Quote:
Originally Posted by GP_Matt
I agreed with you and I looked into Manulife One or the option of a home made approach using a HELOC and internet banking. I don't mind moving money around all the time so I figured I could get pretty close to representing the M1 account. It all looked great and I was ready to set it up until the interest rate discussion came up. M1 and Lines of Credit have a variable interest rate and the best offer I could get was prime, currently 3%. With a variable rate mortgage the rate was prime minus 0.75% or 2.25%. On a $300000 mortgage the interest difference is $2250 for the year. To save money by continuously putting all the money you have in your bank against the outstanding mortgage you would have to maintain an average balance of $75000 in your accounts. I ran through a bunch of scenarios and could not get past the 75 point interest rate difference.
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Yes, and the short term interest rate issue is a concern. There are a couple of things to note though. One is that its short-term; the rates are historically low and while it might take sometime they will increase as inflation becomes a concern. As rates increase that means that you'll see HELOC rates move more to something closer. $2250 over the course of a mortgage is basically nothing.
The other point to note is how the interest is calculated. For Manulie One its on the daily balance. So if you get a lump sum today and put it in your account it goes directly against the principal, and interest is calculated that day. A mortgage doesn't allow for that; sure you could be in a position where you put money in today and spend it all, but frankly you have more problems that your interest rate if that is your situation on a consistent basis!