One of my older posts regarding the Manulife One Mortgage is still generating a lot of discussion. Basically it’s a battle between the convenience of having all your banking and debt under one account vs. the extra premium that you pay for the privilege.
To quickly summarize the Manulife One mortgage, it’s a giant HELOC that encompasses your mortgage, chequing/savings and other debt. The biggest advantages being convenience and the ability to have your extra cash flow working against the mortgage. The disadvantages being the higher cost relative to getting a regular discounted variable rate mortgage.
Don’t get me wrong, I can see how these accounts can be very convenient to the entrepreneur with variable cash flow. It allows them to lower their monthly mortgage payments to interest only when cash flow is lower, and the ability to make lump sum payments when times are good.
However, for the every day person, is there really any advantage to the Manulife One product? From the many calculations done by the readers (check out the comments in the m1 mortgage thread), it’s apparent that the Manulife One mortgage is much more expensive than obtaining a discounted variable mortgage.
Below is a table based on a $250,000
$200,000, 25 year mortgage created by our resident calculator guru, Cannon Fodder:
|Mortgage Type (based on 25 yr mortgage)||Interest Rate||Monthly|
|Total Debt Paid||Additional Cost|
|Manulife M1 w/payment at end of month||4.75%||$1,443.95||$433,187||$7,596|
|Manulife M1 w/payment at end of month||5.75%||$1,588.89||$476,666||$7,901|
|Semi-Annual Compounding (prime – 0.90%)||3.85%||$1,294.80||$388,441||—|
|Monthly Compounding (Canadian Tire FS)||3.85%||$1,298.97||$389,693||$1,252|
|Manulife M1 w/payment at end of month||4.75%||$1,443.95||$433,187||$44,746|
Here are a couple of key points about the table above, the M1 calculations include the monthly fee of $14/month (free for professionals). The last few rows are what’s really significant in terms of cost difference between a discounted variable rate vs the Manulife One mortgage. You’ll notice that for a $250,000 25 yr mortgage @ todays rates, you’d end up paying over $43,000 more for the M1 mortgage over a traditional discounted variable.
My opinion is that if you want the convenience of having a HELOC but want the best bang for your buck, then consider going with a discounted variable readvanceable mortgage. That way, you’ll get the best variable price for the installment portion along with a growing HELOC to use as you please.
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