Can't believe I never saw this thread before! NBC's all in one account is something I'm a HUGE advocate of (see my thread).
darklord - HELOC's rates are generally higher than regular mortgages, you're right. For example, the AIO account is at prime + 0.50% (3.35%). Fixed rates are anywhere between 2.49-2.69 on a 5 year, and variable rates in the low 2%'s.
The difference with the AIO is that your effective interest rate is going to be much lower than the nominal interest rate of prime + 0.50%, if you use it properly. The key is to get your savings and income working for you, and directly against your principal. Here's an example:
- You have an AIO account for $200,000
- You earn $4000 bi-weekly. That income goes directly into your AIO account, as it is a HELOC and a fully functioning checking account. As soon as you deposit the $4000 into your account, it immediately reduces the principal from 200k to 196k. That means there is $4000 in which interest is not being compounded on. (Simple daily interest in the AIO vs. compound semi-annual in traditional mortgage). Note that as you pay down your HELOC, you can still withdraw that money back by the same amount.
- You do that again for your next paycheck, and now over the course of one month, there is $8000 you haven't paid interest on. (There are other strategies such as using credit cards for everything to keep your money in the account longer, then paying it off at the end of the month)
- Fast forward this process month over month, year over year, you've created all these pockets of savings and can get debt free years quicker and save tens of thousands of dollars.
It's a very smart strategy for those that are financially disciplined. Lots more strategy can be implemented, but that's really the meat and potatoes of it. Sure your interest rate is slightly higher, but by getting your cash flow and savings working for you, it's going to out-perform any low interest rate out there today if utilized properly.
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