The Difference Between an All-in-One Mortgage and Traditional Mortgage

Within the mortgage industry there are many different types of mortgage products available, and each mortgage product caters to the requirements of borrowers from different backgrounds. One can think that all mortgage products are the same, however, it is essential to note that all different types of mortgage products have specific benefits and features which assist the borrower in reaching their financial goals quickly.

What is a traditional mortgage?

A traditional mortgage is a “charge” against a piece of property to secure a loan. In a traditional mortgage, the borrower makes regular fixed payments towards the loan, and with each monthly payment, there is a portion that goes towards paying the principal, which is the original loan amount, and one portion goes towards interest. Over the duration of the mortgage term, the principal amount decreases, and the equity in your home, which is the difference between the current home value and the amount you owe on the mortgage, increases.

What is an all-in-one (or readvance-able) mortgage?

As the name suggests, all-in-one mortgage allows a borrower to combine their mortgage loan, bank accounts, short-term savings, and other loans into one account, hence the name all-in-one. All-in-one mortgages are similar to traditional mortgages, whereby the payments are made up of two portions and one portion goes towards the principal and the other goes towards the interest.

One interesting aspect to note about all-in-one mortgage is that when the borrower pays a designated amount towards the principal, that amount then becomes immediately available as credit. This means that if the borrower is paying $2000 towards the mortgage and $1000 goes to the principal and $1000 towards the interest, the $1000 paid towards the principal then becomes available for the borrower to withdraw.

Moreover, when applying for all-in-one mortgage, some lenders might even allow borrowers greater financial flexibility by allowing them to customise how they use their credited amount. For example, a lender might allow the borrower to crease sub-accounts within the mortgage, with each sub-account having its own interest rate, term, and repayment schedule, so that the borrower can tailor the accounts as per their needs and preferences.

Benefits of an all-in-one/readvance-able mortgages

Having an all-in-one mortgage might be complex for some borrowers, so this type of mortgage product is preferred by experienced borrowers as it becomes a powerful tool to assist them in reaching long-term financial goals. Some of the benefits of all-in-one mortgage are as follows:

• Easy access to the equity available whenever needed
• Borrow up to the set ‘limit’ if you own the property
• Pay off the credit line portion without penalty at any time.
• The flexibility to make interest-only payments
• Combine your mortgage, savings, and chequing accounts
• Track interest charges on investment contributions using credits for tax purposes