All in One Loan: thoughts? opinions?
Member since 2020 · 10 posts · 7 votes
Has anyone used an all in one on their primary residence (or not used it and are willing to share why)? I know the interest rate is higher than a 30-year fixed but it might be advantageous to pay down interest.
Thoughts? Suggestions? I'm a newbie to real estate investing, so little words are very much appreciated :)
Big picture if it helps: I'm exploring an all in one so I can plop extra savings into it until I'm ready to purchase additional properties and then can pull the money from the all in one for a downpayment elsewhere and then will continue to throw money into the all in one from my main job as I save for additional downpayments.
I've just heard about these loans and I am interested in refinancing a primary and HELOC into an All-In-One type loan. A couple of questions, although several have already been answered on this forum...
Is it worth shopping around for multiple lenders due to perhaps differing terms on these (rates, restrictions, fees, etc) or are they all generally the same? Are there more reputable lenders for this type of loan? I've really only heard of LifeChanger at this point...
What happens when my loan is paid off? I would think I could just start using a normal checking/savings account and no longer touch the credit available in the HELOC (and hence not have to pay interest on monthly expenses). I'm guessing I would not close the loan if I still want access to the equity (which is a big selling point of the loan)...or obviously sell the property and buy something else. Or, are there other options...invest in another property perhaps?
What are the hidden negatives of the loan compared to a conventional loan (aside from the yearly fees)? Is the possibility of freezing the credit line a real issue (hence I need to have another stash of cash available)?
Thanks for your time and responses!
-Matt
If you use it as it is intended, yes it will out perform a lower fixed rate 30 year mortgage. The key to is that you must stop most or all your banking elsewhere and now start banking in the HELOC.
By banking, I mean all your deposits and banking activity needs to now be done through the HELOC. Where it really accelerates is if you typically don't spend all your monthly earnings and you have money left off after all monthly expenses and that money stays in the HELOC. You also benefit from the float, meaning that you get paid say $10,000.00 at the beginning of the month, but you don't pay all your bills right at the beginning, maybe some at the middle, others towards the end of the month. So you have that float period where more of your earnings are keeping your HELOC balance lower for a number of days during the month. This will produce a lower monthly payment due on the HELOC and lower interest, thereby paying of the HELOC faster, and opening up more available credit for you to tap for a project you have in mind?
I hope this helps?
Kevin, Thank you a million times over! We were about to close on a refi locking in a 2.5% 30 year fixed and pulled the plug at the last minute to switch to the All in One, but the lender pretty much told me why I was making a poor choice, so this is very affirming. I so appreciate it!!
@Stacy Voss @Kevin Romines Nailed it! If you qualify, and the numbers work, I don't think there's a better option out there!
My wife and I used this on our primary that we later turned into an investment property. I loved it so much that I left my job in Medical sales to join a broker that specializes in this loan. It's great for investors, as you can use idle cash to pay down principle and save interest. Then whenever a good opportunity arises, you can simply write a check out of your credit line and purchase in cash. Each additional house pays off faster than the last with the additional cash flow.
I'd say you're making a great choice!
Amazing--thanks, Justin! I had a lender basically tell me I was making a colossal mistake and haven't slept well since, so this is beyond helpful!
@Stacy Voss @Justin Phillips @Kevin Romines
I don’t 100% understand what I just read on this thread, but I am 100% interested to learn more! Thank you all for a wonderful topic, so much to learn
@Sarah West The basic concept is that you take out a 1st position HELOC instead of a standard fixed rate 1st mortgage. Once you take it out, you stop banking with your normal bank or credit union and you now redirect all your income / deposits into the HELOC. You also pay all your bills and any cash needs from the HELOC as well.
You do this so that during the month, after your deposits are made and before you start paying your bills, your HELOC Balance is temporarily at its lowest point for the month. Interest on the All in one is simple interest, so it is calculated on a daily amount then added up for the month and that is your minimum payment at the payment point in the month. Because you had all your deposits go into the HELOC and there may be a certain amount of float time, meaning the time after deposits, before you pay your bills, your HELOC has a smaller balance, so the daily interest calc. during that period is less than it will be after you have paid all your bills for the month. Therefore the payment on the HELOC will be lower, and more of your money will stay in the HELOC giving you a lower balance.
Keep doing that month over month and your balance will come down much faster than a 30 year fixed rate mortgage, therefore paying off the mortgage much faster. The best part is this is not money lost, meaning, you can always pull lout the amount of credit that you have up to the high loan limit, versus where your current balance is. You can do that to help cover down payments & closing costs for new real estate investment purchases.
Now lets look even further down the road. So you bought a new rental, now the rents coming in from the rental, also go into the HELOC. You also pay the mortgage payment and all expenses of the rental from the HELOC. Assuming you bought a cash flowing rental, then that means you are leaving more in the HELOC (incoming rents) than you are taking out for that property, thereby paying off the HELOC faster, also increasing the amount credit available for you to use to buy more houses down the road. So basically it compounds on its benefits the more you use it in that way.
You must use the HELOC in the appropriate manner to get the maximum benefits out of it, but what an awesome tool it can be when used correctly. I would also advise that you keep an emergency stash of cash in your regular bank. Only in the one off chance that we have another meltdown situation again, and they shut off the ability to draw on the HELOC's like they did in 2008. that way you are not stuck with no cash. If that were to happen again, I would then stop banking in the HELOC and just make the payments on it, and start banking in your normal bank again. Cash is King, always hoard your cash!!!
I hope that helps?
Hey @Kevin Romines, I think I tracked with all of that except for 1 thing: when I purchase (finance) an investment property, do I buy that one with its own All in One or are you saying to put the $ from that one into the primary or ?? Again, thanks a ton--so helpful!
@Kevin Romines Did a great job explaining the principles!
The only thing I'll add is that through the 2008 meltdown we didn't have any of our client's lines of credit frozen or called. I'd always recommend leaving some room on your line in case of another crash though. I do still keep my old bank accounts open for incidentals, I just don't keep much money in them, because I'd rather it be working for me on my line.
@Stacy Voss To answer your question, it really depends on the situation. It doesn't really make sense to have two of these loans open with balances, because that just dilutes your cashflow. However, if one is paid off, it might not be a bad idea to open another so you can access the equity on that property as well. Being that the rate is slightly lower on primary residences, a lot of clients look to maximize their leveraging off that line first.
@Justin Phillips @Stacy Voss @Kevin Romines Okay, so another question that popped up - I just looked into the bank that my Mortgage is through and it appears that there is a suspension on new HELOC applications. Is that normal? Does any HELOC have to come from the company / bank that the Mortgage is actually with?
@Sarah West
This Program is with a 1st position Heloc that replaces your current mortgage. Part of what makes it so different is that it’s tied to a zero balance sweep checking account. So that checking account becomes your depository, with every deposit sweeping to your remaining balance on your loan. Since it’s a credit line, you still have full access to pay your bills etc.
It’s a very specialized product, which is why the broker I’m with focuses only on this loan.
@Sarah West No it does not. You can find a lender who specializes in All in One and finance with them. The only I am aware of is that you normally can only have 1 All-in-One. That's why a lot of people use it for their personal residence.
@Axel Meierhoefer Hey Axel, I’m with a lender that focuses solely on this one specific loan. You can actually have up to 3, one for each property type. So one Primary, one Investment and one Vacation/Second home.
We recommend starting with your primary, as it usually gives you the biggest line, and has a slightly lower rate.
@Justin Phillips Ahh, cool. I was only aware of residence and vacation. Thanks for sharing
Technically, you can do this same thing with any HELOC that you might want to open, both in the 1st and or the 2nd mortgage position. The principals are the same. However not all HELOCs calculate interest in the same way, so you would want to know the way the HELOC calcs interest is as simple interest on a daily balance.
@Kevin Romines @Stacy Voss I also found, when researching the basis for the interest calculation to differ. Some seem to use US-prime rate and others use Libor. The differences are not very big and adjustments are mild, but that is also something to be aware of as it might surprise you, depending on the lender.
If those home is paid off and the equity is only needed for a short time, taking out a more traditional HELOC might make more sense. For properties with a remaining balance or if the goal is snowballing debt, this loan style works much better. The biggest difference is that ZBA (Zero Balance Sweep Account) that's tied to the line. You'll set up your direct deposit to that checking account, so all of your deposits sweep directly to the remaining balance, saving you interest cost. So you can pay down principle with all of your income, but without any fear, because you still have full access to all of that money to pay bills.
Traditional HELOC aren't meant to be transactional, so those transfers need to be done manually which gets very laborious. Additionally, if the HELOC is being used in 2nd position, you'd don't have access to any of those extra payments without selling or refinancing the 1st position mortgage.
The only downside to this loan style is that it's tough to qualify for. For those who qualify though, it's the best loan option out there.
Resurrecting this thread, what do the terms usually look like on an All-in-one is it usually just a 10 year draw? I know interest rate is usually higher but doesn't necessarily matter. Are there similar closing costs? Annoyed I didn't hear about this sooner because just refinanced my primary
@Daniel Chun It’s a 30 year draw, the first 10 years are max draw, then starting in year 11 the max credit line starts decreasing by 1/240th.
The rate is the 1-month LIBOR + the margin of 3.75%. Current rate is 3.85%. To you point, when the payoff timeline is so compressed, it’s really not an interest rate sensitive loan. It’s more about interest cost, than interest rate.
Closing costs are similar to a traditional ReFi.
I had a similar experience to you, I heard about it shortly after closing on a traditional ReFi. It was a realtor friend that ended up telling me about it, I couldn’t believe I hadn’t heard about it elsewhere.
My wife and I put it on our primary, and I liked it so much that I left my job in Medical Sales and joined the broker that specializes in them. Feel free to shoot over any additional questions.
I’m late to this party but. Full transparency, I have and sell the All In One Loan and I absolutely love it! Here are some of the reasons:
- Americas only 30 year first lien mortgage where every deposit goes 100% to principal.
- Americans only first lien 30 year mortgage with 24/7 draw ability 24/7.
- The only first lien mortgage in America that recasts interest every time you make a deposit!
These three reasons are a lot to digest at first because this loan is a paradigm shift for most Americans.
The opportunity is what I love about this mortgage. You mold this mortgage to your needs. Conventional mortgages have no opportunity.
My suggestion would be to talk to me or someone else who has actually had this mortgage and see if it’s right for you. I can tell you from personal experience that it’s helped my wife and I save and make thousands of dollars.
The key features that make it more efficient that are hard to replicate else where is that the interest is simple interest similar to commercial loans (rate/365Xbalance daily), there’s a 20 day grace period before the prior period’s accrued interest is billed/added to your balance outstanding so you can keep chipping away at your daily principal balance with your deposits from days 1-19th each month before prior month’s interest is even billed (on the 20th/21st usually).
The current CMT or constant maturity treasury index is less volatile than prime index that most heloc’s are based on (most bank commercial lines are based on 3-5 year FHLB + 225-275 BPS or 2.25-2.75% margin). The index is more important over the long run since the index your rate is calculated from can determine how volatile your monthly rate will be.
I’ve been tracking clients who have used this product efficiently tend to be:
- RE developers
- Buy hold/ apt/ mult-family investors who use it for capx/rehab for their apartment repositions or their equity/down payment needs
- Business owners who have a lot of deposits or rental deposits and funnel those deposits into their AIO or all in one loan to hyper charge the cashflow banking philosophy results. Often times we have deposits sitting in checking earning nothing waiting for bills and these deposits from business are now lowering your daily balance
- or high income W2 earners seeking a way to put every cent they have available to be put to work against their mortgage, prior this strategy didn’t have as much merit since rates were so low in 2020- mid 2022 but lately with short term money getting 4-5% returns its becoming even more effective
@Stacy Voss To answer your question, it really depends on the situation. It doesn't really make sense to have two of these loans open with balances, because that just dilutes your cashflow. However, if one is paid off, it might not be a bad idea to open another so you can access the equity on that property as well. Being that the rate is slightly lower on primary residences, a lot of clients look to maximize their leveraging off that line first.
I do not agree with you at all here. There is more than one reason to take this loan. Yes for equity but also to pay significantly less in intrest and pay it off significantly faster. You seem t0 negate that part. This is significant for those two factors. This is by far bette than the conventional you mention. You say it's a higher intrest rate but its amortizing vs simple intrest. A higher simple intrest is better than a lower amortizing intest.
As an update on this strategy CMT 1 year which is the index the AIO loan product uses was up to 5.50% in early October 2023. Recently its down to 4.82%, so if we keep in mind our margin or the fixed portion the lenders add on top of the index to come up with your daily rate calculation is going to be as follows:
4.82% + 3.75% (example margin for AIO) = 8.57% so we'll round it up to the nearest .125% which should be 8.50% interest only.
Given that prime is 8.50% already and there is a margin on top of Prime for most HELOC's out there from .25-3.00% your traditional HELOC would be much higher rate than your comparable AIO loan comparatively.
So just some food for thought. Both of these products, HELOC's Vs AIO loan are first position mortgages and typically start out with interest only but its important to note that HELOC's are based on prime predominantly while AIO loans are usually based off CMT 1 year Index.
If there are any questions on how this applies to your scenario or the risk assessment for your portfolio feel free to reach out and lets discuss.
As an update on this strategy CMT 1 year which is the index the AIO loan product uses was up to 5.50% in early October 2023. Recently its down to 4.82%, so if we keep in mind our margin or the fixed portion the lenders add on top of the index to come up with your daily rate calculation is going to be as follows:
4.82% + 3.75% (example margin for AIO) = 8.57% so we'll round it up to the nearest .125% which should be 8.50% interest only.
Given that prime is 8.50% already and there is a margin on top of Prime for most HELOC's out there from .25-3.00% your traditional HELOC would be much higher rate than your comparable AIO loan comparatively.
So just some food for thought. Both of these products, HELOC's Vs AIO loan are first position mortgages and typically start out with interest only but its important to note that HELOC's are based on prime predominantly while AIO loans are usually based off CMT 1 year Index.
If there are any questions on how this applies to your scenario or the risk assessment for your portfolio feel free to reach out and lets discuss.
Do you know if these products are available in indiana or South Carolina?
As an update on this strategy CMT 1 year which is the index the AIO loan product uses was up to 5.50% in early October 2023. Recently its down to 4.82%, so if we keep in mind our margin or the fixed portion the lenders add on top of the index to come up with your daily rate calculation is going to be as follows:
4.82% + 3.75% (example margin for AIO) = 8.57% so we'll round it up to the nearest .125% which should be 8.50% interest only.
Given that prime is 8.50% already and there is a margin on top of Prime for most HELOC's out there from .25-3.00% your traditional HELOC would be much higher rate than your comparable AIO loan comparatively.
So just some food for thought. Both of these products, HELOC's Vs AIO loan are first position mortgages and typically start out with interest only but its important to note that HELOC's are based on prime predominantly while AIO loans are usually based off CMT 1 year Index.
If there are any questions on how this applies to your scenario or the risk assessment for your portfolio feel free to reach out and lets discuss.
Do you know if these products are available in indiana or South Carolina?
I've just heard about these loans and I am interested in refinancing a primary and HELOC into an All-In-One type loan. A couple of questions, although several have already been answered on this forum...
Is it worth shopping around for multiple lenders due to perhaps differing terms on these (rates, restrictions, fees, etc) or are they all generally the same? Are there more reputable lenders for this type of loan? I've really only heard of LifeChanger at this point...
What happens when my loan is paid off? I would think I could just start using a normal checking/savings account and no longer touch the credit available in the HELOC (and hence not have to pay interest on monthly expenses). I'm guessing I would not close the loan if I still want access to the equity (which is a big selling point of the loan)...or obviously sell the property and buy something else. Or, are there other options...invest in another property perhaps?
What are the hidden negatives of the loan compared to a conventional loan (aside from the yearly fees)? Is the possibility of freezing the credit line a real issue (hence I need to have another stash of cash available)?
Thanks for your time and responses!
-Matt