It’s a dilemma many homeowners face: I want to put more money toward my house so I will pay less interest in the long term, but I also want to keep cash on hand in case an emergency crops up and I need it in the short term.
The all-in-one mortgage or “accelerator mortgage” is designed to solve that problem. Popular in England and Australia, where the laws there make it a more popular option for saving money on taxes as well, the all-in-one mortgage is a fairly new and niche option in the United States.
How an all-in-one mortgage works
An all-in-one mortgage combines your checking and savings accounts, mortgage, and home equity line of credit (HELOC) in a way that allows you to take your extra income and put it toward paying off your house. The savings account is effectively your home—but with a much higher rate of return.
You use the checking account from an all-in-one mortgage exactly the same as any other—deposit your paycheck, pay your bills, buy groceries, and so on—but it’s tied to your mortgage loan. All your surplus income goes toward your home mortgage.
“That’s the selling point, that you’re going to pay off that balance more quickly—as long as you’re spending less than you’re earning,” says Greg McBride, chief financial analyst at Bankrate.com.
The benefits of an all-in-one mortgage
While you can pre-pay your home mortgage without an all-in-one mortgage, once you send that extra money to your lender, you no longer have access to it. You could take out a home equity loan, but it won’t offer the kind of flexibility and instantly liquidity that an all-in-one mortgage does.
“It’s a good tool for people who are disciplined and want to pay down their mortgage more quickly and are afraid they may have an unexpected need for money,” says Nessa Feddis, the American Bankers Association’s senior vice president and deputy chief counsel for consumer protection and payments.
Feddis adds, “The attraction of this is that some people may hesitate to pay down the mortgage out of a fear they may need the money in an emergency—maybe they’re afraid they’re going to lose their job or the car breaks down or a child is going to be going to college, and they want access to funds if they need it. And if they don’t, they pay less interest.”
Considerations when looking into an all-in-one mortgage
For the responsible, an all-in-one mortgage loan is not a bad deal.
As long as you are spending less than you earn and allowing that excess to go to your mortgage, you will save money on interest.
However, if you’re constantly overspending or borrowing from your HELOC frequently, you could actually be making your situation worse. It could take you even longer to pay down your mortgage, and you could spend more money in the long run because you’re paying more interest. Plus, there are frequently upfront points or annual fees involved.
A final word of caution: There are plenty of financial experts who question the wisdom of putting any extra money toward your mortgage at all.
“What grabs people here is the cumulative savings over the life of the loan,” McBride says. But with today’s low interest rates, McBride suggests that you may be better off putting that money to work in other ways, such as through a 401(k) plan or an IRA that creates a nest egg that’s much bigger than what the interest saves.
Ilyce Glink is the author of over a dozen books, including the bestselling 100 Questions Every First-Time Home Buyer Should Ask and Buy, Close, Move In!