Q: “Can’t I get similar results by simply making additional payments?”

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.