Manulife One – is there a better alternative?

We have all seen the television ads proclaiming the great options that are offered by switching our mortgages to the Manulife One.  These ads urge us to include all of our credit card, vehicle, and other loan amounts and payments into a line of credit and then by some twist of fate everything is paid off much quicker and we save dramatically more interest.  Wow – it really looks easy – the unfortunate truth is that we tend to see more current Manulife One clients who are disappointed and frustrated, than clients who are thrilled and have had positive experiences.  If you are one of the many frustrated people or are looking into this mortgage product for the first time, this is for you.

How the Manulife One really works:

The Manulife One is a line of credit that is registered against your home in a similar way to a mortgage.  Their “strategy” is for you to complete what amounts to a consolidation loan with them and put all of your current debt into a secured line of credit.  For example you can add your 18% interest credit card, 8% interest unsecured line of credit, and 5% car loan into a Manulife One line of credit at 3.5%.  Sounds great so far doesn’t it? – well lets keep on reading and see why this strategy is inferior for most clients.

 A better alternative than the Manulife One:

The one key item that is not mentioned in the promotional material and videos is that this strategy is one we are able to pursue with many different lenders and at much better rates and terms than the Manulife One offers.  Lets discuss three main points:

1. The Manulife One can fluctuate in rate – as the Bank of Canada prime rate increases so will your rate.  On the contrary a fixed rate mortgage is locked in for a set term and is not affected by any upward rate increases.
2. The Manulife One is not amortized over any specific amount of time.  There is a very good reason why the government of Canada has dramatically reduced the maximum line of credit limits for Canadians from 90% of their home value to only 65%.  This was done because, in spite of most people’s best intentions, secured lines of credit are not aggressively repaid and unfortunately become permanent debt for many borrowers.  On the contrary a mortgage has a defined period in which you will repay the entire amount owing.
3. The Manulife One is charging clients a higher rate and making them pay extra for flexibility they do not need.  This product currently has a rate at 3.5%, a good current five year fixed rate mortgage is currently at 2.89%.  In simple interest terms that means on  an average financing amount of $300 000 many clients are paying the Manulife One $1830 a year – almost $10 000 over five years extra for a line of credit function they simply do not need.