All In One mortgages, maybe a good idea for some

[Zambo]

Full disclosure, this is an ad for your business but only because I think it would be possibly helpful for some folks in these crazy times. The events of late have got me thinking how fortunate I feel that the wife and I are to have an All In One loan on our house. Basically, if the worst happens, we have access to plenty of cash because of the equity in our home. I know that rate-chasing will always be part of the equation for anyone with a mortgage, but I figured for some folks that having access to cash when you need it might be more important at times. This could be one of those times for some people. The added plus is that this sort of loan lets you spend less ACTUAL MONEY on your home in normal times. We are paying off our house in record time with this product. My wife is a loan officer for one of the few companies that offer this deal and like I said we use it ourselves.

I've posted about this loan a couple times before buried in the various mortgage threads but I figured now might be a time when this product is of use for some of you. It is basically a big line of credit with your house as the guarantee. You can borrow up to 80% of the value of your home. What this means is that any equity you have in your home beyond that 20% buffer is available to you any time you need it. Example: You owe 300k on a house appraised at 500k. The loan is good for 80% of the appraised value, which is 400k. That means you have access to 100k to spend as you like. Yes, it is sort of like a HELOC, but it is more flexible and it is a first lien position.

In normal times when you're getting a steady paycheck, you deposit that money directly into the account. You don't have to do this but that is what we do to take advantage of this loan product. When you make that deposit, it is fully applied to the principle loan balance. What this does is drive down your monthly interest payment. When you pay a bill, you pay it out of the account, which makes the interest payment go up. The idea is that when you are making more money than you spend every month, you are paying off the house way faster than you would making a normal monthly payment. But you also have the added feature of being able to access that equity by simply writing a check. This is how we built our swimming pool in the fall BTW.

In any event I figured I'd throw it out there as something to consider in these crazy times. Her company is still writing these loans...for now. Not sure how long something like this will be available going forward if things get even crazier, which is highly likely IMO.

Check it out at https://www.aioloan.com There is a simulator on there where you can plug in your numbers and it will show you what the effective rate of a conventional mortgage would have to be in order to pay off your house for an equal amount of money.

Sound off if you have any questions. We'd be happy to help out if anyone is interested.

 

[bradgator2]

Interesting concept and thanks for the info. I like the different concept and out-of-the-box solution.

One year ago, I refinanced to 3.0% 15 year. I ran through their simulator and I dont think it would be beneficial to me from a straight $ POV. Although, always having that equity instantly available as a "fall back" certainly is appealing. Very appealing.

 

[sharkbite]

Thank you for posting this. I find this very interesting. What are the costs associated in getting this new loan? I have been paying on the existing loan for 16 years so I have quite a bit of equity. Are you saying that this equity becomes available for use? (I understand the payoff changes) The reason I ask, I am getting ready to move across country and I do not want to touch my existing investments. I could use this equity as the down on the new house till this house sells? Then use this new loan system on the new house?

 

[Zambo]

Thank you for posting this. I find this very interesting. What are the costs associated in getting this new loan? I have been paying on the existing loan for 16 years so I have quite a bit of equity. Are you saying that this equity becomes available for use? (I understand the payoff changes) The reason I ask, I am getting ready to move across country and I do not want to touch my existing investments. I could use this equity as the down on the new house till this house sells? Then use this new loan system on the new house?

Yes to everything you just said. Send me a pm if you want to talk about it.

 

[Zambo]

Interesting concept and thanks for the info. I like the different concept and out-of-the-box solution.

One year ago, I refinanced to 3.0% 15 year. I ran through their simulator and I dont think it would be beneficial to me from a straight $ POV. Although, always having that equity instantly available as a "fall back" certainly is appealing. Very appealing.

That’s the thing, you get flexibility and instant access to wealth you otherwise can’t touch. There is a cost for that flexibility but most of it can be mitigated by paying the loan as if it were conventional if you don’t need the funds.

 

[alcoholica]

A lot of folks just get a HELOC to payoff their first. They keep little in savings knowing they can sweep out whenever they need. So all of their income actually goes against principal. So if your savings account is giving you squat, you essentially increase your yield by going this route. Usually no closing costs and great rate options right now. Of course pros and cons.

others can keep extending out their loan to 30 yrs for flexibility and pay down as they wish.

lots of tools out there, each with pros and cons. Have to know what fits your fiscal knowledge , ability and effort

 

[BMF]

That’s the thing, you get flexibility and instant access to wealth you otherwise can’t touch. There is a cost for that flexibility but most of it can be mitigated by paying the loan as if it were conventional if you don’t need the funds.

Does this loan have the same low interest rates you can get now? Like a 3% 30-year? Why are there no closing costs?

 

[Zambo]

Does this loan have the same low interest rates you can get now? Like a 3% 30-year? Why are there no closing costs?

Absolutely not, but being interest only the payment is either a lot lower, OR you keep paying the same and the reduction of principle over time results in a similar cash payout over the life of the loan. Actually its simpler than that, you don't even make a payment, the interest (only) is simply swept out of the balance. Every nickel you make is in effect a "payment," until you spend that nickel.

Lets just say you finance 300k on a 500k house. Your family income, after taxes is 10k. That 10k goes into the loan, reducing your balance to 290. Then you spend 8k on all your family expenses and purchases, and the balance goes up to 298. Lather, rinse, repeat. 2k per month reduction in principle based on the difference between your income and expenses. 4 years into this thing the principle is down almost 100k if you maintain that level. It won't actually be quite that low because you do have to pay interest on the principle, but only on the amount currently in the account, not the amount originally financed.

Or at some point you decide you want to buy a pool or fancy car or even another home...you have all that money available to just write a check for it. Or a nasty virus comes along and you lose your job....you have all that money available to keep food on the table.

If you have plenty of cash on hand to do whatever you want and just want to finance your house you can get a 30 year fixed, even jumbo, for 3% or less these days. You could pay an extra 2 grand every month and whittle down the principle just like the AIO loan, but when you send that check in to the bank that money is gone unless you refinance.

 

[FireFoley]

I think I am above average moron, but even this product smells to me. There is an old saying: The House Always Wins. Why does this sound like the old Pay Option Arm? Have a few down months, just pay interest only. Problem was that the below average morons did not know the unpaid principle got rolled back into the loan and interest was recalculated. Can you explain to me how the House is not winning here?

 

[Zambo]

I think I am above average moron, but even this product smells to me. There is an old saying: The House Always Wins. Why does this sound like the old Pay Option Arm? Have a few down months, just pay interest only. Problem was that the below average morons did not know the unpaid principle got rolled back into the loan and interest was recalculated. Can you explain to me how the House is not winning here?

I just explained the whole loan. If you think its a bad deal don't take it. We have it on our house. The other mortgage brokers in the firm have it on their houses. Many of our friends have it. The upside is you have access to your money if you need it. The downside is that the rate on the principle balance is higher than with a conventional loan. Decide for yourself if its worth it. Believe me my wife doesn't need the extra work right now, she's swamped and every loan is difficult to do because of the shutdown. But I figured it might be something some of you could use.

 

[sharkbite]

The way I am looking at this is that you have to be disciplined to have this type of loan. You cannot spend what you see in the account. (like checking) If you put all your pay in this account and only take out what you absolutely have to for bills, I can see how this is a huge benefit. If you cannot budget then you will never pay down the debt.

I just explained the whole loan. If you think its a bad deal don't take it. We have it on our house. The other mortgage brokers in the firm have it on their houses. Many of our friends have it. The upside is you have access to your money if you need it. The downside is that the rate on the principle balance is higher than with a conventional loan. Decide for yourself if its worth it. Believe me my wife doesn't need the extra work right now, she's swamped and every loan is difficult to do because of the shutdown. But I figured it might be something some of you could use.

 

[FireFoley]

I just explained the whole loan. If you think its a bad deal don't take it. We have it on our house. The other mortgage brokers in the firm have it on their houses. Many of our friends have it. The upside is you have access to your money if you need it. The downside is that the rate on the principle balance is higher than with a conventional loan. Decide for yourself if its worth it. Believe me my wife doesn't need the extra work right now, she's swamped and every loan is difficult to do because of the shutdown. But I figured it might be something some of you could use.

No I pretty much understand and I am not here to advocate for or against what people do. But I am a big picture person and do not just think about my own 4 walls. My wanting to understand helps me think about how I make personal investments. Having access to one's money is a good thing, but this is America and if you look around, it is "access to credit" that keeps people behind the 8 ball constantly. A consumer's willingness to spend is insatiable. Should that consumer be spending is a completely different question. People will always spend given whether it is their money or not. I understand that most of the people you know who utilize these products, use them wisely. But just like the Pay Option Arm, 99% of the people who used them were doing so to get INTO a house, which is exactly who should NOT have been using it. This is more tied to the equity, so being that most people do not have or truly understand equity, it will not be massively used, which is fine. But for those with discipline and understanding I can see its potential allure and benefits.

 

[Zambo]

No I pretty much understand and I am not here to advocate for or against what people do. But I am a big picture person and do not just think about my own 4 walls. My wanting to understand helps me think about how I make personal investments. Having access to one's money is a good thing, but this is America and if you look around, it is "access to credit" that keeps people behind the 8 ball constantly. A consumer's willingness to spend is insatiable. Should that consumer be spending is a completely different question. People will always spend given whether it is their money or not. I understand that most of the people you know who utilize these products, use them wisely. But just like the Pay Option Arm, 99% of the people who used them were doing so to get INTO a house, which is exactly who should NOT have been using it. This is more tied to the equity, so being that most people do not have or truly understand equity, it will not be massively used, which is fine. But for those with discipline and understanding I can see its potential allure and benefits.

There is secured credit and unsecured credit. This is the former. It is 80% of the value of the house. It isn't money borrowed against future paychecks, its borrowed against the home value. The only way a borrower can spend any of this money is if they have a good amount of equity. Keep in mind that if you borrow 80% you don't have a dime to spend, you only have whatever equity in excess of that 80% available. Its not like a credit card when someone can spend money that they don't have yet. The people who would abuse credit don't generally fit that bill. Back in the housing bubble, people were borrowing way more than 80% and doing so with stated income rather than the verified income required for the most part these days, all betting on the fact that their house would just keep going up in value, which of course didn't happen. Bottom line is that it isn't some scam, its just a loan product that streamlines the ability for people with equity to get a LOC on that equity.