What if I told you that there is a mortgage product that can provide you the financing needed for your home and give you the ability to pay off the principal balance faster than a traditional mortgage, potentially saving you tens of thousand dollars in interest expense without changing your monthly budget, increasing your minimum monthly obligation and without relying on interest rates to move lower. Well, there is such a product called the All-In-One Loan (AIO) developed in 2005 by CMG Financial. It is an offset type of product, modeled after mortgages offered in the UK, Australia, and New Zealand.
Why haven't I heard of the All In One product?
You might ask if this is such a great product, why have I never heard about it? My answer is twofold: 1) Because the banking and mortgage industry are old and slow at adapting to new things and 2) Which is more likely, is that a traditional mortgage is more profitable for lending institutions. Why? Because in a traditional mortgage you pay more interest up front. In fact, with a traditional loan, approximately 50% of total interest is paid in the first 10 years. Couple that with the fact that most people recycle their mortgage debt with a new loan or refinance every 5 to 7 years. Another way to look at it is that a lower interest rate doesn't necessarily mean lower overall interest cost. Many consumers get into a cycle of refinancing back to a 30-year term which leads them to continue to pay the bulk of interest up front.
How does the All In One work?
The AIO is a principal paid first product. It allows your money to work for you by lowering the principal balance first thus lowering the overall interest cost on the loan. It links your mortgage to a sweep checking account that can be used for every day expenses. Every deposit into the account is swept over at midnight daily and applied to the principal balance. The borrower can use the checking account however they like throughout the month. The interest charges are calculated on a daily basis summed up over the month and dropped on the 21st day of the following month.
The result is that you pay down the principal balance faster without changing your current monthly budget. So what you achieve with the AIO takes a fraction of the time versus a traditional 30 year mortgage.
Let's look at an example
As you can see from the slides above we used some hypothetical numbers based on a $640k loan amount. Continuing with this example the comparison below shows how this can relate to a standard 30 year fixed mortgage, even when using a higher average rate for the AIO.
The AIO scenario takes into consideration the routine monthly deposits along with the routine spending and of course the taxes and insurance on the property. By sweeping the entire amount of the deposits over to pay down the principle balance and in turn calculating the interest on a daily basis the result is that you pay down the loan in less time and thus saving tens of thousands on interest expense.
Since inception, the average mortgage payoff has been between 8 and 12 years. Of course this is average and actual results will vary and depend on such items as your actual deposits, spending and change in interest rates.
Not your traditional HELOC
Does that sound good so far? Well we are not done. An AIO is actually a first lien home equity line of credit or HELOC, but it is not your traditional HELOC that allows a 10-year draw and then a 20-year amortization after. With an AIO the draw does not stay after 10 years but rather reduces to amount available by 1/240th per month until it reaches zero at the end of 30 years. What this means is that even when your loan is paid off, if you keep the account open by paying additional annual fees, then you still have funds available for whatever you want.
Once the loan principal is paid down you still have access to equity dollars. The AIO provides a flexible credit facility that can be used for a variety of purposes. For instance paying for college tuition, paying for an investment property or 2nd home, medical expenses or a dream vacation… you name it! All without having to refinance.
With the AIO you have a vehicle that will enable you to drastically reduce the payoff on your mortgage while providing the flexibility and liquidity of a HELOC.
For more information and to find out if the All In One Loan can work for you, please contact me and I'll be happy to go over it in more detail.
Check out my All In One video :
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