* Interest is calculated monthly, not in advance.
We all know the mathematics of interest costs. But, when you choose a mortgage based solely on rate, you’re only dealing with half the equation. Why not try a mortgage that gives you a great rate and makes it easier to reduce debt faster? Learn more
When we hear predictions that interest rates are going up, we may be tempted to lock-in our debt in a traditional, fixed-rate mortgage. But we might miss the big picture. Learn more
Whether you prefer fixed rates, variable rates or a mix of the two, Manulife One can meet your needs. With Manulife One, your debt can be 100% variable, 100% fixed or any combination in between. And the variable-rate portion allows you to take advantage of the many benefits of Manulife One.
To help you work it out, below are some questions you can ask yourself that will help you think of the big picture in choosing how to divide your debt between fixed and variable rates.
When we choose a traditional fixed-rate mortgage, we often assume that our income will remain stable. However, our income will increase or decrease over time. We may even come across a large windfall, such as an inheritance, or, unfortunately, experience a job loss. When considering whether or not to lock-in your debt with a traditional fixed-rate mortgage, consider the potential impact of both good times and bad:
Increasing income / windfall: If your goal is to become debt-free, you’ll probably want to use any extra money to pay down your mortgage. Fixed-rate mortgages generally have restrictions on how much or how quickly you can pre-pay your debt. Also, you may hesitate to make a prepayment because it means losing access to the money – what if you need it again?
With Manulife One, there are no limits on how quickly you can pay down your variable-rate debt. And you can always re-borrow that money again, up to your borrowing limit, if your needs change.
Decreasing income / job loss: With a traditional fixed-rate mortgage, you generally can’t reduce or suspend mortgage payments if your finances take a turn for the worse. This can be stressful at an already difficult time.
With Manulife One you can reduce your payments to meet your changing needs, as long as you don’t exceed your borrowing limit. This may even involve stopping payments altogether for a few months until your finances improve.
One of the first financial lessons that many of us learn is that we should set aside money for a “rainy-day.” How is this related to deciding whether or not to lock in your debt with a traditional fixed-rate mortgage? The type of mortgage you choose can impact not only how quickly you become debt-free but how prepared you are to deal with unexpected expenses.
It’s a good idea to set aside money for an emergency. However it’s worth looking at what your rainy-day savings account is costing you.
Here’s the problem – the interest you pay is very likely more than the interest you earn. So it makes much more sense to use your savings to pay down your debt and save more in mortgage interest than you’d likely earn in a savings account.
But what about preparing for the unexpected? With a traditional fixed-rate mortgage, any money used to pay down a mortgage is gone – it can’t easily be re-borrowed.
However, with Manulife One you can re-borrow your money, up to your borrowing limit, at any time. This means you can use your rainy-day savings to reduce your debt and save interest without losing access to that money if an unexpected expense occurs. Manulife One allows you to use your extra money to repay your debt AND prepare for the unexpected.
With a traditional fixed-rate mortgage, your mortgage is just one piece of a complex financial puzzle that includes chequing accounts, savings accounts, vehicle loans, lines of credit and credit cards. Within this structure, moving money around, making payments and ensuring that accounts don’t go into overdraft can take a lot of time and energy. Plus, it can be difficult to really know where you stand financially.
The mortgage you choose can either add to the complexity or it can be part of the solution. Manulife One is an all-in-one account that brings all of your deposits and loans together, significantly simplifying your banking.
Manulife One is not only your mortgage but your everyday bank account. As long as you remain below your borrowing limit, you generally won’t need to worry about bounced cheques or missed payments. And, because your savings and debts are combined, you’ll always know exactly where you stand financially.
Most of us have numerous debts including credit cards, car loans, student loans and lines of credit in addition to a mortgage. Various interest rates mean we’re paying more for some loans than others. While it would make sense to have all of our debt at the lowest rate, fixed-rate mortgages generally don’t allow you to consolidate your other debts into the mortgage. Plus, if a new borrowing need arises, you’ll likely need to apply for another loan.
As long as you have sufficient borrowing room, Manulife One allows you to combine all of your debts into a single account at one competitive rate. This can help you lower your overall cost of borrowing. And, you can always re-borrow money, up to your borrowing limit, without re-applying for a loan.
With a traditional fixed-rate mortgage you’ll need to shop for and negotiate a mortgage regularly, typically every five years or less. Even if you choose to stay with your current mortgage provider, you may not be offered their best rate unless you negotiate. Your choice of mortgage will determine how often you need to go through this process.
Manulife One is an account for life. The account can even stay open after your debt is gone, as a high-interest chequing account with a line of credit that you can tap into if a financial need arises. And, if you choose to lock-in a portion of your debt within your Manulife One account, you’ll always get our best rate – no negotiation required.
In addition to saving for retirement, becoming debt-free is one of the most common financial goals. While most traditional fixed-rate mortgages have prepayment privileges that allow you to make additional payments and reduce your principal more quickly, there are two things that keep many people from taking advantage of this feature:
- Once you make the payment, the money is gone.
Fixed-rate mortgages typically do not allow you to re-borrow the money you’ve used to prepay the mortgage.
If there’s a chance you’ll need the money for something else, you probably won’t make the extra payment.
- It’s not convenient.
We may have the best intentions to make an extra payment but other priorities often take precedence and the payment doesn’t get made.
Because Manulife One operates as your everyday bank account, you can have your income deposited directly into the account. Every time you get paid, your debt is reduced by the full amount of your income. Throughout the month, your debt increases as you pay for regular expenses. As long as your income exceeds your expenses, your debt is automatically reduced by the money leftover at the end of the month. With Manulife One, prepayments are no longer a concern.
Interest rate movement is notoriously difficult to predict – even for the experts who are quoted in the media.
Research has shown that, historically, a borrower would have been financially better off nearly 90% of the time by going with a variable-rate mortgage1. Nevertheless, there’s no “right” answer - you should choose a mortgage that you’re comfortable with.
When deciding whether or not to lock in your mortgage debt, remember to focus on the “big picture” and look for a mortgage that meets all of your needs. And when it comes time to choose between fixed and variable rates, remember that Manulife One offers the best of both worlds and then some.
