Pay Off Your Mortgage Faster With Manulife One?

I have recently stumbled upon a new type of bank account from Manulife, called Manulife One. The concept of this bank/mortgage account consists of combining all your different types of bank, chequing, savings, line of credit and mortgage accounts into one. Manulife One provides loans of up to 75% or 90% of the appraised value of your home (in other words 25% or 10% down payment minimum).

All the debt is now in one place at one low interest rate. Any of your short-term savings (chequing and savings accounts balances – even your income) are deposited into the account to reduce your total debt. Then, you simply use the account as you would any regular chequing account, with a debit card, cheques, pre-authorized withdrawals, and so on. Now, every time you get paid, your income immediately lowers your debt and continues to save you interest until you need to use your money for something else.

This strategy will work best for anyone who follows a budget or is financially responsible.

Take a look at this clip showing how it works: http://www1.manulifebank.ca/E/m1/demo.html

Their calculator compares the traditional mortgage vs. Manulife One:
http://manulifedc.com/files/banking/index.html

I used the calculator to compute my financial situation which resulted in paying my mortgage in half the time compared with the traditional way. This is largely due to the fact that the traditional way restricts my contribution to the mortgage.

Types of Loans

Now you're ready to start shopping around for the right loan. A first-time home buyer with a steady job and good credit can put down as little as 3%. Some brokers will even allow buyers to get a loan to cover the 3% down payment. But the more money you can gather for a down payment, the more options you will have when borrowing.

Fixed Rate Mortgages (FRM):
A mortgage loan that has an interest rate that remains constant throughout the life of the loan, so that the amount you pay each month remains the same over the entire mortgage term, typically 15, 20 or 30 years.

Adjustable-Rate Mortgages (ARM):
In an adjustable-rate mortgage, the interest rate can move up or down in accordance to current market interest rates. There is usually an introductory discounted rate, lower than fixed rates. Depending on the type of ARM, the first adjustment period can last for a period of one, three, five, seven, or 10 years before a change in rates occurs. Most ARMs adjust every year until the loan is fully paid.

Interest-Only Mortgages:
In an interest-only mortgage, the borrower only pays interest (plus property taxes and homeowners insurance) on the loan. This usually results in a lower monthly mortgage payment. The borrower does have the ability to pay extra towards the principle.

Balloon Loans:
Balloon loans are either not amortized or partially amortized short-term loans that become due in a period of usually three, five, seven, 10, or 15 years in one, large payment.

First-Time Buyer Programs:
Many brokers offer affordable mortgage choices geared toward the first-time home buyer. First-time buyer programs can help borrowers who do not have a lot of money saved for the down payment and closing costs, have a poor credit history or no history at all, have quite a bit of long-term debt, or have an unstable income.

How Much Can You Afford?

The answer to that is a function of two things: How much you can borrow and how much of a down payment you can save. As a rule of thumb, your annual mortgage payment, taxes and homeowner's insurance shouldn't exceed 28% of your gross income. Then determine how much cash you have for a down payment, leaving yourself enough left over to pay those pesky closing costs, which can add up to 3% to 5% of your total home's value (plus a little something extra for emergency repairs once you move into your new home).

Pay Off Your Debts

A common mistake for home buyers to be: Focusing on saving as much money as possible for a down payment instead of paying off other debts. A better approach is to use the extra cash to eliminate credit-card and other high-interest consumer debt even if that means you putting less of a down payment on your future home.

Why? First, credit-card debt is highly expensive and limits your ability to save. The average interest rate on credit cards now stands at approximately 13.8% or more than double the 5.33% national average for a 30-year fixed-rate mortgage. Second, credit-card debt will limit how much you can borrow. That's because lenders won't allow your total monthly debt service which includes payments for credit cards, student loans and car loans, as well as homeowner's insurance, property taxes and a mortgage to exceed 40% of your gross income.