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# Manulife One

The Manulife One links together all of your banking accounts through a single line of credit: mortgage financing, a Home Equity Line of Credit (HELOC) and transaction account. It is an ‘all-in-one’ kind of account with a daily interest calculation, where deposits temporarily offset your debt.

You can manage your accounts in one of two ways: you can consolidate your accounts at a single rate of interest, or break down your finances into projects. For instance, you can link your mortgage to the Manulife One at a fixed rate.

Let us say you buy a \$400,000 home and take on a \$380,000 mortgage with a 5-year fixed mortgage rate of 4%. You will make regular mortgage payments consisting of principal and 4% interest, and as you build up equity in your home, you can borrow against that equity at the HELOC rate.

## Calculate the HELOC portion of Manulife One

Up to 80% of the equity built up in the property minus what you owe on your mortgage can be accessed through the HELOC portion. As with any readvanceable product, as the mortgage is paid down, the HELOC increases without having to re-apply to use the equity in the property. And you only pay interest on the portion of the HELOC that is being used.

A HELOC allows you to re-borrow paid down mortgage principal, up to 80% of the market value of your home.

To continue with the example above:

1.       You bought a house in 2005 for \$400,000

2.       You took out a mortgage for \$380,000

3.       After 5 years, the market price of your house increased to \$500,000

4.       Your current outstanding mortgage balance is \$300,000

5.       80% of \$500,000 = \$400,000

6.       Your available line of credit is \$400,000 – \$300,000 = \$100,000

So, if your HELOC rate is, say, 5%, you will continue to make fixed mortgage payments at 4% interest, but you will have access to \$100,000 of additional funds at 5%. A HELOC rate is a variable interest rate, however, so it varies with the prime lending rate. Still, the minimum HELOC payment is merely interest.

 Mortgage HELOC Transaction account Home purchase financing Discretionary funds Chequing or savings account, or GICs \$300,000 (5-year fixed rate at 4%) \$100,000 (variable rate at 5%) \$10,000

The \$10,000 positive deposit will be used to offset your outstanding debt in the daily interest calculation, but you are free to withdraw this money at any time.

There are a number of advantages to the Manulife One product, including:

• Use the account to pay off other higher-charged debt such as credit cards or loans, and consolidate your debt at one lower interest rate.
• Each deposit pays down your debt immediately, reducing your interest costs.
• Exercise unlimited banking transactions for a small monthly fee, including automatic transfers, cheques, Interac, deposits, and withdrawals. Also, use internet and telephone banking to pay bills.
• Receive a single, comprehensive banking statement.

## Other Manulife One features

Although the key advantage of Manulife One is the ability to consolidate your debt, there may be times when you would like to track some of your debt separately or lock in a portion of your debt at a fixed rate. So, Manulife One allows you to divide your debts between up to 15 variable-rate sub-accounts and five fixed-rate sub-accounts.

It is important to note, however, Manulife will not use any funds in the Manulife One account to reduce a sub-account, unless instructed by you to do so.

Like any HELOC, there are a few drawbacks to which you should be aware. For one, HELOCs create a temptation to spend, so you have to ensure you are disciplined enough to not max out your line of credit on discretionary spending. Two, HELOCs are often reported to credit bureaus while regular mortgages are not. So, choosing a HELOC can have a potentially adverse affect on your credit score. Finally, HELOCs do not have a guaranteed interest rate or terms, while regular variable rate mortgages, on the other hand, almost always have a set relationship to the prime rate. The relationship between a HELOC and the prime rate can technically change at your lender’s discretion.

Home Equity Lines of Credit, while based on a variable interest rate, are also typically 1% or more higher than regular variable mortgage rates. So, depending how certain you are as to the amount you need to borrow, a regular refinance may in some cases be less expensive. You pay a premium with a HELOC for the flexibility to access the funds as you please.

The other major drawback to the Manulife One, in particular, is that Manulife tends to offer uncompetitive mortgage rates. So, in order for the Manulife One to be beneficial, the interest savings from deposits offsetting debt need to be greater than the incremental mortgage rate premium.