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My sons have come to me with questions about an ad from Manulife about their mortage's. One son has a fixed mortage and one a varible mortage through there local bank. They run the online calculator from Manulife and they are wondering if it is a good deal since it seems they get their mortage paid off earlier. What I see is that they pay more per year so naturally it is paid quicker. They do get a smaller interest rate at 3.25% but I wonder if they are allowed to lock in if the interest rate starts going up? Also they wonder how there banking would look like if they went ahead with this plan? The web site for this is http://www2.manulifeone.ca/en/home/
Thanks in advance for any help we get.
 

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M1 is designed to be your main bank account. Your pay directly there. However, if you are not disciplined enough, you could end up racking up more debt as your mortgage and bank account are commingled.

Also note that there is a monthly fee associated with the account (at least there used to be). So when comparing rates, keep this in mind.

When your debt is paid off you will earn interest. But at this point, if the monthly fee is still there you may want to move on and get a HELOC.

The rate you get charged is variable (not sure what the +/- to prime is). You can split your debt into sub accounts, such as if you wanted to do some leveraged investing or if you want to track a separate loan. Also, you can lock in up to 75% in a fixed rate (this ends up having pre payment limits).
 

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There is a lengthy discussion on this topic on Million Dollar Journey.

Just now, M1 is reasonably competitive with other banks on variable rates, however historically they have not, and better rates are available from other sources.

As you state, you cannot lock in at the 3.25% rate. You can however lock in up to 75% in a fixed term higher-rate mortgage with a normal amortization.

You discovered, "they pay more per year so naturally it is paid quicker." They could do the same with their current mortgage by making 'double-up' or lump sum payments. Mortgage costs can be computed using tools at dinkytown.net for comparison purposes.

Finally, is is common for folks to underestimate their monthly or annual expenditures. This feeds the M1, as even a relatively small amount (tens of dollars) added to a mortgage payment has a considerable positive effect. For instance on a $200,000 mortgage at 4%, simply adding $25 per week to the mortgage would shave three and a half years from the mortgage!

Continue your investigation of real costs before jumping in to a new mortgage.
 

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As noted in the discussion on Million Dollar Journey:

Who should use this?

* People who have money left over at the end of the month after all bills are paid. You’re debt will most likely be paid down faster than a conventional mortgage.


But people who carry a lot of consumer debt are typically people who do not have money left over at the end of the month. And that's what Manufacturers' actuaries are betting on to make the company money.
 

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as well, when the banks were increasing their interest rates last year, Manulifes account went up too. I was so thankful that we didn't do it since our entire mortgage would have went up 1% instead of just the LOCs.

basically, I think this product helps manage your money for you, at a cost, of course. I would think it is better to teach your kids how to manage and think about their own money...
 

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You can do the exact same thing yourself with a regular mortgage and a HELOC on the equity of your house.

Get a HELOC that you can use as a regular bank account. Have all of your income deposited into that account and have all your bills come out.

You prepay your mortgage from the HELOC.

This is the premise behind all of the smoke and mirrors with people who market mortgage acceleration programs. Only they make it more complicated to justify the $2000 - $4000 cost of their software and set up fees.
 
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