Manulife ONE Mortgage Review

I’m an M1 customer and feel the need to point something out, which may or may not be true with RBC’s Homeline mortgage but is based on my experience with a traditional RBC mortgage. With my old, traditional RBC mortgage, when I wanted to make extra mortgage payments on a monthly basis, the maximum extra payment I was allowed to make couldn’t exceed my regular payment. In other words, if my regular payment was $1700, my extra payment in a given month could not exceed $1700. With M1, I can deposit any amount that I want into the account to reduce the balance, which is ideal because in a typical month my excess cash is well over what a traditional mortgage payment would be.

With respect to your issue with M1 having few bank machines, the way I get around that is to have a zero-fee bank account elsewhere and use those machines when I need cash. Otherwise I pay with Interac.

As for the $14 monthly fee…..yeah, definitely not ideal. But I feel that the benefits of the account and the flexibility it provides you with definitely outweigh the $14 charge.

Chris: Good comment Chris, good to see the point of view of a M1 client. Apparently, the $14/mo fee can be avoided if you’re part of a professional association?

Fernando: Yes, i’ve read through that thread a couple times also, lots of good info there.

FT

Hi Mork,

Thanks for stopping by and posting your personal experiences with M1.

The disadvantage I list about using your line of credit as everyday spending is just that. Since your M1 account is used for EVERYDAY spending (ie. all your income gets poured into it), you are FORCED to use a line of credit for consumer spending.

Do you use M1 with the Smith Manoeuvre?

FT

Good points David. The higher rates really hold the M1 back. Great for people who don’t have the discipline or patience to pay off their mortgage on their own but more of a gimmick that doesn’t work to the financially savvy.

LB: Good points, but I still don’t recommend people using borrowed money for day to day expenses as it is non-deductible.

Has Mork.ca disappeared?
Mork’s blog has received no real updates since the summer, and the activity on the Manulife discussion was being updated at irregular intervals. It has been unavailable since Friday, and I wonder if Mark has decided to step out of the blog world into other activities? The disappearance of the blog’s information is unfortunate, as it was one of few open discussions on the topic.

David

I have the RBC VIP package: handful of checking and savings accounts plus a couple of credit cards. I also have a RBC mortgage (in yr #3 of 5 with 4.59% rate), and a nonsecured line of credit at roughly 8%.

I’m now in the process of setting up a Homeline, figuring I would dump the balance of the credit cards and line of credit into the Homeline, and then automatically transfer my salary deposits so that they achieve a M-One like plan as was described.

1 point and 2 questions:

- RBC is asking me for $750 in notary fees to set up the Homeline - depending on duration, that may add up to more than $14/month of M-One.

Q1- The way M-One and Homeline calculate interest, if I leave salary and savings in there for 1-2 weeks at a time as permitted, it seems as though M-One puts that money to work for me better, whereas with Homeline I would have to manually apply it to my mortgage, otherwise it is just paying back the credit line. If I know I need the money for an upcoming bill, I would be inclcing not to lock it into the mortage though. Am I missing somehting? Should I automatically apply my monthly payment’s worth of cash to the mortgage knowing I can alwasy pull it from the line of credit if needed?

Q2- Lastly, does anyone know if Homeline can act as a checking account - namely have car lease payments etc automatically draw money form it vs drawing form my checking account? That would allow me to not always be on the trigger moving money back and forth.

Thanks for the great reading…

On the Notary Fees: This is often a simple flow-through of costs. Offer the Banker that you will find a less expensive Notary. All they do is witness signatures and notarize the fact. The Notary will have to attend a location where you & the banker are. IF you can find a mortgage specialist that will come to your home, have the meeting at the notary’s office!

The application of your salary to your debt only affects your last dollar. As long as you are holding debt in your LOC, there is no sense in paying more against your mortgage. The real savings with your plan come from the 1.4% reduction of your mortgage interest rate, and the 2% by having a SECURED LOC. As long as you are paying these as rapidly as possible, you will maximize your savings. For instance, on a 20 year, $150,000 mortgage, you will save about $120 in interest costs each month simply by retaining your current interst rate. If you add that $120 to your payments, you will see a rapid reduction in your debt.

Have a look at: http://www3.telus.net/NFtoBC/MOneCmt2.pdf for a further discussion of this issue.

You can make all the electronic transfers you wish (i.e. bill payments, etc) from the Homeline. I am uncertain how outside automatic debits would work. However I have two comments on the issue: for regular structured payments like a car loan, just set up a recurring automatic transfer of the appropriate amount for your car payment from your LOC to your chequing account. Then it’s there waiting for the automatic debit.
OR, don’t worry about putting every last dollar in your LOC. IF you have a $1500 paycheque every two weeks, and you spend it to $0 in that time, your interest savings in the LOC for the two weeks are $1.73. Have a Timmy’s coffee instead of Starbucks once a week, and you’ve recovered the costs of managing your account in the fashion you describe. Rather than worrying about the pennies you would save by running every dollar through your LOC, focus on the savings your interest rate has provided.

Finally, in addition to FT’s last paragraph, once the HELOC reaches $0, apply the income you had been using to reduce that account to your mortgage, as a double-up payment.

David

Thanks for the answers and suggestions, especially the Horton’s one - is their decaf any cheaper than regular? :-)

With regards to Frugal’s comments in 14, even with the Homeline I keep my original 4.59% mortgage. M-One gives you one interest rate on the whole sum (right?) but Homeline let’s you keep your original mortagge intact, as well as the option of splitting it into two mortgages (one variable, one fixed perhaps) that both sit “alongside” your prime HELOC, each at their own rate.

So to your commetn of why not just take a regular HELOC and avoid the $750 fee and still maintain the lower mortgage interest rate - I *am* still keeping that lower rate, and I guess the “Homeline” spin gives me a couple of perks such as multiple mortgages and a dynamic line of credit that rises to the value of the home as they are paid off (versus a fixed line of credit).

I’m a bit of a newbie, so I may be missing somehting here. Thanks for the great assistance.

Joe,
You are right in your comments in 17, however, you might be better able to negotiate a lowering of the $750 fee at renewal if RBC wants to keep your business. You may also find that the options to apply split mortgages, etc will only be offered upon the expiry of your current mortgage term. If the Fee is not a worry, make the switch when you are ready.

Chris,
While Manulife gives you the opportunity you describe, I am uncertain if the combined accounts behave as the M1 does. I believe that lower rates are offered only with a traditional type of amortized principal & interest payment. I understand that the ‘interest only’ option of the M1 is not available, nor the ability to pay down any amount your wish. Thus taking the fixed interest route changes M1 into something akin to the offerings of the other banks.
That being the case, there is little impetus to switch!

David

Oops, meant to add. Who cares about 14% and a higher rate if it shows that the amount you carry will allow you to pay of in 50% of the time. You are obviously saving tens if not hundreds of thousands by shortening your amortization that much. So does the Manulife One @ 6% really matter then? Does X year @ $14/month really matter? $164/year for 8-9 years is still FAR less than tens of thousands of dollars.

Max: With the interest calculated DAILY it works AGAINST you, not with you. Typically, mortgages are compounded on a semi-annual basis (in Canada). So lets work out the things that m1 has against it:
1. higher rate
2. compounded monthly
3. monthly fee.

If you have the discipline, you can setup another re-advancable mortgage and set it up similar to the m1, but save interest $$$.

The interest isn’t compounded daily, the daily amount in the LOC is USED in the eventual calculation…it’s not compounded daily, just calculated daily. BIG difference.

It makes sense that it’s that way as any other way wouldn’t make any sense for the product.

Sorry Max, I made a mistake, I didn’t mean to say that the interest was compounded daily, I meant the interest is compounded MONTHLY in a HELOC. Which still works out higher than if the interest is compounded semi-annually.

You will get savings b/c you are applying ALL of your income towards the product. But why not apply the same amount to a mortgage with a lower rate? You will end up paying it down even faster than the m1.

Max,
The only way you will reduce your mortgage amortization from 20 years to 9.7 and save $130,000, is by leaving a considerable amount of cash in the account on a monthly basis. While putting your paycheque into the M1 account will save you a few dollars in interest, it will not save you the amount your advisor indicates. Have a look at my previous messages, and follow up on them. If you run the Manulife calculator, and pad your expenses to match your current situation, where you spend all but your mortgage payment, you will see the actual advantage. You can then increase your ’savings’ in small increments and see how the application of those amounts affect your mortgage.

Also remember, if you have short term debts, the Calculator will add their value to you loan in perpetuity. For example, if you factor your $500 per month car loan into the calculator, but only have 4 months left to pay on that loan, the $500 is added to your M1 paydown for the rest of it’s life.

By adding these $hundreds to your monthly mortgage, it has the appearance of painlessly paying the mortgage faster, when in fact, the car loan you figured to have paid off in 4 months is applied to your mortgage for 9 more years. If you have the ability to make that commitment in the M1 case, you should similarly do so with a lower cost product.

Have a close look at the product before you jump in, and also ask your advisor how much Manulife pays him for the referral!

Have a look at the RedFlagDeals.com site for more information as well.

Just ran some #s myself and it’s VERY sensitive to the amount you spend monthly. You are right, it’s basically dependant upon you managing to sock away X thousand dollars a month that sits in the mortgage. It’s basically an open mortgage that requires the same discipline as doubling up on a closed would.

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

Yes - same Chris. I was with M1 for over a year, so I didn’t qualify for the money back guarantee.

Truth be told, I still think M1 is a great product for those who couldn’t be bothered to be hands on with their finances and put extra money on their mortgage manually each month, but if you are a little proactive there are much better options. It’s too bad because their customer service is easily the best of all the banks I’ve dealt with over the years.

He’s not my CFP right now. I am interviewing CFPs this week and he was one of the ones I interviewed.

Don’t worry, interviewing more :)

Here it is from the horses mouth! Manulife One is good for some people, but not the best for the Smith Manoeuver! As an advisor I get paid on the Manulife One. But if you really want the best, (right now) there is only one large Canadian bank which has the best product…no fee account, up to 10 ATM withdrawals per month, (any bank). But advisors don’t get paid and mortgage brokers don’t get paid! I still suggest people look into it if they want to to do the SM.

Hello Frugal Trader,

Not RBC (lots of limits on their product) As a financial advisor, I can’t tell you everything!
Unless of course you are my client! Feel free to call me.

Ps. the bank is helping my clients pay for part of their penalty, if they wish to break their mortgage.

Every $1000 you put on your CC saves you $5 over paying out of the account at the beginning of the month. If averaged over the month, it saves you $2.50/$1000.

$150,000 at -0.85% difference in mortgage rates saves about $106.00 per month.

Your choice.

David

Hello Rich,

Sorry I hit a nerve. Here is some important information people need to know about the Smith Manoeuver. Pages 75,& 76 of Fraser Smith’s book “Is your mortgage tax deductible?” talks about interest capitalized. My understanding is Manulife One does not do this automatically. You must do this your self once a month. They are working on a solution later this year. Most mortgage brokers have not read the book and have no banking product that has this feature, to offer. Also, most banks will not capitialize the insterest automatically!

I looked at the M1 with a co-worker of mine recently and I can tell you that their “calculator” is garbage. There is no way that a LOC can shorten your mortgage from 6 years to 3.3.

Mike

Hello Carson,

Hear is the goods… if you want to save money build your net worth, go variable with a discount & HELOC (with a discount off prime as well) Go to a bank that will allow you to capitalize interest. (Smith Manouever) See my comments #46.

If you can’t sleep at night go fixed and forget about the Smith Manouever. If interest rates go up much higher…say prime at 7%+ your vacation property will become much cheaper very soon.

As far as inetrest rates go, I have done this for thirteen years, variable is almost always better. Lots of studies going back 40 years to show that you pay extra for the fixed rate.

Also, if you were worried about rates your bank/CFP could have rate protected your mortgage 120 days! M1 is 90 days! (Rates could have been fixed based on rates April 1st,or May 1st 2007) So you would have got a five year fixed at about 5.09% …what happened?

As for as M1 calculator is concerned, if you have lots of cash the numbers will look great…Why? The cash goes against the mortgage! I have sold the M1 mortgage but is not for everyone. Example, if you have a steady pay cheque little cash in the bank then consider the other banks. If you are self-employed where cash is bad one month and next month you can buy a BMW…M1 can be great! Plus corporate chequing accounts pay over 4%! This is not possible at any bank, unless your corporation has over $250,000!

Further to my earlier comment:
After your mortgage is paid in seven months, you should have some $4700 in savings each month to apply to other goals. If you do not have a stellar retirement plan in place, I would suggest that a sizable portion of that income be diverted into appropriate investments for that future. You have a very comfortable income just now, and will likely want to continue that into retirement.

DAvid

Hello Carson,

We all learn from our mistakes! I have made some myself over time.

Rule #1 For rate protection assume the bank or the CFP (that’s me) may not be looking out for you! Mark in your day timer etc. 120 days or more before your mortgage is due!

Why do the bank employees have a take or leave it attitude? They get paid every month! Why do some financial planners not remind their clients when the mortgage is due? The money is zero or in M1’s case small. The real story is your mortgage is probably your biggest expense, if you can do well then the battle for retirement will be better! The important thing is, you now know better, and hopefully others may learn as well.

After reading all of the blogs I am confused on one point, for the average person with the simple goal of paying off his/her mortgage the fastest and the cheapest, which is the best way to do it? I am in an M1 account now and find it has worked well, but if another product will save me noney and do the same thing I would like to make the move sooner then later.

Bruce

Bruce,

If you are self-employed, or have lots of cash that you are using for the M1 account good for you!

If not, prime is now 6.25%, you can get a rate of 5.4% (prime with a discount)or better, free chequing, no atm charges, etc. What sounds better? If you have any questions, please talk to your advisor or myself, if you are in the Toronto area.

Ps. If you are trying to do the Smith Manouever, a lot has changed since Fraser has written his book. Fraser talks about Manulife One, as a good bank to capitialize interest rates (see my comments on # 46) Now there is another bank…but they don’t pay advisors or mortgage brokers…that is why you never hear about them!

regards,

Brian

I would like to give you the whole picture of my situation, and then tell me if this program Smith-Manoeuvre would still work with me NOW or would it be better to avail of it LATER.

My family and I are staying in our present duplex with a present market value of $350 K or more, with a balance of $223,733.

We have a rental property, a condo/townhouse, which I got just last June 16th, worth about $250K or more, with a balance of $193K.

We are taking possession of our new home either mid/late Sept or early October. We don’t have a possession date yet. This one would be our principal residence then, and our present duplex would be another rental property.

If I get Manulife One for my present home, the duplex, can I port this program to my new home that I’d be taking possession later? What can you suggest I do?

I also would like to refinance my duplex to get the equity so I can buy more properties.

Would anyone be able to give me suggestion or advice on this? Thanks.

FinancialMoron and FT - Check out the National Bank “AIO”. You can have unlimited accounts at $2.50/month each. Every account has its own number so you can have cheques for each account and a credit card linked to the account - this is idea for cash flow damming. You can capitalize the interest in accounts. National Bank does want an interest payment each month (unlike Manu) however you can pay the total of all the interest charged in all accounts to just one account - the Mortgage line.

Brian - National Bank wants the interest payment for all accounts, however, it can all be paid into one account. So if you owe $100 to the Mortgage line and $100 to the Investment line you can pay the full $200 into the Mortgage line. The investment line will be charged the $100 - you are capitalizing the interest.

Ok, I had to come up with the extra $100 which went to pay down the Mortgage rather than the interest on the investment line. If the Mortgage line is set up as a line of credit (As the Manulife would be) just withdraw the $100 and put it back in your pocket. If your paycheque is going into the Mortgage line it would be simple.

Yes, free chequing, credit card is linked free, Currently they pay legel and apprasial (like most banks if you ask). There is no messing around with accounts - just set up SWPs (for free)

I wouldn’t discount them based just on my description. Let me know your concerns, maybe others can comment on the National Bank “AIO”

Sorry Brian, I just read your comment again and see that you will be promoting the National Bank on your web site?

Hi Brian:

I read your paragraph comment #63 and if I understand what you are saying, you have a separate line set up to make interest payments.

I am suggesting with the National bank you don’t make the interest payments, just let them accumulate. I may have caused confusion when I said the National bank wants an interest payment. It does but you can pay it into any account. So you have the two accounts one for the mortgage and one for the investment. Make the total interest payment into the mortgage account. So if you owe $100 interest to each account pay $200 to the mortgage account, $100 will cover interest and the other $100 is a principal payment, and the investment line went up by $100 (to cover the interest). If you use the National bank like Manulife and have your pay cheques go in, then you will not have to worry about having the money to make the interest payment.

Artist3d,
Yours is one of the few situations where an account such as M1 may have value. However, for those earning a regular income, and who have wisely chosen an amortization period, the savings available from a mortgage with a lower than prime interest rate can be substantial.

DAvid

Arist3d, great comment, thanks for taking the time to express your opinion.

Although the M1 mortgage is flexible and suitable mortgage for entrepreneurs like you, it’s not true that you’ll pay less in interest with M1 than a conventional mortgage. Even if you use their own calculator, it will show the total amortization schedule to be longer with M1 than a conventional mortgage providing that you put $0 for your savings/rrsp, and balance your expenses + mortgage payment to equal your income.

Try the calculator for yourself:
http://manulifedc.com/files/banking/index.html

True I am a total financial novice and as such have a rather admittedly naive perspective (hardly have a clue what a lot of you are talking about), typically I only look at the bottom line. But I thought this was a forum specifically about sharing ManulifeOne experiences not apples or oranges.

Believe me I am not suggesting there may not be better options out there, I am just saying as a new home owner that they certainly were NOT made self-evident by our ‘pretty much any bank’ manager at a critical time in our lives.

I do respect what all of you have said and will gladly look at any real examples or links people would point to that would offer a solution that provides these key element;
- save us more more on interest charges
- keeps the flexibility to pay if and when we can
- gives us immediate access to everything we already have paid up to 75% of our equity.

If anyone is interested in more of my perhaps ‘naive perspective’, I have done all I can to add to this discussion and have elaborated in further details our personal progress report on this webpage to better explain how we have come to our positive conclusion about ManulifeOne. http://isleofwebs.com/manulifeone/

Fact is the best option is paying full up in Cash 100% 0 interest! :-) Cheers

Artist3d,

Have you asked your Financial Planner to show you the first 5 - 10 years of a regular mortgage which has an additional $1375 per month applied against the principal? You would then be comparing your current experience against a regular mortgage. There is no mystery to M1. The application of your current artist’s income is actually a HUGE payment increase, and is about equal to having a mortgage with a seven year amortization, instead of the 25 year that you are comparing to.

If you go to the calculators at dinkytown.net, you can look at numbers for yourself: http://www.dinkytown.net/java/CAMortgagePayoff.html

AS I said in my earlier post, the Manulife One product may have greater value to an individual with your earning patterns, as it allows ease of managing your money. However, if you look at the two products using the same cash inputs, you will obtain a more accurate comparison.

DAvid

I would like to start off by saying that this website has been extremely helpful as I have begun to look into obtaining a mortgage and I would like to thank everyone for posting, it has been very educational and a big eye opener for me.

I have been looking at obtaining a M1 mortgage, but after reading all the posts here, have begun to rethink this. From what I understand (and forgive me, this isn’t a whole lot), many people here would recommend obtaining a traditional variable rate mortgage (with substantial interest rate advantage over the M1) and simply pay additional funds into it, thereby mimicking the M1 and reducing the amortization of the mortgage (saving money over the long haul).

It seems to me that if you were to divert all funds remaining at the end of the month to this purpose (thereby reducing the mortgage more quickly), it would be difficult to maintain an emergency reserve for random monetary needs (car problems, emergencies, etc…). My understanding is that it would also be prudent to obtain HELOC to cover such contigencies (also useable for the SM). I hope that I have at least a basic grasp of this, if not, please correct me.

My question lies here… In order to obtain that HELOC, you would need at least 20% equity in your home, correct? What happens if you only have 10-15% equity in your home? You cannot obtain a HELOC to cover extra expenses (at least until you have increased your equity over time) and this makes maximizing your mortgage payments difficult as you would like to also maintain at least some money in a reserve account for emergencies (you’re not putting all your extra cash towards that mortgage). So now you have a lump of cash sitting in some money market/high interest savings account and it is not working for you towards your mortgage.

Now, if I had say 10% equity in my home with a M1 mortgage (allowable with a paid premium), as I see it, I’m still throwing all my money at the mortgage and I don’t have to maintain an emergency fund as I can take out what I need when I need it from the M1 (not past the 90% mark). This way my “emergency fund” is working for me daily at a 6% non-taxable rate to pay down the mortgage whereas with the traditional mortgage, i’ll get 4% taxable in the account as it sits there doing nothing.

Did all that make sense? I hope so.
I figure that in this fashion, I could pay down my mortgage until reaching that magic 20% equity number and then switch it over to a conventional variable rate mortgage with another lender, thereby saving money in the long term as explained in many of the earlier posts on this blog.

I look forward to any comments/critiques of what I have written and appreciate any advice given.

Thanks David, I appreciate your advice. It definitely sounds doable and makes sense as an alternative. How likely would a bank be in offering a LOC to someone with low equity in their house? Would this be a huge issue?

One last question for the group here…

I have been investigating this issue further and have come across another alternative to the M1 that appears quite attractive. The Scotia Flex Value Mortgage (Scotia Total Equity Plan) seems to have the best of both worlds. You can throw as much money on your mortgage as you want whenever you want and they offer a sub-prime rate to boot. Not sure if you can withdraw the addtional funds deposited if an emergency arises but I’ll look into that (besides as David indicated, can get a LOC on the side for emergencies). Additionally, the interest is compounded semi-anually instead of monthly a-la-M1.

Any thoughts?

Novice,
As long as you have a good credit rating, and are not carrying a great variety of debt, a LOC should be readily available. Your interest rate may vary based on the risk the banker perceives.

I believe Scotia Bank’s product requires a request to the bank to readvance the mortgage funds; likely not a big deal for your plans, however, none (except M1) will readvance until you hit that 20% point.

You will of course have the insurance premium to pay if you go with a higher ratio mortgage. If you have the financial will, you might wish to obtain an 80% mortgage, and pay the difference with a second loan (LOC?) that you repay quickly, avoiding the insurance issue altogether. Availability will depend on your relationship with your banker.

DAvid

Thanks all. The information is much appreciated.

Frugal Trader, thanks for the link, the page comparing the various mortgage lenders was very helpful. I realize that there are different mortgage products that may be appropriate to different people in different situations, but what would you recommend to someone starting from scratch (buying first house) with no debt to speak of? I think I have ruled out the M1, and am leaning towards a Scotia Bank Flex Mortgage. I really want to eliminate the mortgage as fast as possible and project to have extra money at the end of the month to throw at it once in awhile (hence needing the prepayment option). I don’t however, want to go with a shorter amortization and higher required payment
each month.

Artist3d, I can appreciate your enthusiasm for the M1, I was just about sold the first time I came across their site. It seems well suited to your situation. I suppose that it does offer freedom, but this comes at a price. You pay a premium (higher interest rate) for the privilege of the convenience you get. I’m not great with numbers, but if you were to calculate your interest payment for the first year with M1 on say, a $200,000 mortgage (@ 6.25%), you’re paying $12,500 in interest. At 5.5% (rate you could get for variable 5 yr.) you’d pay $11,000. The difference that first year would be $1,500. Now, it seems to me you’d have to be holding $24,000 in your account (paycheques, income, etc…) at all times throughout the year to generate the difference between the interest rates ($1,500/0.0625). This does not take into account the $14 per month fee as well. Note that this also does not take into account the month to month differences in interest as the debt increases/decreases. I’m not that fancy with the numbers :)

If my math here is wrong please correct me.

Hi All!

We updated the Smith Manoeuvre Mortgage Comparison to reflect each lender’s maximum amortizations (on their fixed portion) as well as if they allow you to capitalize your LOC interest.

The page continues to be a work in progress. If anyone finds any discrpancies let us know and we’ll punish our poor underpaid researcher. :)

Have a good weekend!

Melanie

Rosheen,
Don’t be too sure that ‘most’ of us are money experts. Many of the contributors here are self-taught, and hold no credentials in financial planning. We are sharing our knowledge and experiences.

The comment you offer was often discussed on Mork’s blog before it’s demise. While the M1 could be used in the fashion you describe, the borrower must also address the root cause of their indebtedness, else they can continue the spiral of debt even further! Can you imagine what could happen to the individual who sees the equity available in their M1 as spending money?

Even without M1, an individual can consolidate their debts, and use lower rate loans to climb out of debt; others unfortunately, see a zero balance on their credit card as an invitation to spend.

If you are in one of the categories of indebted individuals you have described above, and are getting a handle on your debt, congratulations and best wishes on meeting your goal of being debt free. If M1 helps you get there, so much the better. Some folks have opted to use an amortized debt consolidation loan, rather than a credit line, with the payments equal to their previous payments. This allows them to use the lower interest rate to advantage, while having the forced savings of servicing the debt fully on a monthly basis.

DAvid

I’d be pleased for advice:

I am buying a $250,000 condo this week - I have a steady income that can support a mortgage of $350,000 - I have $150,000 in a savings account to support a family member in the future (date not known) - but I need the available cash when requested.

So, how to best reduce interest costs? I don’t like paying interest.

If I put $60,000 down and take a variable rate 5-yr open mortgage the payments are about $3300/month. At the end I own the condo.

But, I am doing this all the time $90,000 ($150,000-60,000) is in a savings account - seems stupid to me. And I am not using all my spare income for the mortgage because I need to recoup the $60,000 down payment in case the full $150,000 is required.

Is using an LOC or M1 account a better way assuming I can reverse payments and take out $150,000 when (if) needed in a year or so? I’d start borrowing only $100,000 but can I run it back to $150,000 owing easily if I need the cash out?

Thanks for help.

Supporting Parent,
There is not enough information in your post to provide a reasoned comment. The stumbling block is how soon might the $150,000 be needed, and will it need to be a lump sum payment? Only if there is enough wiggle-room would I consider the route of using a re-advancable loan product. If you used M1 or other mortgage product, your $250,000 condo would support a $187,500 LOC. If you used the whole savings account, you would have $87,500 free, and could increase that amount by about $3000 per month which means it would be 20 months before you would have the $150,000 available to you again.

I strongly suggest speaking to a financial planner to see how this situation an best be addressed. Also consider the following points:
Are you getting the best possible return on your savings? The interest could be used to pay your mortgage.
Could the savings account be held in such a manner that the tax liability is reduced?

DAvid