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.
