How can I show a Purchase vs Cash scenario? (paying in cash opposed to a mortgage)

1. Create a new Mortgage Coach presentation. On the Goals tab, select Purchase a New Home.
   
   
   
2. On the Affordability tab, leave the Savings balance and Savings interest rate % blank.
   
   
   
3. Name the first loan product "Cash Purchase" (or another user-friendly Product 1 name) and leave the loan parameters blank except for the property value. Set the downpayment equal to the purchase price. Make sure to fill in the monthly taxes and insurance if you are showing PITI payments.
   
   
   
4. Enter your new purchase loan as you would normally do for Product 2.
   
   
   
5. On the Analysis tab, click on the adjust reinvestment strategy.
   
   
   
6. Use the bottom area to show the cash flow on each scenario (investment area). To do this:
   • Leave the start balance at zero, then give it a low rate of return (like 4%). Then enter the difference in the payments as a monthly contribution back to the savings on the cash option so it accounts for the money they would otherwise spend monthly on the mortgage (if negative due to rental income, apply monthly savings on mtg option instead.)
   • On the mortgage option, use the purchase price minus the cash to close as the start balance and give it the same or higher rate of return. Note that the borrower could potentially get a better return rate on a large sum of money versus monthly payments. Use this to support a conversation about involving a financial planner.
     
     
7. Choose the option Total Net Worth for the Long-term chart type so it shows the total assets and equity against each other.
   

The end result of the presentation is that it shows that paying cash will always save you interest vs a mortgage, but the long-term area is what we are really looking at.

The question for the borrower is whether they want to deplete their savings in order to buy the house (no liquidity in case of emergencies or future investments or purchases) or if they don't mind paying the additional interest to maintain liquidity in case they want to purchase a second home, put a child through school, or retain the funds for retirement.

Since the net worth ends up about the same in either scenario, the only way to cash out the net worth on the cash option to get liquidity back would be to either sell the house and hope the equity is still there or cash out refinance and take a loan anyway. With the mortgage option, they have the flexibility to use their money any time and this could lead into a conversation about purchasing a second property and renting it out for additional income toward the investment.

Sample TCA: https://mcedge.tv/6tnqsu