I am fortunate to have a strong relationship with Manulife Bank, and am able to offer my clients the Manulife One mortgage product, which combines a mortgage with a line of credit and also can serve as your primary bank account!
In addition to competitive interest rates and reasonable penalties (compared to chartered banks) Manulife One mortgages offer the greatest possible flexibility to any mortgage borrower. You can have your payroll deposited to your Manulife One account, you can use it to pay bills with, and for those with fixed incomes such as pensions, it can be treated as a kind of reverse mortgage (not that I promote it that way, but it has that flexibility and somewhat better interest rates and flexibility than other reverse mortgage products). As far as I am aware, it is also the only mortgage product still available in Canada which can work for the Smith Manoeuvre (or tax deductible mortgage).
How does the Manulife One mortgage work?
The video at the top of the page gives a decent overview of the product, but the easiest way to understand the basics of the Manulife One mortgage is by using an example.
Let’s pretend that you need a $400,000 mortgage on a $800,000 house. Instead of a $400,000 mortgage, you get a Manulife One mortgage. Instead of getting you $400,000, we will get you a total of $500,000 instead. However, you only need $400,000, so within that $500,000, we will arrange a $400,000 fixed rate mortgage for you, and the remainder ($100,000) will be a Home Equity Line of Credit (HELOC).
The HELOC is like a regular line of credit like you would get from a bank, but since it is secured by your home, you can get a larger amount and get it at a much better interest rate. Since you don’t need the $100,000 right now, you can leave it un-borrowed and use it at some time in the future when you need it. In this way, you save money instead of borrowing it and putting it into a savings account, which is what you would need to do with a regular mortgage.
Now here is an important point that makes the Manulife One mortgage unique. On your portion which is $400,000, lets say that you have a mortgage payment of $2,000/month, and that $2,000 is comprised of $1,000 principal (pays down your mortgage) and $1,000 interest. When you make your mortgage payment, your HELOC available limit increases by $1,000 to $101,000 (in this example). This happens month after month, until eventually you have paid off your mortgage in full, and the full $500,000 is a HELOC. That is major borrowing power at your finger tips.
Additionally, you can use the account as your main bank account. Instead of letting the banks benefit by keeping your money in your bank account and letting them use it for free, you can apply every penny that you earn to saving interest and paying off your mortgage faster, and borrowing back when you need to pay an expenditure, ultimately saving you even more money and helping you pay off your mortgage, sometimes years sooner.
Are there any negatives to the Manulife One mortgage?
There are a few possible downsides that having a mortgage such as this may present for some people. I personally do not think they are major, but they are worth mentioning.
Sophisticated mortgage product
The biggest difficulty that I have in recommending this product to borrowers is that it is a “sophisticated” mortgage product. It is a very powerful product that you can do many different things with, it offers tremendous flexibility and possibilities to save and earn money that are amazing. This power and flexibility can be scary for many people who are used to a mortgage which requires you to “just make mortgage payments.” People just have a difficult time understanding how it works (although you won’t find it difficult since I provided an excellent explanation above!) From my perspective as a mortgage broker, this is the greatest challenge I face. I believe I simplified my explanation above greatly, and I still believe many people who read it will not understand it, but it does not mean that it’s not your best option.
Small monthly fee
The second negative aspect of this mortgage which I face when helping people arrange it is that there is a monthly fee involved of $16.95/month, or $9.95/month for seniors. I personally do not like it or agree with it. However, I have a way around it.
Manulife will waive the monthly fee if you obtain their credit card and use it for a total of $20,000/year or more. The savings on that works out to effectively 1% cashback just on the monthly fee savings. However, the credit card also provides at least 2% cashback on groceries and 1% on everything else. I had a client who didn’t want to give up her PC credit card because of the points, and I told her that the points only worked out to 1% in cash back and she gets 2% with this in cash, so she was quite happy to make the switch.
The mortgage, since it is re-advanceable, has to be registered as a collateral charge. There are benefits to this, like the ability to re-advance borrowed funds without incurring legal costs, but it also means that if you wish to leave the lender at the end of your mortgage term, most lenders would require you to refinance, which incurs legal costs. This is not a major negative, in my opinion, and much of the point of this product is that it provides such power and flexibility that you would be unlikely to want to leave. The bank will provide competitive offers for renewal and so the benefits of leaving would likely be minimal-to-none.
Only if you have 20% down-payment or equity or more
Unfortunately, if you have less than 20% down-payment or equity on your home, this product is not an option for you. With less than 20% down, the government requires that the mortgage be insured, and the mortgage insurers do not support this product.
Can the Manulife One mortgage benefit you? Find out!
I know it can be very easy to get “paralysis by analysis”. I know I have been guilty of spending time reading online over and over again looking for information because I didn’t want to pick up the phone and ask about it. I know I didn’t want to ask about it because I didn’t want to get into the “sales spiel” and be harassed by a salesperson, and consequently I also didn’t want to waste anyones time if I took their time to get information on their product and then didn’t go through with it.
Fortunately, I do not count myself as the harassing kind of salesperson, and all it takes for me to get a good picture of your requirements and whether I might be able to help you is a 5 minute phone call. If it sounds like it might work for you, I have a calculator that can compare the savings of the Manulife One account to a regular mortgage, to get some idea of how much the Manulife One mortgage might save you.
You can email me at email@example.com and I will call you back, or you can call me at 604-318-1292.