If I’m going to do that, then I’ll just double up the payments instead and if i DO ever need that double up $ it’s available on the HELOC.

Cheers

DAvid

Effectively I am paying Prime -0.075% combined, so it makes more sense to me.
Thoughts?

Of course, any interest rates has its equivalent semi-anually, monthly, or daily compounding nominal figure. But once interest rates are quoted then it has to be presented in its semi-annually compounded figure. Otherwise, it would be a mislead to quote interest rate ‘as is’ then switch into monthly compounding or, quote the the interest rate without citing the compounding period but actually the compounding is monthly.
In the US though, real estate mortgage interest rates are compounded monthly. But not here in Canada.
I know you are already aware but no harm to reiterate.
Thanks.
RVN

Just thought I’d offer some feedback here. I switched in July 2008, and my initial goal was not mortgage paydown, but consolidating non-secured debt to a lower interest rate. The HELOC portion was prime, the much larger mortgage portion was a variable prime-0.75% (25 yr amort), and these figures haven’t changed since. Currently that makes the HELOC 2.5% and the variable portion 1.75%. When I opened these accounts, my house was valued at $230k, leaving me a total of $184k (80%) to secure both portions. My mortgage has only decreased from about $157k to $145k, but I have reduced my other debt to around $35k so that it fits in my HELOC.

I had started with separate loans ($13k @ 13.99%, 18.5k @ 4.9%, $9k @ p+2%, $9.9k @ p = $50.4k). $27.4k paid down in 2 years. Much simpler to manage 1 HELOC than separate loans, and much better rate. I hope this will accelerate, as my wife’s income is probably going up, and we’re now paying less interest.

I fully intend to pay down the mortgage after I pay off the HELOC. I don’t see any point to paying down debt at a lower rate before debt at a higher rate, even if it’s only a 0.75% difference.

I already have some RRSP savings, and by retirement I should have a nice federal gov’t pension, so I’m not so keen to put more into RRSPs which might just increase my taxes after retirement. I also don’t see any point to leverage into a TFSA (by leverage I mean using my HELOC before I’ve paid off both the HELOC and variable mortgage in full). I would like to get some tax deductions now as I’m in a pretty high tax bracket. I’ll probably set up a spousal RRSP to get my wife’s RRSP match at her work (why turn down free money?).

I just had a tune-up with my financial advisor, and he was impressed. He told me only 2 other of his clients had the M1/All-in-one setup, and that he didn’t recommend it for ’spenders’ – and I note he doesn’t have one himself.

I agree with him – I’d recommend this style of account (or perhaps a variable mortgage + HELOC, same thing to me) – but not to spenders.

- Ah, alright $75 or $900/year makes sense. I just didn’t know if I was missing something in my calculations. Also, that only stays true for carrying multiple 100,000 instances in your debt. If your debt is only about $100,000 then that $75/month becomes less each month of the year, but that’s true for either type of setup. That might however be the one time where having gradual interest (monthly, with daily calculations) works in favour of the M1, rather than making an extra payment once or twice a year (especially if your extra payment is after the bi-annual anniversary of your interest calculation) if you don’t have a re-advance mortgage.

- It’s true that during my 8 years with a conventional mortgage I made very few extra payments to the mortgage, and this was primarily out of convenience and lack of discipline to do so. I think the M1 presents a different way of thinking that most people don’t normally do. People get attached to having that money add up in their accounts..they hang on to it, label it things like Emergency Fund or Rainy Day Fund, and then they (me) get hesitant to do away with it in a mortgage because the feeling is that once it’s gone, you can’t get it back if you need to. That is probably be biggest difference the M1 made…the ability to use all my funds against my debt easily, while still feeling like I can access it if I must.

- I’m not disputing what you say about about achieving the same things with regular mortgages as with the M1. My parents had a 25 year mortgage they paid off in 10 years without knowing or doing any of this stuff at all. They had a regular, 5 year fixed rate each time..not terribly good rates either..they just kept putting everything extra they had against it. It’s possibly to do that. The merit of the M1 is that it allows people to do the same thing more easily, and more-so..it allows people who aren’t as habitually disciplined with their financial arrangements, to do so. It provides a tool for all those people that fall somewhere in the middle, between those who are very financially disciplined and savvy, and those who aren’t at all, and are incorrigible.

- I guess what I’m trying to say is that I very much see the merit of discussing and showing these alternatives to people, and explaining clearly how they work and what they do, but I don’t see the merit of discouraging an M1 type product (doesn’t have to be M1 if you have a personal feeling towards Manulife), which is still very good, when compared to what the vast majority of people normally do. The M1 isn’t a poor product, it just isn’t the absolute best one if the most important feature is cheapest option.

Thanks for all your input throughout, though…to everyone. It’s very informative.

My experience contrasts yours. I had a real conventional fixed rate 25 year mortgage. By the 5 year anniversary, I had fewer than 10 years of mortgage left, i.e had made 10 years of mortgage payments disappear. This was completed by using the tools available to me within that conventional fixed rate mortgage, such as increasing my payments as my annual salary increments arrived, putting my tax return against the mortgage, and adding extra payments when I had the cash. My interest rate was considerably below prime for most of this 5 year period due to rising interest rates, so I benefited there as well.

I have since paid off this mortgage.

My point remains that you can accomplish the same goals as M1 provides with lesser cost using conventional banking products at your current bank.

DAvid

- I can only suspect why the proponents of the M1 haven’t come to report their success. I believe the users of the M1, that don’t employ the greater savings described in this thread, are the type of people sufficiently financially savvy to switch from the real conventional mortgage and speed up their repayments that way, but not interested in devoting the frugality associated with these methods to continue investing time in it and posting here. There are also those that missed out on the M1 savings by dipping into the newly available credit.
- I’m not far from finishing my house debt using the M1. Prior to switching, I was not aware of these options, so I had a real conventional mortgage for 8 years. I was frustrated when I did find out about the M1, for not having switched sooner. I switched, and things are working for me. 8 years of regular payments did little to reduce my principal (although I still accrued equity due to the market), but having switched, with the extra expendable cash, I’m able to finish entirely in less than 4 years. Clearly, the M1 makes a difference. Switching to a setup as mentioned here, might save me 9-12 months…which is significant, but the different between 17 years ( what was left) and 4, is much more so. I suspect most M1 users are in a similar boat.

- Lastly, I don’t understand how .90% translates to $960 per year on a $100,000 loan. This is not to quibble, I just don’t get to that number myself.

– The concern many had was that Manulife (and FT at first) suggests that the simple action of flowing one’s paycheque through the M1 caused the savings.

– At the time most comments were written, variable interest rates were available at a 20% + discount from that which M1 offered. Currently RBC (I did not check others) is offering variable @ 2.35% (better if you are a qualified customer), and was dead simple to find. This equates to a savings over a 3.25% M1 of $80 per month on each $100,000 borrowed, plus the account fee. For this sum in savings, I can manage the inconvenience of manually transferring some money from my chequing account to my mortgage account every two weeks, to get an even greater acceleration of my debt reduction.

– There were also a number of commentators who argued that even with a higher interest rate M1 would always be cheaper. Thus a number of commentators provided clear steps to better the savings.

– Finally, this entry is now 3.5 years old. None of the promoters of the M1 have come back to report on the success of their mortgage reduction. A number of us (including FT) have either paid off our mortgages, or have nearly paid them off in shortened time lines using other methods described in this thread. For those who are goal oriented, this form of mile-stoning is of great benefit.

DAvid

Every single argument against the M1 account is describing options for setting up a variable rate sub prime mortgage in conjunction with a reasonable LOC or HELOC for daily/emergency expenses to do the same thing the M1 does, but for a cheaper rate. Of course that setting up an M1 type system, with a lower interest rate saves you money. That’s not rocket science. Getting that set up, with the ease that the M1 account offers, while also being able to negotiate those favourable rates is the hard part.

Currently, my M1 account is at 3.25%…I’d be hard pressed to find much lower interest rates on anything, and the inconvenience of maintaining multiple accounts is not always something someone has time for. We constantly negotiate the value of our time vs. the money it costs. The $14 fee is the only item I agree with that I’m not a fan of, but in the grand scheme of things, one can chose to pay it, use the M1 card to earn points and put towards it or tally up the monthly fee costs for the amount of time they think they require to pay up their debt in, and decide whether it’s a debt they can afford. Truthfully, the goal is always to reduce debt, but pragmatically, we always have to balance the time invested to reduce that debt (cumbersome multiple account banking), vs the time gained to have that debt ($14/month) and peace of mind. That’s a decision everyone makes on their own. I’m glad this thread shows people the options, though.

So in short, I’m perplexed why there are sides to this argument, and I’m surprised by the ardent disapproval some have for the M1 account, when their suggestions are essentially the same function, but with differently negotiated rates and multiple accounts to provide the same functionality. The M1 account is a far cry from the actual conventional mortgage the vast majority of Canadian home-owners have..and that is a fixed rate, multi-year amortization, interest-first mortgage. What’s being discussed as an alternative here is not a “conventional mortgage”..the only thing it has in common with the mortgage is the word “mortgage”. I understand, however, that some simply mistrust Manulife..a lot of that comes to personal experience, and it varies for everyone. I’ve not had any issues with them during my dealings, but I can hardly speak for everyone.

Good luck everyone.

1) Though we were in the past VERY credit averse, we now pay for everything we can on a credit card (we chose TD infinite Visa for the flexibility, and for the points because we like to travel). When I get the statement, I pay off the entire amount. What this does is allow us to have our paycheques deposited and work against our balance for a month, thereby reducing the interest (which BTW is calculated DAILY, not compounded monthly as mentioned in the article).

2) If you get the MBNA mastercard, you do get points there, which can be used to waive your $14.00 monthly fee as well.

I for one am a believer in this account. We have had multiple unsual expenses since we joined, 2 trips (Orlando and St. Lucia), purchase a third vehicle (not really expensive…but still) for our daughter and paid for her first year of university, and we have still been able to reduce our debt far more than additional payments on our mortgage. We are on track to pay off our mortgage in about 5 years, instead of 15-20.

Best of luck to everyone in this endeavour.