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The High Cost of the Manulife One Mortgage

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 RateMonthly
Payments
Total Debt Paid Additional Cost
Semi-Annual Compounding4.75%$1,418.64$425,591
Monthly Compounding4.75%$1,425.29$427,589$1,998
Manulife M14.75%$1,438.39$431,518$5,927
Manulife M1 w/payment at end of month4.75%$1,443.95$433,187$7,596
 
Semi-Annual Compounding5.75%$1,562.56$468,765
Monthly Compounding5.75%$1,572.77$471,828$3,063
Manulife M15.75%$1,581.48$474,444$5,679
Manulife M1 w/payment at end of month5.75%$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 M14.75%$1,438.39$431,518$43,077
Manulife M1 w/payment at end of month4.75%$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.

Any thoughts?

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FT About the author: FT is the founder and editor of Million Dollar Journey (est. 2006). Through various financial strategies outlined on this site, he grew his net worth from $200,000 in 2006 to $1,000,000 by 2014. You can read more about him here.

{ 157 comments… add one }
  • The Reverend May 22, 2008, 9:06 am

    Disclaimer: I’m a Manulife employee and have an MOne

    I find the table somewhat misleading. I agree that lower interest rate = lower interest paid, but what I disagree with is the apples to apples comparison of a HELOC and MOne.

    The cashflow throughout the month argument really only covers the monthly fee, but what can really get you ahead with MOne is that since it contains all your savings, any excess money you have at the end of the month continues to pay down your mortgage. Sure if you have an extra 10 grand in your chequing/savings account, you’d for sure look at transferring it to your HELOC, but its the 5 bucks here, 100 bucks there that add up quickly in the MOne, which people probably don’t transfer to pay down their HELOC balance.

    I absolutely understand the arguments and if a HELOC was used perfectly (ie keep $0 in chequing until day its needed) it becomes far superior but it never happens that way.

    I’d be interested in seeing some of the calculations behind the figures above if they are easily available in spreadsheet. Also, what are these “monthly payment” amounts. There are no monthly payments with MOne.

    • elf May 18, 2017, 7:48 pm

      The real advantage is that if you are not working & want a mortgage versus renting; provided you have have of the cost of your home as a down payment, Manulife will give you a mortgage(either a fixed rate mortgage or an open line of credit mortgage where you set the payments each month @ whatever you want with a mandatory minimum payment to at least cover the interest)whereas the bank will not. Then as you pay your mortgage(on this open line of credit down) the interest you pay also becomes less, same as a credit card(the interest rate is always prime plus 1/2%.

    • elf May 18, 2017, 7:55 pm

      Correction on my comment as I was unable to edit: “provided you have have of the cost of your home” – should read > provided you have half of the cost of your home as a down payment.

  • Canadian Capitalist May 22, 2008, 9:37 am

    I have the same opinion as you do. It’s quite simple. You can get at least a 0.5% discount off prime for a variable rate mortgage. For a mortgage balance of $200K, the M1 costs $1,000 more plus the monthly fee. Can you earn $1,000 in interest with $50 here and $100 here? I think not.

  • The Reverend May 22, 2008, 9:51 am

    Fair enough. Yes, in the short term it costs more. In any given month or year, given the same principal, MOne will cost you more than a discounted variable rate mtg.

    My perspective on it is that I’m more likely to pay down the principal faster with MOne than with other products, since I can do it 50 or 100 bucks at a time, whereas I’d probably piss it away otherwise instead of saving it up for lump sum mortgage paydowns.

  • FT FrugalTrader May 22, 2008, 10:18 am

    The Reverend, you have some very valid points. However, discipline works two ways. Yes, it takes discipline to pay down a regular mortgage but it also takes discipline to control spending under the M1 as there is a huge balance available which is also your spending account.

  • paul s May 22, 2008, 10:28 am

    This is a great topic. It is impossible to do a real apples to apples comparison as FT attempts to do. The products and how they are used is completely different. What has been missed in the comparison is the impact of direct deposits during the month since interest in M1 is calculated daily. I would encourage FT to go to the website and run their calculation with a few senarios and see what happens.

    If you don’t like the $14 fee from M1, but like the concept, maybe the Canadian Tire option might look interesting to you.

  • Jadium May 22, 2008, 10:31 am

    Long time reader…first time writer…

    I love the blog, it has single handedly created my interest in personal finance over the past half a year! Disclaimer – I am an Engineering grad student – soon to be teacher with no expertise or affiliation to the personal finance industry…

    I have been researching the best mortgages to implement the Smith Manoeuvre for a the last couple months. I have not completely made up my mind yet (still have about 6 months before closing) but I think one of the better products out there at the moment is the National One All in One mortgage. Canadian mortgage trends has a great review of the product at http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2008/04/all-in-one-redo.html

    I like the blend of an MOne account with the option of locking in your mortgage at a reduced variable rate.

  • The Financial Blogger May 22, 2008, 10:48 am

    In response to the Manulife 1, National Bank has upgraded their All-in-one product.

    You can now have a global all-in-one (let’s say 200K HELOC) and include variable or fixed mortgage inside it. Therefore, you benefit from a line of credit that increases every time you are making a principal payment on your mortgage, a checking account and a fixed or variable (or both!) mortgages.

    I don’t they are the only one offering this product (I think that BMO has a similar one) but it definitely overcome the MAN1 cost problem without taking over flexibility.

  • The Financial Blogger May 22, 2008, 10:48 am

    Oh.. I forgot, it is also perfect for a Smith Manoeuvre ;-)

  • Four Pillars May 22, 2008, 11:48 am

    I agree with FT and CC. This product is very expensive for a typical consumer with a large mortgage. I’m sure there are applications for this product but most people are better off staying away.

    Their advertising and “calculator” are extremely misleading since they somehow assume that all potential customers are paying the banks posted rate for their current mortgage and therefore will save quite a bit by switching to M1.

    Mike

  • Basim Baassiri May 22, 2008, 1:15 pm

    from my understanding Manulife is an insurance company, I’m curious to see the benefits of working with this product from a legal perspective considering the bank act and the insurance act are 2 different things. I remember someone mentioning that is more difficult for creditors to come after your assets when the first person in-line is the insurance company

    I know this might be out of scope of this article, any thoughts?

  • Cannon_fodder May 22, 2008, 1:28 pm

    First of all, I should point out that those figures were for a $250,000 mortgage.

    Secondly, the monthly payment is either the mortgage payment or the available amount that you put towards the M1 balance.

    The argument for the M1 is that you can, without any thought or effort, allow all income that isn’t already accounted for go against the M1 balance. If that is a small amount it could easily become part of a routine that would be harder to envision with a traditional mortgage since you would have to make an online or in-branch/over the phone adjustment to your payments and it would be fixed. The M1 would allow this to ebb and flow depending on what expenses crop up that particular month.

    However, if it is a large portion, then it certainly seems possible that one should be able to commit to a larger mortgage payment with a traditional mortgage. After all, if the M1 is to come out ahead in spite of the higher interest rate and the monthly fees, you are going to need to increase the amount that goes towards the principal significantly while also eliminating temptation to dip into that account to pay for certain unanticipated expenses.

    To give you an idea of how much extra per month you would have to assign to a $250,000 M1 mortgage at 4.75% vs. a $250,000 semi-annual compounding mortgage at 3.85%, your M1 monthly payments would be $1589.04 over 20.4 years as opposed to the mortgage payments of $1294.80 over 25 years. This would obviously discharge the mortgage faster but the total cash outlay (including fees) would be identical.

    That is almost $300 per month difference, each and every month for over 20 years, and represents almost a 25% increase over the traditional mortgage payments. For me personally, this is a difference that I would notice and, if I decided I was comfortable, would then commit to increasing my traditional mortgage payments. But I think differently than some (most?) people – perhaps someone on the other side of the equation could explain how they can honestly expect to apply significantly more money to their M1 balance but wouldn’t be able to commit to it with a bank mortgage that costs less?

    If I then went and changed my $250,000 mortgage at 3.85% to $1589.04 monthly payments I would spend not much less than before – $347,359 vs $388,441 but instead of eliminating my mortgage in 25 or even 20.4 years, I would be done in 18.25 years. Where would my M1 balance be at that time? It would still have $38,425 in principal left to pay down.

    This is the end of the factual section of this post. Below is a devil’s advocate position in favour of the M1 but with tongue firmly planted in cheek.
    ******************

    So, let’s imagine that we are looking at the M1 vs. the traditional mortgage and we accept that if we treated the M1 like a traditional mortgage it will end up costing us a lot more. But, we decide we are going to treat the M1 differently. We will not commit to making mortgage payments ever again. We will instead hope that by not ensuring we make payments we will enjoy the freedom of having the M1 account automatically apply the difference between income and expense to M1 balance. We are confident that this will easily surpass 120% of what would be a traditional mortgage payment and that if we waiver from that course of action it will only be temporarily and not enough to lose the advantage.

    If we are challenged that we are not disciplined enough to commit and there really is no structure we will counter that it is the structure of a defined mortgage payment which has obstructed our ability to pay down our debt faster. How can we be expected to consciously, and repeatedly take hundreds of dollars and apply it to our mortgage payment for so many years?

    Once we see, after just a few months, that we have quite a bit more money coming in than we needed to spend, we will be as diligent as reformed smokers – debt will be our enemy and if we want to apply an extra $500 or $1,000 or $2,000 this month against debt, then we definitely will. And no bank in the land would allow us to prepay those kinds of amounts any time we want against a traditional mortgage, right?

    Sure, they try to entice you with their teaser rates of Prime -0.9 but they will go up just as sure as the BofC rate will go up. But, we with our M1, won’t be concerned. We know that our M1 rate will go up just like the bank mortgage but we won’t care because we will have shaved thousands of dollars and years of payments of our balance something that was impossible to do with a traditional mortgage.

    With the bank mortgage they tell me how much we can pay and when. The best a bank can offer is payments every 2 weeks – with the M1 we can pay it every single day. And that’s the key… we can pay it down every day just by not spending as much on other things, whether it is entertainment, clothes, electronics, whatever we classify as discretional spending that is a ‘want’ and not a ‘need’.

    We are not going to change too much. The RRSP? Still contributing the same. Utilities? Of course. Car payments, gas, insurance? Naturally. We are talking about the little things that add up to hundreds of dollars per month or thousands per year. Like that decaf espresso with chocolate shavings. Or that hair salon appointment. We’ll take lunch to work more often. Movie theatres are expensive – we can have a family night in with a few of the latest movies for less than 1 tub of popcorn. See? We can do this and any changes we make are for the better. Do you think a bank mortgage would allow us to do that?

    The bank also won’t let me take my money back out when we want even if it is for an emergency. With the M1 if we’re running a little short we can access the money immediately. And it won’t be like we’re borrowing the money at Prime because it is our money – we put it there in the first place so we can’t very well charge ourselves interest!

    And although it is so easy to take the money out of the M1 we will have the discipline to ensure it is only for the important things and that we pay it back quickly. We will be very rigid on this and the reason we can demonstrate this discipline with the M1 when we couldn’t with the bank mortgage is because it is on our terms, not the bank’s. We will decide when and how much we pay back, or rather not spend, every month, week, day.

    How can anyone not see the benefits to the M1? It is not just an ‘all-in-one’ account it is a personal improvement tool. By not spending as much now, we will end up closer to being financially independent in less time than we could with a bank mortgage. It simply would not be possible to do this with a bank mortgage. We know others have tried by having money automatically withdrawn from their main account so it can’t be spent, but those people are fooling themselves if they think that works. For every person who has successfully implemented this half-baked idea, we will show you a person holding an M1 account who guarantees us that their method will prove out in the end (since the M1 is pretty new we admit that there aren’t a lot – perhaps no one – who has actually paid off their mortgage with the M1 yet).

    We will enjoy this endeavour along the way because the freedom the M1 imparts will allow us to put more energy towards debt reduction – without lifting a finger! It is similar to those exercise devices which allow you to shed pounds while watching TV on the couch. The bank mortgage, on the other hand, is like telling a teenager what to do and when to do it – how else would we be expected to react? M1 says we’re grown up enough to do this on our own and we appreciate the support. For those who say the cost could be higher, we say, “No pain, no gain!”.
    *******************
    In closing, let me just say that if the M1 does encourage people to change their spending habits for the better, then that is a tremendous, and all too rare, victory that will be with you until the end and you should be congratulated.

  • The Reverend May 22, 2008, 1:55 pm

    Thanks Cannon_fodder (and others). I appreciate the effort you’ve put into this (more so than the facetious comments at the end, but they did make me laugh).

    Really making me reconsider the MOne decision. Might be time to revisit the fine print and see what my options are for moving my mortgage.

  • Cannon_fodder May 22, 2008, 2:23 pm

    paul s,

    I’m not sure if you mean the advantage gained by putting in money all through the month but the M1 calculator (and thus my results) are based on the, somewhat unrealistic, premise that the total difference between income and expenses goes in at the beginning of the month. In other words, if you put expenses at zero and you put income at your current mortgage payment, then that payment is applied from day 1, not at the end of the month (which is why I added a line to treat the M1 like the traditional mortgages where the payment is at the end of the month).

    I initially tried various combinations of cash in/out flow during the month such as expenses every day but income only twice a month, but I found that the M1 calculator didn’t work that way and it was my intention to find out how it arrived at the numbers. The way the M1 calculator works is in the most favourable way possible.

    If on the other hand you meant that the ability for additional “principal” payments can occur throughout the month, then at some point you need to quantify that to do a comparison. Once that reaches some level (perhaps an absolute number or a percentage of your existing mortgage payment) I think it is fair to question whether the total of those additional principal payments could also be consciously applied to a traditional mortgage whether through prepayments or committing to an increased mortgage payment.

    My intent with the posting above is to show that it really is quite a significant increase that would be required to offset the additional interest costs (the monthly fee is not that large and you rightly point out that CTFS has a similar product – by the way, their interest and principal payment structure is different yet again). I believe that most people who could consistently live with the decrease in spending of that magnitude, but sporadically spread across the month, could also live with a commensurate increase in a structured mortgage payment schedule.

  • Cannon_fodder May 22, 2008, 3:23 pm

    Reverend,

    I appreciate that you were able to take my over the top “defense” of the M1 as exaggeration to the extreme.

    I made an error with my comparison of what the M1 ‘payments’ would need to be and the time taken. Blame it on my playing with the calculator for some what-if scenarios (like payments at the end of the month, and no monthly fees). Unfortunately, the news gets worse.

    In order to put out a total cash flow of $388,440 (comparable to the traditional $250k mortgage at 3.85% over 25 years) you would need to put $1629.19 every month (including $14) to the M1 account over 19.75 years – basically an extra $1,000 every 3 months. If you instead took a $250,000 bank mortgage at 3.85% and applied $1629.19 at the end (not beginning like the M1) every month, you would pay out a total of $343,759 over 17.6 years which is a savings of almost $45,000. I’ve double checked my figures to make sure.

    Finally, the table at the top should not be comparing a 3.85% mortgage vs. a 5.75% M1 as it is in the last section. That was my fault for sending it to FT in that manner and I’ve since sent a version that shows a 3.85% mortgage vs. a 4.75% M1 account. My apologies to everyone for this mistake.

  • Four Pillars May 22, 2008, 3:30 pm

    CF – excellent comment.

    My philosophy with mortgages is that the interest rate is the only thing that matters (for most people). If you really want the extra “flexibility” of an M1 then get a regular mortgage at the lowest interest rate you can find plus get a heloc and carry a balance (you can move some of the mortgage to the heloc) and then do your “M1” style moves using the heloc.

  • TC May 22, 2008, 4:43 pm

    Can the Smith Manoeuvre be preformed with a M1 Morgtage. If so can someone explain how?

  • Kris B May 22, 2008, 4:54 pm

    As a M1 customer, I’m quite interested in the conversation. It’s been said on here many times that there is no perfect solution for mortgages, and that making sweeping judgements that one type is superior to others does not work for all people in all circumstances.

    I know for myself I can see the benefits as I implement SM. If I was with my old Firstline mortgage (5 yr fixed) I would not have the flexibility to alter my mutual fund purchases each month, as my spouses income changes. My income is quite stable but hers can vary by as much as 25%. With a traditional mortgage I would almost certainly have to error on the side of caution and not contribute near my maximum % on most months as you should aim to with the SM. With the M1 account since I have flexibility in equity paydown I can alter these amounts quite easily. I think this is something that is left out of your conversations here, most people do not make extra mortgage payments on a consistent basis, as they cannot live with the risk of being short one month and not being able to claw those funds back.

    When it comes to M1 fees, there is no arguement from me that they need to make a change, there is not justification in my mind that they can make for the $14 fee, as they make impressive amounts each month on interest, this fee needs to go, and hopefully with increased competition they will be forced too.

    However there are benefits not listed so far, I can quite easily put all my monthly expenses on a credit card, then pay off before the due date, for that period I have had in effect an interest free loan (30 days) on that amount (usually around $3k). So for those 30 days I did not pay interest on those charges.

    To summarize it’s not a perfect product, but I believe it’s flexibility, and ease of use with SM makes it attractive. If it can make a few improvements such as scrapping the fee, and having someform of discounted variable subaccount (even say with a max of 25K) then it would be almost perfect.

  • CF May 22, 2008, 5:05 pm

    Reverend,

    I was an M1 customer as well – up until blogs like these showed me the light. It was really easy to get out of M1 – I think there was a discharge fee of a couple of hundred dollars, and that was it.

  • Kris B May 22, 2008, 5:21 pm

    Rev, did you just cancel your account today, I was looking at the thread conversation and it said you just discussed that?

  • DG May 22, 2008, 6:48 pm

    My credit union (Cambrian) has done a great job of letting me “fake” an M1 account. I use a LOC as my chequing account; my paycheck automatically goes into it, bills automatically come out of it, I have cheques for it, and I have ATM access to it. Whenever the balance threatens to climb to zero, I pay say $5,000 from the LOC into the mortgage. The only hiccups are that Interac direct payment (which I never use anymore) can’t draw from the LOC, and mortgage payments still flow through a standard chequing account (handled with an automated just-in-time transaction).

    I have a 30 yr mortgage, max annual prepayment 20%, plus unlimited prepayment in between terms. I plan on going for 6mo or 1yr terms in the coming years, so prepayment limits will never be a real issue for me.

    So I feel I get the best of both worlds; the strengths of an M1 account with the majority of my debt at a sane rate.

  • Cannon_fodder May 22, 2008, 7:37 pm

    Kris,

    I think that (in a separate, but related thread discussing the M1) it has been highlighted that those with significantly variable incomes could realise benefits from the M1 flexibility.

    You made an interesting comment about the credit card. I use my Aeroplan Visa card almost exclusively because I get so many points on it that it pays for itself many times over. However, there are certain expenses I can’t put on it (most utilities, property taxes, mortgage). But, because I pay it off every month, I, too, enjoy an ‘interest free’ loan.

    What makes the M1 credit card more valuable in comparison? Is it only valuable if you carry a balance (which I assume would be at Prime rather than double digit interest rates typical of most cards)?

  • paul s May 22, 2008, 8:42 pm

    CF
    Sorry I blacked out in the middle of your post and didn’t get through it :-). It’s funny sometimes how sarcasm doesn’t come across when it’s out of context on a blog.

    Bottom line for me?

    I had a traditional mortgage for many years. Hated dealing with the banks at renewal time. Scumbags that made life difficult. The reality for me is if I made bonus, that money NEVER went to the mortgage. It always went somewhere else.
    With M1, it goes right to the bottom line and the interest I pay is less, automatically. Just one example. Gotta know oneself. I find setting targets for my balance each quarter gives me a reason to save. Call me simple if you must.

  • DAvid May 22, 2008, 9:27 pm

    Cannon_fodder said: “Below is a devil’s advocate position in favour of the M1 but with tongue firmly planted in cheek.”

    I almost spit beer over my screen! Enjoyed every word!

    DAvid

  • Cannon_fodder May 22, 2008, 11:43 pm

    Okay, no ill attempt at humour just more number crunching.

    I thought it was a good idea, voiced by many (including FT), to perhaps consider a traditional mortgage with a variable rate well below prime in combination with a HELOC at prime. Would that give one more of the flexibility like the M1 but hopefully save some money?

    So, I ran 6 scenarios through a spreadsheet to see how they compared.

    I’m sure this won’t show up well so I apologize in advance. We are going to assume that we have a $250,000 mortgage and that we can get P-0.9 for a traditional mortgage and a HELOC or the M1 at P, which is 3.85% and 4.75% respectively.

    To try and keep things more fair, since the M1 calculator puts the $ towards the mortgage on the first day, I’ve applied the same logic to the other scenarios.

    Let’s assume you have mortgage payments of $1424.40, income of $7474.40 and expenses of $5300 (not including the mortgage). You plug in $1424.40 into the M1 and find out that in 25 years, your M1 mortgage balance would be 0. So, that gets you to thinking about different scenarios.

    1. Mortgage @ ………………………3.85%
    Payment ……………………….$1,424.40
    # of Payments…………………….257
    Total Cash Flow …………………$364,802

    Not bad, and certainly better than if we chose the M1 and only applied that amount towards it on a monthly basis since it would end up costing $431,515 over 25 years.

    But, we have quite a bit of leeway with our income-expenses. So, let’s bump up the payments a bit.

    2. Mortgage @ ………………………3.85%
    Payment ……………………….$1,705.30
    # of Payments…………………….197
    Total Cash Flow …………………$335,789

    Definitely better. But, let’s put all of the money left over, after all expenses are accounted for, towards the mortgage. (I’ll leave the traditional mortgage to the end.)

    3. M1 account @ ……………………4.75%
    Income – expenses………………$2,174.40
    # of Months………………………..154
    Total Cash Flow …………………$335,789

    If you look at the cash flow between #2 and #3 you can see they are identical (although if you also factored inflation, #2 would cost you less in today’s dollars).

    Alright, now let’s try something radical. Le’ts get a mortgage @3.85% and a HELOC at 4.75%. We are going to assume that this HELOC will allow us to grow at a pace that our total debt load does not increase. What we are going to do is put all of our income against the mortgage and withdraw all of our expenses from the HELOC. Of course, our mortgage will be paid down as fast as possible, and once it is paid off, we then will begin paying down the HELOC with every penny available.

    4. Mortgage @ ……………………….3.85%
    HELOC @…………………………..4.75%
    Income – expenses………………$2,174.40
    # of Months………………………..151
    Total Cash Flow …………………$326,530

    An improvement, although not dramatic over the M1. But, I can see what is happening. About 18 months in, the amount of interest being paid for the HELOC is greater than the Mortgage. What if we then borrowed from the mortgage, which is at a lower rate, and paid down the HELOC every time we ran into this situation? Sure, as we get further along we are going to have to borrow to pay down the HELOC more and more frequently, but it would be more efficient in terms of interest costs.

    5. Mortgage @ ……………………….3.85%
    HELOC @…………………………..4.75%
    Income – expenses………………$2,174.40
    # of Months………………………..145
    Total Cash Flow …………………$314,993
    (Reborrow from mortgage whenever HELOC interest surpasses Mortgage interest for the month.)

    Now, if you take this to the nth degree, you are pretty much really not using the HELOC at all and just applying the income-expense difference to the mortgage alone.

    6. Mortgage @ ……………………….3.85%
    Income – expenses………………$2,174.40
    # of Months………………………..143
    Total Cash Flow …………………$310,506

    Best scenario in terms of total cash flow.

    Between scenarios #3 and #4 there isn’t a lot of difference (although it would still take an additional $140 per month with the M1 to even things out). It certainly is possible that an individual could end up better with the M1 product because of its flexibility.

  • Kris B May 23, 2008, 11:42 am

    CF, to answer your question about the credit cards, I don’t actually use the Manulife CC as I’m not a fan of airmiles. I’ve actually gone with a cash back card from CIBC that I believe you reviewed on your blog. Like you I try to max all expenses on the card (yes utilities, property taxes can’t go on it), that way for one month this money is not accumulating interest in my M1 account until the day the Visa gets paid. In effect I saved prime on that $3-4K for a month, not bad, now I realize when the card gets paid M1 will accrue interest on this money, but by then I’m already sheltering next months bills, so in effect there is perpetually 2-3K that is never in M1, small savings but hey every bit helps right :) I’ve estimated that using this procedure saves between $13-20$ a month in interest on M1, and add that to the $30-40 I earn from the 2% cash back platnum card I’m in effect getting paid $40-50 bucks a month to use the visa for variable bills (food, purchases, cell, tv, etc)

    Just for anyone out there interested as a M1 client this is how I’ve broken down my debt (these numbers are all approx of the real values)

    Main M1 account- “Interest and Taxes”- Mortgage interest and property taxes accumulate here so I know the amount I might want to raise the value of my house when I move (I move every 2-3 years for work so important for me to track this)

    approx $10K a year- high property taxes in near Ottawa :(

    Sub account 1- Mortgage- amount outstanding after purchase of current house. Note all my income (Mine, spousal, misc) gets applied to this debt each month I don’t use it to pay down living expenses.

    Sub account 2- Smith Man- All mutual fund purchases (mostly index funds). Note for anyone not familiar with M1 all these charges initially go thru the main account and have to be manually xfer here). It also includes the interest on the investments, as I am capitalizing the interest here seperate from the Mortgage interest, so not to confuse the too.

    Approx- $600 per month

    Sub account 3- Home business. Really just have started this account as my wife runs a small home business, but will use it to track her expenses to claim some of them. But the revenue will be applied against Sub Acct 1.

    Approx- $500- 2K at most

    Sub account 4- Education. Track all school expenses for myself and wife in this account (tuition, books, fees) useful for claiming later with the other reciepts needed. Also capitalize the interest here as well as I don’t want it affecting the mortgage interest figure in the main account.

    Approx- 1-2K a year

    Sub account 5- Living expenses- My visa card bill after being paid by the main account is xfer here, also utilities, insurance, car payments. Useful for seeing each month how much you need to live on. My goal is to xfer all income that is now paying the Mortgage subaccount to this subaccount after it is paid off.

    Approx- visa 3-4K per month, utilities- $266, cars $600, insurance $170.

    Any comments from anyone else using M1 and how they have it broken down, or anyone else who could think of other fun ways to chop up their expenses?

  • DAvid May 23, 2008, 12:07 pm

    Kris B,
    We just keep track of our expenses in a spreadsheet. Manulife One sub-accounts are simply a book keeping exercise, as they aren’t actually different accounts. For the Smith Manoeuver, having the account at arm’s length may help you manage and justify the interest cost, but it could equally be done in a ledger.

    DAvid

  • Kris B May 23, 2008, 12:21 pm

    DAvid, exactly that is why I choose to break things down into subaccounts so I can track those expenses seperately for tax season but also for knowledge.

    It is entirely possible, but I don’t think advisable for someone to open an M1 and have all their debt in the Main account (this is by default the way it comes setup, but adding subaccounts is easy). If you don’t seperate your expenses from your mortgage debt it would be too easy for most people to realize they have not paid anything towards their house, and to lose control of their spending, a real danger with a secured LOC.

    I also use seperate cash managment software, in my case Quicken, in which I can see my subaccounts (I realize they are not seperate accounts all they do is chop up the debt pie into smaller pieces) but I can then catergorize those subaccounts. For example within Living expenses I can categorize by food, gas, cars, what ever I want and this way it is all neat and tidy.

    But to each their own, the amount you’re anal about tracking your expenses varies for each person, this works for me and my wife, each family is different.

    Small error I believe I made about the M1 credit card, not airmiles but rewards pts I believe, either way I don’t use it. But no it is not at prime they simply automatically move the debt to M1 before the due date, but they will also do this with any other card as well.

  • TC May 23, 2008, 12:28 pm

    The manulife credit card alos has an annual fee of $29.

    Kris B. Could you provide some info on how you go about using the Smith Man.

  • Kris B May 23, 2008, 12:56 pm

    Certainly I can give you a one month snapshot of how my money goes in/out (in general terms of course :)). And how I plan on handling tax refunds at end year.

    Approx values: Total Income: varies between 4200-5000 per month
    (deposit to Main)
    (then xfer from Main to Sub 1)
    Total Expenses: Variable $1500-2000 per month
    (on Visa till due date)
    (pay bill w/ Main)
    (xfer from Main to Sub 5)
    Fixed $1200 per month
    (pay bill w/ Main)
    (xfer from Main to Sub 5)
    Interest $800-900 per month
    (Mort int Sub 1)
    (Invest int Sub 2)

    Difference: Varies between $100- $1500
    Average diffence $600-700 per month

    This is where the investment part comes in, so I have analyzed our spending and follow a strict budget. I reliably (from experience) can count on 600-700 a month in “principal” being paid. for the M1 this is actually extremely easy to find out. All you do is write down what your available credit is at the first of each month, if it went up, well hey :) you’ve saved some money and paid down your debt. I take that exact amount and Invest it into my mutual funds. I happen to used index funds from ING streetwise account, and might also go with TD index funds. But the skies the limit, could also invest in my home business or a rental property, the point being is to track this expense and the interest.

    Now about the interest, the M1 account automatically charges the interest for each subaccount to itself, but then also automatically xfers that amount from the Main account so that it is “paid”, personally I’d like the ability to modify this so it just leaves it in the subaccount, but I have to physical xfer the amount back to capitalize the investment interest within that subaccount. I don’t want it capitalizing with the mortgage interest, as that defeats the purpose of tracking them seperate, I might as well just put everthing in the main account.

    Now when tax season comes and I claim the investment int, the tax refund will go (like all my other income) to pay Sub 1- Mortgage. As soon as that is done I will reinvest this available credit back into Sub 2- investments, thus the SM cycle is complete.

    When the mortgage subaccount is finished I will instead pay the living expenses subaccount, which will be fairly sizable by that time, but hey that’s where budgeting comes in to limit your spending, it comes down to discipline there :)

    For interest sake, so you know I don’t have a Fixed rate subaccount within M1, all 5 are at variable/prime. If you fix one, you are very limited in how you xfer funds to it, becomes like a normal fixed mortgage that you are “paying” out of the Main account. I would only do this for a portion of the mortgage if there was a substantial jump in rates 3-4% and the economy was in a recession for over 1 1/2 years.

    To summarize, living expenses in Sub 5, Mortgage in Sub 1, Investments in Sub 2 (purchases and interest), and all income gets paid to Sub 1- Mortgage

  • Cannon_fodder May 23, 2008, 3:11 pm

    I should point out that CF is a different person than myself… unless I’m schizophrenic.

  • Kris B May 23, 2008, 4:51 pm

    Sorry :0 if that was my mistake, but you can see how someone could get the two confused

  • paul s May 23, 2008, 8:03 pm

    I missed it maybe, where did you get the 3.85% mortgage rate from?

  • Cannon_fodder May 23, 2008, 10:03 pm

    paul s,

    There are a couple of offers for 3.85%. Valueland mortgage brokers is putting people into 3.85% (perhaps with ING???) and Canadian Tire Financial Services (not available in all provinces) is advertising 3.85% on a variable rate and 4.99% on a 5 year fixed closed mortgage. There is even someone trying to drum up business by offering P – 1 but no verification of whether this is legit or what the caveats are.

    If you go here (and go to the last couple of pages) you will see what people are getting in Canada. http://www.redflagdeals.com/forums/showthread.php?t=351105

  • paul s May 24, 2008, 10:18 am

    Cannon_fodder
    I saw the Cdn Tire offer. Hadn’t seen anyone else. Thanks for the link.

  • Lise May 24, 2008, 11:12 am

    Thanks for the excellent explanation! I’ve been wondering about this product, and this has been a great help.

    I clicked on your link to readvancable mortgages, and I found one change: I have an RBC Homeline: it’s a variable rate, 5 year open. maybe the product has changed since you wrote that post?

  • DAvid May 24, 2008, 11:39 am

    Lise,
    The Homeline product can contain any of RBC’s mortgage product(s). The Open Variable is but one choice. Their advertising suggests a combination of mortgage products be used to manage interest rate risk. Thus, for example, you could choose a number of different mortgages totaling you mortgage amount, each with different terms, and be able to manage renewals regularly to adjust for your borrowing. This could allow those who wish to carry the Smith Manoeuvre at lower rates to re-mortgage that portion of their debt at a more competitive rate than the HELOC.

    DAvid

  • Alan May 24, 2008, 2:35 pm

    Products such as these are based on the reality that the vast majority of potential customers will not fully understand what they, in fact, are buying. The concept of total cost is lost on the bulk of the population. And, as any financial marketing department is well aware, Consumer Ignorance is Highly Profitable.

  • Kris B May 26, 2008, 12:42 pm

    Just wanted to put in an update on how the use of a credit card for expenses benefits someone using the M1 account. I looked at the last 2 months of my expenses and the breakdown is:

    March: Credit card bill @ due date: $3600 approx
    Dividend dollars earned on puchases: $35 approx
    (less than 1% initially is offered)

    Savings on M1 for $3600: $11.71 approx
    (difficult to calculate you would have to add the total up daily, I decided for now to just to an average weekly balance)

    M1 account fee: $14

    April: Credit card bill @ due date: $4300 approx
    Dividend dollars earned on puchases: $44 approx

    Savings on M1 for $4300: $12.43 approx
    M1 account fee: $14

    So as you can see for two months having the balance out of the M1 pretty much cancelled out the account fee (would be better if it wasn’t there in the first place :)) and I was on the plus side by about $32 and $42. Not bad considering a normal cheq account at RBC charges about the same fee.

  • gonzo May 26, 2008, 12:46 pm

    As a commissioned sales agent, I have opted for using 25% of my mortgage as an M1. Most of my mortgage is at the deep discount variable and the rest is M1. This allows my good months bad months to ebb and flow without the headaches of transfering savings back and forth. being the business my fee is only $6 and when I got it, I don’t think anyone was doing anything like it. I will revisit the competition now that I see more players have entered the market. Thanks everyone for a great discussion.

  • DAvid May 26, 2008, 5:26 pm

    Kris,
    You credit card example applies to all credit card users, though it may not be as obvious to those who do not use M1. I could similarly have my excess money in a savings account, or credit card bills timed to match my pay period (no interest cost at all). In either case, using someone else’s money even for a short time has some benefit.

    Remember, monthly interest on $150,000 at a 0.5% difference between prime rate and M1 is $62.50 (+$14), so you would be ahead some $65 with the prime minus mortgage. The difference in our approaches is that you refer to ‘saving’ interest costs, while I claim to avoid paying them in the first place.

    BTW, if you have an RBC mortgage, RBC Rewards Visa, and RBC chequing account, you pay no monthly fees.

    DAvid

  • Cannon_fodder May 26, 2008, 6:28 pm

    DAvid,

    Perhaps Kris was meaning that the money sits in his M1 account and, in essence, his mortgage balance gets the benefit of having the $3,600 and $4,300 sitting there. If I were to think of my own personal situation, the best I could hope for is as you suggested – having money transferred to a high interest savings account and then using that to pay my CC bill. So, in both of our cases, we aren’t paying any interest charges for CC purchases, but in my case I only gain let’s say around 4% interest before tax, while with the M1 you save 4.75% interest after tax.

    Does that sound right?

  • Sam May 26, 2008, 6:52 pm

    If your goal were to continue using the M1 for leveraged investing or SM.

    Would it be possible to take out another secondary mortgage on your home with Canadian Tire FS and get the 3.85 interest rate and dump the money into the M1 account?

    Now effectively the bulk of your mortgage is at 3.85% but you still are able to use your M1 for SM and the small part of your mortgage that is being charged the full 4.75% of the manulife account benefits immediately from the day to day deposits.

  • DAvid May 27, 2008, 1:44 am

    Cannon_fodder,
    Let’s say I have my Credit Card come due on payday. If I’m budgeting closely, I have no excess cash – all goes to some expense or other. Since my carefully budgeted expenditures of $3600 ( or $4200) come due on payday, everything balances out. I do not have to find the cash to pay for my purchases through the month, and I really don’t see the expense of the credit card bill, as it consumes that part of my paycheque before I even see it. If, on the other hand, I have to somewhere find the money to make purchases through the month, I may have problems. If I get a Payday Loan, I will be charged a large sum for a loan to buy my bits and pieces for the month. Thus, by using my credit card to avoid the Payday Loan Office I save 30% on the amount I instead charged to my credit card, as I displace that loan amount to the day my credit card bill is paid. So given that I have managed my finances by avoiding the Payday Loan folks, should I exult in the $90 or $115 I ‘saved’, or just remember the appropriate use of Other People’s Money cost me $0?

    I just have difficulty with the idea expressed by Manulife that small amounts of money paid down for a very few days then re-borrowed is such a big deal. The few dollars saved here and there is more than balanced by the reduced interest costs of a regular mortgage.

    This is akin to your comments about paying down more on the M1 simply by choosing to spend less……

    DAvid

  • cannon_fodder June 5, 2008, 8:04 am

    The Reverend,

    Did you complete your analysis yet? If so, are you happy where you are?

  • paul s June 8, 2008, 12:13 pm

    Wow, the discussion is still going. Well it’s not really a discussion. It’s the smarter than “yous” saving the stupid majority.

    I’d explain how M1 has saved me thousands in interest, but nobody would be interested here.

    I do agree that if you are the average paycheck earner, and IF you can get that 1% less interest on a variable rate, then you will save over the long run. No doubt the numbers are easy.

    I did finally go back to the M1 calculator the other day, and I see they’ve changed it. Obviously dumbed it down for stupid folks like me.
    Used the be able to specifiy your monthly money flow in and out of an account to get a reasonable accurate sense of how you might save.

    Incidently, FT you are costing yourself money lots of money by having that cash sitting around every month. If you had M1 for the past three months you would have saved some real coin.

  • DAvid June 8, 2008, 1:49 pm

    Paul s,
    I believe the contributors here are attempting to make two points:
    – The Manulife calculator paints a much rosier picture than is reality (for example, it currently assumes no increase in prime for the life of the mortgage). Folks should take a close look before assuming they will see all those ‘savings’ by switching.

    – That there are other options that may cost you less over the length of the mortgage, and to not blind yourself to those options.

    I think we are looking at mortgage interest from two different angles. You state how much you would save, while others ask ‘How much does it cost?’ Since the real bottom line is the total cost to borrow for your mortgage, that is what really should be compared.

    On my $136,000 fixed rate 25 year mortgage with a 5 year term, I have saved at least $73,000 over the past 4 years (I have not included the savings of being in a fixed rate mortgage while Prime Rate rose). You?

    DAvid

  • Russ June 8, 2008, 7:23 pm

    Well my experience with Manulife One has been very positive. I have had it for just over 2 years now and watching my principal decline every month is quite dramatic compared to my previous locked in mortgage. What I think people are forgetting is that every penny I don’t spend every day goes toward principle. My income is a bit up and down, so to be able to put large chunks against my debt simply by depositing my pay cheque is huge for me. Before it just sat in my chequing account doing nothing. Sure you can get a secured line of credit at a marginally better rate, but then you have to make traditional payments and budget how much extra you will have in a month to put down on the line of credit. The Manulife account does this all automatically. It has simplified my life and I can’t imagine having it any other way.

  • What I meant to say June 10, 2008, 12:05 am

    This is, indeed, a good discussion about Manulife One. Like Paul and Russ, I’m a very happy Manulife One user who is seeing real savings where before I received one annual mortgage statement that highlighted a gross amount of interest paid and very little principle.

    This discussion has been very focused on the mortgage portion of the account. I think of M1 as a lifestyle account. I love being my own banker. I don’t have to beg for money. I borrow from myself (cheaply). On the financial planning front, Manulife One has helped me top-up RRSPs while paying down principle.

    The biggest concern I have with all these comments is calculations. I’ve run the M1 calculator and seen quite a few prime-minus calculations that say M1 isn’t ideal. The problem with all calculators is that they’re static. Take all your bank statements and paystubs. Lay them out on your desk and take a picture. Now calculate to your hearts content. All calculators are a snapshot in time. Just as fixed and floating rates fluctuate so does your income unless you plan on never getting a raise, a bonus or a tax refund. Somewhere somebody wrote “rate is only half the equation. If you pay down principle you have less debt and therefore you pay less interest.” There’s no calculator involved in that statement. It just makes sense.

    My income goes to one place. I borrow everything at Prime. I never have to ask for another bank loan for as long as I own my home. I’m saving more money than when I banked from one of the Bay Street banks so while I may never be as smart as some of the mathematician’s here, I’m extremely happy with the account.

    Great discussion and I wish everyone the best in finding their own wealth and happiness.

    ps. You can tell I’m not good at these disucssions. I submitted comments to the wrong blog post the first time. Sorry for the duplication.

  • paul s June 12, 2008, 8:23 am

    DAvid:
    Saved $73,000?? vs what?

    Check the discussion on emergency funds. All the money people have sitting around getting basically zero interest after taxes could be reducing debt and saving interest on that debt every day. Too simple for people I think. People have the need to be “doing things”.

  • DAvid June 12, 2008, 12:12 pm

    Paul s asks: “Saved $73,000?? vs what?”

    Versus not saving $73,000, of course!

    By taking a number of steps during my mortgage negotiation, and subsequently applying a number pf prepayment options available to me, I have ‘saved’ $73,000 over what might have been had I not taken those steps. This is the same argument you seem to be applying, by placing your paycheque against you M1 versus not doing so. I would rather discuss the costs of a mortgage, i.e. the premium you pay to the bank for the use of their money, but Manulife One users seem more interested in discussing their ‘savings’.

    Saving money on a mortgage like you describe is like you buying a $100 item for 20% off at the Bay, and I buying it for $75 at Zellers every-day low price. You ‘saved’ $20 at the Bay, but could have purchased it for less at Zellers. I see no savings, but acquired the asset at a lesser cost.

    I agree with you on the savings accounts, and have stated elsewhere that folks with debt should have no savings accounts — paying down the debt is more sensible. I have run the numbers on the use of a product such as M1 — it seemed a great idea when I first looked at it, but I decided it did not meet my needs. I wrote of my findings, and published them here: http://www3.telus.net/NFtoBC/MOneCmt2.pdf

    It was through this cost analysis that I decided to pay my mortgage as though it was at a higher interest rate, and reduce the time I held that mortgage.

    DAvid

  • paul s June 14, 2008, 12:10 pm

    DAvid:
    I knew you would come up with a good analogy sooner or later.

    You said: “Saving money on a mortgage like you describe is like you buying a $100 item for 20% off at the Bay, and I buying it for $75 at Zellers every-day low price. You ’saved’ $20 at the Bay, but could have purchased it for less at Zellers. I see no savings, but acquired the asset at a lesser cost.”

    Bingo!

    To continue your analogy, I bought the item at the Bay online, and it was delivered to my house (free shipping). You went to 5 stores and found the best deal. Lots of research, personal time and comparison shopping. You even used a spreadsheet to prove you were right!…I’m just not into that.

    Look, as I said, I’m not arguing that a fully discounted mortagage managed very closely with all free cash applied against the principle is not going to beat what I do every time. But the facts are:

    1) 90+% of people do not apply free cash against their mortgage
    2) 90+% of the people DO NOT get the discounted rates used in the calculation
    3) Most people still like to have security over lowest rates, so they ignore the studies that say taking a convertable, variable rate mortgage wins over the long term…and they lock themsleves at a higher rate for a longer term.

    What I do beats all the above, and I don’t have to go to Zellers.

  • DAvid June 14, 2008, 3:12 pm

    Paul s,
    And you paid an extra 7% for the product, and had to wait for it’s arrival.

    With the convenience you describe comes a price. Since you seem happy to pay that premium, I wish you continued satisfaction in accumulating your mortgage savings.

    DAvid

  • Cannon_fodder June 14, 2008, 9:26 pm

    Perhaps I’m wrong, but I think that what some people (like myself) are saying is that it is possible to construct something similar to the M1 and come out ahead.

    It doesn’t mean that everyone will do it (obviously) or that it wouldn’t take some conscious effort (unlike the M1). But, people who read these types of blogs probably fall into the better educated and smarter-acting people out there.

    I would wonder why people who can benefit significantly from the M1 seem to imply that they couldn’t even do better with a variable rate mortgage at P – 0.5 or 0.75 and a HELOC at prime.

    I can understand that someone could, obliviously, come out ahead with the M1. I haven’t been able to figure out someone’s mindset who has taken the time to really understand the M1 (or CTFS All-in-one) yet can’t admit that they, personally, could come out ahead with an open variable at less than prime mortgage and a HELOC at prime.

    I also don’t think that comparing less than 5 years into the M1 is a fair evaluation. Things happen in life that can change things dramatically – my wife and I managed to pay down our mortgage principal by only $15,000 in the first 2 years but then paid down $165,000 in the next 3. On the other hand, I know someone who bought a house and was doing well – only to have to sell it less than 4 years later and declare bankruptcy. In neither case did the mortgage structure change – so it wouldn’t be fair to assign credit or blame to the mortgage.

    I really think the success, or lack thereof, of employing the M1 comes down to your psyche. In a traditional mortgage, your payments are fixed and, unless you consciously apply prepayments or increase your payments, additional income finds its way into other areas of your life. With the M1, you can easily find yourself getting excited about seeing the principle going down because you see it often (I’m guessing most people don’t review their mortgage balance nearly as often as their chequing account). That might lead to increased focus on reducing debt. BUT, it also might lull one into rewarding oneself for a job well done and turn ‘wants’ into ‘needs’. It depends on your psyche. How many of us have, after a period of belt tightening (or waistline trimming if we’re talking diets) have allowed ourselves a splurge in spending (or eating).

    Ultimately, your financial success is going to depend more on your attitude rather than whether you choose an M1 or a mortgage/HELOC. At least, that’s my opinion.

  • paul s June 14, 2008, 10:35 pm

    DAvid:
    You disappoint me. You must be bored of this topic…

    BTW…I saved that 7% in gas…

  • DAvid June 15, 2008, 12:40 am

    No, Paul s, not bored of the topic…..

    DAvid

  • Chad June 15, 2008, 2:43 am

    As a traditional 5 year fixed rate mortgage holder and not very money wise, I have a few questions. First of all, where in god’s name are you people getting 3.85% rates! Second of all, with my 5.38% fixed rate, and not wanting to “manage” my money too much would the M1 give me a benefit over my present 25 year mortgage? I also have a car loan at 8.95% and line of credit at 5.75%.
    Just want some advice from someone not as gullible as I am, cause that M1 calculator looks real good!

  • DAvid June 15, 2008, 1:08 pm

    Chad,
    In answer to your questions, see message 33 for the source of the interest rates. Since the Bank of Canada decision to not further lower the Bank of Canada Prime Rate, mortgage rates have risen, so the 3.85% is no longer available.

    You really should take the time to learn how to ‘manage’ your money, as it will easily answer the questions you have, and is not that difficult to practice. The website Dinkytown.net has a number of calculators to help you with these costs.

    In simple terms, if you consolidate your current loans at a lower interest rate, and continue to pay them off on the same timeline you will save interest costs. If you reduce your payments you can increase your borrowing costs. If you continue to put the same number of dollars against the lower rate loans, you will pay them out sooner, and at lesser cost.

    The Manulife Calculator assumes you place all your current loan payments against your debt until it is fully paid, thus you keep paying the amount of your car payment for many years, until your mortgage is fully paid. It also takes advantage of the fact that most of us will under report our spending to the calculator, and those amounts, too, are added in perpetuity to the reduction of debt. Finally, it assumes no change in interest rate. Given the current low rates, this biases the end result.

    If you run the calculator where you input the difference between your income and expenses to be the average monthly amount you actually saved over the past year, you will get a more accurate picture. Since I have no savings (any extra money gets paid on debt), this step was really easy for me – my expenses consume all my income!

    You interest rate of 5.38% is likely as good as it gets for a fixed rate. Even ING Direct currently is higher for 4 and 5 year terms. Unless you want to go with a variable rate, and the likelihood of a rate increase (Prime rates are at historic lows just now), you will not likely see better rates in the near future.

    You should also talk to other lenders, including your current lender to see what they can offer you to reduce your debt costs. If you can open a HELOC at prime, and move your car loan and LOC there, you would be able to pay your loans out sooner due to lowered interest costs, without paying a penalty to your current lender for moving your mortgage.

    Have a look at the other Manulife discussion on this blog for more information.

    DAvid

  • BM June 25, 2008, 1:16 am

    What if the Royal Bank offered me my entire mortgage in a HELOC @ p-3/4% (and they have!) Rather than my current RBC HELOC with my mortgage in a fix term and the remaining in a LOC @ prime. I’m assuming this would be beneficial and I could deposit my cheques directly to the HELOC and use the visa to pay for expenses then payoff with the HELOC. This is almost the same as the M1, but with a much lower interest rate. I though the M1 was the way to go until my Financial Advisor at RBC caught wind of my thoughts. This is what she is offering. Any good?
    ——
    b

  • DAvid June 25, 2008, 2:45 am

    BM,

    Prime – 0.75% is a pretty good rate, especially on the equity side of the balance sheet. Most HELOC are at prime, so additional borrowing also comes quite cheap. You should be able to manage you account in the manner you describe, or very close to it. As long as you are committed to paying out your loan it should work for you, and you should see considerable savings. However, If you plan to do something like the Smith Manoeuvre you might want to have a separate account for the investment transactions.

    Care to share the name of your advisor? ;-)

    DAvid

  • Martin July 8, 2008, 9:26 pm

    Well, p-0.75% is almost the best nowadays. Valueland Mortgages actually offers prime less 0.80%, on semi-annual compounding on the interest. It is the best plan. Try http://www.valueland.ca, you’ll be surprised what they can offer.

  • tlc July 14, 2008, 6:06 am

    Hello,

    I am in the process of finalizing my M1 mortgage and everything should be rolled over next week. The main reasons for me taking this mortgage is of course to pay it down faster, secondly to have a ‘real’ debt balance at the end of the day, and thirdly the opportunity to put large amounts of money on my mortgage but still have the ability to access it incase of emergencies or unplanned events.

    Everyone has different reasons for using this type of mortgage, and there seems to be alot of skeptics in the crowd. If a person is educated enough to study and review his options he/she is already further ahead than most.

    I do realize the ‘one number’ is WAYYY off scale, it says my wife and I could pay off our $300,000 mortgage in 5 years with our income and expense ratio, I am aiming for 10 which will enable me to live the lifestyle I enjoy.

    Here is a question I do have for you experts. I have a CC with roughly $50,000 limit with no balance. Could I write a CC cheque and apply it to the mortgage but pay off the CC before the interest hits?? This would account for about $200 a month in mortgage interest savings!

    Cheers

    • FT FrugalTrader July 15, 2008, 12:41 pm

      Hey TLC, when you write a CC cheque, interest starts to accrue from day 1. Even if it’s a 0% apr credit card, you would still need to pay off the balance within a year or so.

  • BL July 19, 2008, 1:52 pm

    We have been using the M1 account for a couple of years and we love it. The flexibility is great. Our income is pretty variable.

    The one thing that I have noticed is that in some ways it feels, (although we “own our home”), as if we are renting. By this I mean we pay the “rent” in the form of the monthly interest payment to the “landlord” who is Manulife Bank.

    One often hears the argument that renting is better than owning and that if one does rent, one should invest the difference between owning. If you get my meaning? So if you did this through the M1 account, you could invest the difference and get the beneficial tax deduction at the same time. Does this make sense?

    Can someone run the numbers to see how you would be better off “renting” through Manulife and investing the difference, assuming a 40% tax bracket.

    The other thing to factor in is inflation. Remember our parents buying homes for $30,000 40 years ago and them wishing they had not paid off the house and instead borrowed to invest? Well, in 30-40 years, wouldn’t we be in the same position where we all bought houses for $300,000?

    So what I am asking is how does M1 work if you NEVER pay the LOC down and invest the difference SM style? Of course you apply all the tax refunds and extra income to putting it in your non-registered SM account.

  • DAvid July 22, 2008, 7:41 am

    BL,
    If you have a look at the Smith Manoeuvre thread, you’ll likely see the answer you are seeking. Without the SM, you won’t see best benefit from tax savings.
    In your proposal, your investments would need to earn greater than your mortgage rate to be the best use of money; while the SM allows you , over time, to convert your interest deductibility, so you only need earn income at the tax discounted interest rate of the mortgage.

    The Rent & Invest program usually assumes you are renting a less costly space that you might buy, so you are also gaining on those costs savings as well.

    DAvid

  • Confused July 29, 2008, 3:57 am

    Alright, first of all, I know this question is going to sound very simple but I am actually looking for a simple answer.

    I am considering the M1 because we have a huge student debt (at prime + 2%, about 35k) and a house with not so much equity (we purchased the house 3 years ago and the price may have gone up by about $50,000). Although our combined incomes are good (120K), the student debt is limiting us. Conventional banks won’t give us a loan with a lower interest rate than our student loan (which is why I’m considering the M1, to consolidate). When I used the calculator, it said that I would have to pay a $7000 insurance fee because of the high ratio loan. But at the same time, it said that we would be able to pay off the mortgage and the student loan along with the insurance fee in about 10 years instead of 22 years.

    Are the results from the calculator too good to be true?

    • FT FrugalTrader July 29, 2008, 6:46 am

      Confused,

      A couple things. First, if your student loans are federal/provincial student loans, you get a tax credit based on the interest that you pay. Depending on your province, it can work out to be a rate lower than prime after the taxes.

      In my opinion, you should be looking for a mortgage with a lower variable rate than the m1, increasing your loan payments along with ploughing your savings onto your student loans. Providing that you can stay disciplined in doing this, you will end up saving MUCH more than with m1.

      FT

  • Confused July 29, 2008, 9:51 am

    FT, thanks for the info. We have started to dump a bit of savings into the student loans so I guess we’re heading in the right direction. M1 just looked so tempting!
    Thanks!

  • Brian Poncelet, CFP August 20, 2008, 11:05 am

    Hi bl (63)

    Using the Manulife One with a variable income can work. I have sold the Manulife One to clients. But I don’t think this is for everybody. All the pros and cons have been pointed out before …but here goes again.

    Pro Variable income like bonuses etc.
    Good with money…does not sit in a savings account.

    Con steady income
    tax deductible mortgage … later if you choose (admin)
    no discount off prime/fees
    If you are poor money manager this may hurt!

    I have had client who had a salary and was very excellent with his money (chartered accountant). He had some good bonuses. He paid off his mortgage much faster than a regular mortgage. But he always knew where every dime was. He also said that if you were not careful you could spend too much and not get ahead.

    I am going to put a couple of new calculators on my web site shortly. Renting vs. Buying and RRSP vs NON RRSP (open money) which should answer some questions.

    regards,

    Brian

  • wealth creator October 5, 2008, 3:22 am

    *moderated – no insults please*

    Seriously. How can the M One account work for the average family.
    If you have been in the buiness long enough you would know that it is FACT that 95% of the population has more money going to debt and expences than coming in. This fact alone makes the M One account useless for the average family. Now in a perfect world, or if the family was disciplined enough to not spend more than they make, than Yes this could be in thier best interest.

    Second.. The monthly fee, and extra one time fee would rapidly increase there debt load that they have. So you instantly start them in the wrong direction. More debt.

  • DAvid October 5, 2008, 1:37 pm

    I watched the investigative journalism / editorial movie “Maxed Out” last night. It was quite an eye opener, describing the tactics some of the lenders in the US use to take advantage of the financially uneducated. One of the statements that stood out for me was that the banks and Credit Card companies make most of their income from those who make minimum payments. Even though there is a high risk of personal bankruptcy (reduced by Bush legislation), these businesses, gain more by accepting these high risk clients, than by excluding them.

    Although our society claims to have rid itself of the indentured servant, sharecropper, tenant farmer, etc., many of these folks still owe their ‘soul to the company store’ with ultimate payments adding up to 3 times the value of the original purchase!

    Made me wonder if Manulife used this knowledge in formulating their M1 product.

    DAvid

  • BL October 5, 2008, 1:58 pm

    We use the M1 account. It is the only bank account/mortgage/LOC that we have. The flexibility of this way of banking is very good.

    IMHO, the banks and credit card companies are reckless in their lending methods. It used to be that the best client was a person who paid off their loan quickly. Now the best bank client is the one who NEVER pays off their loans. They are now viewed as a “bank ass-ett” (pun intended) because the generate incredible profits at interest rates of 18-20% compounded per annum. Man do I wish I could get an almost guarateed compounded return of 18% per year!

    In the case of M1, Manulife is currently charging a 4.75% at prime interest rate. Comparing this with credit card rates and other second mortgage rates that are much higher, is not apples to apples and I think that Manulife did not formulate their product to have indentured slavery.

    Better to have no debt because the borrower is always a slave to the lender. That being said, we view this as a mortgage. Using a spread is what banks use all the time and we are using this account to help in that regard.

    Although slightly riskier, we invest the difference in good solid growth stock that averages about 6-8% per year. The spread of about 2-3% is what makes the difference. In time, using the M1 account will help us to further where we want to be down the road in 30-40 years.

    M1, like everything else, is OK providing you use it wisely. A priority for all people should be to not use credit cards, car loans or other consumer loans.

    And, don’t use your M1 account to buy “stuff”.

    People need to “act their wage” and if they do they will be fine. Whether they use an M1 account or a BMO HELOC.

  • David October 9, 2008, 6:09 pm

    With regard to the Manulife 1 account. I don’t see how you arrived at the calculations shown in the table under the article May 22 2008 “the high price of the manulife 1 account”. As I understand it, if the principle is compounded daily rather than semi annually then the assessed interest payment on the principle is going to be progressively lower through the term in the M1 account. In other words a conventional mortgage (calculated semi-annually) calculates compound interest based upon the borrowed amount at the start of the term then reassess the interest payment again at 6 months. So in the conventional mortgage you pay interest on say 200,000 dollar principle amount for 6 months even though you are paying down the principle gradually over the 6 month period. At 6 months you will have a lower principle balance where the bank then recalculates the interest on that new balance for the next 6 months. The interest calculated is always then in the banks favour in spite of your hard efforts paying down the principle whether it be monthly, bimonthly, weekly and so on.

    Given this it should reflect in your table a lower borrowing cost rather than what is shown. If what you have shown is true then the time and cost to pay down a mortgage through the M1 product would far exceed any conventional mortgage no matter how you appropriate your payments. I hardly see having all your finances amalgamated into one account being a convenience either. It is much simpler and effective from a book keeping and accounting standpoint to have debts and cash flow segregated and appropriated in accounts or categories than in one big account. Just ask any accountant who receives a shoe box full of everything at tax season as opposed to spreadsheets, ledgers and monthly invoice dockets!

    Sincerely,

    Dave

  • DAvid October 10, 2008, 12:52 am

    David,
    You forgot the “not in advance” part of the equation. Regular mortgages in Canada have the interest costs calculated based on the balance on the semi-annual anniversary. Thus, if you paid a lump sum on the principal the day before the calculation, you pay interest on the outstanding loan amount on the semi-annual anniversary!

    DAvid

  • Konfusedaboutmortgages October 15, 2008, 3:16 pm

    Dear All,
    I have read this thread and wondered about my situation….I am ignorant of the basics and have been trying to gain insight on this and other forums. basically im a newbie first-time home buyer who knows squat. herei s my info, any advice is much appreciated…520K purchase price…350K mortgage

    1) option 1 CIBC mortgage at 5.05% closed 5 year rate (10/100 – ability to pay down 35k pre-payment and increase my biweekly payments by 100%)….

    2) option 2 M1 at 4.5% open, and 6% to lock in for five years….

    any thoughts given the current market that you would suggest? we have a total monthly net income of about 8K….

    any help would be greatly appreciated,

    best regards,

    konfused

  • DAvid October 15, 2008, 4:01 pm

    Konfused…….,
    Your post does not include enough information to offer advice.

    How much savings do you generate each month to apply towards additional payments? What are your goals? Why are you looking at a variable rate Manulife loan, but not a similar product with another bank? Would the additional $66,000 you are putting into your down payment be better used elsewhere, such as investments?

    Also, there was no need to repeat your question in multiple locations on this blog, most regular contributors see the questions which arise.

    DAvid

  • Konfusedaboutmortgages October 15, 2008, 5:31 pm

    DAvid…first dorry about the multiple thread post…I’m such a knob. After everything is said and done I should have about $500.00 extra dollars per month for the first year…after the first year we anticipate being able to put down an extra $1500.00 per month.

    I was looking at the Manulife One based on advice from a relative who uses the product. Catch phrases such as “be mortgage free earlier” must have got me..Tell you the truth I am not completely sure why? When we then went into the CIBC..the mortgage officer who met with us recommended the a closed fixed rate mortgage who was able to secure a 5.05% interest rate for us, which is really great.

    Should we be considering investing the $66,000.00? Never even thought of it…basically asked for advice from friends and relatives…and took their advice…it will take me a little while to get me up to speed but I will. I guess have made the right step by at summoning help on this forum :).

  • DAvid October 15, 2008, 7:02 pm

    Konfused…..,

    The 5.05 rate is pretty good for a fixed mortgage, and even comparable to (or better than) many Variable Rate Mortgages just now. On your $350,000 mortgage, the difference in interest rates between 4.5% and 5.05% is about $100 per month. If you expect interest rates to stay below 5% for the next few years, then the Manulife product will save you money. In either case, you will save $106,000 to $119,000 in interest costs and pay your mortgage in about 10 years if you apply the extra funds you described to either mortgage. See Dinkytown.net for calculators to help you understand mortgage and savings options.

    Look at the Smith Manoeuvre threads on this forum and at Canadian Capitalist for some ideas about investments and mortgages. The market is in a slump just now, which means many companies are “on sale” and will provide good returns into the future. Some company stocks are priced almost as low as their annual dividends just now! For instance, Royal Bank of Scotland is selling for $1.22 per share, and pays annual dividends of $0.90, about a 75% return on investment. So, if you believe the RBS will survive this economic downturn, and continue to pay it’s dividends, you would see annual income of $50,000 on your $66,000 investment. Have a chat with the Investment advisors at your bank (at CIBC it’s Wood Gundy) for some information on what you might best do with your income. Wit interest rates so low, borrowing to invest may make sense for you, rather than slavishly paying down your mortgage.

    Also, remember, I’m not a financial advisor, so my advice is worth what you paid for it.

    DAvid

  • Konfusedaboutmortgages October 15, 2008, 8:55 pm

    DAvid,

    thank you for giving me the advice, and I am sure it is worth alot more than what I paid. I am now moving in the right direction…….I will keep you posted on what I decide!

    Best Regards,

    Konfused….

  • dayLateDollarShort October 15, 2008, 11:00 pm

    Quick question,

    One of the often stated drawbacks of the M1 is that the variable interest rate is not discounted. Now that most if not all of the banks have raised their variable rates, is the M1 more appealing?

  • BurnedByManulife October 23, 2008, 3:08 am

    Answer to: DayLateDollarShort….

    NO! Manulife has recently pulled a sneaky switch on customers now that prime rate is falling instead of rising.

    They are using a loophole in the the loan agreement to charge their own abitrary made-up prime rate instead of prime rate that was normally used.

    As a result, the savings on prime rate reductions are being gobbled up by Manulife and not passed along to the customer.

    With other institutions, increasing rate pricing on a variable mortgage only hurts new loan customers. But with Manulife’s tactics, existing customers are penalized, seeing their cost of borrowing increased in a way they never expected.

    Even taking into consideration Manulife’s token 25 bp cut, their Manulife One mortgage currently stands at Prime + 0.6% when compounding is included. And there’s little customer protection against Manulife jacking this up even more.

    Customers who chose the Manulife One mortgage over similar variable rate mortgages are now paying around 1% to 1.5% higher that they would have if they’d just avoided Manulife Bank. For a typical family, this means a Manulife One mortgage is costing them thousand of dollars more each year than the alternative.

    And even if you think Prime + 0.6% is an OK rate, realize that unlike most variable rate mortgages, you’d have no protection against Manulife charging any kind of rate they want, without notice.

    FrugalTrader was right – avoid Manulife!

  • Konfusedaboutmortgages October 23, 2008, 3:36 pm

    Burned by Manulife,

    You say that rate pricing currently hurts existing customers….what about new people coming into the market…we bought 2 years ago second phase of a builders project and unfortunately we didnt really start doing homework on it until the last month. In july when we went to CIBC – that is the rate we were able to get….5.05….we were only considering manulife based on friends referrals…
    so in my situation what do you think would be the best choice considering that interest rates are falling and are expected to continue to fall over the next few quarters…5 year fixed at 5.05 or open with manulife at 4.5 with the option to lock 75% of the balance at 6%…..

    any insight is welcome and will be taken in great appreciation in addition to the advice already given by DAvid.

    best regards,

    Konfused

  • BurnedByManulife October 24, 2008, 12:54 am

    Konfused – the last 2 words are as clear as I can be. AVOID MANULIFE. They simply can’t be trusted. So what if they are offering you what appears to be a slightly better rate today.. you have no protection if they decide to turn on you later. And they’ve shown they are willing to do that to their customers.

    Ask around, but I don’t think it’s conventionally wise to lock in for 5 years. Stay open, or if you can’t do that, stay short. That will let you move when the gouging has passed.

    I had the chance to select between Manulife and several others. I trusted Manulife… big mistake. Over time, the others have behaved more honorably and I now regret ever signing up with them.

  • Bob October 24, 2008, 11:00 am

    Hey BurnedbyManulife.

    Good news. National Bank is offering the same bank product as Manulife One for 4%. It’s called the all-in-one. You may need a broker to get the rate for you. If you need a broker to help you, let me know and I will forward you the one that we are dealing with. Just let me have your email address. It seems that National Bank is getting a flood of business right now. Of course we need to do an appraisal and legal done so fees are expected, but over the long term we save that in interest.

    We are unhappy with M1. They are spinning this terribly and we are now planning to move our account as well.

    All the best.

  • Russell October 25, 2008, 11:14 am

    After reading the many negative comments about Manulife ONE and having the account myself I became concerned. I started investigating other banks and their rates on secured lines of credit. Manulife, even though it is not at prime, is still one of the lowest rates out there. Most secured lines of credit are at or over 5% where Manulife is at 4.5%. I don’t consider that gouging! We are in a financial crisis and all of the banks have posted their rates all over the map. My guess is when the stock market stabilizes so will the banking industry rates as a whole. Panic mongering displayed by “BurnedByManulife” is simply uncalled for and quite frankly ridiculous considering the current economic times. I have had my Manulife One account for almost 4 years and can’t imagine going back to the old way. Flexibility, convenience and an unbelievable amount of control over my future finances. I wouldn’t switch for anything.

  • malbadon October 25, 2008, 6:36 pm

    sorry Russell, but if you wouldn’t switch to the exact identical product from say National or Investors Group (can’t include Canadian Tires version yet as they only change rates at the start of each month so we don’t know how they will be handing this .75 rate drop this month) that is now 0.5% lower than M1 per month then you are either delusional, work for Manulife, or only don’t owe enough anymore to care.

  • Flip October 27, 2008, 12:59 am

    I have not seen a response to David’s post. M1 interest is calculated daily, not semi-annually. I’m thinking that table is not an accurate representation of what an M1 can do.

  • DAvid October 27, 2008, 12:49 pm

    Flip,
    A York University Prof explains interest rate calculation differences here: http://www.yorku.ca/amarshal/mortgage.htm

    In addition, Manulife states: Interest calculations — The interest is compounded monthly, not semi-annually. However it doesn’t really compound because the interest must be paid off each month. To do an apples-to-apples comparison of effective interest rates, you should add about 0.10% to 0.15% (10 to 15 Basis Points or BPS) to the posted Manulife One rates. For example, 8% compounded semi-annually, not in advance would have an effective rate of 8.16% at year-end, whereas, 8% compounded monthly, not in advance, would have an effective rate of 8.30% – a difference of 0.14% (or 14 BPS). at this location: http://www2.manulifeone.ca/en/costofborrowing/

    So, even at the same interest rate, the M1 is about .15% higher. All other banks immediately credit lump sum payments against your principal, so your interest cost is reduced.

    Please feel free to post your numbers or calculations so we can better understand what you mean.

    DAvid

  • cannon_fodder October 27, 2008, 1:10 pm

    David and Flip,

    I don’t see any place in which I stated that the M1 was compounded semi-annually. Secondly, your idea of how interest is calculated on traditional mortgages is also incorrect.

    I have a traditional semi-annual compounding mortgage in Canada. My daily interest costs stay the same until I make a mortgage payment at which point they immediately lower.

    From the bank (and I had to ask to get this, it is not part of any normal statement provided), this is what we see:

    Start of Mortage – July 11, 2008
    July 11 Daily interest: $12.7674

    July 31 Mortgage payment: $1,270.99
    New Daily interest: $12.6286
    Interest for period billed: $267.97

    Aug 1 New Daily interest: $12.6579

    Aug 18 Mortgage payment: $1,270.99
    New Daily interest: $12.5191

    Aug 31 Interest for period billed: $390.45

    The reason why the interest for the period was quite higher the 2nd time is simply that we started our mortgage on July 11, while the 2nd period was for the entire month of August.

    So, please understand that if you have any traditional type of mortgage or loan with an FI, if you pay more than the interest (i.e. pay down the principal) then your interest costs will go down immediately. Likewise, if you increase them (say borrowing from a HELOC) the interest costs will go up immediately.

  • cannon_fodder October 27, 2008, 2:46 pm

    DAvid,

    Well, this makes it even more confusing. All I did was reverse engineer the M1 online calculator. What this led to was an effective interest rate that doesn’t pass the smell test.

    If instead I use the traditionally calculated effective interest rate for monthly compounding mortgages, the results are even less favourable than Manulife has led us to believe.

    So that people can compare, the current M1 calculator shows a 4.5% interest rate. This should translate into an effective interest rate of:

    (1 + 0.045 / 12) ^ 12 – 1 = 4.59398%.

    However, I have been able to duplicate M1 numbers by calculating an effective interest rate using this formula:

    30 * 0.045 / 365 + 1 = 4.52977%

    That’s a pretty big difference.

    I know on my mortgage, it states clearly what my effective interest rate is as compared to the nominal rate. For example, the nominal rate is a nice 4% but the effective rate is 4.034% (don’t know why it isn’t 4.04% since that is typical for a semi-compounded mortgage at 4%).

    Perhaps someone could post their M1 nominal and effective rates and then we could determine if the online calculator is playing hard and fast with the rules…

    By the way, the calculations at the top were done with a model that can duplicate the online calculator’s results. I still don’t know how the calculator can justify the numbers since they seem in conflict with the way their own website suggests they should be calculated.

    P.S. If in fact we use the traditional effective rate, then the example at the top of an M1 with 4.75% interest rate would need payments of ($1,433.62 + $14) = $1,457.62/month for a total of $434,285.20 to discharge the mortgage.

  • DAvid October 27, 2008, 5:35 pm

    Cannon_fodder,

    30 * 0.045 / 365 + 1 = 4.52977%

    Seems there are 5 days per year left out of this calculation. It is possible that the M1 calculator is only an approximation to reality of the interest costs?

    BTW (0.045/366) *30 *12 nets me and my simple calculator 4.4262% am I doing something wrong?

    DAvid

  • DAvid October 27, 2008, 11:22 pm

    Here is an online calculator which compares Canadian mortgages (semi-annual compounding) to those in the USA (monthly compounding).

    http://www.1stop-mortgagecalculator.com/calculator-bothmort.htm

    Although it does not include fees, it will show the difference between the two forms of calculations. You can enter different payment options to see the difference it makes at the end of the amortization. The site also describes how the calculations were derived for those with better math skills than I.

    DAvid

  • BurnedByManulife October 28, 2008, 4:30 am

    Hi Russell, your points are well intended but it’s important to mention what you say is applicable to NEW lending only. Obviously customers seeking credit today can expect to pay based on today’s rate formula.

    But customers who signed their mortgage say 1 or 2 or 3 years ago would not be expecting their rate formula to be altered upward. Manulife Bank is the only one attempting to do this so far.

  • David October 29, 2008, 9:10 pm

    To Cannon Fodder,

    I have been following the threads with great interest regarding the M1 account. The discussions have certainly made me look closer before choosing a mortgage or lending product and the information is much appreciated.

    A recent communication with a Manulife representative reveals the following information. In regard to this can you comment on this and any shortcomings to the argument the representative offers?

    From Manulife:
    How our interest is calculated is simple interest; not compounding daily or monthly. The interest is calculated on the outstanding balance, tallied up and charged on the last business day of the month. By doing it this way it allows all of your short term savings and cash flow to be sitting on your debt reducing the interest every day. The only way it would compound is if you did not have enough money left in the account to cover the interest cost. Then it would compound monthly. For example you owed $100,000 and didn’t make any deposit for the month. At the end of the month you would owe $100,335 (approximately), and the interest would then start to be charged on that higher amount – which is what compounding means.

    If you owed $100,000 on November 1st, and the rate was 4%, the interest charged for that single day would be $10.96 ($100,000 * .04 / 365). This 10.96 is not added to the account that day, and then interest charged on that the next day, it is simply calculated – and held to be charged on the last business day of the month. Then lets say that on November 2 you put $10,000 into the account, reducing the balance owing to $90,000. The interest calculated for that day would be $9.86 (90,000 * .04 / 365). This is done each day “behind the scenes”, and charged to the account once per month.

    Finally to answer your question on rates. The Manulife one Base rate, has historically always been prime. However the base rate can deviate from prime. Given our current marketplace the rate on our Manulife one account is 4.5%, which is prime plus .50%. All of the other big banks HELOC (home equity line of credit) products, are now being charged prime plus 1%, or 5%. You are in a variable rate mortgage at prime, so it will stay at prime until your renewal date per your contract. The reason for this recent change for Manulife is because we are 100% internally funded. This means we have more money on deposit than we have out in loans, and we don’t have to borrow money from the Bank of Canada. Currently we are paying our customers between 2.9% and 3.25% for these deposits. As our spread is the difference between the 2.9%-3.25% and the 4.50% that we are charging, it means our gross profit is only 1.25% to 1.6%. This is a very thin margin. The reason we have had to have our base rate currently set above prime is because the credited rates are not dropping as all banks are competing for customers cash deposits – they do this by offering better rates. Once things settle down a bit, and the credited rates drop to a normal amount for what the bank of Canada’s overnight lending rate is, we will see our rate fall back with prime as well. And in a normal environment we would be directly with prime as well, just like your mortgage – but with the simple interest rather than compounding.

  • DAvid October 30, 2008, 12:56 am

    Simple interest would be 4% over the term of the loan. Thus on a $100,000 loan over 25 years, you would pay $4000. On a loan with a declining balance, you pay less interest with fewer compounding periods. Let’s say you have a loan of $12,000 which you pay off at $1000/month + interest at 6%. If your loan compounds monthly (not in advance), you pay interest at 0.05% on $11,000, then 10,000, … $0 =$330. If you pay quarterly, then you pay 0.15% on $9000, then $6000, then $3000, then $0 =$270. If you pay semi-annually at 3% on $6000 and $0=$180, so, while clearly the fairest way to calculate interest is daily, it is to the borrowers advantage (interest rates being equal) to have fewer compounding periods. This would be one of the reasons variable rate loans appear such a bargain: the bank charges a higher advertised interest rate for semi-annual compounding loans, than monthly compounding ones.

    From the Manulife website ( http://www2.manulifeone.ca/en/costofborrowing/ ) “Interest calculations — The interest is compounded monthly, not semi-annually. However it doesn’t really compound because the interest must be paid off each month.”

    This, of course, is the same process as all the banks use – the interest never really compounds because the interest must be paid off each month.

    I notice the rep does not address what happens to the $10,000 after November 2. If it stays in the account then you will indeed continue to see $1.10 per day in savings, and about $33 at the end of the month. If it were withdrawn on November 3 you would see only the $1.10. If it is drawn slowly and evenly over the month, you would see about $16.50 in savings. If you deposited two paycheques of $5000 on the 2 and 16 of the month, your savings would be less at about $24.75 ($0.55 per day for the first half of the month, or less depending on spending, and $1.10 per day for the second half of the month or less depending on spending). If you spent the paycheques to zero every 15 days, the savings would be about $7.70 per month.

    I believe the other banks are no different than Manulife — they need the income to have the money on hand to make loans. My understanding is that the Bank of Canada manages transactions between the banks, but for the most part is not a savings and lending bank to the commercial banks as the banks are to retail customers. Thus the commercial banks don’t borrow money from the Bank of Canada, or at least not in the fashion most of us consider. They may borrow money THROUGH the Bank of Canada, but not from it. Thus they ALL need to make a suitable spread between deposits and loans, so in this Manulife is not unique.

    Just now, it appears Manulife at 4.5% is the least costly option for NEW mortgages. Time will tell how long it retains that position!

    I did find it interesting that all his calculations are at your Prime Rate Loan, and not at the current Manulife rate! That said, except in exceptional circumstances, the lowest rate is always the best!

    DAvid

  • cannon_fodder October 30, 2008, 11:57 pm

    David,

    I agree with DAvid’s comments. Thank you for taking the time to make such an informative post.

    All I can say is that I’ve created a model which mimics the online M1 calculator. They have a report which shows the mortgage balance at the end of each year. I can replicate their numbers +/- a penny either way. Now, is the online calculator a TRUE representation of how their M1 account really works? We will probably never know…

    I can’t explain why the rep says that they are not compounding interest when their own website says that they are. It wouldn’t be the first time someone at a bank/financial institution didn’t quite understand how to explain their product.

  • LisainSK October 31, 2008, 3:12 pm

    Hi All! First post…love MDJ! Anyway, husband and I are M1 customers since July 2007. We absolutely love M1. Sounds like the jury is still in deliberations regarding M1 as a cost effective mortgage. But I know for us we will save BIG time in interest and shorter amortization compared to a regular mortgage. We love the flexibility and love that we’re on track to be 100% debt FREE (mortgage included) in 4.5 years. We keep a spreadsheet that tracks every penny and do our very best to follow a budget.

    Anyway, thanks very much to David (Post # 93) for your detailed account with the M1 rep. I was just about to get on the phone myself!!

    But regardless, we’ll never switch…absolutely love the product!

  • cannon_fodder November 1, 2008, 11:19 am

    There are still reports of people getting mortgages at prime or at a slight percentage off (and I’m not talking about preapproveds). These would be through mortgage brokers typically.

    So, at this point, the M1 might be the best deal you can get for a new mortgage if you hadn’t locked in before this recent change in policy by the banks.

    What I’m curious, is for those that have been in the M1 for awhile, is your rate now 4.5% or has it dropped even further? We renewed our mortgage in July and it is now sitting at 3.25% and our HELOC is at 4% – in other words, we’ve enjoyed every advantage as the prime lending rate dropped since BMO has passed on the decreases in lock step with the BofC.

    I would not be pleased if I had an M1 and they chose to keep the baseline rate higher than prime.

  • cannon_fodder November 1, 2008, 12:32 pm

    Well, I guess I have my answer. I stumbled across this thread at Redflagdeals.com where there are quite a few upset M1 account holders.

    http://www.redflagdeals.com/forums/showthread.php?t=647071&page=1

  • BurnedByManulife November 4, 2008, 7:39 am

    Manulife’s reps may be getting coached to claim it doesn’t compound, but anyone who understands loans knows that it does indeed. Their own website confirms it, though it goes on to try and obscure the situation with tricks.

    Their trick is in suggesting that customers are making large lump sum payments that clear the interest simultaneously as it compounds.

    Now while some customers *may* be making these payments, they aren’t required nor are they default with the Manulife One mortgage. Manulife automatically capitalizes the interest charges and it’s up to each customer to pay them down. Throwing these payments into the explanation is simply a smokescreen meant to take your eye off the ball.

    If Manulife continues to claim they aren’t doing monthly compounded, you just need to ask them to hold your interest charges and only apply them to your account once per year instead of at the end of every month. If they refuse, then there’s your answer… monthly compounding.

  • SteveC November 5, 2008, 11:11 pm

    Great debate on M1 and mortgage options.

    My wife and I took advantage a few years ago of low rates and 1-2 year constant mortgage renewals to pay down our mortgage more “cheaply”. However, when we decided to renegotiate 4 years ago to do major reno’s on the house, we are happy with the decision to add $50K to the mortgage, but are now on a 20 year amortization treadmill vs. a 10-12 year amortization as before.

    What I find amazing is that most people concentrate so much on interest rate, which is only important really if you earn the same level of income and pay the exact monthly pymt for the life of the mortgage. When reviewing mortgage options, the key element to wrok through is your total cost of borrowing.

    Our baby-boomer parents all locked in 25-30 year mortgages and had a very stable and “safe ride” to pay off their houses, but paid those houses off 4-5 times, when looking at total borrowing costs. (Yes, one can factor in time value of money.)

    My wife and I are very good with monthly budgeting, have a growing and stable income base and little debt other than the mortgage. Thus, I’d like to hear from M1 customers out there that would give any advice on why I wouldn’t go for this solution – which I can see as a solid option, if used prudently, to reduce our mortgage repayment/amortization period from 20 to 8-10 years, with great flexibility.

    Again, as per my comment above, the faster you get rid of the bank – any bank – you are debt free. Screw the 4.25 vs. 4.5% arguments! And if M1 puts one in a “better frame of mind” as a blogger commented above, to proactively target paying your mortgage down quicker, why wouldn’t you?

    I look forward to hearing some reply comments.
    Thanks!

  • DAvid November 6, 2008, 2:42 am

    Steve C said: “What I find amazing is that most people concentrate so much on interest rate, which is only important really if you earn the same level of income and pay the exact monthly pymt for the life of the mortgage. When reviewing mortgage options, the key element to wrok through is your total cost of borrowing.”

    No! Interest rate matters no matter how fast you choose to pay down your mortgage. It affects your total cost of borrowing any way you look at it. Any borrower has a certain amount of money to put towards a mortgage. The lower the interest rate, the less they will pay in carrying costs.

    To put it another way, if you were choosing a savings account, would you choose the one with the low interest rate (even if they offered you a shiny toaster), or the one with the higher rate? Just about all of us would choose the higher rate. Why is it that when folk speak about a mortgage, they seem to feel the lowest interest rate is not the best bargain?

    Also, For our Baby Boomer parents to have paid their houses 4 to 5 times over, they would have held a 17% interest rate for 25 years. Unlikely.

    DAvid

  • Brent December 1, 2008, 8:50 pm

    We have a Manulife account and are more than happy with it. With 13 years left on our mortgage the manulife calculator indicated that the payoff would be reduced to 7 years. In fact we will be mortgage free in 3 years. When we signed up with Manulife, the options from the Royal Bank were not available and to change to other brokered acccounts meant having a new appraisal, change fees charged by both broker and the Royal Bank etc. etc. Changing to manulife didn’t cost a cent and the broker looked after everything. We don’t use the account as advertised but instead make payments like a normal mortgage, however, extra cash from things like overtime and investments go on the principal and it has really paid off for us. I like the flexibility and since everything is online, banking is always at my finger tips.

  • Chris B December 2, 2008, 12:48 pm

    I thik, as noted, the greatest advantage is for the self-employed. Myself and my partner are both self employed, so we have variable cash flows, but also must set aside money for the taxman. So, for three months at a time there is a little pot of money that is reducing the principal. Every three months, it gets paid and we start again. This is money that would be earning (taxable) interest if we had a normal mortgage, but instead it is applied to our mortgage, and saves us a little bit extra.

  • Mark M December 11, 2008, 3:26 am

    We have a Manulife One account and are very happy with it. You must have self-control with this account or you will spend yourself to the poor house. You can’t view your available credit as your money to go and spend. I view the remaining balance as debt and am trying to pay off this debt as fast as possible. We have a $200,000 mortgage now and we should be able to pay that off within 5 years. There is no way we could have done this with a traditional mortgage. Making a prepayment is murder. It took us 3 weeks to get a prepayment on our Royal Bank Mortgage. Not to mention the time to make the appointment, wait at the bank, listen to them speak about other products, all to make a payment. 1 day is all it takes to transfer as much as you want to your mortgage via the computer. (we have a seperate chequing account and transfer all remaining money into our M One) We watch every penny we spend, knowing that what we don’t spend will go toward the mortgage. We transfer almost half of our income directly to our M One. A traditional mortgage is built to keep you paying for ever. The M One account for me changed the way I look at my mortgage, no longer a 25 year ball and chain, but more like a quick 5 year car loan.

  • Thomas December 21, 2008, 3:32 pm

    Tons of great information. I am not a financial guru but I have become aware of how the banks want to keep you paying forever. I recently had our CFP leave me info on the M1 saying it would be good for our situation.

    26000 debt cc, loc, student loans
    70000 mortgage renews September 2010
    we make less than 100000

    We have recently started budgeting properly because we were a financial blackhole but luckily we caught it in time. Another factor that makes this more difficult is that we are both self employed and our income fluctuates, it is not possible to know what we will make from month to month. We currently have a FirstLine mortgage at 5.5% with bi-weekly payments. Would this product help us get out of debt quicker as we have become misers and we don’t really owe that much. If anyone could point me in the right direction that would be great. I want to make sure I have a complete understanding of what the CFP is presenting to me so I can make an informed decision.

    Thanks

    • FT FrugalTrader December 21, 2008, 5:43 pm

      Thomas, note that M1 rate is no longer prime, it’s at their base rate which right now is about prime + 0.5%. If you can find a regular discounted variable mortgage, or even at prime, you would end up saving money vs. the m1.

  • Thomas December 21, 2008, 9:05 pm

    I would like to have access to the equity in the home to consolidate while killing the mortgage at the same time. I have seen some talk about the SM and readvanceable mortgages. Im new to researching these type of options I just don t want to get screwed. I guess what I want to know is what info should I be looking at to determine what is a good option.

  • DAvid December 22, 2008, 11:26 am

    Thomas,
    Before you jump to the M1 re-read the comments on this and the original Manulife One thread. There is little Manulife offers that could not be accomplished with your current bank. For instance, you could add a HELOC to your current mix and consolidate your debts there. Your mortgage would stay at it’s current payment and you would place as much against your HELOC debt as possible based on your monthly income. Once you have paid off your HELOC you can apply extra moneys to your mortgage, paying it down in short time.

    Unless you are paying a very high interest rate on your mortgage, and will get a really good rate on the new, you should NOT move to another product, as you will pay 3 months interest penalty. At your current rates, it would take about 18 months to recover the interest penalty you would pay, plus you would have other discharge & closing costs on the transfer.

    Your first step should be to consolidate your CC and LOC loans at a lower rate and pay them off ASAP. Your student loan is likely tax advantaged, it may be wise to leave it alone. Your mortgage should be left where it is until 2010, when it comes for renewal, unless you can lock in at more than 1.5% interest rate difference.

    BTW, go to your banker and present your wish to pay your debts sooner. You might be surprised at the soultions proposed.

    BTW, with a gross family income of $100,000, you are in the top 25% of income earners in Canada. With the tax benefits self employment brings, you might actually be in the top 20%!

    DAvid

  • Thomas December 22, 2008, 12:43 pm

    DAvid,

    Thanks for the advice, Im going to look at what we can do to remodel what we already have. Have a great holiday.

  • BNS Banker February 20, 2009, 1:20 am

    I do work at Scotia, we offer the STEP, Scotia Total Equity Plan. Many of my clients use it and use it well. We can lend up to 80% of the value of the home. Under the STEP you can have: 3 mortgage components(fixed&var), 3 lines of credit, 3 line of credit visa’s, overdraft, 3 regular visa’s, term loans, small business loans etc. Up to 11 products.

    We call the limit of the STEP your GLOBAL limit, as the term products are paid down, we can increase the limits on the revolving credit(lines of credit as you go).

    Keeping LOC’s separate for interest expense’s…ie smith maneuver.

    Most clients, split up thier mortgages, part variable, part short term fixed part long term fixed.
    With our mortgages you can also: Prepay up to 15% of the original mortgage amount each year AND make double payments AND increase your payments 15% per year.

    I believe it is the most versatile product out.

    We register a collateral charge on the property, so as the value of the home goes up, you can increase the global limit of the STEP without any further legal fee’s. Subject to you affording the STEP and appraisal of the property.

  • bc May 28, 2009, 4:17 pm

    This article is now out of date.

    The rate environment has changed drastically and now all banks are charging the same “premium” on their HELOC’s – and worse yet, in many cases existing clients are no longer being grandfathered at their old rate.

    Further, minus variable rates simply don’t exist anymore. So all of those lucky ducks out there paying sub 2.0% mortgages are going to be unhappy when renewal kicks in.

    Personally, I love my M1 account. My wifes income is stable, and mind variable. All in all our expenses per month (not including the “mortgage”) are about $3750.00 – and our income is over $6k.

    I don’t know about you, but I don’t know many people who make $2250+ mortgage payments on a $240k mortgage.

  • cannon_fodder May 28, 2009, 7:38 pm

    bc,

    I was shocked to hear of mortgagees receiving letters noting them that their base rate actually went up even though the BoC rates were going down. Fortunately, even though I’m with BMO (where I heard they were party to this exercise) I had their Readiline product and it has continued to go down.

    We renewed our mortgage at about $117k last summer and we are making $2500+ monthly payments plus periodic lump sum payments (bonuses, tax refunds, dividend income, etc.). It should be discharged sometime late next year – probably before we see any significant rises in the interest rates.

  • DAvid May 28, 2009, 9:46 pm

    bc said: “I don’t know about you, but I don’t know many people who make $2250+ mortgage payments on a $240k mortgage.”

    That’s OK, I don’t know many people who have $6000 net income monthly. I do know quite a number who pay their mortgage and other debts aggressively.

    I do believe the points made in the original article are still valid: do your research before arriving at a decision, and don’t believe everything marketed to you.

    DAvid

  • bc May 29, 2009, 10:38 am

    Fair points, guys.

    I just wanted to quiet some of the notions here that Manulife did something funny with their rates that wasn’t industry wide – that and variable rate mortgages are now “prime +”.

    Only a wild amount of cashflow could result in a savings equal to a 1.60% mortgage, I recognize that, but unfortunately that rate isn’t a market reality at the moment.

    One thing that hasn’t been mentioned here is the fact that alot of people don’t use their savings to make lump sum payments on their mortgage. People have good intentions, but when it comes down to it, putting their rainy day fund into a mortgage doesn’t sit well. So for those people the M1 works (assuming they at least have the restraint not to spend the money unless it is an emergency or an otherwise budgeted item).

  • cannon_fodder May 29, 2009, 12:13 pm

    bc,

    From what I’ve heard on the ‘net, MFC was simply the first to stick with the concept of not lowering their base rate in tandem with BofC. On the other hand, I haven’t heard that they’ve gone back to clients and actually increased rates to existing clients or told them that any future advances on a HELOC would now be at a much higher rate.

    I still remain skeptical that an M1 type product will, either consciously or subconsciously, change the behaviour of people over the long haul (i.e. for more than 10 years) in a way that they will be out of their mortgage sooner.

    For example, let’s take a $240k mortgage at 5% amortized over 25 years. This gives monthly payments of almost $1,400. Let’s imagine that a couple has an extra $250 a month that comes in which doesn’t get spent and it goes up annually by 3% (inflation). With the M1 that is applied every month resulting in their mortgage being discharged 7.42 years earlier all things being equal.

    My issue is that without the M1, this couple is receiving $3,000 of discretionary income (in today’s dollars) every year for over 17 years. I find it hard to believe that most couples, according to Manulife, would fritter away that kind of money each and every year without knowing it because they don’t have the M1 to change their ways. I think such a change would be noticed and felt over the long term. You would realise that you don’t go out for dinner as often, or your clothes are looking a little dated, the house needs a new paint job, and boy, or that it has been quite awhile since you went on a vacation.

    On the other hand, let’s say this couple did realise and embraced this new paradigm. They saw that they were careless in their fiscal responsibility and got excited by how quickly their debt was declining. Once they have seen the light and are fully aware, they don’t need the structure of the M1 anymore. Most mortgages these days have the option for increasing the payment amount, doing lump sum payments, etc. I’ve run the figures for just how much $ is saved by the M1 if you simply look at the timing of credits/debits and believe me, it is quite small even in the most ideal of cases (i.e. all your income arrives on the 1st day of the month and all of your expenses are paid on the last day of the month). The only substantial impact is if you leave income stay there and don’t remove it when it otherwise would be spent.

    Could the M1, and others like it, be a catalyst for discovering a smarter way to handle household finances for some people? Yes, I do believe it has that potential. Once learned, then those people have the option to choose more frugal ways to master their debt. (I say frugal because for the majority of the time that M1 has been in existence, it’s rates were higher sometimes egregiously so than other options out there. Plus, M1’s rates are compounded monthly and they even acknowledge on their website that it costs more than a semiannual compounded mortgage. Finally they do have those monthly fees.)

    I needed training wheels to learn how to ride a bike, but once they were removed I never put them back on.

    What I can’t envision is that people would choose the M1 because of its promise to make them mortgage free sooner and then blindly be unaware that more of their discretionary income is being applied to their debt – and this is the only way that they are going to see any improvement vs. a traditional flexible mortgage. If there are such people, then they would be the only ones that would be better off staying with M1.

  • DAvid May 29, 2009, 12:46 pm

    Also, the rate spread is beginning to show again. BNS offers 2.75% variable, and the other big banks are offering 3.05% on new mortgages. So we are returning to a 0.5% difference in rates again; about the difference when this product was first discussed. Once normalcy returns to the market, I expect we will see this short-term disruption of prime minus (or the equivalent) to return to its former pattern.

    I believe that although Manulife markets the M1 as a means to quickly pay one’s mortgage, the reality is they want you to have a mortgage for life. That way they continue to gather interest payments for a longer period.

    I agree a lot of people don’t use their savings to reduce their mortgage costs. A lot of folks don’t pay their credit cards in full each month either. There are many actions in which folk could engage to reduce their costs & debts, however not all take the step. I expect many will see the available credit on the M1, and use it for consumptive spending, just like folks do when they realize their other debts are reduced. Thus, we see all the renos or cottage purchases that occur once the original mortgage is paid. Call it Human Nature.

    DAvid

  • DM August 10, 2009, 3:39 am

    Hi everyone, I was pretty excited about signing up for the M1 as my friends are really happy with it. This blog is stressing me out though.

    I am purchasing a house for $425,000 and putting $85,000 down. That will deplete my savings and investments.

    I will make $68,500 this year and it usually goes up 6% every year.

    I will rent out 2 rooms in the house for around $1000/month total.

    I usually save around $1000/month on top of a $690/month rent that I currently pay.

    I have no debt.

    I have been offered a M1 at 3.25% (p+1). The advisor told me that as rates go up and banks start offering p my rate will automatically be adjusted and that no renegotiating will be required.

    If people are still reading this blog I would love to hear some people’s thoughts on the M1 and my situation. If I didn’t include enough info let me know. I am new to serious finances.

  • DAvid August 10, 2009, 12:25 pm

    DM,
    One simple question: is 3.25% the best rate you can negotiate? Every 0.1% you can shave off the 3.25% rate will save you $28 per month.

    Historically, M1 has been at prime, while other banks have been at prime -0.75 or better. For instance RBC is offering P+ 0.4 and P+0.8 on their variable mortgages just now. Also, with historically low interest rates, is this a time to consider a fixed rate? It is pretty clear prime won’t be sitting where it is now in the foreseeable future. Might 5 years at 4.29% (ING) be a better deal in the long run?

    No simple answers here!

    DAvid

  • James August 22, 2009, 8:37 pm

    Does anyone know where I can get a copy of an excel spreadsheet that has all of the calculations of the Manulife Calculator? or if anyone as something similar they have created in excel?
    Thank you!!
    James

  • cannon_fodder August 23, 2009, 8:30 pm

    James,

    Try Canadian Money Forum where you will find several spreadsheets at http://canadianmoneyforum.com/showthread.php?t=897

    The Loan Comparison Calculator offers a take on the M1 calculations.

  • DAvid August 24, 2009, 12:26 pm

    Thanks for sharing these cannon_fodder!

    DAvid

  • Allen September 1, 2009, 12:26 pm

    Ok, well I’m a new guy here. I’ve read this blog and a few others about the pro’s and con’s and I’m still sitting on the fence.

    I am currently a customer of RBC out west and have been for some time. I’ve got 2 LOC’s, both unsecured, one for $60K @3.25% and one for $5K @3%. I don’t have a Homeline but I’m really concerned about the amount of interest I pay out over the course of say this mortgage ($315K balance on 30yr accelerated bi-weekly payments @5.1% fixed 5yr closed).

    The problem to me is that I need to get a way of making this pay down faster but I also require more flexibility incase employment gets a little bumping in the next few months.

    This is why the ML1 looked good to me. But now, I’m not so sure? With a large penalty on the RBC mortgage I want to sit here and not deal with that but in turn figure out a way to instead use the LOC or HELOC (homeline) as the primary chequing account, similar to the ML1 which I read was done with a credit union in an above example.

    With the existing chequing account there are months with cash flow is tight or completely the other way based on lack of funds coming in. This means overdraft – yet that interest is something horrific like 38% if I’m not mistaken. Our RBC Visa is 19.5% and they still make BILLIONs in profits so why would they give me a break?

    I’ve thought about the SM but have leaned away from that with issues of cash flow and leveraging adding to the risk of what could happen.

    If anyone is reading this still I’m interested to learn all I can before I meet with the bank and ML today and tomorrow.

    Cheers,

  • Ronald October 26, 2009, 6:30 pm

    I now pay 3.25% interest for my Manulife One mortgage.
    Is anyone paying any less on a Heloc at another institution?

    I had paid it off in 5 years instead of the remaining 21 years.
    I saved over 100,000 dollars in interest.

    The 14 bucks a month for unlimited banking is comparable to other banks.

    I took some money out again to invest in the stock market. (Interest is tax-deductible). I’ll have that paid off in a few years and still have my stock portfolio.
    I bought a vehicle and just wrote a cheque.
    Vehicle will be paid off in 2 years.

    It’s like I run my own little bank.

    I never have to ask for loan ever again. I have one simple account that I use for almost everything.

    I have been using it for appr. 5 years now and I would not use any other product that is currently on the market.

  • DAvid October 27, 2009, 2:15 am

    2.25% HELOC.

    DAvid

  • mietek November 6, 2009, 1:44 am

    Allen, pay the penalty and start using M1 (as long as you have at least 20% in equity). You’ll never regret it. My principal is shrinking two times faster than with RBC not so long ago! On top of that I bought a new vehicle and spent nice couple of weeks in Cuba. Being with the regular bank I could never afford it, and guess what! The amount that I owe now is much lower than it would be with RBC (a few months ago I printed a sample of RBC payment table just to see and compare).

  • Allen November 6, 2009, 12:32 pm

    Well, I still have not made a decision. I am now looking at a local credit union for a similar sort of solution.

    I’m being offered:
    $248K mortgage at 2.35% VR / 36m
    $100K LOC at 3.25% VR
    $40K LOC unsecured at 5.25%

    The reduction in interest even this way is amazing but it is still a little restrictive. I still haven’t worked out all the details of it yet.

    What do people think?

  • mietek November 9, 2009, 12:17 am

    2.35%, 3.25%, 5.25% …That’s not what M1 account is about. It is about paying your motgage off 3 or 4 times faster than in a “regular” arrangement. When I was with RBC I always pumped some or most of my “left over” income into the mortgage in order to reduce it fast but ended up being stressed out every single day thinking if I had enough money for anything else and using line of credit to cover my shortages. Now every single dollar of my income reduces the principal right away and there is no stress!!! That’s the main element of this amazing system, not the interest rate! All of you so called mortgage specialists can argue as much as you want but I guarantee that I’d pay my mortgage off quicker with 3.25% rate than with a 1.5% rate in a traditional deal. You don’t need a software or even a calculator to prove it. A calendar and a total of what you owe is enough.
    Allen, don’t make your life too complicated. You might forget how to enjoy it.

  • Allen November 9, 2009, 1:53 pm

    Thanks.
    Currently, the credit union I have been talking to is now telling me that it may not make sense to move due to the penalty of the existing mortgage at the RBC. This is similar to the conversation I had with the rep from ML1 and now puts me in a bit of a bind. The credit union is now saying that if rates climb I won’t save the sort of money I have been considering yet with the recent press releases of BofC it indicates that there won’t be any increases in the prime rate until the economy starts to really show signs of strength. If that happens soon it won’t really matter much but if it happened later than the outstanding 27 months I have left on this mortgage then I would have missed out on the lower rates over that time.

    I must be missing something key.

  • Allen November 9, 2009, 6:31 pm

    Well, after much consideration it would seem that the only person I have talked to over this specific situation that understands why I want to be debt free is the rep from ML1. The Credit Union with all their restrictions and chequing accounts tied to each of the LOC’s doesn’t make this any simplier.

    In fact they don’t get it.

    I don’t want to be in debt and I feel that is can be done but because of the excessive $13K penalty on the existing RBC mortgage it can’t be done as simply as I would like it to be.

    That is a shame really. If I had done this 3 years prior before the realestate market corrected itself there would be more room to make this work. Right now it doesn’t.

    The simple reality is that I was looking for a massive operating LOC but that no one lending group was interested in taking it on.

    Any other suggestions?

  • mietek November 22, 2009, 1:37 am

    I know this would sound ridiculous for most of people but if I was in your shoes I would pay the penalty and move to M1 or “All-in-one” or whatever it is called. $13,000 would disappear pretty quickly and your financial “problems” would seize to exist the moment you switch. That’s how I feel about it right now and the only thing I regret, is that I did not sign up for it much sooner. I am the ManulifeOne customer for a while now and I’ve never been happier with my finances. If you want to save $14 go to Canadian Tire or National Bank and be $14 happier. Anyway, everybody is different and everybody’s life styles or priorities are different. Some people need more vitamine C and some need more vitamine D. Some of us have 2.5% mortgage and laugh at people that pay 3.25% interest and some of us don’t have any mortgage … You have to decide for yourself. Don’t let any reps (even the one from M1) decide for you, and you will never regret it.
    I hope you’ll find peace of mind and happiness soon.

  • Allen November 22, 2009, 2:13 pm

    Well, I’ve decided for the interim that using my existing RCL as my suo version ML1 account will work just as well. I have set up everything to get paid from and depositted to that account. So far so good. Not really simple but it will work for a while. Things are getting bumpy in the employment for the next quarter so I went back to the RBC and said hey can we get this RCL limit increased for a just in case situation, the answer was not a chance, in fact the RCL’s interest rate programs are all getting adjusted to increase their rates to reflect this new reality we are in. New reality? since when does the RBC give a rat’s ass about it’s customers? The fees prove that.

    I don’t know what all that means but we will see.

  • Allen December 17, 2009, 2:30 pm

    Mietek,

    I am beginning to think you could be right. The run around I am getting from the RBC right now on a number of things relating to rate increases are incredible,

    I have contacted my ML1 rep again and want to look at this in more detail.

  • Paul December 19, 2009, 1:05 pm

    We’ve had an M1 for over 5 years. In that time, we’ve actually increased our debt. I think in concept the M1 sounds like a good idea; however, you have to be very disciplined. Obviously, these all-in-one HELOC’s were created because they know that the majority of us aren’t disciplined enough and will continue to use this extra credit.

    Having said that, we are converting back to a conventional variable mortgage and dramatically reducing our LOC. We’re looking at the RBC Homeline right now since we’re already an RBC customer.

  • Allen December 19, 2009, 2:54 pm

    Paul,

    There is no reason to say that you would not do the same with the RBC. Yet in my recent experience they will provide you nothing to assist you in getting out of debt faster beyond the 20% payment increase. This is difficult if you are limited in cash flow or have less drive to get it done.

    Personally, it has lots to do with the personal relationships that you have and I had a really god one with a planner there for a number of years. She retired and now I have this kid that couldn’t find his way out of a paper bag with the bottom cut out. His response is “ask your mom for help”. Well, I make and payback nearly 5x what my mom does in a year. The only difference there is that she is mortgage free and I am not.

    I’m still convinced that if you can do it right the ML1 method (not necessarily their product) is the best way to get it done.

  • Paul December 19, 2009, 7:48 pm

    Allen,

    My feeling is that with the conventional mortgage we’ll be in a better situation financially because the money will automatically go into paying down the mortgage.

    If we were disciplined, I agree that the M1 concept is quicker to pay down than a conventional mortgage; however, the past 5 years have told us that we aren’t disciplined.

  • Lisa February 6, 2010, 6:26 pm

    We have had our Manulife account for 8 years now. We love the flexibility of it and that’s why we chose it. We have increased our borrowings over time but we also have purchased 50,000 if investments, a waterfront cabin (right before prices skyrocketed) a new boat, dock, and boatlift, upgraded both vehicles and have lived a great lifestyle. Had we not chosen Manulife One the bank would have never loaned us the money to purchase the waterfront property (which has more than double in price) so you can go on all day long about points, percentages etc etc etc. The bottom line is you need to spend less than you earn and make sure your account is getting paid down. We will be completely debt free in 2 years and 9 months including our principle house and are considering a third property purchase. This would have NEVER been possible with a convential mortgage.

    • FT FrugalTrader February 8, 2010, 9:43 am

      Lisa, the alternative would be to get a readvanceable mortgage and use your home’s equity that way. As well, the installment portion of your mortgage would have had a lower rate.

  • Mike de Mahy February 16, 2010, 12:45 pm

    Hi Cannon

    The wife and i are really in a dilemma. Our mortgage is at 135000$ at a rate of 1.65% until 2013 (flexible Scotia) and a credit line of 50K maxed out Our net monthly income at 3100$. and expenses 2900 (includes everything taxes mortgage food etc.) We are frugal -have to , only one income
    We are debating this ManuOne account.Naturally , the Manu agent is pushing for us to take it , stating the flexibility and convenience of the plan.
    Is this plan good or not .Lots of comments .So many questions and so many different answers

    Mike d

    • FT FrugalTrader February 16, 2010, 1:06 pm

      Mike, the question you have to ask yourself is that if you tap into the equity of your home, are you going to spend it? M1 will not come anywhere close to the 1.65% mortgage that you have now.

  • DG February 16, 2010, 1:07 pm

    Mike, you have a very good mortgage rate right now. If you throw it away and go with M1, you will have almost an extra $200 of interest expense per month. I think that money is best put towards reducing your debt rather than “buying flexibility”.

    Can you think of any specific cases where flexibility of the M1 helps you? A regular mortgage with a LOC (which you have) can provide much of what M1 provides.

    Dan.

  • C February 16, 2010, 1:11 pm

    Why don’t you go into scotia and ask to have your VRM converted to a STEP. They have a legal fee waiver program where as long as you have your daily banking with them and have a mtg and loc under the step they pick up the legal costs. Well worth it, and much better than a M1, and no monthly fee.

    I have a step with a a VRM and a fixed rate mtg, and 2 LOC’s, and a travel visa, all secured by the home, has saved my 1000’s per year.

  • Mike de Mahy February 16, 2010, 2:26 pm

    Many thanks to everybody for all your advices

    Scotia was very happy to accommodate us . The STEP is perfect for us.
    Thanks again for all your responses

    Mike d.

  • C February 17, 2010, 1:54 am

    Good to hear Mike, I have implemented the (borrowing to invest/smith maneuver) over the last 3 years using dollar cost averaging, and it is working out very very well.

  • Caddy February 25, 2010, 5:18 pm

    What high cost of Manulife One? In 20 months my wife and I have decreased our mortgage by $85K and reduced our monthly interest payments from $865 to $385. Why would we care about paying a $14 monthly fee when we can pay off our mortgage in about 4 years and save 10’s of thousands of dollars in mortgage interest.

    Who cares if you can find a 5 year fixed term at 1.65%. At the end of the five years, you will have paid very little off your principal and you’ll get screwed by the new increased rates. Good luck in paying off your mortgage then.

    The calculations presented at the top of the page by Cannon Fodder do not represent what actually happens in a Manulife One account. To put it most politely, his calculations are grossly misleading. You don’t make fixed payments in the Manulife One account. The very day that your paycheque is deposited into the account, it is already reducing the interest paid on the mortgage (your interest is calculated daily). Assuming you earn more than you spend, you are coming out a winner. If you are spending more than you earn, then you are simply irresponsible with your money.

    One thing is true…the Manulife One is not for those who have champagne tastes on a coca cola budget. If you’re smart enough to take advantage of a Manulife One type of account, you’ll thank yourself daily. If you want to be foolish with your money, then there isn’t any account/mortgage that will save you.

    The Manulife One account has really given my wife and I an incredible head start. We’re young, have paid off a huge portion of our mortgage, and have been able to afford a rental property in which we’re profiting on.

    What else can I say?

  • mietek March 7, 2010, 11:56 pm

    Caddy, I have been thinking about investing in a rental property. Do you use separate M1 account for that property or a sub account? How about deducting interest $ from your income? Can you do it?

  • Allen March 8, 2010, 1:26 am

    Ok, here’s one for the pro’s here:

    What do you think is the best thing to do should you be newly self employed such as myself? Pay a litte here and a lot there?

  • Caddy March 23, 2010, 11:01 am

    Mietek, we use a sub account for the rental unit. Works fantastically. You absolutely deduct the interest from your rental income, along with a long list of other expenses. As far as M1 is concerned, it keeps track of all the interest charged on your sub-account. On the last day of every month you will be charged interest on your sub-account and on that same day the interest amount will be paid from your main account.

    Good luck with your endeavor!

  • ComputerDoc January 24, 2011, 11:30 pm

    I agree with Frugal Trader and DaveRamsey.com.

    If MOST Canadians were disciplined there would NOT be so much credit card debt.

    Just heard this year, January 2011, that Canadians have gone into EVEN more debt than before since the financial crunch seems over.

    I wonder if MOne contributed to that debt?

  • Darrell March 31, 2011, 3:50 pm

    Great Article.

    I have done some long an hard thinking and their are benefits to both sides. This is what I have on the table.

    RBC (my bank)
    Is offering a 243k mortgage 5 year variable -0.90 off prime which puts me at 2.10 today. Weekly payments of $204.00 with the option of doubling this payment every week and a maximum of 10% additional principal payment each year.

    M1
    Is offering no monthly fee 243k account with 3.5% interest calculated daily. Like any other LOC you can get a letter in the mail saying “in 60 days your rate is now 4.2%” and in another 60 days “we are increasing your rate to 5.5%”. They control the rate and can change it at anytime.

    After reading the posts above you can tell there’s a lot of M1 sales guys posting. The key points I’m hearing is M1 is better cause you can pay off your mortgage faster if you have focus.

    In the proposal I have on the table, at anytime, I can jump right in and dump another 200 or 400 or 600 towards principal and plan to do so with the benefit of holding the 2.1 interest rate.

    The painful part of this option is knowing the first 5 years the bank is getting paid. With M1 you can pay it all today and its done. The huge problem here is M1 can change your rate to 8% tomorrow and you can’t do a single thing about it. Another problem is you can take a vacation tomorrow and dip till your hearts content.

    I’m not in a position of paying off my mortgage in 5 years so M1 and RBC will be getting paid. The difference is M1 will be getting more as there charging more now and will always charge more. I still have the freedom to add as much to principle as I can now with RBC as with M1.

    If you don’t have the focus to do this, can you imagine what that individual will do with an M1? They’ll have the M1 account for 30 years with the exact same balance on their.

  • Chad April 21, 2011, 1:46 am

    Just open a Heloc at TD and you can do everything the manulife one account does and you don’t have to pay the $14/month…Including setting up your direct deposits going into the heloc and putting it on your debit card.

  • Chris October 5, 2011, 7:12 pm

    I found it very amusing that a lot of people on this thread got very hung upon the $14 monthly fee for M1 account or the fact it is a P+1%… :-)

    First of all, M1 has a lower rate even though it’s P+1% (note, every bank set their own prime rate and this is why you shop around for mortgages). It has been 3.75% for quite a few months now, while National Bank All-in-One is at 4% and TD variable open (which I assume it’s what they use for HELC) is 3.8%. Run those delta against a small mortgage like $100,000 and the argument for the $14/month fee should just go away.

    I have my doubts about the math used in this article – it doesn’t make a lot of sense to me and I would love to see the formulas behind it.

    Personally, I signed up for M1 because it gives me a lot of flexibility to manage my finance. Yes, discipline is required, but the flexibility allows me to put in as much cash as I have without having to worry about the over-contribution limit in the traditional mortgage and my mortgage was paid off within 5 years of switching to M1 after spending 4 years doing the traditional mortgage (bi-weekly payment, 18 years amortization and etc) and saw my mortgage decreased way too slow to my liking (the mortgage payment went against mostly interests payments instead of the principal). In addition, M1 allows you to have virtual sub-accounts that you can use it to fund “Investments” and generate additional income from the equity of your home while deducting the interest you paid to earn those income.

    M1 was sold primarily through advisors (and apparently I was one of the few who called them up directly) and the idea was the advisor will help the client to manage their spending habit and M1 would be part of the tool to enhance the client’s financial wealth. M1 can only help you pay off your mortgage faster if you are a disciplined saver. I know of a friend who signed up for M1 before I did and never did make any head wave on his mortgage ‘cos he just treat it as a credit card with large limit… :-(

  • J May 14, 2012, 7:16 pm

    We have the M1, and paid off our $220,000 mortgage in 7 years. We have some disposable income which helps. This mortgage is not for people living paycheck to paycheck or those who think that you will always have a car payment and a house payment for the rest of your life. We set a goal that any extra income goes to our M1 account. Yes the interest rate is higher, and there is a monthly fee, but I’m pretty sure most savings and chequing accounts also have monthly fees. My monthly fee is unlimited. I will gladly pay more interest and monthly fees to have the freedom to pay off my mortgage, and save literally tens of thousands of dollars in interest. We now also have the ability to make purchases, a car, vacation, etc. without having additional loan payments. I’m also a person who thinks its better to buy a used car at $15,000 dollars, putting it on M1 and paying interest (knowing that I will have that paid back off in a minimum of a year, rather than buy a new car at $30,000, at 0 percent interest, but payments for 7 years.

    For this account to work effectively you must have a certain level of extra income at the end of the month. We had a friend who used this account and after a year had to return to a traditional one because he owed more, using the extra value as spending money.

    I think you also have to keep in mind, that this account is the only one I need, most people also carry credit cards, and loan payments at ridiculous interest rates. With this account, you don’t necessarily need those….

  • Marcus January 5, 2013, 8:46 pm

    How old are these posts here? Because I am not sure if what was discussed so far is still applicable today….
    I’ve read most of them, trying to figure out if an account like Manulife One would be better than a HELOC, used as a daily checquing account.
    Basically, get a HELOC for the value of the mortgage, and have all your paychecques and additional income to go there. Wouldn’t this be the same as an All-in-one account, but with lower interest rate???
    I have a variable P-0.75 mortgage with CIBC right now (with two years left on the five year term), but I was considering the other options available.

  • AM November 18, 2014, 6:47 pm

    At the end of 2014, M1 is still one of the better deals out there for paying down your home faster.

    Rules have changes a bit since inception, but essentially works the same, with the exception that you have 15% of the total loan which requires payment and is not available to the borrower. Also, the need to have 20% down upon opening an account (at a minimum) also means that not everyone will qualify for an M1.

    The rates are a bit higher than a typical mortgage, but given the very low interest rate, and ability to transfer a portion of the main lump sum into a low fixed rate, you really can’t go wrong.

    This is STILL an account for the fiscally responsible. After paying into the account, it’s really easy to see that “available” credit as free money (which it’s not).

    For us, it was a great decision because the house we bought did not have a finished basement. Because we did a lot of the work ourselves, we had the option of borrowing against this LOC to pay for supplies and the as-needed contractors. Very convenient and the M1 interest rate was at least 1% lower than most of the LOCs currently offered through other banks these days.

  • Ted G February 22, 2018, 6:53 pm

    Hi,
    Im in a job where I can be posted regularly and may not want to but at next location (I.e Goose Bay) ?. If I got the M1 HELOC, would I be spared fees assoc. With early payment of mortgage? My mort renewal is in 4 months and my banker recommends 3 year variable where I would pay 3x months interest upon sale of house. Thanks.

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