[Greg]

Oh I just had to throw my .02 cents in that blog too. Awaiting moderation but here is what I said:

Another way I compare this option to consumers is by using an apples to apples approach. The cost analysis is used as well. Depending on the mortgage company and their ability to accept additional principle payments this comparison seems to also make more sense even though it is more complex.

Scenario 1: A $200,000 mortgage at 6.00% has a payment of $1199.01 on a 30 yr term.

Total exact savings monthly $131.60
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This Scenario 1 also assumes you pay the closing costs out of pocket on the 6.00% mortgage. I do not feel that is what the majority of consumers would do. The majority would rather finance the closing costs. I will use $5,000 as an estimate for closing costs in scenario 2.

Scenario 2: A $205,000 mortgage at 6.00% is a payment of $1229.07 on a 30 yr term.

Total exact savings monthly $101.54
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Then here is the so called "No Closing Cost"

A $200,000 mortgage at 7.00% has a payment of $1330.61 on a 30 year term.
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Scenario 1: If you take the additional savings and re-invest it into the mortgage your balance would be:

Years / Principle Balance (Scenario) / Principle Balance (No CC)
1 yr $197,543.97 $197,968.38
2 yr $194,936.47 $195,789.90
3 yr $192,168.14 $193,453.93
4 yr $189,229.06 $190,949.09

So before you hit 2 years into the note you are at a lower principle balance than the loan with closing costs built into it.

Scenario 2:

Years / Principle Balance (Scenario) / Principle Balance (No CC)
1 yr $201,230.13 $197,968.38
2 yr $197,227.70 $195,789.90
3 yr $192.978.50 $193,453.93
4 yr $188,467.16 $190,949.09

Now this one makes you hit around 2.5 years.

So when you do Scenario 1 with a savings of $131.60 and you divide that into $5,000 you break even at 37.99 months

And with Scenario #2 you have to do a more extensive breakdown than the above to realize your true break even point because interest is being charged on the $5,000. So there are 2 ways to look at it.

Apples to Apples would be when your principle hits 200,000

If you just pay the standard payment then it is far to complicated to even explain to most consumers. You are keeping monthly savings but you are also paying interest on the $5,000.