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   ARTICLE   |   From Scotsman Guide Residential Edition   |   March 2012

All Together Now

Combining accounts in an all-in-one mortgage may mean shorter loan terms

A financial instrument similar to the offset mortgage available in countries like the United Kingdom, Australia and Canada, the all-in-one loan is unlike traditional home loans. It gives borrowers the ability to reduce debt more aggressively — without losing access to money or impacting spending habits. And it allows mortgage brokers to change the conversation they are having with clients. Instead of talking about the best 30-year rates available, brokers can help clients plan to own their home in the time frame that works best for them. 

But what is an all-in-one loan?

This product is a transactional mortgage that combines an individual’s checking, home-loan and home-equity-line-of-credit accounts into one master account. The master account is a “loan sweep account” that automatically transfers all deposited cash against the loan balance each day to save mortgage interest.

The loan puts all available funds to work immediately by making the largest mortgage payment possible through incoming deposits. So, instead of idle funds in a checking or savings account earning less than 1 percent in interest, the money is applied toward the loan principal and converted to equity. This instantly brings down the interest being charged toward the loan principal, saving substantial money on interest payments. There is no loss of liquidity because borrowers maintain full access to all funds in the account.

In fact, the account behaves like a traditional checking account where funds are available 24 hours a day with unlimited check writing, ATM or debit cards, and online bill pay. Even as funds go toward paying the loan principal, the money is still accessible because the account works through a line of credit that stays open during the entire life of the loan. 

The all-in-one loan is a private portfolio product, immune to limits imposed by federal guidelines. Often lenders who provide the all-in-one loan will finance properties for as much as $800,000, making this a possible alternative for harder-to-place jumbo loans.

The loan is a financial-management vehicle designed to allow highly qualified, fiscally savvy homeowners to pay off their mortgages in less time and save on interest payments. Borrowers are required to have a minimum FICO score of 720 and have accrued 25 percent equity in the home. Closing costs for the all-in-one loan often are at or below market with a 1 percent origination fee along with escrow, title, lender and processing fees, plus the opportunity to buy down the margin. The loan operates on an adjustable rate tied to the monthly Libor interest rate plus margin with a protective ceiling of 6 percent from the start rate.

As a private-portfolio product, the all-in-one loan has many benefits for brokers. Unlike traditional lending’s burdensome disclosures, the all-in-one uses common-sense underwriting with the ability to make considerations. In addition, it gives brokers an edge when dealing with clients. Instead of chasing rates, brokers can empower borrowers to own their homes outright with tools previously reserved for use only by banks. In addition, current clients may be eligible for this loan, even those who have refinanced in the past three months.

Mortgage brokers who understand the possibilities inherent with the all-in-one loan can bring something new to clients who want to become homeowners rather than mortgage holders.


 


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