Manulife One Discovery Centre
Pay less interest
on your debt
Why interest rate is less important than interest cost
When many people look for a mortgage, the first (and sometimes only) thing they look for is the lowest interest rate. After all, who doesn’t want to pay as little interest as possible? The problem is, getting the lowest rate doesn’t necessarily mean you’ll be paying the least amount of interest. To do that, you need to look at interest cost, rather than interest rate. Interest cost is the total amount of interest you’ll pay over the life of your mortgage.
Consider the following:
1. Traditional mortgages limit how quickly you can pay them off.
If you have extra money that you could use to pay down your mortgage (and reduce your interest), your bank may not allow you to do so without paying a hefty penalty. So you end up paying more interest over the life of your mortgage because it lacks flexibility.
2. Your other debts probably don’t have low interest rates.
When you think about paying the least interest possible – you need to look across all of your debt. If you have a low mortgage rate, but also have a car loan and credit card balance at higher rates, are you really paying the least amount of interest possible? Wouldn’t it be better if all your debt was at one low rate?
3. Banking complexity isn’t your friend.
If you have several different loans, it takes time and energy to ensure you’ve got money in the right place at the right time to make the right loan payments. An oversight could cost you extra interest or fees and could even harm your credit rating. But what if you had only one loan payment to worry about?
Unlike a traditional mortgage, you can pay down the debt in your Main Account as quickly as you want, which saves you interest. As a matter of fact, every dollar you deposit into your Main Account, such as your income, is applied directly to the principal of your debt. You can also make large, one-time payments without having to worry about pre-payment limits or penalties. You have the flexibility to pay down your debt as quickly as you want and in turn, pay less interest.
Want to pay less interest?
The interest on your Main Account is calculated daily. When you deposit money into your account, such as your income, your debt is immediately reduced. And less debt means less interest. It’s that simple.
Let’s take a step back and look at your entire financial picture. Do you have debt other than your mortgage? For example, are you carrying a balance on a credit card? Maybe two? Do you have a car loan or another line of credit? Don’t worry, many Canadians answer “Yes” to these questions.
Now take a look at the interest you’re paying on those other sources of credit. For example, credit cards typically charge around 20%. Even unsecured lines of credit and car loans often have a relatively high interest rate. The interest charged on the Main Account, called the Base Rate, will most likely be lower than the rate you’re being charged on your other loans.
If you have borrowing room in your Main Account, use it to pay off your higher-interest debt. This turns it into lower-interest debt and saves you money.
Having all your debt in one place not only makes it easier to keep track of, but it helps ensure your money is working hard toward debt repayment. For example, with multiple credit cards and loans, you may be spending too much on interest charges and service fees. Then there’s the need to manage multiple payment dates. If you miss one, you could be charged late fees.
By keeping all of your debt in your Manulife One, you may be able to save money every month on interest, fees and charges, and reduce the chance that you’ll miss a payment. This may also help reduce your financial stress and save you time.
Keeping all your debt in your Manulife One also gives you a better view of your complete financial picture—making it easier to budget and create long-term goals. And your account details are always at your fingertips with mobile or online banking.
Let’s review
Manulife One allows you to pay less interest by:
- Allowing you to pay back the debt in your Main Account at any time without pre-payment limits or penalties. This is an important difference from traditional mortgages.
- Saving you money on overall interest costs. When you use your lower-interest Main Account to pay down higher-interest credit cards and loans, you lower the interest you’re paying across all your debt.
- Simplifying your banking. By keeping all your debt in your Manulife One, you can save money on interest, fees and charges—money that you can put toward debt repayment. You’ll also have a better view of your complete financial picture.
We invite you to talk to your advisor as part of your overall financial plan or your mortgage broker to find out more about Manulife One. If you don’t work with an advisor or broker, one of our mortgage specialists would be happy to help.
Manulife One is offered by Manulife Bank of Canada.
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