Tools
A mortgage is a tool that allows you to buy a home you wouldn't otherwise be able to afford.
Like any tool, some are better than others, and some fit you better than others. The wrong tool can make things unnecessarily difficult, painful, or prolonged. The right tool makes things easier, get things done better, and does it all much, much faster.
I'd compare a 30 year loan to an old, rusty saw.
It'll do the job eventually, but you will have unnecessarily expended maximum energy in doing so.
Upgrading to 15 year fixed loan would be like upgrading to an old whipsaw.
Remember these? About 8' long, requiring two people on either side of the tree, pushing and pulling back and forth. It gets the job done much faster.
Upgrading to the AIO is like getting your hands on a chainsaw.
It's sharper. It's faster. And It’s so much more powerful.
Many AIO clients pay their loans off in 1/3 of the time they would've in their conventional loans. Those in a 30 year would pay them off in 10 or 11; those in a 15 year pay theirs off in 5 or 6.
If your goal is pay as much as possible in interest, and do that for as long as possible, then by all means: stay in your current loan.
But if you'd like to cut through your debt quickly, build equity faster, cut down what you’re paying in interest charges, and have peace of mind knowing that you'll never have to feel a cash crunch again, it's time to upgrade your tool.
Slam Dunk
Several years ago I was playing "HORSE" with a few friends on an arcade basketball game.
The shots were getting more and more outlandish until I had an idea. It was a really dumb idea: See video below.
Note: Despite my seriously poor form, it did go in.
That video ended up on MTV's Ridiculousness.
Rob Dyrdek and his guys had a good laugh watching my dunk, and skewering me for my stupidity.
It actually was pretty stinking hilarious.
I imagine big banks must be having a good hearty laugh at how many homebuyers keep willingly signing up for conventional mortgages.
They must laugh in disbelief at how willing we are to pay fixed interest rates of 4%, 5%, 6% or more for 30 year terms.
And they must roar when they see how much money keeps flowing into their banks, and how little is going into these homeowners' equity.
Well I'm not laughing.
It's ridiculous to me how many homeowners are staying in loan products that keep them paying more towards interest than their principal for years.
It's ridiculous to me how many hundreds of thousands of dollars could be saved if borrowers would simply upgrade to the AIO.
It's ridiculous to me how many homeowners keep refinancing and resetting their 30 years back further and further.
And it's ridiculous to me that people would be suspicious of AIO, and not their 30 year fixed loans.
Like we’ve said before, AIO isn't right for everyone.
Some clients simply don't make enough income to make it worthwhile. Others have expenses that are just too high relative to their income.
But for so many others, even on a risk-adjusted basis, it's an absolute slam dunk.
If you've got 20% equity in your home--and more people do now than ever as we're sitting on the most nested equity in the history of housing in the USA--you need to run the simulator to see whether or not the AIO could be right for you. It might just be ridiculously so!
Jumbo vs. AIO
Once a loan exceeds the conforming limit of $802,650 you enter the world of jumbo options.
To get a jumbo loan, you will have to:
Put 10-20% down. (Note: Any down payment less than 20% will cost you--significantly, and may require a 740+ credit score.)
Pay at least 1 point to get a 7% fixed rate (as of 11/22).
Have strong credit: the higher your score, the better your rate.
Pay significantly more in interest than a conforming loan with a lower rate.
Obviously, the higher the loan, the more expensive the interest. In our example scenario on the homepage, we talked about a $450,000 loan. The savings were significant. Imagine if the loan was 4x that: $1.8M. The savings would be all the more impressive.
On a $450,000 loan, buying the rate down one point only costs $4,500. On a $1.8M loan, that point will cost you $18,000. Remember, most jumbo options will require at least one discount point to even qualify. That's a steep addition to your closing costs!
Bottom line: The AIO is superior to any 30 year loan—especially Jumbo!—assuming you make more than you spend.
The degree to which the latter is true will be the degree to which the former is true. This is absolutely the case when comparing AIO to Jumbo:
You're putting 20% down either way.
You don't have to pay a discount point to get an AIO (though you can if you'd like to buy the margin down.)
Your interest savings will be even greater than they would in a conventional loan.
Finally, the AIO giving you access to your home's equity is a serious tool in jumbo-land. Having a line of credit for up to $2M would mean you could pounce on several investment opportunities all at once--without having to go through any of the steps to secure financing.
Mortgage for the rest of us.
Unless you’ve spent a lot of time researching mortgage, compound interest, & amortization schedules, there’s a good chance you’re like most people—not really sure how all of this works.
We’re here to help.
It can all be confusing—your rate is fixed at 4% but your last mortgage payment said you paid $1,500 in interest, and only $648 towards principal. That’d be the case on a $450,000 mortgage with a 4% fixed rate.
Those amounts won’t trade places for more than 21 years, at which point you’ll finally be paying $1,500 towards principal, and paying $638 in interest.
Your monthly payment will be $2,148 (including $375/mo for property taxes) for all 30 years. By the time you pay off that loan, you will have paid the $450,000 loan back—plus another $321,915 in interest. All told, you’ll have paid $906,915 to own that home.
Seems like, if you’re paying $2,148 per month, then 4% of that amount should be interest, right? About $86.
Think again—you’re not even close. Your 4% fixed rate becomes 72% over 30 years. (See our chart for Stated vs. Effective interest costs below to see what you’re actually paying in interest with your fixed rate.)
Stated vs. Effective Interest
“How is that possible? I thought I was getting a 4% fixed rate—I never would have signed up for a 72% rate!”
In other words: why is my stated interest rate so different than my effective interest rate? The answer is because of two things: Amortization, and Compounding Interest.
Amortizing a loan simply means you’re calculating each month’s payback according to a predetermined schedule that will include principal & interest (and taxes and insurance, if you’re escrowing).
Any mortgage calculator will let you input your loan amount, the interest rate, and the term (length of time you’d like to spread out the payments). You’ll be able to see how the monthly payments are calculated to stay consistent throughout the entire term. And you’ll notice the 8th wonder of the world (according to Albert Einstein) working against you: compound interest.
Compounding Interest means that instead of simply paying your interest rate multiplied by your loan amount once, or even each year, you’re multiplying those numbers each month. So month one on a $450,000 loan at 4% will cost you $1,500 in interest. Month two will cost $1,495.67.
Simple interest would mean you’re only paying 4% interest over the life of the loan—ie, $18,000 on a $450,000 loan. Instead, you’ll pay that in the first year.
Compound interest means that you’ll pay 4% of your loan balance amount every month, and since you’re barely lowering your principal each month in those first fifteen years—remember, most of your payment isn’t even touching your principal--the balance stays high, resulting in massive interest costs even though it’s a 4% fixed interest rate.
By the end of the second year, you will have paid nearly $36,000 in interest, and only $16,172 towards principal.
By the end of the third year, you will have paid $52,505 in interest, and less than $25,000 towards principal.
By the time you will have paid down $50,000 on that loan, you will have spent almost $100,000 in interest. That’ll take 70 months—just shy of 7 years.
Principal, Interest, & Escrow amounts over 1st seven years.
These are a few of the reasons why we don’t prioritize interest rates.
Rather, we scrutinize the actual interest costs.
Just because one loan has a lower rate than another doesn’t make it a better loan. Compare that 30 year fixed 4% mortgage to a 15 year fixed at 7%: In the latter, you’d save $46,481, despite the higher rate. Instead of paying 72% in total interest, you can get that down to 61%.
AIO clients often get their total interest paid down into the teens.
Our clients referred to in our introductory video who make $10,000/mo and only spend 65% each month will end up paying 19% total interest on their $450,000 loan by depositing their $50,000 and buying the margin down to 3% using the historical average interest rate of 5.535%. They’ll pay off their loan in 7.3 years and save over $230,000.
Comparing 19.7% total interest paid to 72% or 61% shows you this is a very simple decision.
“Did you know: the word “mortgage” literally means “death pledge,” meaning I’m paying this back on promise of my very life.”
Compare the first 5 years to the last 5:
In the first 4 years, you’ll pay $85,775 in interest and $43,000 towards principal.
In the last 5 years, you’ll pay $12,247 in interest and $118,408 towards principal.
After the Closing
I closed on my AIO! Now what?!
Upon closing an AIO, a few things happen that are different from a conventional loan. Since it involves a sweep checking account that can take a few weeks to open, it’s helpful to know what to expect.
From the time of closing, it can take up to four weeks for you to receive a packet (first via e-mail, then in your physical mail) with your new AIO checking account’s routing and account numbers. The physical packet will contain your debit card as well. if you’d like to order checks, you can do so online. Your debit card (and checks) will automatically pull funds from your HELOC.
At the time of receiving your new account details, you can begin setting up any ACH deposits or bill-pay accounts. You can also begin moving money from other accounts into your AIO checking. Every dollar deposited into the AIO checking account will be automatically swept into the HELOC each night at midnight, so if you log into your account (on your phone, or in a web browser) you’ll see that exact amount in your AIO checking account the same day as the deposit, and the next day the checking account balance will be back down to $0, and your HELOC balance will reflect the new lower balance corresponding to the previous day’s deposit.
You will use the Northpointe banking app to deposit funds into your AIO. All deposits will go into your checking account, and then transfer (that night) into the HELOC. There are no daily deposit limits for our app.
To connect your AIO to external bank accounts, you’ll follow the prompts on each bank’s websites to link the two accounts for instant transfers. If you need to transfer funds from your AIO to an external account, you’ll initiate the draw from the external account’s website.
Note: certain apps—such as Venmo—use “instant verification” before allowing funds to be transferred.
Since the AIO checking account will typically show a $0 balance, Venmo may not always work. We’ve had no issues at all so long as Venmo is connected to our AIO debit card. But if you do experience any problems, we recommend keeping an outside checking account that you can use for instant transfers through such apps. You can initiate a transfer from your external account, pull the funds from your AIO, and send via Venmo without any problems.
Logging into your account online will allow you to see (1) your current balance owed on your mortgage, (2) your available equity, (3) that month’s interest rate, and (4) the interest charge that will be added on the 21st of that month. (The mobile app will simply show you #s 1 and 4.)
Seeing a $0 balance in your checking account but, say, $240,000 as available equity means you can write a check that day for $240,000. If you owed $200,000 on your HELOC and your wrote a check (or setup an external transfer) for $240,000, the next day you would be paying interest on $440,000 instead of $200,000.
How have I not heard of AIO before?
Remember the bag phone?
This was one of the first commercially available mobile phones to hit the market in the 1980’s. I remember when our family bought one of these when I was about 9; we stored it in the glove-box of our car, seldom (if ever) using it due to the astronomical costs per minute.
To date, I cannot recall it ever being used one single time.
Fast forward to the the early 2000’s: mobile phones were still comically huge. I remember disagreeing with my newlywed bride in the fall of 2000 because she felt like she needed a phone in her car “in case something happened,” and I was incredulous! I remember thinking, “when would you ever actually need to make a phone call on the road?”
Wow, was I wrong.
Thankfully, my wife never had an issue where she needed to make one of those expensive bag-phone-calls. But mobile phones evolved so rapidly and proliferated so broadly that now most adults—myself included—likely couldn’t imagine heading down the road without their phone.
That progression took a very long time.
Just 15 years ago, by the end of 2007 only 9% of the world had a mobile smartphone subscription.
Today’s estimate is between 83-84%.
Why would that have taken so long to break into the market? And why do things that eventually take over still take so long to be adopted by the majority?
2 reasons: Familiarity and Social Custom.
If something is unfamiliar to us, we’ll likely just continue on with the more familiar options, even if the unfamiliar product is intrinsically superior. That’s why “speed of growth” isn’t always a great metric for a new product—mobile phones were extremely slow to permeate the market, but you would have been a fool to bet against their eventual success.
Whereas an amortized, conventional loan is so familiar as to have become the default option for homeowners in the US, the AIO—superior as it may be—is a slowly and steadily growing option for more and more homeowners. I’d bet the farm on it taking over the country, perhaps in about the same time it took for mobile phones to do the same. But remember, the AIO has only been available in the US for 15 years. In mobile phone timelines, that’s still early days.
All that to say, the fact that you’re only just now hearing of it means very little.
Anytime a new product becomes available that is vastly superior to its predecessor, the question isn’t how many people are getting onboard at the start. Just like electric vehicles, the question isn’t “how many people are buying these cars at present?” It’s this: “How many people who buy an EV will ever go back to buying a gasoline car again?”
Regarding the AIO, the question isn’t how many people already have one, the question is this: How many people who have an AIO will ever get another type of loan again?
Social custom is the second reason you may have never heard of an AIO.
We are programmed by instinct to follow our habits and to follow social copying. Anytime something new comes along the challenges us to stop doing things one way and start doing things another it will be met with hesitation. That makes sense. If everyone else ate the purple berries and they didn’t kill them, then I’m safe to assume they will be safe for me.
If you don’t know anyone in an AIO, you likely haven’t ever explored it yourself. That was my story too. But then I met a wide community of people who have had AIOs for years. There was no going back from there.
Mobile phones have come a long way since their baggy beginnings.
Mortgages have too.
Just like you, I’ll never go back to not having a mobile phone.
Having driven several electric vehicles for the last 8 years, I can also tell you will I likely never go back to buying a gas-powered car.
And after just a few years in the AIO, I’m just as sure: there’s no loan in the world that I’d ever even consider going forward.
Brokers or Banks?
“Tiki-taka” is the name of the soccer style made famous by Brasil & Spain in the last couple decades. Short, accurate passes, sometimes 80 or 90 passes even in a possession, proved hard for many opponents to defend, resulting in multiple world championships between the two teams.
That’s the best way I can describe the difference between working for a mortgage bank, vs. a mortgage brokerage.
You may have a mortgage broker in your city who tells you they can do an AIO for you. They don’t work for a bank, mind you; their brokers.
There are a few reasons I’d suggest you work with a proper mortgage bank instead of a brokerage:
As a team member at my bank I can walk down the hall from my office to work with my assistant, my processor, my manager, and my underwriters. I can go upstairs to the 3rd floor to work with our VP’s if I need to—we’re a local team. These short, quick “passes” make a massive difference in response times and overall expediency in taking a loan file from inception to closing. I’d guess there are often 80 or 90 pages of documents passing back and forth between lenders, assistants, processors, underwriters, realtors, insurers, lawyers, and closers. If the bulk of those are in-house, instead of inter-state, turn-times shorten drastically.
I’ve heard from multiple mortgage brokers who envy my position at my bank (and want to work for me) because of how often heir emails to the banks they’re trying to work with go unread, the support they need is often days overdue, and their frustration levels reach a boiling point. I’m not waiting on responses from people in other time zones, I can just pop next door and get any problems resolved with my team right here in my building.
Whereas brokers have to charge origination fees (usually 1% of the loan amount), as a bank we are able to waive it. That alone will end up saving you several thousand dollars.
With something as personal as your financial history, and something as complex as a home loan, you need a trusted team to get to the closing table with as little stress as possible. Brokers are lone rangers, working with disparate banks with whom they often have no actual personal relationships or physical proximity. That’s a tough spot to be in. I’d rather work with a well-trained team working in close relationships with one another, in a healthy culture, towards shared goals.
That’s exactly what we have at aio.Loan & Northpointe Bank.
Applying for a home loan, whether a new purchase or a refinance, will always include no small measure of headache. Why not partner with a team that can make that as quick and painless as possible?
Your savings account is rotting.
Gross.
If your savings account is earning you 1% interest, and inflation is around 3%, that means that every day you leave money in a savings account, you’re losing money.
For the sake of simplicity, say you put $100,000 in a savings account for a year.
By the end of that year, you will have earned $1,000 in interest, and lost another $2,000 to inflation. (You’ll have $101,000, but the price of goods and services will have inflated to the effect of you having $97,000.)
Out with the old! Freshen it up.
Now, imagine that $100,000 being in your AIO.
Let’s say the interest rate is 5%.
Now it’s in an appreciating asset, as well as saving you significant interest costs on your mortgage. Say you owed $200,000 on your mortgage, and it’s an AIO. By transferring that $100,000 into your AIO, it remains as liquid as it was in that savings account, but it’s now dropped your balance to $100,000.
5% interest on a $200,000 loan will cost you $10,000 / year. That’s $27.40 per day.
5% interest on a $100,000 loan will cost you $5,000 / year. That’s $13.70 per day.
You’re now saving $416 per month—that’s a car payment--while remaining liquid the whole time. And remember: this is money that you simply moved from one account to another.
In your savings account, your money is only working for the bank.
In the AIO, it’s finally working for you.
Wait or Buy?
“With rates going up & prices so high, should I rent or should I buy?”
It’s a great question. Buying has more risk, & possibly even higher cost.
But what happens over time? Take a look at the scenario (inset).
Assuming for conservative estimates, If you were to rent or purchase a $500,000 home, over a five year period you would be significantly better off having purchased than paid rent. Here’s how:
If you could rent that house for $3,000 / month or buy it with a $400,000 mortgage that costs $3,717 per month (a full PITI payment at 5%), the following will play out over a five year period:
Your cashflow will average out to $293 less per month (in the purchase), but after five years, your net worth will have increased by $157,772.
Rental prices increase every year, so by the time you get five years in, your rent for that same house will be more expensive than the mortgage payment.
Remember: paying rent is paying 100% interest. You’re not building wealth. You’re not buying real estate—well, for yourself anyway. You are buying real estate for your landlord.
Note: This is already accounting for all closing costs & realtor commissions involved in selling the home in 5 years time. I.e., that amount has been subtracted from the prospective net worth.
But what about interest rates?
No doubt: it’s rough.
This chart shows how much mortgage prices have fallen in the last two years. (When prices fall, rates rise.) Since May of 2020, it’s been pretty much all downhill. June of 2022 hit lowest levels (read: highest rates) in decades, and they’re trying to rally but still a long way from where we were 2 years ago with historically low rates.
The scenario at the top of this blog reflects interest rates that are current as of August, 2022—about 5%.
Even though that’s 2 full points higher than it would’ve been 2 years ago, it’s still better off to buy a home with a relatively high rate than waiting to rent until rates (or prices) come down. I’d rather get my foot in the door and begin building equity sooner than later. You can always refinance once rates come down, and rates will come down eventually. If you wait until rates come down, the prices will have gone up due to appreciation that you may not be able to afford the house by then anyway!
The bottom line: Rates will fall. Prices will keep rising.
Again, allow me to remind you of one aspect of the AIO. In the AIO, I simply don’t bother with what my rate is. Sure it’ll affect things slightly, but its effect will be marginal compared to my monthly income and residual funds left in the account after paying my bills. Additionally, if I’m in the AIO and rates do come down, so will mine anyway.
In summary: You’ve got nothing to lose in the AIO, assuming you are cash-flow positive.
You’ve got much to lose by staying in a holding pattern of paying rent. Time to get free!
Sounds incredible. Is it… credible?
Anytime something new comes along—especially something that goes against popular opinion—it will be met with a level of skepticism.
Social customs are just that powerful: if none of your friends have ever done an AIO, you likely haven’t either. The combination of herd mentality + habit keeps most people in patterns of status quo.
This is certainly true with home financing.
America is a good 20 years behind most of the developed world when it comes to mortgage. Oh, we invented the 30 year fixed rate mortgage, making us #1 in the world for home ownership, but now we can look back and clearly see: that has benefited banks and billionaires infinitely more than it has everyday Americans.
But then, around 2007, along came the AIO.
An innovative mortgage bank in California (CMG, led by the brilliant Chris Michael George) developed a revolutionary new mortgage option — the All in One Loan — that provided a brilliant technological breakthrough in the mortgage industry.
Now it’s time to get over the psychological hurdle.
All of us have heard the adage, If it seems too good to be true, it probably is.
With the AIO, the adage is wrong. And we’ve got the numbers to prove it.
We believe the numbers speak for themselves.
.
But we’re still very happy to speak with you ourselves.
Ready to see what the AIO could do for you?
Get off that wheel!
Consider the hamster.
They’ll hop on a wheel and run and run and run—without ever recognizing that for all of their effort, they haven’t actually moved—at all.
That’s fine for exercise, but if you’re trying to move forward, you need a better plan.
The status quo says just keep paying that mortgage payment. Set aside an emergency fund. Use a savings account for what you don’t need to live on.
On and on.
But that’s only working well for the banks—not the borrowers. One example: Wells Fargo now pay their CEO nearly $25M per year. Where do you think all of that money comes from?
As it turns out, all of that effort you’ve been putting into that status quo plan has been benefiting millionaire bankers at your expense. Now, it’s time for change.
Getting into the AIO is like getting off a hamster wheel and getting behind the wheel of a supercar.
It’s time to stop spending in circles—front-loaded interest for a few years, then you refinance or sell, only to start all over again paying front-loaded interest without ever really building equity—and eventually, wealth.
It’s time to start accelerating down the road towards your preferred future.
It’s ime to put your money to work for you, not for them.
So you want to try a flip?
If you’ve ever looked into the details of flipping a property, you’ve likely run into the reality that most banks won’t finance flips.
They won’t make any money on the loan if you end up selling the house 3 months later, and who’s to say you’ll even be able to pull off the renovation. Some friends of mine use commercial loans for this, but they bemoan the interest charges they have to pay every month they’re still holding the property.
So unless you’ve got a good chunk of money set aside, you’ll have to work with a similar option, or a hard money lender. Uninsured. Expensive. Risky.
The AIO can fix all of that, saving you time—and money.
Since the AIO keeps your equity liquid, you effectively become your own bank. If you’ve got a $500,000 home and half of it is paid off, then in the AIO you could have $150,000 available to you to finance your own fix & flip. (The credit line would go up to $400,000 and the balance is $250,000, leaving you $150,000 liquid.) If you found a property you wanted to flip, you could finance it yourself (assuming it’s $150,000 or less, in this instance), submitting a cash offer and requesting a 10 day close. Sellers and listing agents will love you, and you’ll love the ease of buying a property without going through the loan application, document gathering, underwriting, paying bank fees, etc.
Refinancing into an AIO: A Scenario.
The Jones family makes $10,000 a month and spends $6,030 per month, not including their mortgage payment.
Option A: They keep their conventional, 30 year fixed mortgage for $400,000 with a 4.25% interest rate.
Their monthly principal and interest cost is $1970.
Option B: They do an All in One loan for the same amount with an average interest rate of 5.694%.
Their initial, monthly interest-only payment would be $1,043.
Their monthly income/expense ratio is as follows:
Income: $10,000
Mortgage Payment: -$1,970
Other Expenses: -$6,030
Monthly Savings: $2,000
In this scenario, they would have 20% ($2,000) residual funds every month remaining in a checking account, savings account, or an All in One.
In an AIO, their mortgage will be paid off in 11 years instead of 30, and the interest saved by switching into the AIO would be $165,798. (The 30 year 4.25% fixed would charge $307,574 in interest, where the AIO would charge $141,776.) They would be saving 54% on the cost of their mortgage. To beat the AIO, this family would have to get a loan with a fixed rate of 2.132%, which is not possible, but even if it were, it would still take all 30 years to pay off. Now, learn why that’s a very, very big deal.
Interest savings are only step one.
Building wealth is next.
If this family invested what was their mortgage payment—$1,970 per month—for the next 19 years (after paying off their loan in year 11), with just 5% returns that investment would be worth $752,474.25.
Their monthly contribution will have totaled $451, 130; the other $300k+ will have come from interest.
Their home will be paid off, and the $1,970/mo that would’ve been going to 19 more years of mortgage payments will have now compounded to over three-quarters of a million dollars.
The interest savings from the AIO were $165,798.
The interest earnings over the next 19 years were over $300,000.
In total, by switching their $400,000 mortgage to the AIO and investing what they would’ve been spending anyway once it’s paid off, this family will be more than $465,000 better off. Remember, they only made $120,000 per year—for the full 30 years, and in that time they will have paid off their home and put over $750,000 into retirement.
Now you’re beginning to see the true power of the AIO.
Variable v Fixed Rates
Q: Should the Variable rate scare me?
Possibly: the variable rate means that in the AIO, there is a chance that you could end up paying a fortune in interest. But don’t forget: in any conventional, 30 year, fixed-rate loan, you are absolutely guaranteed to pay a fortune in interest.
If you asked to borrow $100 and I said, “Sure, but you have to pay me back $149,” you’d balk at the 49% interest rate. But if I spread that $49 of interest out over a 30 year term, that’s actually me only charging you a 2.875% interest rate. (A 4% loan would be $172.)
Say you were able to get a low 2.875% mortgage, fixed for 30 years, on a $400,000 loan. That’s a great rate and a horrible deal. You’ll be paying nearly 50% more than whatever you borrow over the life of that loan. ($197,000 in interest, to be exact.) It’d beat a 4% fixed for sure–that’d cost you 72% in interest–$287,500.
This is why we suggest thinking through interest costs, not just interest rates.
Leveraging the AIO for Real Estate Investing
Because the AIO turns a fixed mortgage into a HELOC with a credit limit of up to 80% of your home’s value, it can be a powerful tool to help homeowners harvest their equity for investment opportunities.
Consider a hypothetical scenario: Due to market inflation, your home is worth $600,000 and you owe $150,000.
Refinancing into an AIO would create a credit line of $480,000, which is 80% of the home’s value.
Since you only owe $150,000, you now have access to an additional $330,000 on the line of credit. You could put a cash offer on an investment property or condo (for up to $330,000), pushing your offer to the front of the line, and skipping the laborious and expensive process of securing a second mortgage, qualifying to carry a second loan, sending documents in to underwriters, etc.
Another option would be to put just 20% down on that second property and finance the rest. You’d use $66,000 of your HELOC and then apply for a 2nd mortgage on the 2nd property.
Legally, any individual can have two AIO’s at any given time. You could setup a second AIO on that investment property (or go with a conventional loan); either way, you’re only investing $66,000 on a $330,000 property.
If that property appreciates 10% per year for two years, it’d then be worth $400,000. While you only invested $66,000 up front, you sell the property and keep the difference. So your initial investment of $66,000 becomes $136,000–in two years.
This is why real estate investments are so solid. What stock could compete? In the stock market, you’d have to invest maximum amounts to get decent returns. In real estate, you can invest just 20% of your funds, then leverage other people’s money (ie, the 80% you are borrowing) to generate future equity, all of which you get to keep when you sell.
Partnering the AIO with an Investor Cash Flow loan is a popular choice as the AIO frees up equity for a strong down-payment, and the Investor Cash Flow loan lets you qualify on an investment property using only the prospective rental-income from the property to do so. No need for tax returns and paystubs, we use the appraised rent value to qualify borrowers. To learn more, click here.
Q: “Can’t I get similar results by simply making additional payments?”
DIY v AIO
Since the AIO uses the residual funds left over after expenses are paid, one might argue that they could get similar savings by simply making additional, optional discretionary payments towards the principal on their traditional mortgage.
This has two issues.
First, no one can apply 100% of their unused funds towards their mortgage because the need for liquid reserves will always take priority over discretionary payments on a traditional mortgage.
So let’s suppose our family in our homepage scenario could put an extra $500 towards their mortgage each month.
By doing so, they would pay off their loan in 20.2 years and still pay $53,651 more in interest charges than if they were in the AIO.
The second issue–and the reason no borrower can put 100% of their idle funds to work–is that all discretionary payments are irreversible: They are no longer liquid and are thus irretrievable.
In the AIO, all of your idle funds & available equity are unlocked and available 24/7, without you needing to refinance or sell your home.
A Smarter Emergency Fund
How the AIO can replace your Emergency Fund.
Financial advisors often recommend that clients maintain a contingency fund
With anywhere between six to twelve months of income set aside in case of emergency. The amount of money in such an account can be sizeable, and the opportunity cost of keeping such a balance in a low-yielding investment can be significant.
In the AIO, available equity can be used as emergency reserves in the case of losing one’s job or facing unforeseeable financial hardship. Funds are available immediately and repayments are always flexible. Low-interest cash reserves are no longer necessary because the AIO account can be one’s safety net, should the need arise.
This explains why foreclosure rates in countries where offset mortgages are more popular are so much lower than they are in the United States: if one loses their job, a rigid and expensive mortgage payment can become a serious burden, and unless there is an emergency fund, the threat of foreclosure looms large.
Missing three months of mortgage payments starts that process, and in the U.S. once that starts, only 2% of borrowers are able to avoid foreclosing.
The tragic effects of foreclosure and the ensuing damaged and derogatory credit can all be mitigated by simply having the safety net of an AIO.
Keep this in mind with a 529!
AIO > 529
I have put two kids through college, and my wife and I each finished grad school in the last several.
Within the next three years, I’ll have two more kids in college.
The AIO has been invaluable for us as we’ve been able to pay tuition invoices without having to take on a mountain of student loans. Having access to our home’s equity has been extremely helpful, but I’ve learned a few things about how to be most strategic.
For years, we set aside money every month into a 529 so we could write it off on our state income taxes (details vary from state to state) and have funds saved & available for our kids’ education. I wish I’d known then what I’ve learned since, namely, about 529s, tax write-offs, and the finer points about eligibility for financial aid.
Your 529 isn’t earning you much interest—at all.
All of those funds that we set aside for all of those years didn’t earn us hardly anything in interest. Literally: thousands of dollars sitting idle for over twenty years created next to nothing in terms of interest earnings! I hate to think about how much that money could have been saving me if it’d be sitting in my AIO, driving down the balance of my mortgage.
Money only needs to be in a 529 for a few days to write off.
This was what nobody ever told me. Instead of depositing thousands of dollars a year into my 529 and then writing that amount off on my taxes, I could’ve kept those funds in my AIO until getting an invoice from the universities. At that point, I could transfer funds from my AIO into my 529, let them sit there (while the 529 buys a mutual fund) for several days, and then pay the tuition invoice from the 529. Those funds could be written off just as if they’d been sitting there all along.
That much money for that much time could have really benefited me if it’d been sitting in a smarter place. And I still could’ve written off the exact same amount on my taxes.
Money in a 529 has to be spent on education.
If your kids decide not to go to college, you aren’t allowed to simply repurpose those funds without paying a penalty. Your money in a 529 will have to wait until eligible education expenses warrant their use. Withdrawal of funds from a 529 for non-qualifying expenses results in penalties that could end up costing thousands of dollars—to access your own funds.
The AIO actually entitles you to receive more financial aid.
Another mindblower: Did you know your 529 is actually hurting your chances of receiving financial aid? Take a look at this screenshot from the 2022-2023 FAFSA application:
When the government is determining how much financial aid you are entitled to, they require tax returns, bank balances, & investment account balances.
They use these to see how able—or unable—you are to pay for school on your own. “The more money you have, the less money you need,” in their eyes.
Notice what you don’t see listed?
Your home’s value, nor its equity.
Having $100,000 set aside in a 529 for education is accountable, whereas if you’d left that in your AIO, it would be unaccountable. You’d be eligible to receive more financial aid, and the funds will be working for you in the meantime. If your mortgage balance was $400,000, keeping those funds in the AIO would be saving your hundreds of dollars every month by dropping the balance to $300,000.
Since you can still write off the money you spend on education (see point #2), you have nothing to lose by storing those funds in your AIO, and then channeling them through your 529 when the time comes to pay tuition.
And if your kids decide college just ain’t their thing, that’s no problem either.
Help! I can’t put 20% down!
How you can put just 5% down and be in the All in One Loan within two years.
Buying a home can be stressful enough, and coming up with 20% for a down payment can be downright daunting. While the AIO does require a 20% down payment, I want to show you how you can get there in just 2 years by only starting with only 10%—or even 5%—down.
Let’s assume the following:
You want to buy a home for $400,000.
You can only put 10% down, ie, $40,000.
Loan amount is set for 90% LTV: $360,000.
House appreciates 5% per year: $20,000 in year one.
You buy the house, putting just 10% down. At the end of year one the house is worth $420,000.
At the end of year two the house is worth $441,000.
Your $40,000 down payment has created $41,000 in appreciation in two years. Good luck finding a stock that can give you those returns in that timeframe.
Assuming you use a 30-year loan to buy the house, by the time two years have passed, you will have paid your principal down by approximately $10,000. (You will have paid approximately $40,000 in interest; it’s painful, but hear me out.) With your house now worth $441,000, and the principal you owe at $350,000, you’re actually already at 20% equity. (80% of $441,000 is $352,800.)
At that point, we refinance you into the AIO and you’re off and running! And the next two years will see you pay down way more than a pathetic $10,000.
But what if I can only put 5% down?
It’s the same idea with a 5% down payment: You start with a $380,000 loan. You will have created $41,000 in appreciation over those first two years, having paid down approximately $10,000 in principal. You’d owe $370,000. If you could bring $18,000 cash to closing, you’d be able to refinance into the AIO and have 20% equity in your home.
We’ve worked with many clients who’ve had to take a two-step process to get into the AIO. Since we can originate any type of home loan, we’re happy to help you do the same.
Happy 90th Birthday to the 30yr fixed mortgage.
The 30 year mortgage is now 88 years old. A lot has changed in the last 88 years. Mortgages too.
In 1934, French automaker Renault released the Vivasport.
Its 80 horsepower engine could reach a top speed of 78 mph. It was high on style, but low on safety, efficiency, and reliability. There’s something I just love about those vintage, nostalgic old gas-guzzlers. And there’s something I can’t shake, too: That same year —1934— was the year the 30 year fixed mortgage was invented.
Cars have come a long way since then.
Consider Tesla’s 2024 Plaid Model S: 1,020 horsepower. Top speed of 200 mph. It’s considered the fastest production car ever made, and it doesn’t even use gasoline. It’s not only more powerful, it’s safer, smarter, more sophisticated, and infinitely more efficient.
Now, imagine a scenario where I told you that for the same amount of money, you could buy a rusty old Renault Vivasport or a 2024 Tesla Plaid Model S. Which would you choose?
What if I told you the Renault was actually going to cost you 2x-3x more than the Tesla?
Cars aren’t all that significantly evolved in the last 90 years.
Sentiment aside, the All in One Loan is the Tesla in this example. It’s smarter, more sophisticated, more powerful, more innovative, and way, waaaaay faster than the antiquated 30 year fixed mortgage. And what’s even more amazing: it’s so much cheaper. The savings it will afford you—not to mention the time it will save you—will blow your mind. And that’s just the start: the opportunity if will create for you to generate interest earnings is even more than that.
See the savings for yourself: Go to the Simulator.
Or if you’re already ready to upgrade your home loan and trade out your old, dilapidated 30 year fixed, you can apply for an AIO here.