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moneysense.ca, 5/02/08
Reader Question on Manulife One Account
The following question is from Tony, the blogger behind Pharma Daddy:
I’ve been looking into the Manulife ONE concept over the last little while and it really intrigues me as we are very responsible spenders and savers and think that we could certainly accelerate paying off our loans with this sort of account. What do you know and/or think of this type of account?
A Manulife One account combines all your checking and borrowing accounts into one big pot (you may want to check out Million Dollar Journey’s post on this topic) and the theory is that by applying your income immediately against your outstanding debt, you could save more in interest costs than you’ll make in interest earnings. You may also want to check out the Canadian Tire One-and-Only account, which offers features similar to the Manulife One account without charging a monthly fee.
The major drawback of these all-in-one accounts is that the mortgage is typically at prime whereas even with the current credit crunch, you can get a 0.5% discount to prime with a conventional variable-rate mortgage. Given that a mortgage is the biggest debt carried by most people, it is hard to see a combined account overcoming the lower interest on a conventional mortgage.
Still, 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 mortgages also come with pre-payment privileges, so I’m not sure how big an advantage that is.
Please note that this is my opinion only and it’s possible that a combined account fits your financial situation perfectly. As always, do your own due diligence.
moneysense.ca, 5/02/08
Thanks for the mention CC. I agree with your assessment. The high rate on the M1 account makes it undesirable. It would be cheaper to get a readvancable mortgage with an open variable installment portion like what BMO offers.
I am on a variable -.90 closed right now and have been looking into Manulife before and now Canadian Tire One-and-Only as we plan on buying new home soon and selling the condo. Here are my thoughts:
1. I have been able to pay down a lot of the current condo with 15% lump sum prepayments each year and also increase payments by 15% each year.
2. Variable -.90 was a great rate but harder to get now if at all. This is a closed mortgage.
3. If I was to to it again with the condo, I would probably get the RBC prime -.85 variable OPEN as you can pay it off at any time.
4. When we do get a house, we will go with the One and Only CDN Tire acct? Why? Well we could have an open and a HELOC and achieve similar results but… we are good savers and I want all my money working for me. EVERY dollar you save in the acct goes directly to your mortgage and then you also open up more line of credit. People saving for a rainy day, do not need to with this account. All your rainy day money should be in this account. EVERY dollar of NON-RRSP money should be in this account to use it properly. One day it is at zero, then turns into a high savings account.
5. I like the idea of 1 bank account like this but you must be a great saver. If not, you will abuse the line of credit and the balance could be more negative than it started.
So basically there is pluses and minuses for everyone. I look forward to it as I think it will serve us with with OUR LIFESTYLE. Rockstars need not apply
BTW, we also signed up for a CDN Tire Savings acct until we buy a new home. It is still 3 months at 5.5% which is great!
Brock: Thanks for your comments. Different strokes for different folks, eh? I noticed in the ManuOne page that Prof. Milevsky is enthusiastic about these accounts because they offer the benefit of consolidation.
Greetings:
I just got a M1 account two months ago for the same reason that Brock explained. Including the fact that we just built a new house. I chose it because it was very open and if/when I leave it it will cost only $100 dollar discharge fee (assuming that I do not lock in a portion). If interest rates go down (as it looks like it might) in the next year, I may leave or even lock in if they go below 5%
The general opinion on MDJ and other blogs is that one can “do better” with a discounted prime account.
My question is: What other accounts should I be looking at that are as flexible as the M1 that also discounts prime?
Or am I just paying a premium for this flexibility?
BTW:
Another part of the reason that I chose an All-In-One account is my style of home budgeting. One key principal is that this month’s money is allocated for next month. So in effect I keep two month’s salary available at all times. Because I run 95% percent of our purchases through our cash back CC, the balance is around 10k.
When I add in other short term savings (Holiday, vacations), it can go between 15 and 20,000.
So after a year of this style of budgeting, I started to realize that I could be putting this money to better use. I still “allocate” extra to the mortgage but it was the extra 15k of liquid cash that I wanted deal with.
Thanks. Great site.
Obviously there isn’t one right answer for everyone but it seems to me that the only way you can benefit from the open qualities of the M1 or CT mortgage is if you can prepay significantly more (not just more) than the allowed amounts for a normal mortgage.
Most mortgages allow you to prepay 20% of the original value of the loan which is way more than most people can pay down so they don’t benefit at all from the ability to put down more than 20%.
Hi!
Why not combining a regular mortgage (fixed or variable) for the bulk of the money with a CT or M1 for the rest? This way, you’ll get the advantage of money working for you all the time in M1, while getting the best rate for the bulk of the sum. Is it possible, or it’s just a dream?
From what I can see the CT account is equal to M1 without the monthly fee. Manulife Bank greatly exagerates its claim that this account will save you money by using their mortgage calculator. When using the calculator people will always undersestimate what they spend on a monthly basis or they will be guided by the banking consultant to provide a lower number which of course leaves more money available to reduce the debt. What is nice about these accounts is what you don’t spend every month reduces your borrowing, but you have to have something left every month for this to happen. Another flaw in the mortgage calculator is that it will use any cash balances to reduce debt, even though that money might be earmarked for spending down the road, so the calculation assumes that that money will not be coming out. So, be very careful when you are using the calculator, it is smoke and mirrors.
People are a little stuck on spreadsheets here and are forgetting what this financial product is really about. Simplification – this is a lifestyle mortgage.
I’m looking forward to getting M1 account for several reasons, one of which is I want to simplify my debt and having to deal with less people/phone calls/institutions/crapy reward programs/mail/higher interest crCards …, fact is there is a glut of crappy debt out there and people have to deal with it.
I have a new home with lots of little and big projects , a young daughter, a very busy job, a business as well, I’m looking do more business but need more money, my loving wife helps me whenever she can, … so I am busy living, and if I can cut out that part of my life that I see little value in
(expensive debt) and deal less with that and free up more of my time for something valuable, then I’d love to see it gone. So the bonus is I have consolidated my debt, simplified my bill payments, have less distractions, have easy access to my home’s equity and I’ll more time for me and family.
Sounds good to me, I’m waiting for the next wave of lifestyle debt and investment products to come out.
The M1 product is good, but I’ve discovered that National Bank offeres a superior All-in-one product. It provides the same benefits as the M1, but without the fees.
Just a word to anyone considering a Manulife One Account… DON’T DO IT! I have one and can’t wait to get out of it. Their fees and other problems are bad enough, but they recently changed the rate making it much more expensive than the competition.
BUYER BEWARE!
Anyone considering the M1 account should read the thread at redflagdeals.com
http://www.redflagdeals.com/forums/showthread.php?p=7701187&posted=1#post7701187
I am a new M1 customer and I am very upset and disappointed with the product and service. Don’t say we didn’t warn you!
There is another alternative to manulifeone. And that is all in on with National bank of Canada.
oops I meant “all in one”
I like the M1 account, in times like these – Manulife is the biggest financial company in canada with a better rating than the banks. These all-in-ones are getting big in the states andare hug in Australia I hear. I pay $12/mo. for a TD checking account, I’m fine with he $14/mo. M1 charge. Either way, the all-in-one banking is the way to go. Why leave money sitting in a checking account that does nothing for me when it can be reducing my daily interest charges. Its a spend up vs. a spend down principle that I think is so valuable. The rate becomes the secondary issue, the primary issue is the way you are USING your money. Is your money working for you or the bank?
If YOU are paying a higher interest rate to Manulife for your M1 than you would to the bank for your mortgage, then YOUR money is definitely working for Manulife. The suggestion that flowing your paycheque through M1 offering any real benefit has been thoroughly debunked at Million Dollar Journey, Fat Wallet, and the Mortgage Professor as well as other places.
The Australian Government has had a lot to say about these mortgages — none of it good, and I believe have severely regulated them.
DAvid
Sure, if I am paying a bit higher rate to M1 then they are getting that, however, over the course of the year my total interest paid is going to be less than a traditional mortgage. I am hoping to buy a home in the next couple of years with my 20% down and a traditional mortgage doesn’t even compare to the all-in-one format. I’d like to be debt free asap and the traditional mortgage will be paid off in 25 years, the all-in-ones work faster if you are disciplined and can budget. Its pretty simple in my mind!
A traditional mortgage in fact compares very well. I paid my 25 year 5% down mortgage off in less that 5 years using a traditional mortgage, at far less cost than Manulife would have been. I was fortunate to obtain a low fixed rate, and made additional payments as I had extra cash. While my rate remained below 5%, Manulife’s climbed to over 6.5%.
Manulife is only ‘cheaper’ if you choose to make extra payments to M1, but not to a traditional mortgage. In that case you are not making a valid comparison.
You can pay any mortgage off just about as fast as you want, if you choose to. IF you have a desire to pay your mortgage off quickly, WHY would you choose a 25 year amortization? You could choose 20, or 16, or 10 years rather than 25.
Also, don’t forget that those who chose a traditional variable rate mortgage from the big 5 last year are laughing all the way to the bank as they pay 1.5% interest rates just now.
DAvid
I’m with you on last years rates from the banks, I’d love a 1.5% but I’m still 2 yrs away from purchase. I’d probably pick a 20 yr amort. and I like how M1 uses all of my money each day to keep my daily balance lower. Its automatic for me, with a traditional mort. I have to consciously make additional payments. With M1 its doing it for me all the time. If I’m making minimum payments on M1 then I agree, its not cheaper. I want every penny against my debt each day of the month to reduce interest expense.
Depending on your goals…
I really enjoy my M1 account. I was recently severeanced off from my work and was able to put the total severance down on my debt saving additional interest on what I have left on my morgage. As I return to school to seek out my new career the M1 plays perfectly to my needs. I will soon be locking in a fixed sub-account at which 75 % of the debt will be like a fixed morgage for 5 years at 3.9 %. Interest rates will go back up, and when I am finished school and back working my M1 account will be there to finally pay off and become debt free.
Interesting article, and great comments everyone.
Looking at the Canadian Tire One and Only for my next mortgage. The biggest attraction for me, and one I don’t seem to see mentioned anywhere… is it gives you flexability that you just can’t get in a traditional mortgage. I’m self employed, and doing alright… have a decent lump sum I’d like to put towards my mortgage. However… there’s always the ‘what if’ (especially in small business).
If you apply all of your savings towards a traditional mortgage, and suddenly you’ve got a lean month… you’re stuck with what you’ve got in your pockets (or end up having to use other credit options, credit cards, etc). And on the flip side… if a really lucrative investment opportunity were to come up, once again you wouldn’t have that cash available to take advantage.
This flexability is actually one of the biggest reasons I’m drawn to this product.
My husband and I joined manulife one three and half years ago. We swear by this great product. Yes the service fee of $14 is steep however, the amount of interest saved gives you more value then anything. I’m 32 and debt free!!! No traditional mortgage could do that!!!
this product is great! look at how much fees you would pay at any other bank when you combine the fees for all your different accounts and are limited with the number of transactions you make- $14 is nothing! this product is only meant for people who are responsible with their money, who make a financial plan and stick to (also planning ahead for rainy days) now a days banks suck to deal with whether its your chq going on hold, having to worry about making minimum payments on credit cards, or if youre getting paid tomorrow and need cash now- why would you have 10,000 in savings account when your paying sooo much more in interest if you had a traditional mtg? honestly do the mtg calculator and really see what works for you- if you dont believe it look up a Manulife consultant- how could it hurt? people who dont get the concept dont like- and if another bank offers an interest rate of -.25 less than manulife- who cares?? think about how much money you save paying off your mtg in 5 years rather than 25 years, just by having this account and not putting more lump sum payments!
I’m thinking of getting involved in manulife1. I don’t have a mortgage or any real debt. My advisor thought it would be a great way to make sure I always have access to money based on the value of my house. Any thoughts?