Canadian Tire has decided to offer more financial services and is now offering mortgages and a combined mortgage, loan, chequing and savings product (similar to Manulife One account) called the One-and-Only account in Ontario, Alberta and BC. The idea behind combined accounts is that by consolidating your debts into one account, you take advantage of the lower interest rate on your mortgage and save some interest on the time lag between your incoming and outgoing cash.
In theory, the one account is a great idea. In practice though, there is one large problem: the interest rate on these combined accounts is at prime, whereas typically you can easily get a 0.90% discount to prime with a traditional variable rate mortgage. On a $200,000 mortgage, the traditional variety starts out with roughly a $1,800 per year advantage. Now, let’s imagine that your household net income is $5,000 that is paid into your account on the first of the month and everything is spent or saved by the end of the month. So, by keeping $5,000 in your account for roughly the entire year, you are saving $300 in interest costs with a combined account. In this scenario, your “savings” from a combined account does not make up for the cost of not opting for a traditional mortgage. You can check out different scenarios using the nifty calculator on the Canadian Tire website.
Call me skeptical but until these accounts start offering a discount to prime, the basic math just doesn’t work out. Still, the One-and-Only account is a significant new competitor to the Manulife One account (review by Million Dollar Journey) because there are no monthly fees.
Bookmark: del.icio.us Digg StumbleUpon
19 responses so far ↓
1 MillionDollarJourney.com // Sep 5, 2007 at 9:16 pm
Yes, when I wrote my review of the M1 mortgage, I came to the same conclusion that the rates are simply too expensive.
2 FinancialJungle.com // Sep 5, 2007 at 10:03 pm
I had the exact same concern when BNN interviewed a Canadian Tire spokewoman yesterday. Wish BNN had confronted her why the rate is so high.
http://broadband.bnn.ca/bnn/?id=2122&vid=13049
3 Canadian Capitalist // Sep 5, 2007 at 10:26 pm
FT: Can you send me the link to your M1 post? I searched but couldn’t find it.
FJ: Thanks for the link. I suppose the rate is prime because all the debts are consolidated in one account. However, this makes the mortgage, which is usually the biggest debt for most people more expensive than the alternative.
4 WhereDoesAllMyMoneyGo.com // Sep 5, 2007 at 11:22 pm
I know Scotiabank offers a similar program (Scotia Total Equity Plan STEP) as does Investors Group (All-In-One Mortgage through National Bank) - all with the same drawbacks too if I’m not mistaken. These products can be good for those who need debt consolidation, but I find if they need it, it was because they had bad budgeting skills in the first place.
By putting all income and expenses into these “all in one” accounts, budgeting can become even more of a black-box to these families - so I’m not a big fan for different reasons.
5 Michael_S // Sep 6, 2007 at 2:22 am
WDAMMG,
I don’t know if there are different flavours of STEP, but we currently have it and it does not work like an ‘All in one Plan’.
You similarly can get approved for a total credit amount of 80% of your house value, but you then slice it up to suit your needs and your mortgage slice will get the preferred mortgage rates. What’s left over is charged at prime and can be further sliced as you see fit.
Back on topic, I tried out the CT calculator and interestingly, it told me “With the Canadian Tire One-and-Only account you could save -$5,708 and” (yet some how) “pay off your debt 1 yr & 8 months faster”
So even though I’d pay more in total and more in interest, I’d still be debt free almost 2 years earlier. At least the popup told me it probably isn’t the best product for me right now, lol.
6 Canadian Capitalist // Sep 6, 2007 at 7:31 am
Michal: I don’t know about Scotia STEP plan but RBC HomeLine plan is similar to what you describe. You get a 0.75% discount to prime on the variable mortgage portion but you pay prime on the secured line of credit portion. IMO, that’s a better alternative to combined accounts.
I think the calculator may have said “- 1 year and 8 months faster”. I thought that the minus sign was a dash and was confused just like you when I tried it yesterday.
7 MillionDollarJourney.com // Sep 6, 2007 at 8:49 am
CC: As requested, here is my Manulife One Mortgage Review.
8 the Wealthy Canadian // Sep 6, 2007 at 10:49 am
As MDJ points out the Manulife M1 (and now this Canadian Tire account) would be good for a Smith Manoeuvre .
However for the bulk of us unorganized, risk-averse, average investors it would not be a great account to have. All your debts in one account and easy access to your home’s equity would be just too dangerous.
9 WhereDoesAllMyMoneyGo.com // Sep 6, 2007 at 10:54 am
Oops! My mistake - thanks for the clarification - that’s why I send clients with credit and lending needs straight to the Branch Managers instead of trying to explain banking products to them myself…
10 Houska // Sep 6, 2007 at 12:03 pm
Ah! Small minds think alike
I just did a very similar calculation to yours on the redflagdeals forum thread on the same topic (http://www.redflagdeals.com/forums/showthread.php?t=486061&page=2)
Essentially for a $200k mortgage, you need volatile excess cash in your chequing account averaging over $20k for the math on this to make sense.
11 Aleks // Sep 6, 2007 at 1:50 pm
Even without the all-in-one pitfalls, I find most bundled “deals” are more expensive than picking the best components from different competitors. Which is why my checking account, savings account, RRSP and brokerage account are all with different companies. Bundling makes great sense for the seller but not much for the consumer.
12 Warren // Sep 6, 2007 at 11:35 pm
Here’s hoping the rates on these accounts will come closer to traditional mortgage rates in the future, as they are a great idea, and make the SM easier to implement.
Your $5k net income figure is realistic, any idea what rate premium would make this plan make sense with that income level? Maybe 0.15% or so, just a wild guess.
13 FinancialJungle.com // Sep 7, 2007 at 1:37 am
If you want the best of both worlds, how about mimicking the all-in-one account with this alternative?
Keep your cheap prime-0.9% variable mortgage. Open a HELOC and a checking account with overdraft protection. Take a small amount (say $5k) from HELOC to pay down the mortgage. Use your monthly savings to pay down the HELOC while keep your checking account balance as low as possible. But if you go over once in a while, that’s okay due to the overdraft protection. That way, you’re paying prime-0.9% most of the time, while putting your savings to work ASAP.
Once you replenish your HELOC to $0 , deposit another $5k to your mortgage.
14 layman // Sep 10, 2007 at 3:26 pm
Scenario: mtg up for renewal in dec, current salary 50,000 but changing jobs jan-feb, expect 25-30,000 to start new career supplemented by equity as needed.
House value 170,000, current mtg 60,000, LOC 35,000 maxed!, RRSP’s 16,000. I was thinking this account would allow me to borrow to maximise RRSP based on this years income and withdraw next year at lower tax rates as needed during transistion…is there a better way?
15 JG // Sep 12, 2007 at 9:57 pm
Not sure on the math yet but the Manulife One also lets you lock in up to 75% of your borrowings at rates as low as 5.65% for a 1 year term up to 5.85% for a 5 year term.
16 Ted // Sep 27, 2007 at 1:20 pm
To further what JG offered, Canadian Tire’s One and Only account allows up to 100% of your borrowings can be locked up in a fixed account at rates as low as 5.60%.
This is a great strategy so as you are not paying prime (6.25%) on all of your borrowings.
This product then becomes even more competitive for those consumers that feel they are better off simply refinancing into a traditional mortgage of prime minus 0.90%.
17 C-kat // Oct 18, 2007 at 7:33 pm
These accounts to work well for those who have extra money to leave in the account as it pays your mortgage down faster. Yes, you could just make extra payments on an existing mortgage, but then cannot access that money in an emergency. We are planning to switch to one when our mortgage comes up for renewal in 1 year. Were thinking M1 but they charge a monthly fee. Thanks for bringing the CT one to our attention, I will look into it for sure.
18 Tim // Feb 23, 2008 at 1:12 pm
The Canadian Tire account is almost exactly the same as M1, actually it is better. The only thing it does not have right now are sub-accounts, but I imagine the fixed rate account options CT has could serve the same purpose. They also provide free house appraisal and cover the legal fee’s on refinancing. The statement is almost identical but the big difference is that CT has no monthly fee, so you are saving the $168 annual fee, which over ten years equals $1,680. The main reason Manulife Bank has to charge a monthly fee is because they have to pay the financial adviser who made the referral a monthy trailer fee of .10% of your borrowings on top of the $400 he/she was paid when the account was opened.
19 moneysavy // Mar 25, 2008 at 2:01 pm
My mortgage is coming due in sept/08 and I am looking for information about this product(one and only). I have a home est value of $320g ,mortgage of $150,00 and combined debts of apprx $10,000. Is this a type of product I should be looking at or should I stick with a conventional fixed rate mortgage. I would like to know the pros and cons of this product or any similar. Thanks in advance
Leave a Comment