What Is an “All-in-one” First-Lien HELOC?
When exploring home financing options, most people are familiar with a traditional mortgage or home equity line of credit (HELOC). Another option that has gained attention with potential home owners is the All in One First Lien HELOC. While it may not be the right fit for every homeowner, understanding how it works can help you determine whether it aligns with your financial goals.
How an All in One First Lien HELOC Works
An All in One First Lien HELOC combines features of a primary mortgage, a HELOC and a checking account. Rather than making payments on a traditional mortgage with a fixed balance, borrowers have access to a revolving line of credit that is secured by their home. Monthly income, direct deposits, and other cash inflows are deposited directly into the checking account which immediately reduces the outstanding loan balance and interest charged.
Interest Is Based on the Daily Balance
One feature of this type of loan is that interest is charged on the daily balance. Every dollar deposited into the account works to reduce the principal balance, even if it’s only temporary. As funds are withdrawn from the account, the balance of the loan increases again. For individuals with strong cash flow or large cash reserves, this can be an opportunity to reduce the interest charged over time.
All in One First Lien HELOC vs. a Traditional HELOC
The All in One First Lien HELOC differs significantly from the typical HELOC. A standard HELOC is opened as a second lien on top of an existing mortgage. Homeowners maintain the primary mortgage while having the HELOC as a separate to borrow against the available equity. With an All in One First Lien HELOC, it replaces the primary mortgage altogether creating one account that serves multiple purposes.
All in One First Lien HELOC vs. a Traditional Mortgage
There are also significant differences when comparing a traditional mortgage. A fixed rate mortgage provides predictable monthly payments over the life of the loan. This typically makes budgeting easier and protects the borrower from rising interest rates. An All in One First Lien HELOC normally has a variable interest rate. The borrow may benefit from low interest rates but will be affected when rates increase.
Potential Benefits of an All in One First Lien HELOC
The flexibility of the All In One First Lien HELOC can be attractive to borrowers by having continuous access to home equity without needing to refinance or apply for a line of credit. This can be useful for business owners, commission based employees, or individuals with irregular cash flow. The ability to reduce the loan balance with excess cash has the potential to shorten the length of the loan and overall interest paid.
Is an All in One First Lien HELOC Right for You?
When determining if the All In One HELOC is right for your situation it is important to weigh the potential savings against the risk of rising borrowing costs. Overall the right mortgage solution depends on your unique financial goals, income stability and long term outlook. If you are interested in learning more about what option is best for you, you can book a free consultation with one of our financial advisors.
Schedule a complimentary consultation with Wiser today and discover how a customized plan can help fund your goals.
Grace Pavel
Financial Planning Associate, Wiser Wealth Management
Share This Story, Choose Your Platform!
Wiser Wealth Management, Inc (“Wiser Wealth”) is a registered investment adviser with the U.S. Securities and Exchange Commission (SEC). As a registered investment adviser, Wiser Wealth and its employees are subject to various rules, filings, and requirements. You can visit the SEC’s website here to obtain further information on our firm or investment adviser’s registration.
Wiser Wealth’s website provides general information regarding our business along with access to additional investment related information, various financial calculators, and external / third party links. Material presented on this website is believed to be from reliable sources and is meant for informational purposes only. Wiser Wealth does not endorse or accept responsibility for the content of any third-party website and is not affiliated with any third-party website or social media page. Wiser Wealth does not expressly or implicitly adopt or endorse any of the expressions, opinions or content posted by third party websites or on social media pages. While Wiser Wealth uses reasonable efforts to obtain information from sources it believes to be reliable, we make no representation that the information or opinions contained in our publications are accurate, reliable, or complete.
To the extent that you utilize any financial calculators or links in our website, you acknowledge and understand that the information provided to you should not be construed as personal investment advice from Wiser Wealth or any of its investment professionals. Advice provided by Wiser Wealth is given only within the context of our contractual agreement with the client. Wiser Wealth does not offer legal, accounting or tax advice. Consult your own attorney, accountant, and other professionals for these services.
