When I started in this industry, I would often find myself having conversations with lenders about the all-in-one mortgage and bank account product. The idea of having your day-to-day banking, personal lines of credit, auto loans, and of course your mortgage all together made so much sense. The problem was there was only one institution offering this kind of product. Over time I have learnt that a product like this has major fallbacks when compared to a traditional mortgage.
I worked with a couple about a year ago that had this all-in-one product. At first it was working for them. The additional savings they had monthly were contributed to paying down their principal. But they soon found out that, when they were filling up with gas, renting a movie, or buying groceries, the withdrawals for everyday items was increasing balance on their mortgage, as well as charging them interest for each purchase made. They also found that with access to all their equity, it was easier to spend it. Within two years they increased their mortgage debt by about $50,000 and had reached their maximum limit. The all-in-one product allowed them to borrow more than what they had available. On the months that they did, they were charged 18% interest on the total mortgage amount owing.
We were able to rewrite them into a traditional mortgage where they were making principal and interest payment, as opposed to just interest payments. Fast forward one year, and they have made more payments to principal in one year, than the previous four combined.
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