a single penny compared to more strategic loan options.

Never Ask “What are Rates?”

Mortgage rates changed daily … and despite what most people think (including the majority of loan officers) the Federal Reserve Bank (“The Fed”) does NOT control them either.

I cover this FACT in greater detail in the video series I mentioned earlier. This is a critical concept to understand so I highly recommend that you check out the videos at:

Seriously, go watch the videos … at a bare minimum watch the first video in the series “The TRUTH About Mortgage Rates”.

Since mortgage rates change daily, and future interest rate trends are something we can predict (watch the videos) your focus shouldn’t be on what interest rates are today, but what they will be in the FUTURE.

Asking “What are rates” and then making a financial decision based on the information you receive is like trying to drive your car by looking in the rearview mirror.

Focus on “where the puck is going, not where it is” – this is the strategy Wayne Gretzky used during is legendary hockey career, and you should take the same approach when structuring your mortgage.

There is more to a great mortgage than just a low rate

How you structure your mortgage is EVERYTHING.

It will be the determining factor in whether you eventually own your home, or if your mortgage forever owns you … get it wrong and you’ll be locked in a prison of debt.

Most loan officers are only trained to sell a product for a profit, they think transactionally, and don’t have the experience or knowledge to prepare a strategy that sets you up for long term success with your finances.


Your mortgage interest rate obviously plays an important part, but it is not the only factor you need to consider, which leads us to Jon’s “LAW OF RECUPERATION”.

Regardless of whether or not you decide to work with me directly, I want you to have this SIMPLE FORMULA so you can analyze your options independently.

This way you make a clear judgment on your own about the best loan option for YOU, instead of the one that’s good for “them”.

The typical mortgage loan is in existence for less than 5 years, and the majority never make it passed 3 years. Even if the loan has a 30 year term, property owners are either refinancing or selling within just a few years.

If you consider the last decade when at certain times mortgage rates were declining quickly, such as 2011 – 2013, 2015 – 2016, and now 2019, it’s not unusual for a mortgage to only last 6 months before it would get paid-off via a refinance.

If you pay closing costs on your loan, and you end up refinancing or selling the home before you “fully recuperate the costs” you paid on that loan, then REGARDLESS of how low the interest rate that loan will have only cost you money and will have NEVER saved you a penny.

Closing costs are the ultimate “X Factor”.

If you get a credit card offer in the mail there isn’t a cost to activate that card and start spending. In this situation, since there are no upfront fees or “closing costs” the lower rate would be your best credit card option.

However, mortgage loans have “closing costs” – third party fees such as appraisal, title insurance, origination, escrow, etc. and these costs completely change how you should approach your mortgage.

The approach and the formula is actually quite simple.

I will show you how it works with some very general examples, none of which even require us to know the interest rate.

What really matters when deciding on a loan is SAVINGS and COSTS, which is all we need to calculate RECUPERATION.

Let’s consider two loans:
LOAN 1 – has a payment of $1,000 per month, and “zero” closing costs.
LOAN 2 – has a payment of $800 per month, but closing costs of $10,000.

LOAN 2 has a lower rate, hence the lower payment. However, it merely gives the appearance of saving you $200 per month compared to LOAN 1.

In reality the borrower would have to spend $10,000 in order to receive $200 of savings each month. It’s not until the borrower recuperates the $10,000 that they would experience any true savings.

It would take 50 months of $200 savings ($10,000 divided by $200) before the costs of the loan was recuperated. So it’s not until the 51 first month, more than four years, before the borrower ever saves a single penny.

If the borrower sold the house prior to the 51st month the loan will have only cost them money, and NEVER saved them anything at all.

During that same recuperation time frame, LOAN 1 with the higher rate and zero closing costs, would have a $10,000 advantage and a 50 month runway.

Given the typical duration of a mortgage loan, you would be better off during LOAN 1 since the likelihood of you refinancing or selling the property in the next 3 – 5 years is very high.

When comparing multiple loan options the mortgage with the shortest recuperation is usually the best option, especially when the recuperation timeline is greater than 5 years since the probability that you will still be in the loan beyond 5 years is very low.

In Closing

During the early years of the Trump Administration while rates were slowly trending higher, I had advised our clients that this would be a temporary move and that by 2019 mortgage rates would begin a new downtrend and could potentially re-test previous record lows (2012, 2016).

It is June 3, 2019 and I now stand vindicate. To see my previous predictions and learn what I think is coming next please watch my special video series and download the FREE market reports at:

Any borrower who paid points or closing costs is now regretting it as rates have declined rapidly and are now at the best levels in years.

Our clients followed my “LAW OF RECUPERATION” and are now taking advantage of the drop in rates without any capital loss or wasteful use of home equity (which is how most borrowers finance closing costs).

Choose your loan carefully, and your loan officer wisely. Otherwise it will result in bad advice that leads to costs you’ll never recuperate, and savings you’ll never realize.

The power of Jon’s “LAW OF RECUPERATION” is now in your hands, go forth and conquer your home loan!

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