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moneysense.ca, 12/09/07
Canadian Tire One-and-Only Account, Part II
Both The Toronto Star’s Ellen Roseman (thanks for the mention!) and Financial Post’s Jonathan Chevreau have pointed out that the Canadian Tire’s One-and-Only account has an advantage that I had overlooked: the mortgage can in paid in full at anytime, whereas a conventional mortgage has limited prepayment privileges.
Personally, we have a fixed-rate, 5-year mortgage that allows us to increase our monthly payment by 25% and make a total annual prepayment of 20% of the original loan value without any penalty. A lump sum prepayment of any amount (as long as the total annual prepayments stay within the 20% limit) can be made at the same time as the regular mortgage payment. Even though we pay down our mortgage aggressively, I find it difficult to make the maximum prepayment every year. I wonder if the open nature of the One-and-Only account, albeit at a higher rate, will appeal to many mainstream customers.
moneysense.ca, 12/09/07
If people are concerned with pre-payment and are looking for a re-advancable product, they should look @ BMO and their readiline product. Clients with good credit/income will get an open variable mortgage @ prime – 0.85% along with the re-advancable portion @ prime.
Scotiabank has a similar product, gave it to us @ P-0.75
What you can do on these is set an e.g. 40 yr amortization term (then your monthly payments are about the same as the interest only on a Prime loan) and make prepayments as you wish. You are still not saving the interest on all excess cash in your chequing account, but if your balance is not super unpredictable/volatile, you will still likely come out ahead.
You can also explore having the investment portion in the open variable mortgage – see my post elsewhere on this.
Hello CC.
The Canadian Tire mortgage is the same a ManulifeOne, but does not have the $14.00 per month charge. This is excellent for people who are self-employed (incomes goes up and down) or others who get nice bonues which may vary from year to year.
For the “main stream” people, I think you are right…there is better! Having said that I have sold the ManulifeOne mortgages and some clients were able to pay off their mortgage years faster and change their monthly mortgage payments often!
Regards,
Brian
Ps. Ellen asked me about the ManulifeOne and I told her about my thoughts about the $14.00 monhtly charges!
I would think for the vast majority of people who require a mortgage in the first place are not in a position to pay the whole thing off in less than 5 years. Whereas with a traditional mortgage like the one you have CC, it still allows you the flexibility to put down an annual 20% lump sum, increase your amount annually by 25% and also I believe you can double up your payments every month too. If a person was to do this they would pay it off in 5 years anyways, and at a much lower rate…am I missing something here??
If you read MJM’s recent post on SM, it has a lit of those HELOC/open mortgage options listed
http://www.milliondollarjourney.com/smith-manoeuvre-mortgage-comparison-part-2.htm
Yes, CT’s 1&Only is pretty much M1 without monthly fee, or a HELOC essentially. I posted here at MJM on TD HELOC for example, is payable at anytime, a feature of ANY Bank’s HELOC
http://www.milliondollarjourney.com/smith-manoeuvre-mortgage-comparison-part-2.htm#comment-12092
It is an interesting idea, and totally suitable for me (vs. traditional mortgage)
Brian: I noted in an earlier post that the CT offering is a definite improvement over Manulife One. I guess there is at least some market for these accounts. Otherwise, why would CT offer it?
Ryan: Our mortgage doesn’t offer the double up option. Still, someone could pay off their mortgage in less than 5 years by taking advantage of all the prepayment options. How many people can do even that? That’s why I think this product won’t become mainstream unless they start offering a discount to prime.
If you think it’s likely you’ll be able to pay off your entire mortgage in less than five years, you’d probably be better off going with a shorter term. ie when your mortgage comes up after three years rather than renewing you just pay it off.
However, unless you’re expecting a huge inheritance most people won’t be able to prepay the 20 or 25% per year that they can get with a normal mortgage.
I want to know if you get Canadian Tire money back everytime you make a payment, that would be cool.
I had BMO’s 20/20 mortgage, which is the one where you have an option of a 20% downpayment AND a 20% increase in your payments in order to pay off your mortgage quicker.
I knocked out my mortgage in just over 3 years using BMO’s 20/20 plan. I still got dinged a few hundred dollars at the end of my mortgage in order to close it out. What the heck is up with that? That pissed me off more than anything else… It was roughly a $300 dispensing fee to retire a mortgage? And that was after they had all of their money back! Gaak!
If the Manulife or Canadian Tire plans don’t stick you with that ridiculous fee, then I would consider using them over the traditional banks.
Hey Phil I had the same charges with an ING mortgage I recently retired, I believe the terms were much like the 20/20 you describe. It worked for me as well, took me 7.5 years to pay of a mortgage that was originally 5% down, 25 year term.
Oh ya, then there’s a 60-90 day wait for the papers… if only I had a 60-90 day window to make payments.
I’m curious about your choice of a 5yr fixed-rate mortgate. I recently read Margot Bai’s book Spend Smarter, Save Bigger, which I believe you reviewed earlier this year. In it, she makes the case in the aggregate we are better off taking a series of 1yr variable mortgages, because the premium we pay to get a fixed rate ends up being more expensive than the risk attached to the cheapest available variable 1yr. According to Margot, historical studies prove out this approach. Would you agree with this approach? Why the choice of a fixed rate mortgage? Thanks,
jeff
Jeff: We obtained our first mortgage about 5 years back. In hind sight, we would have saved a lot of money in interest payments by opting for a variable-rate mortgage. But back then, so many people were losing their jobs in the tech sector and with two jobs in the same sector, we chose to opt for the “sleep at night” factor instead of the savings.
Today, with different financial circumstances we may make a different choice but in that context, that’s the choice we made.
Canadian Tire has a solid product, but at a high rate of interest. For this reason, Million Dollar Journey suggests a good alternative in BMO’s Readiline product–especially if you want a variable rate. If you need the security of a fixed, check out the Matrix by FirstLine (a division of CIBC). It’s rate and features are both excellent. – Melanie
P.S. Few borrowers use their pre-payment privileges to any great extent. Keep that in mind when gauging the attractiveness of an open mortgage/line of credit at prime rate.
[...] a combined account offers one advantage that I discussed in an earlier post: the mortgage is open and you can pay it off in full or part at anytime. However, conventional [...]
Having your income deposited immediately to your borrowings is convenient and makes sense, but it really doesn’t save you much money, if anything. When you use the ManulifeOne calculator to calculate your expenses it asks for number of days your income will remain in the account before it starts to go out for expenses, even if you left it intact for 21 days which is generous, $4000 in income would save you .66 cents per day x 21 days = $13.80 per month, so in this example you would save $13.80 per month but then of course you are paying a monthly fee of $14.00 per month so you save nothing. Do the math, it don’t add up. The $14.00 monthly fee is simply a money grab by Manulife Bank, Canadian Tire does not have it.
I met with a M1 rep last week. She explained that you will save on interest costs (and thus pay off your loan faster) because interest is calculated based on the daily account balance and compounded monthly. Assuming you pay all your bills and make all your purchases using a credit card and postpone paying the credit card off until just before interest is charged, you will save on interest even though the M1 account is at prime rather than prime minus x compounded semi-annually (BMO Readiline for example).
For the life of me I can’t figure out if this makes sense or not.
Has anyone considered this? Does it make sense.
Curious George,
See part one of this tale, or drop by Million Dollar Journey to see the content there!
DAvid