An all-in-one loan is a mortgage that makes it possible for borrowers to pay more in interest in the short term while simultaneously having access to their equity at any time. It essentially works like a checking and savings account rolled into a mortgage with a home equity line of credit (HELOC).
Consider this refinancing option if you have good credit and want to pay your loan off sooner. It's a great tool that enables you to build equity faster, access that equity, and pay off your mortgage more quickly without having to refinance. This unique loan allows more of your payment to go towards the principal while giving you access to your equity at the same time.
How does an All-In-One Mortgage work?
The All-in-one Mortgage isn't your standard closed-ended mortgage. Instead, it works much like an offset mortgage. Payments are made in the form of a deposit. Those funds are first applied toward your loan principal, yet they are still available for withdrawal.
How does accessing cash work? Think of it as a home equity line of credit in the first lien position (also known as a first lien HELOC). Lines of credit are unique because they are flexible, two-way instruments allowing you to put as much money as you desire toward the loan balance without losing access to your funds.
That money is still there when you need it. So, you're getting the features of a home loan, checking account, and home equity loan all-in-one, plus more flexibility than you'd have with a traditional HELOC. This means that you could use the equity funds however you want: car repairs, gas, groceries, or emergencies, for example.
When making a withdrawal, you can use the debit card that comes with your mortgage account, write a check, or transfer money from the mortgage account into your checking or savings account. As long as you have paid your account, have funds available, and each withdrawal is repaid at some point, the amount you draw doesn't have a cap on it.
Even though all-in-one mortgage loans tend to come with a slightly higher interest rate than a conventional loan, all-in-one loans make it possible to pay down more on the interest. As a result, you can decrease the interest paid throughout the loan's life. As a result, the borrower can bypass the fees that would come with a traditional refinance.
All-in-one Mortgages are popular among:
Borrowers with good credit who are looking to maximize their income while simultaneously tapping into their home equity with ease
Homeowners who are looking to pay off home loans sooner, build equity faster, and free up disposable income
Ability to finance new home purchases or refinance current mortgages
Direct deposits are applied to the principal, which lowers your outstanding daily balance and interest
Less money spent on monthly mortgage interest means more money available to meet other financial objectives
Banking features allow access to home equity without having to refinance
Comes with ATM cards for all account users, plus secured online bill-pay, unlimited check writing, and bank-to-bank wire transferring
The equity you've borrowed in addition to the mortgage must be paid back by the end of the loan term
You could end up overusing the equity
Negative equity can occur when the loan balance could end up exceeding the value of the home
Knowing if an All-in-one Mortgage is right for you
When considering whether you should go with a traditional mortgage or an all-in-one mortgage, be sure to weigh the pros and cons of each option first to determine what the best path forward for you is. You don't get the combined banking and mortgage benefits with traditional mortgages. To borrow more money or access your equity, you would need to take out another loan or refinance.
This means you will also have to pay the closing costs and administration fees of a new loan, which can get costly. Additionally, applying for another loan or refinance means submitting more documentation and can be time-consuming. Many see these limitations as reasons to go with an all-in-one.
The drawbacks concerning an all-in-one are essential to understand and consider before going that route. While it's convenient to access your equity at any time throughout the life of the loan, at the end of the loan term, you must have paid back what you borrowed from the equity loan in addition to the mortgage.
Suppose you aren't extremely disciplined about paying back what you borrowed from your equity. In that case, you could overuse the equity and have difficulty managing your monthly payments and paying back the equity you took out. In addition, if too much interest accrues, you may end up with negative equity, and the loan balance could end up exceeding the value of the home.
Is All-in-one the right fit for your financial situation? Try our All-in-one loan simulator to find out. The simulator will calculate total payments and interest savings for both your current loan and the All-in-one Loan. In addition, you can see a cost summary and estimated loan payoff in as little as two minutes.
Once your results are ready, one of our salary-based mortgage consultants can guide you through the pros and cons, helping you decide which loan option is best for your future.
Just like with traditional loans, you will undergo a similar application process. The lender will need to verify your income and credit history by running a credit report. In addition, they will review your W-2s, paystubs, your debt-to-income ratio (DTI), assets, and other verification documents to verify your ability to repay the loan.
Keep in mind that an annual fee is added to the overall loan expenses. Additionally, all-in-one loans typically have higher rates because they are accelerated loans. Depending on the loan terms, whether it's 15 or 30-years, the shorter the loan term, the higher your interest rate. While this may sound counterproductive to you, the best way to explain it is that you'll save more on interest throughout the life of the loan with an accelerated loan than with a traditional mortgage.
The overall loan process usually includes six stages:
You'll need to have a minimum FICO score of 680 to 700. This is partially because the lender needs to see that you have the cash flow and extra available funds to pay down and reduce the principal amount of the loan consistently. In addition, as a type of accelerated mortgage, all-in-ones make it possible for you to make weekly or bi-weekly payments which add up to 26 half-payments a year which equals 13 full payments as opposed to the 12 payments a year typically paid on conventional loans.
Alternatives to All-in-one Mortgages
A traditional mortgage might be best for you if you want to focus on simplifying your loan process. They are usually closed-term mortgages, which means you may face a penalty fee if you pay the loan off before the loan term ends. So if your goal is to pay your loan off sooner, this may not be the right option for you. On the other hand, an all-in-one mortgage is an open-term mortgage that provides flexibility to pay off the loan balance without penalties.
Traditional mortgages come with fixed Interest rates, which means your rate will not fluctuate over time or with the housing market. So if interest rates go up, your rate will remain the same. Although, if interest rates go down, you will have to refinance into another loan and term to access the lower rates. Whereas with an all-in-one, your interest rate is variable and can change month-to-month. While all-in-one mortgages usually have higher interest rates than conventional loans, one can still save thousands in interest fees in the long run by paying off their loan sooner.
If you want to have the regularity and dependability of a traditional mortgage but want to pay your loan off sooner, there is another way you can make this happen. You could set up a savings account to set money aside during months when you have more cash on hand. Then you can make a lump-sum payment in addition to your monthly mortgage payment that will go towards the principal balance of your loan. This could help you save on interest fees over the life of your loan while providing you with the stability of a set interest rate and a manageable monthly payment schedule.
There are quite a few different loan programs with a wide variety of benefits available to you, depending on your goals and financial situation. We advise that you speak with a mortgage expert before making any decisions to get a loan that best suits your needs. Call and speak with a salary-based mortgage consultant today to learn more about your options.