Quote:
Originally Posted by mrkajz44
I think its safe to say most people would agree that $2,250 over a year is significant. This difference will drop as the mortgage is paid off, but in the early life of a mortgage, the difference in interest rates is quite a large cost.
Another point of note on the fact that interest is calculated daily is the fact that it is compounded monthly. A conventional mortgage is compounded semi-annually. You are therefore paying more interest on interest (if that makes sense). Take this into account and the effective interest rate difference between the two grows even more. Don't forget the $14/month fee.
Here's my biggests problem with Manulife 1. Those who understand the benefits of the account are those who would increase their mortgage payments, pay lump sums, avoid credit card debt, and avoid high interest loans (car loans for example). So the ones that would actually get the account already do the things that the account claims to do and the actual benefit is minimal. And then slap on that higher interest rate.
But that's just me.
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I just think that $2200 is peanuts compared to a 25 year mortgage with interest. Most of the calculations that I run for people with Manulife One end up seeing a paid off mortgage within about 11-15 years. That is enormous savings; who really cares about $2200 when you have that kind of reduction? In the grand scheme its virtually meaningless.
The interest only compounds if you aren't paying the mortgage down....which is possible but for pretty obvious reasons not the recommended route. Otherwise part of the monthly figure is the interest cost.
As for the point about people already doing this on their own you're both right and wrong. Because the account is adviseable for people who are already good with money (ie. not people who would pay interest only on their mortgage for the rest of their lives) you are correct. I think that you're not taking into account the interest savings by having money against the principal though.
If my mortgage is $200k and I deposit $10k today it immediately goes down to $190k. I might spend that money over the next few weeks/months, but as it sits against the principal it reduces the interest charges. Just that kind of thing alone adds up over the longer term.
The $14 is really not a big deal; you pay a bank fee everywhere anyway and that is essentially the same thing.