The AIO loan is available one of three ways: Monthly variable, 3 Year ARM, or 5 Year ARM.

The interest rate* is a combination of two numbers:

1. A margin of your choice (many clients select 3.5% as it costs no discount points; this margin can be bought down if you’d like) 

2. An index—we use the 1 Yr Constant Maturity Treasury.

In January of 2022 that index was at 0.3%, so January’s 2022’s AIO loan interest rate was 3.80% (3.5% + 0.3%) in most people’s case. If you refinanced into the AIO loan and bought down the margin to 3%, your rate in February should’ve been 3.30%, except—it would have to go up to 3.75% because that is the floor on the AIO loan; your rate can never be lower than the floor, even if the margin + index add to a number lower than the floor.

January’s 2023 CMT rate = 4.710%. So if someone took the 3.5% margin, their rate in January would be 8.210%, the sum of the margin and the index.

To see the current rate of the 1 yr CMT index, see here. By summing the current month’s index with your margin, you can determine what your interest rate would be.

Your monthly interest payment, then, is the greater of the floor rate or the 1-year CMT Treasury index + your margin * the current drawn line of credit amount, amortized over 30 years.

*APR is equal to the stated interest rate in the AIO product.

**The margin remains constant throughout the entire 30 years; the index can change monthly. In a 3 Year ARM, the index will stay fixed for 3 years. (Same goes for the 5 Year ARM.) After that fixed period, the rate will vary monthly. In a rising-interest-rate environment, it may be advisable to secure a rate for 3 or 5 years. In an environment that anticipates falling rates, locking a 3 or 5 year ARM would be inadvisable.

A Credit Score of 700+, DTI of 43% or lower, & some reserves.

Whereas conventional loans can get your debt-to-income ratio up to 48% (and VA can go up to 60%) the AIO loan has 2 tiers: 40%, or 43%. With a DTI of 40% or less you’ll need to prove you have 10% reserves. With a DTI between 40%-43%, you have to point to 15% reserves.

Reserves can be any retirement funds, stock market investments, savings or checking accounts, etc—the bank just needs to see you have reserves in case the bottom drops out on you.

So, if someone’s DTI was at exactly 40%, and they took out a $500k AIO loan, they’d have to have a total of $50,000 total (from any accounts) that could serve as reserves. This $50,000 doesn’t get used or anything, but it has to be proven to exist. (If their DTI was between 40-43%, they’d need $75,000 in reserves, ie, 15%.)

While as a national bank we can lend in all 50 states, due to some state’s legislation we cannot yet offer an AIO loan in all 50 states. With the exception of New York, most other states are eligible for an AIO loan with a corporate approval.

This is the current list of eligible states, with new additions coming in time:

AL, AZ, CA, CO, DE, FL, GA, IA, IL, IN, KY, MI, MN, NC, NJ, NV, OH, OR, PA, RI, SC, TN, TX*, UT, VA, WA, WI

Again, if you don’t see your state but you’d like to get into an AIO Loan, chances are we can do it—as long as you’re not in New York.

*TX has a few differences that we can explain to you in a consult.

30 years. (25 in Texas.)

Whereas most HELOCs will have a 10-year draw period, the AIO loan allows you to draw for the entire 30-years.

The first 10 years allow withdrawals on the full line of credit: up to 80% of your home’s value.

Year 11 begins reducing the available credit by 1/240th per month for the next 20 years, so as to avoid a large outstanding debt requiring repayment going into the last few months of the term.

Yes! You can still write off all of your annual mortgage interest with an AIO loan.

The mortgage interest deduction (articulated in the IRS publication 936) offers homeowners the ability to write off whatever they pay each year on mortgage interest.

But think: wouldn’t it be better to not have to pay all of that interest in the first place? it doesn’t make sense to try to keep that number high–you’re only saving 20-30 cents on the dollar, compared to what you’re losing in the actual interest charges. If that line of thinking actually made sense, borrowers would be wise to go seek out the highest interest rates in order to maximize their deductions.

Rates rise and fall. Some people fear what can happen in a variable rate, thinking that they may get stuck paying a fortune in interest. They forget that in their 30 year fixed mortgage, regardless of their rate, they’re guaranteed to pay a fortune in interest charges.

In the AIO loan, even if your rate went up to 9.067% you’d still be more than $143,000 better off than you would’ve been in the 30 year fixed at 5%. (Rates & Assumptions)

And you’ll have the home paid off in 12.8 years.

You don’t have to stay in a home for 30 years to reap the benefits of an AIO loan. Take the conservative scenario (see above) where interest rates climb up to 9.067%.

Even within just the first 5 years, the difference is remarkable. In the conventional loan, over 5 years you will have paid less than $37,000 towards your principal, and your loan balance will still be more than $413,000.

In the AIO loan you will have put more than $155,000 towards your principal (more than 4x the principal paid in the conventional loan), and your loan balance will be below $295,000.

If that house appreciated just 5% per year during that time, it’d be worth around $765,000.

The profit from your sale would be $352,000 if you remained in the conventional loan. The profit could be $470,000 if you’d been in the AIO loan—$118,000 better off than if you’d kept the 30 year fixed.

And that’s just over 5 years.

Show me the details of how that works on the paydown schedule.

Back in 2008, you may have heard of people with a HELOC who were notified that their assets had been frozen. Any HELOC will give the bank the ability to freeze assets; banks have to manage their own risk too, after all.

There are two major reasons that this isn't much of a concern in the AIO loan.

1. In the 2008 mortgage meltdown, all of the HELOCs that were frozen were in the second position.

2. Many of those were 100% CLTV* too, or even higher.

So of course those got frozen.

The AIO loan maxes out at 80% LTV, and it sits in a first position (it's not a second mortgage, it's the only mortgage on the property). So while yes, theoretically, the bank could temporarily freeze your assets in the AIO loan, it would be so extremely unlikely as to make this concern negligible.

*CLTV: combined loan to value: when you have 2 mortgages, you note the LTV of each, and the CLTV, so a 1st mortgage at 80% LTV and a second HELOC at 20% LTV would give you a CLTV of 100%.

Automatically.

Every time you deposit funds into the AIO checking account, you’re effectively making a principal payment on your loan. The loan balance decreases by that exact amount.

So if you owe $150,000 on your mortgage and you deposit $10,000 into the AIO checking account, the next day you’ll see that you owe $140,000 on your loan. There are no more monthly payments you need to send to a mortgage company; every deposit into the checking account is treated as a mortgage payment in the AIO loan. It’s the simplest system ever that you can truly set and forget.

Every month on the 21st, that prior month’s interest charges will be added to your balance, resulting in a higher balance due. Any deposits that have gone into the AIO Checking account will have been applied towards the principal (reducing the balance due), and the interest cost will automatically be added to the outstanding balance each month.

If no deposits were made, or insufficient deposits were made to cover the interest due, funds will be debited automatically from the line of credit to keep the account current and your new balance will reflect that month’s interest charges.

*AIO in Texas is slightly different. Speak to your certified AIO Loan advisor for more information.

**A $140,000 balance costing $1,000 in interest would mean that the month’s interest rate was 8.580%. That’s $72 less than the interest charge would have been if the balance had been $150,000 at that interest rate.