When you want to buy a new home, finding just the right home is only part of the battle. You also have to determine what type of mortgage is right for you and then secure that loan. And it’s not as simple as it once was when all you had to do was decide between a traditional 15-year or 30-year mortgage and between fixed-rate or adjustable-rate. Now, you have more options, and one of them is the all-in-one loan. Read on to find out what home buyers in Redlands should know about all-on-one loans.
Brief Overview of All-in-One Loans
All-in-one loans are mortgages that allow home buyers “to pay down more interest in the short-term while giving them access to the equity built up in the property.” These loans combine “the elements of a checking and savings account with a mortgage and home equity line of credit (HELOC) into one product. Great for people who have good credit, an all-in-one mortgage lets homeowners pay off their loans sooner without the need to refinance.”
The main points to keep in mind about all-in-one loans are that they . ..
- Allow homeowners to pay down more interest in the shorter term and provide access to built-up equity;
- Bundle a bank account, mortgage, and HELOC into one convenient product;
- Apply payments toward both the principal and interest while still allowing the advantage of withdrawals; and
- Require a good measure of financial discipline because withdrawals lengthen the pay-off period.
All-in-One Loans and Traditional Mortgages
Of course, with a traditional mortgage, your monthly mortgage payments will also lower principal and interest. But an all-in-one loan carries additional advantages and perks – chief of which is that you are allowed to combine the mortgage with a savings account, similar to the way an offset mortgage or HELOC works.
So with an all-in-one loan, when you make mortgage payments, which are applied toward principal and interest, they are deposited into a savings account and are then accessible for withdrawals. The advantage here is that while you’re paying down interest, you are also able to access the funds in the savings account (your built-up equity) without having to pay the sizable costs that would if you financed a traditional mortgage.
You can also use the money withdrawn from your all-in-on savings account in any way you want, even for everyday needs like buying groceries or paying medical bills. You can access the funds in your all-in-one equity savings (and checking) account by:
- Making withdrawals with a debit card,
- Writing a check on the account, or
- Transferring funds to a traditional checking or savings account.
All-in-One Loans and Refinancing
So now let’s see how all-in-one loans stack up against refinancing for homebuyers in Redlands.
Whenever a homeowner wants to, say, get a better interest rate or use some equity, a common strategy is refinancing. The steps involved are very much the same as they would be for securing a mortgage for the initial purchase, including meeting financial criteria and a closing and execution of a new deed.
But with an all-in-one loan, you can get the financial benefits of refinancing without all the hassle and paperwork. You simply withdraw the funds from the equity savings account into which your payments have been deposited.
The Biggest Danger
There is, however, a fairly significant danger for some people with all-in-one loans.
The ease of access and the easy liquidity of the equity makes it all too easy for those without the financial discipline to make withdrawals. And if you make continuous withdrawals, you may never fully pay off the all-in-one mortgage. In addition, all-in-one mortgages often have a higher interest rate than other mortgage products, so the longer you stretch out the pay-off, the more you’ll pay in interest.
What Your Local Agent Can Do
This mortgage option, then, may sound pretty attractive, and it is indeed a good option for some people. But it’s not at all right for others. Although your Redlands agent is not a financial advisor, she can, nevertheless, steer you in the right mortgage direction – especially with her thorough knowledge of the local market and how it affects mortgage decisions. So if you’re a home buyer in Redlands considering one of the all-in-one loans, contact us today at (951) 232-9704.