Manulife One – better strategies, better savings

The Manulife One is a very well marketed product that when used strategically can yield good results for you, however when it is not used strategically the end result is Manulife making a lot of money (and you not).

Within the all in one banking and mortgage/ line of credit product, the Manulife One is the most well marketed however almost all of the major banks have a similar product, with their various functionalities differing lender by lender.  In fact, when we are working with our clients and taking an objective view, based upon product options, pricing, and flexibility, the Manulife One is in a close race for the second or third best option in Canada.

Manulife One – better strategies, better savings

Most clients who obtain the all in one product simply replace their mortgage with their line of credit, add in all of their debts to lower their cost of borrowing, and then start using the product as their daily bank account because regular deposits result in less interest being paid.  Lets look at a case study:

Home Value of $465 000

Mortgage amount of $250 000 at 3.5%, Credit cards of $25 000 at 18%, and a Vehicle loan of $25 000 at 4.0%. = Total debt of $300 000

Manulife will put this $300 000 into a line of credit at “Manulife One Prime” which is actually bank prime +.5%, currently 3.5%.  The thought is we lower the cost of borrowing and payment amounts on the higher interest debt and reduce it from 18% to 3.5% and then use those extra funds to pay off your mortgage faster.  Additionally Manulife has you putting all of your personal savings and extra monthly funds into your line of credit to repay it faster.  This is a great concept in theory however we have had more clients experience the exact opposite results – yes they will consolidate their debts and lower their cost of borrowing, however very few clients meet the “manulife number” calculation as life happens and they choose not to put all of their excess savings into repaying this line of credit.  The end result of this is you are left with a product that you pay interest only on, you never repay, have perpetual debt AND Manulife is charging you a higher rate than you should be paying.

The Manulife One alternative strategy for greater savings

Using the same above example, we can take the consolidated debt amount of $300 000 and place it in a mortgage at prime -.4, currently 2.6% (ps the Manulife one is also a mortgage), the results of this are two fold, the first is you are regularly paying both principal and interest thereby repaying your mortgage consistently.  The second is you are saving $2700 in simple interest per year based upon your reduced rate from the Manulife one rate of 3.5% to the variable mortgage rate of 2.6%.  This is an extra $13 500 you are paying over five years to Manulife for their line of credit product.  We do have some clients who would still like a line of credit for future investment and contingency reasons, for these clients we can absolutely add a line of credit to this mortgage product.  In this case we would approve a mortgage at prime -.4 for $300 000 and a line of credit at prime +.5 for $72 000, if the line of credit is never used there are no costs or fees and you only pay for the funds you access.

The bottom line is two fold, first the Manulife One is not the best product of its nature on the market, second it is also more often than not the best product for most clients.

I am happy to have an honest discussion with you about your goals and needs and ensure we have a product that is best suited to you.

Rylan Hahn 403-802-7201 for Manulife One questions, strategies, and savings.