The Manulife One Mortgage is an all-in-one banking solution that combines your mortgage, savings, and income into one easy-to-use chequing account. It’s an incredibly unique tool that’s been saving Canadians many thousands of dollars in interest costs, allowing them to repay their mortgages sooner all while having the flexibility to cover unexpected costs as they come up.
Because it’s such a robust tool, there’s a lot of confusion around it. What exactly is the Manulife One Mortgage? It’s not just a home equity line of credit (HELOC), as many people assume, but it is a way to access the equity in your home.
To see if it may be a good fit for you, let’s take a look at how it works:
That’s right! Think of Manulife One as an all-in-one bank account. It combines your mortgage and other debts with your short-term savings and income into one chequing account. You can deposit your pay cheque into it and buy groceries with it just like you would a normal chequing account.
You’re also able to do everything you’d normally do with a bank account like write cheques, bank online, and withdraw money at ATMs. The only potential drawback, depending on your banking needs, is that there are no in-person branches.
Many Canadians have multiple debts (a mortgage, a car loan, lines of credit, credit cards, etc.) with different interest rates and payment due dates, which can be confusing and overwhelming. Manulife One combines your mortgage with your other high cost debts into one account with one lower interest rate. This can reduce the overall amount of interest you pay (which is called interest cost) and makes it much easier to track what you have and what you owe.
You’ll get one statement at the end of each month that will clearly state what you owe and when, giving you a big picture look at your finances. It can help you see and understand your household cash flow and net worth in a new, simplified way.
You likely have a variety of chequing and savings accounts, and you’re almost certainly paying more interest on your debt than you’re earning in those saving accounts. By having your savings (including your emergency fund) sit inside your Manulife One account, you’re applying that cash towards your debt to lower the total amount you owe and therefore get charged interest on.
Here’s how it works: The interest you’re charged is simple interest, which means it’s calculated daily. Let’s say you have $400,000 left on your mortgage and $50,000 in cash between your various savings and chequing accounts. By having all of this combined in your Manulife One account you’ll only get charged interest on $350,000 of debt instead of $400,000.
You can see how each dollar you deposit automatically lowers your debt, allowing your savings to work harder than they would be just sitting in their own separate accounts. And like a home equity line of credit, it’s a revolving loan which means that as you pay off your debt you still have access to that original amount of credit.
When making a big purchase like a home, it’s natural to get caught up in asking, “What’s the interest rate?” in hopes of finding the absolute lowest one. However, a low interest rate is only one piece of the puzzle and can often be misleading.
If you’re stuck on wanting to find the absolute lowest interest rate, here’s a helpful thing to ask yourself: Why do you care about getting the lowest possible interest rate? If it’s because you want to pay the least amount of interest, then you should care about interest cost over interest rate. Interest cost is the total dollar amount of interest you’ll pay over the life of your loan, while the interest rate is the percentage you’re charged on the money you borrow.
Your Manulife One interest rate will likely be higher than whatever the lowest rate you’re able to find in the mortgage market is, but because of the way it’s structured you often end up paying less in interest over time (look at the example above). Every deposit you make automatically pays down your debt, which reduces your interest costs. Overtime, unifying your debts under one rate and using extra cash to pay down your debt can help reduce the amount of interest you pay and allow you to be debt free years sooner.
Also, with a traditional low-rate fixed mortgage you get off to a slow start paying down your debt because your payments are blended (interest plus principal). These mortgages are front-loaded which means that your payments are made up mostly of interest at the beginning. It’s not until the latter half of the life of your mortgage that your payments start to be more principal than interest. In this way you can see that payment does not equal paydown, and you should keep this in mind when you’re rate hunting.
The Manulife One mortgage gives you a lot of flexibility to manage your cash flow month over month at your discretion. You’ll be given a minimum payment each month, but there’s no limit to the amount you can pay off. If you get a lump sum of cash you can deposit it all to pay down a chunk of your debt without penalty, unlike most conventional mortgages. The ability to pay off your mortgage in lump sums is one of the only tools you can use to pay down your debt sooner and lower your cost of borrowing, so being able to do this is a huge advantage.
On the flip side, if you’re going through a tight stretch where you don’t have income for a certain period of time, you actually don’t need to make a payment until your credit limit is reached. As long as your total outstanding debt (that’s your original debt plus any accrued interest) doesn’t exceed the total amount of credit you were approved for (your borrowing limit), you don’t have to make a payment. Only once your debt exceeds your borrowing limit will a payment be required, and then that payment will be whatever amount is required to bring your balance back below your borrowing limit.
They say that banks tend to hand out umbrellas when the sun is shining, not when it’s raining. If you wait until you’re at your borrowing limit because you lost your job or can’t work due to a health crisis to apply for extra credit, it’s going to be much harder to be approved than if you were employed and healthy, right? You’re always more likely to get approved for credit when the going is good.
You can look at the Manulife One mortgage as a way to give yourself options before you need them. If you’re hit with a job loss, health crisis, or you need to cover a major housing expense like a new roof, you already have access to a line of credit (up to your borrowing limit) and you can “be your own banker” and use that credit to supplement your cash flow at your discretion. It’s also a way to supplement your retirement income if you hadn’t been adequately saving while you were working.
When used correctly, the Manulife One mortgage can be a very powerful tool. Everyone’s cash flow is different so it’s important to build a financial plan that looks at all parts of your financial life. If you haven’t yet, take the next 3 minutes and build your financial plan today.