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An all-in-one mortgage allows you to combine your mortgage and savings. The combined accounts function like a home equity line of credit (HELOC).
This kind of arrangement can help lower the interest you pay on your mortgage because the balance of the savings you add to the account is applied to your principal, thus reducing the amount of interest you owe.
Key Takeaways
- All-in-one mortgages allow for the combining of a mortgage and savings. They require the combination of a checking account, home equity loan, and mortgage into one.
- The benefits of an all-in-one mortgage include seamlessly using extra cash flow to pay down a mortgage, as well as having increased liquidity beyond typical home equity loans.
- All-in-one mortgages typically charge a $50 to $60 annual fee and are 30-year adjustable rate mortgages.
What Is an All-in-One Mortgage?
An all-in-one mortgage combines elements of a mortgage, a bank account, and a home equity line of credit (HELOC). This structure provides the homeowner with immediate access to home equity without a separate loan. The homeowner makes payments like they would with a traditional mortgage, and those payments are applied to the principal and interest on the loan.
However, unlike a traditional mortgage, payments are deposited into a savings account, making them available for withdrawal. Because of this setup, borrowers can deposit the amount of their typical monthly mortgage payment plus the amount of their typical monthly expenses, including savings. Because all of that money goes toward paying down the principal, interest payments can be lowered.
Important
An all-in-one mortgage is different from an offset mortgage, which is not available in the U.S. due to tax laws.
Example of an All-in-One Mortgage
A conventional 30-year fixed mortgage for $400,000 at 6.00% would result in a monthly payment of about $2,398 and total interest payments of about $463,352 over the life of the mortgage. If you also are putting $1,000 toward your savings every month, an all-in-one mortgage would allow you to apply both amounts—a total of about $3,398— to your mortgage balance each month while still giving you access to your savings. Doing this without withdrawing any of those funds would allow you to pay off your mortgage in less than 15 years and save about $258,283 in interest payments.
A key to this example is not withdrawing any of the funds. In order to reduce your interest payments and speed up the time it takes to pay off your mortgage, you need to be disciplined enough to avoid constantly tapping into the available equity.
All-in-One Mortgage Fees and Rates
Offset and all-in-one mortgage lenders charge a $50 to $60 annual fee on top of other standard loan expenses, and higher rates usually apply for accelerated mortgages. Most accelerated loans are 30-year adjustable-rate vehicles that are tied to the LIBOR index.
A key issue to consider here is the lifespan of the loan. A slightly higher interest rate could be worthwhile if the loan is paid off several years sooner than a lower-rate loan. Remember that the time for repayment for an accelerated loan is not fixed. Therefore, the borrower’s projected surplus cash flow must be taken into account when making this comparison.
All-in-One Mortgage Suitability
One of the main caveats of this type of loan is that most lenders who offer accelerated mortgages require borrowers to have relatively higher FICO scores in order to qualify. This is because this type of mortgage will only benefit a borrower who has a consistent positive cash flow, with surplus funds available to reduce the principal of the loan on a regular basis.
One way to decrease mortgage-related debt is to secure a mortgage with a low-interest rate. It’s important to shop around as different lenders may offer different interest rates on the same type of mortgage and in the long-run securing a mortgage with a lower interest rate could save you thousands of dollars.
What Is an Offset Mortgage?
An offset mortgage combines aspects of a traditional mortgage with one or more deposit accounts at the same financial institution, The interest charged on the mortgage is based on the principal amount less the amount on deposit in the savings component (which offsets the loan principal). Offset mortgages are not available in the U.S. due to greater tax regulation. Instead, the all-in-one mortgage is a viable alternative for some U.S. homeowners.
Who Should Avoid All-in-One Mortgages?
Although the benefits of this type of loan can be substantial, suitability is still a key concern, just as with any other loan product. Financially undisciplined borrowers may want to steer clear of taking one of these loans. Possessing too much available credit through the equity line aspect of the account could trigger spending sprees for some people, which will add to their overall debt.
What Are Some Alternatives to an All-in-One Mortgage?
If you want to access home equity, you can refinance your existing mortgage with a cash-out refi. You can also take out a home equity loan or HELOC. If you are instead looking to pay off your mortgage sooner, you can recast your mortgage or else pay additional principal early.
The Bottom Line
A combined mortgage, savings account, and HELOC is a special product that allows homeowners to pay down their mortgage principal faster, thus lowering the total amount of interest they will pay over the life of the loan. For this to work, average monthly expenses cannot exceed average monthly deposits, meaning borrowers need to refrain from tapping into their home equity.
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