Common Questions
What are Closing Costs?
One daunting mystery around purchasing a home (or refinancing a loan) can be closing costs. What are we paying for exactly in these costs? Why are they necessary, and how can we keep them as low as possible?
Closing costs fall into 1 of 4 categories: Bank Fees, Taxes & Govt. Fees, 3rd Party Fees (such as Appraisers and Title companies), and Pre-paids (such as homeowners insurance and property tax).
This video will break down how each of those work, as well as how Adjustments can be maximized and/or negotiated to keep your costs low.
3 Doors: Conventional, AIO, or AIO+?
All in One is a no brainer for many homeowners, yet so often clients are left unaware about this an an option. The default option—a 30yr fixed loan—is the best some people can qualify for, but once you learn how much money you could save (in interest charges), you likely can’t even imagine going back. But that’s only the start.
In this video Aaron explains how you can net $1,000,000+ (on a $450,000 loan!) by being smart with the All in One. It’s Door #3. And it’s the door you want!
What about Construction Loans?
Our construction loan paired up with an All in One set us apart from any competition—by a mile. We’ve got 3 options for you for construction loans: One-time close, fixed rate; One-time close, ARM; or Two-time close.
Since most of our clients are interested in getting into AIO as soon as possible, they’ll choose a two-time close. This means you’ll have a construction loan that you pay interest-only on during the time of construction (like any of our other construction loans), but at the time of completion you’ll actually refinance that into a permanent loan of your choice. The one-time options don’t require a refinance, but also don’t allow for conversion into AIO.
If you want to do Construction into All in One, you’ll want the two-time close. Since we can do Vacant Land, New Construction, and All in One (all in-house), we can make this process seamless and simple, only requiring a few updated documents at the time of the refinance to alleviate any stress or headache that might normally accompany closing on a new loan.
How much does an AIO loan cost?
Like any other purchase or refinance, there are typical closing costs on an AIO Loan. There are some additional fees (around $2,000), and there is a $65 annual fee to renew the line of credit, just like there would be on any other HELOC, that starts the 2nd year.
To offset this expense, we waive all origination charges on AIO loans. As a mortgage bank, we’re able to do this. (Note: Brokers are not.)
Aside from these fees, there are no unique or additional costs for an AIO loan compared to a conventional loan.
Note: On an AIO refinance, closing costs can go into the new loan, requiring $0 cash to close in most cases.
What’s the interest rate?
The AIO loan is available one of three ways: Monthly variable, 3 Year ARM, or 5 Year ARM.
The interest rate* is a combination of two numbers: 1) a margin of your choice (many clients select 3.75%* as it costs no discount points; this margin can be bought down if you’d like) + 2) an index—we use the 1 Yr Constant Maturity Treasury.
In January of 2022 that index was at 0.3%, so January’s 2022’s AIO loan interest rate was 3.80% (3.5% + 0.3%) in most people’s case. If you refinanced into the AIO loan and bought down the margin to 3%, your rate in February should’ve been 3.30%, except—it would have to go up to 3.75% because that is the floor on the AIO loan; your rate can never be lower than the floor, even if the margin + index add to a number lower than the floor.
January’s 2023 CMT rate = 4.710%. So if someone took the 3.5% margin, their rate in January would be 8.210%, the sum of the margin and the index.
To see the current rate of the 1 yr CMT index, see here. By summing the current month’s index with your margin, you can determine what your interest rate would be.
Your monthly interest payment, then, is the greater of the floor rate or the 1-year CMT Treasury index + your margin * the current drawn line of credit amount, amortized over 30 years.
Notes:
APR is equal to the stated interest rate in the AIO product.
The margin remains constant throughout the entire 30 years; the index can change monthly. In a 3 Year ARM, the index will stay fixed for 3 years. (Same goes for the 5 Year ARM.) After that fixed period, the rate will vary monthly. In a rising-interest-rate environment, it may be advisable to secure a rate for 3 or 5 years. In an environment that anticipates falling rates, locking a 3 or 5 year ARM would be inadvisable.
Since the collapse of several banks in March of 2023, the par margin on AIO has risen from 3.5% to 3.75%, as of May, 2023. You can pay 1 point to lower that to 3.25%, or 2 points to lower it to 2.75%.
How Do I Make a Payment?
Automatically*: every time you deposit funds into the AIO checking account, you’re effectively making a principal payment on your loan. The loan balance decreases by that exact amount.
So if you owe $150,000 on your mortgage and you deposit $10,000 into the AIO checking account, the next day you’ll see that you owe $140,000 on your loan. There are no more monthly payments you need to send to a mortgage company; every deposit into the checking account is treated as a mortgage payment in the AIO loan. It’s the simplest system ever that you can truly set and forget.
Every month on the 21st, that prior month’s interest charges will be added to your balance, resulting in a higher balance due. Any deposits that have gone into the AIO Checking account will have been applied towards the principal (reducing the balance due), and the interest cost will automatically be added to the outstanding balance each month.
If no deposits were made, or insufficient deposits were made to cover the interest due, funds will be debited automatically from the line of credit to keep the account current and your new balance will reflect that month’s interest charges.
*AIO in Texas is slightly different. See our AIO: Texas Edition page for details, and speak to your certified AIO Loan advisor for more information.
Note: A $140,000 balance costing $1,000 in interest would mean that month’s interest rate was 8.580%. That’s $72 less that the interest charge would have been if the balance had been $150,000 at that interest rate.
Should I still use escrow?
Escrow accounts are used by banks to collect funds that will eventually need to be applied towards taxes and insurance. If a borrower is using escrow, then every month they will pay their PITI (Principal, Interest, Taxes, and Insurance).
AIO loans do not offer escrow.
Think about it: wouldn’t you rather keep that money in your account as long as possible, so that it’s working for you until the day it needs to be spent?
Escrow would be foolish in an AIO loan because it could be thousands of dollars driving down your loan balance every day until the tax or insurance bill comes due, at which time you gladly pay it.
But until that time, you wisely use it.
What happens after closing?
Upon closing an AIO, a few things happen that are unique to AIO. 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 three 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 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.
What is a mortgage?
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 more sophisticated. 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.
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.
How do I use the simulator?
Accurate forecasting requires accurate data, & some of the simulator’s questions and results are hard to understand on their own.
If you are contemplating refinancing, be prepared to enter your home’s approximate value and current home loan details like balance, age, monthly payment & interest rate.
Enter your monthly income (and any additional, anticipated income, at the bottom). This should be the dollar amount that you consistently deposit into your checking account each month on average.
Enter your monthly expenses to determine your residual funds—after paying your bills, what percentage of your income remains. (Remember not to include your current mortgage payment in the expense as that is already accounted for.) If you consistently save at least 15-20% of your take-home pay each month after paying all expenses, the AIO loan may be a good option for you.
Next, click to calculate your results. Note the estimated interest savings, estimated projected term, effective interest rate, & breakeven rate. These will help you determine whether or not the AIO loan may be a good option for you.
Finally, you can manipulate the assumptions to set your margin to 3.5% (it defaults to 3.75%) and set the interest rate at whatever number you’d like to see in the comparison. Set it to 3% if you’d like to pay 1 discount point, or 2.5% if you’d like to pay 2 discount points to buy your margin down. Fees for decreasing the current margin or buying down the interest rate will apply.
Note: The results from the AIO Simulator are only estimates. There are additional costs to buying or refinancing a home that may not be reflected in this Simulator. Always compare loan offers you may receive before making your decision. Contact us to talk to a licensed loan advisor about loan options specific to your financial situation.
What’s it take to qualify?
Credit Score of 700+, DTI of 43% or lower, & some reserves.
Whereas conventional loans can get your debt-to-income ratio up to 48% (and VA can go up to 60%) the AIO loan has 2 tiers: 40%, or 43%. With a DTI of 40% or less you’ll need to prove you have 10% reserves. With a DTI between 40%-43%, you have to point to 15% reserves.
Reserves can be any retirement funds, stock market investments, savings or checking accounts, etc—the bank just needs to see you have reserves in case the bottom drops out on you.
So, if someone’s DTI was at exactly 40%, and they took out a $500k AIO loan, they’d have to have a total of $50,000 total (from any accounts) that could serve as reserves. This $50,000 doesn’t get used or anything, but it has to be proven to exist. (If their DTI was between 40-43%, they’d need $75,000 in reserves, ie, 15%.)
Which States are Eligible?
While as a national bank we can lend in all 50 states, due to some state’s legislation we cannot yet offer an AIO loan in all 50 states. With the exception of New York, most other states are eligible for an AIO loan with a corporate approval.
This is the current list of eligible states, with new additions coming in time:
AL, AZ, CA, CO, DE, FL, GA, IA, IL, IN, KY, MA, MI, MN, NC, NJ, NV, OH, OR, PA, RI, SC, TN, TX*, UT, VA, WA, WI
Again, if you don’t see your state but you’d like to get into an AIO Loan, chances are we can do it—as long as you’re not in New York.
*TX is different. See our AIO: Texas Edition page for details.
Can I still write off the mortgage interest?
Yes! You can still write off all of your annual mortgage interest with an AIO loan.
The mortgage interest deduction (articulated in the IRS publication 936) offers homeowners the ability to write off whatever they pay each year on mortgage interest.
But think: wouldn’t it be better to not have to pay all of that interest in the first place? it doesn’t make sense to try to keep that number high–you’re only saving 20-30 cents on the dollar, compared to what you’re losing in the actual interest charges. If that line of thinking actually made sense, borrowers would be wise to go seek out the highest interest rates in order to maximize their deductions.
How long can I draw from the HELOC?
30 years. (25 in Texas.)
Whereas most HELOCs will have a 10-year draw period, the AIO loan allows you to draw for the entire 30-years.
The first 10 years allow withdrawals on the full line of credit: up to 80% of your home’s value.
Year 11 begins reducing the available credit by 1/240th per month for the next 20 years, so as to avoid a large outstanding debt requiring repayment going into the last few months of the term.
Couldn't the bank freeze all of my assets if they're in a HELOC?
Back in 2008 you may have heard of people with a HELOC who were notified that their assets had been frozen. Any HELOC will give the bank the ability to freeze assets; banks have to manage their own risk too, after all.
There are two major reasons that this isn't much of a concern in the AIO loan.
In the 2008 mortgage meltdown, all of the HELOCs that were frozen were in the second position.
Many of those were 100% CLTV* too, or even higher.
So of course those got frozen.
The AIO loan maxes out at 80% LTV, and it sits in a first position (it's not a second mortgage, it's the only mortgage on the property). So while yes, theoretically, the bank could temporarily freeze your assets in the AIO loan, it would be so extremely unlikely as to make this concern negligible.
*CLTV: combined loan to value: when you have 2 mortgages, you note the LTV of each, and the CLTV, so a 1st mortgage at 80% LTV and a second HELOC at 20% LTV would give you a CLTV of 100%.