How can you illustrate the borrowers refinance breakeven point?

The “Short-term Analysis” graph may be used to illustrate the BE (breakeven) point, which is the middle graph of the three appearing on a TCA. 

In the TCA linked below, for Strategy 1 (interest rate of 6.5%) the BE (breakeven point) occurs in 16 months, while in Strategy 2 (interest rate of 6.25%) it will take the borrower 18 months to begin saving more than their current loan after taking into consideration closing costs and interest paid.

This is illustrated by the Savings in 16 months Short-term Analysis chart in this sample borrower presentation:  https://mcedge.tv/q2rixx



When you click More Info in the Summary table and display the Closing Costs detail, you’ll see that the difference is the $2,019.79 the borrower is paying in points to get the better 6.25% rate.

How Breakeven is Calculated

You can easily see the monthly payment difference in the first TCA chart:


Most loan officers will argue that the breakeven point is calculated by the formula BE = Closing Costs/Monthly Savings, neglecting to take into account the interest paid on the loans (which is definitely an expense).

• Using the BE=Closing Costs/Monthly Savings formula, the breakeven for Strategy 1 would be: $4,678 Closing Costs/$256.34 Monthly Savings = 18.25 months
• Using Mortage Coach, we also take Interest & MI paid into account:
  
  Total Cost Current Loan = Interest & MI (if applicable) Paid on Current Loan = $39,484
  Total Cost Strategy 1 = Interest & MI (if applicable) Paid + Closing/Points = $39,270
  
  Therefore, at month 16, Strategy 1 < Current Loan, because $39,270 < $39,484, by $214
  
  Note: For the current loan and each loan strategy proposed, click View Details on the Savings Over 16 months chart to find detail on Interest & MI Paid and Closing/Points:
  

Refer to this sample Total Cost Analysis presentation: https://mcedge.tv/q2rixx