An all-in-one mortgage is a home loan that combines a bank account, a mortgage, and a home equity line of credit (HELOC) into one product. These mortgages offer perks many conventional mortgages don’t. An all-in-one mortgage can help borrowers pay off their home loan faster without refinancing, reduce their interest payments, and easily tap their home equity to get cash when they need it.
Definition and Examples of All-in-One Mortgages
An all-in-one mortgage is a combination mortgage and home equity loan that functions like a bank account. You can use money deposited into your account, such as your paycheck, to pay down the principal and interest on your mortgage, ideally enabling you to pay it off in less time and lower your interest expense over the life of your loan.
Borrowers who benefit most from an all-in-one mortgage generally have the goal to pay down their loan quickly or own their home outright, but they also want some liquidity if they find themselves short on cash for an unexpected expense. Homeowners who want to make home improvements without a definite timeline might also benefit from an all-in-one mortgage.
Here’s an example of how an all-in-one mortgage could work: Let’s say you qualify for a $300,000 mortgage loan at 5% interest. With a 30-year loan, let’s assume your total payment is $2,000 a month, including taxes. Maybe you know that you’ll need a new car and may want to help a child pay for college in the next 30 years, but you have a short-term goal to pay down your loan early so you can reduce the total interest costs.
With an all-in-one mortgage, you could make an extra payment each month, reducing your principal and the time you’ll spend repaying the loan. If in 10 years you decide you need some of the extra cash you’ve “saved” through the all-in-one mortgage, all you have to do to make a withdrawal is write a check, use a debit card, or transfer funds from your mortgage to your bank account. (How you access the money may vary depending on your mortgage lender.)
You can cash out the equity at any time during your loan without refinancing, as long as you’ve made your payments as agreed, you have the funds available, and you’re able to slowly recoup the cost by making extra payments to replace the depleted funds.
- Alternate name: Offset mortgage (UK product with similar structures)
- Acronym: AIO mortgage
How Do All-in-One Mortgages Work?
When you pay your mortgage each month, it’s like making a deposit. The concept is that you’ll pay more into an all-in-one mortgage account than the monthly payment. Since the interest is calculated based on the average daily balance of the loan’s principal, ideally this reduces the amount of mortgage interest you pay over time.
A product that combines a checking or savings account functionality with your home mortgage seems quite comprehensive at first. It’s important to understand exactly how the product works, however, to make sure it provides you with options rather than tempting you to spend too much.
Think of an all-in-one mortgage like a bank account where you make all your deposits and withdrawals. Your paychecks and any other income sources go in, and that money goes toward paying for your mortgage, along with groceries, household bills, and other expenses, just like a regular bank account.
When money goes into the account, it reduces your mortgage principal (albeit temporarily). That extra few days of reduced principal following payday saves you interest expenses because deposits go toward paying the principal first. Since the interest is charged on the daily average balance on the loan—like a credit card—reducing the principal faster means you pay less in interest, potentially saving you thousands of dollars over the life of your loan. It also means you could pay off your mortgage sooner. However, withdrawals from the account to pay bills (again, like a normal checking account) bump the principal back up as the money goes out.
You can also withdraw money from the account at any time by using your home equity in a similar way to a Home Equity Line of Credit. You don’t have to apply for separate loans or lines of credit. Accessing your equity is as simple as using your debit card. But be aware that if you do that, the outstanding balance grows by the amount you spend. In other words, your everyday expenses could end up taking years to pay off, and you may get stuck paying additional interest on those purchases, essentially negating the upside of an all-in-one mortgage.
Do I Need an All-in-One Mortgage?
Because all-in-one mortgages usually require strong credit and aren’t widely offered by banks and credit unions, there’s a good chance you don’t need one, since there are other ways to achieve liquidity while paying down a mortgage quickly.
Again, the factors that make an all-in-one mortgage most attractive include the opportunity to combine your bank account with your mortgage, and easy access to your home’s equity, along with the ability to reduce interest payments and pay off your home loan faster. An all-in-one mortgage might also be for you if you want to keep cash on hand for unexpected or large expenses, and you want to pay off your mortgage early.
If you tend to live paycheck to paycheck, have very little savings, or have a habit of maxing out your credit limits, an all-in-one mortgage may not be a good fit.
Having a checkbook that lets you use your home’s equity to instantly pay for things may be tempting, so knowing yourself and your habits is key when considering this type of loan.
Alternatives to All-in-One Loans
A similar solution can be cobbled together by paying on a conventional 30-year mortgage while depositing “extra payments” into a separate savings account each month when you have the ability to do so. That savings account can be your emergency fund, but you can also use it to pay off the remainder of your mortgage if you want. While this solution isn’t a perfect approximation of the all-in-one mortgage, it illustrates what you might do if you don’t qualify or don’t have access to a lender who offers these loans.
How Much Does an All-in-One Mortgage Cost?
All-in-one mortgages typically come with an annual fee, as well as higher interest rates. If you’re considering an all-in-one mortgage, it may be helpful to do the math to see if you’ll come out ahead. For instance, do you need to pay off your 30-year mortgage in 29 years or much earlier (for example, 20 years) to make the higher interest rate and annual fees worth it? The All-in-One Loan simulator can help you do some of these calculations.
All-in-One Mortgage vs. Cash-Out Refinancing
One common way homeowners access their equity is a cash-out refinance. Here’s how it compares to an all-in-one mortgage:
|All-in-One Mortgage||Cash-Out Refinancing|
|One loan for the life of the product||Actually originates a new loan and pays off your original loan|
|Can withdraw funds any time there is a positive balance||Withdraws a specific amount at one point in time, usually when you refinance|
|Allows you to pay the same interest rate but on a lower principal amount if you’re making additional payments||Usually reduces your interest rate itself, but on a higher principal amount since you’re pulling equity out as cash|
- An all-in-one mortgage is a mortgage loan combined with a bank account and a home equity line of credit. Since these mortgages cost more than conventional loans, they become worthwhile when you are planning to pay your mortgage off early, or want to use your home equity cash flow for emergency expenses, home renovations, or other costs.
- Approach an all-in-one mortgage with caution if you think having easy access to your home equity might be too much of a temptation to overspend.