Do you consider your mortgage "debt"

[THE SCUD]

Originally Posted by Cecil Terwilliger

These are the same thing. All you are doing with accelerated payments is paying more than you are contractually obligated.

I am aware that they are the same, my point was the flexibility it provides. Yes, at the end of the day any extra $ over what you're obligated to pay goes to the principal.

What the lump sum and random extra monthly payment amount I eluded to do is allow you, when you have the extra scratch, to throw some bones at the principal. Some people will say things like " I am commission based, so I can't afford to do accelerated, because some months are tight". What the lump sum and random monthly payment increases do is allow that guy to decrease his principal while not sticking him in a bind on 'short' months.


So, for Joe blow who isn't the best with his money, sticking to a 25 year monthly mortgage is fine, as long as he puts extra against the principal when he can. It will, as you said, give him the same benefit as the accelerated bi weekly, but without the stress of "what happens if I'm short in July when I take a vacation and don't get paid for a few weeks" situations.

[chemgear]

That's a good point.

I look back on the class as being fairly useless in the context that I could have gotten all that information (and resulting application) in a span of a week or two. The information itself was useful if applied though. That it was dragged out over months gives me that impression on reflection.

That and the smoking hot teacher . . .

[Knut]

Originally Posted by fotze

I remember being in High school when they introduced that CALM course. Do they still have that? I remember it was three full classes on how to write a cheque. You fill out the spaces on the check. Got it afte 1 minute of instruction, how bout you move on to a more advanced topic now.

What blows me away is the amount of people who don't shop around their mortgage. It is staggering really. Would love to see the bank stats. People will shop around for weeks to save $25 on their Ipod, but to save 10's opf thousands of dollars they say "well, I've always been with TDBank, so I know I'm getting a deal". You ######!

Your exsisting bank is likely going to match anything you get externally as well. It is always worth it to shop around, but then you can take the best quote back to your own bank if you like the service there.

[THE SCUD]

Originally Posted by Hesla

Your exsisting bank is likely going to match anything you get externally as well. It is always worth it to shop around, but then you can take the best quote back to your own bank if you like the service there.

Likely not. In my experience, the bear-bones mrotgage companies that give the great rates are so low that my bank (both TD and CIBC on different properties) have said "we can't match that".

I have found going with an external mortgage consultant gets you a lower rate, every time. Wit hthat said, sure, ask your bank, but don't be surprised if they say no.

[Slava]

I know that I'm likely going to get flamed for this, but I'm just going to say it anyway. Products such as Manulife One are much better than a conventional mortgage. When you line them up side by side (and don't factor in a change in your spending habits or things like that) you generally see a reduction in the number of years it takes to pay the mortgage. The difference is basically in the manner in which you carry the debts.

There are drawbacks and risks, and a mortgage like that is definitely not for everyone, but there are advantages for sure.

Purely in my opinion, the banks don't really want to see people pay their debts off sooner; its a steady source of income and a steady interest payment from their perspective. Manulife isn't doing this to be altruistic though; they want to see people pay off debts so that they can buy more insurance and invest more money with them so that they make more money as well! There is no question that each is acting for a specific reason.

[nfotiu]

It is an awful question. Mortgage is a debt. This is like asking if you consider an apple a fruit. I don't understand.

Originally Posted by 8sPOT

At the end of the day, having zero debt beats having any debt at all.

I can't agree with this quote at all. There are no absolutes in finances. That's like saying someone is better off with no saving, no assets and no debts than someone owing $300,000 on a $500,000 house and having $100,000 in savings. I know which person I'd pick to be.

Having a net worth goal is a much better perspective than having a zero debt goal.

If you have a positive net worth that is growing from year to year, and you have comfortable cash flow every month, there is nothing wrong with some debt IMO.

[Kybosh]

Originally Posted by Slava

Its all coming together now! When I talk to people (about money) they all say "they should really teach this stuff in school" or similar things. I often take that time to remind them that they do. Its called CALM and while a lot of people are busy skipping class or generally screwing around some of us actually took something away from it! In my class we picked out houses and actually figured out what the down-payment would be and how long it would take us to save that kind of cash up. Pretty eye opening for me as a 15 year old to realise that as a 27 year old for me to own the place I would want would take me roughly that long to afford a down-payment, if I started saving right away!

My CALM class talked about RRSPs, compound interest, budgeting and even things like proper resumes, applying for work and interview skills. I went to a public school here in Calgary, and if people took away half of what was taught they would have a reasonable idea of how these things worked. The problem to me is that people mistake "I took a class on that" for "I can apply what I learned". Those are two totally different things, and I'm sure that we've all seen that in our professions as well as places like this.

Wow, you apparently took a pimped out CALM class. The one I did in 1997/98 only briefly discussed certain life expenses including rent, groceries and car payments (if I remember correctly, the other half of the class was stuff like sexual diseases etc). It mentioned nothing at all about longer term investing or home ownership or anything of that nature. I went to every class and it was completely useless.

[Sliver]

Originally Posted by Kybosh

Wow, you apparently took a pimped out CALM class. The one I did in 1997/98 only briefly discussed certain life expenses including rent, groceries and car payments (if I remember correctly, the other half of the class was stuff like sexual diseases etc). It mentioned nothing at all about longer term investing or home ownership or anything of that nature. I went to every class and it was completely useless.

The CALM class I took in 92 or 93 was much more like Slava described. I remember most of my friends thought it was a joke, but I thought it was the most useful course in high school.

Edit - And the CALM teacher ended up marrying a girl in my CALM class a couple years after high school graduation.

[troutman]

Originally Posted by Sliver

Edit - And the CALM teacher ended up marrying a girl in my CALM class a couple years after high school graduation.

Don't Stand So Close To Me

[chemgear]

Originally Posted by Sliver

Edit - And the CALM teacher ended up marrying a girl in my CALM class a couple years after high school graduation.

Wow.

[Slava]

Originally Posted by Sliver

The CALM class I took in 92 or 93 was much more like Slava described. I remember most of my friends thought it was a joke, but I thought it was the most useful course in high school.

Edit - And the CALM teacher ended up marrying a girl in my CALM class a couple years after high school graduation.

My course was also in 1992 I would say....and I would also agree that it was amongst the most useful, although Phys. Ed. was pretty good!

[GP_Matt]

Originally Posted by Slava

I know that I'm likely going to get flamed for this, but I'm just going to say it anyway. Products such as Manulife One are much better than a conventional mortgage.

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.

[Slava]

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.

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!

[mrkajz44]

Originally Posted by Slava

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!

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.

[Slava]

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.

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.

[THE SCUD]

Jesus, The M1 (ManulifeOne) is such a scam!

The M1 mortgage ends up reducing the pay back period because it applies all of your savings against the mortgage. This will work with ANY mortgage!

Why not get the RBC Homeline mortgage with lower rates and apply all your savings against that non-deductible mortgage. You’ll get the increased credit limit automatically on the HELOC side. This would act just like the M1 mortgage BUT with lower overall fees and interest.

If you're too dumb/lazy to sweep your excess every pay cheque against the homeline, you're too dumb to save money with the M1. M1 is a good idea that effs people in the end with its terrible rates.

[Slava]

Originally Posted by THE SCUD

Jesus, The M1 (ManulifeOne) is such a scam!

The M1 mortgage ends up reducing the pay back period because it applies all of your savings against the mortgage. This will work with ANY mortgage!

Why not get the RBC Homeline mortgage with lower rates and apply all your savings against that non-deductible mortgage. You’ll get the increased credit limit automatically on the HELOC side. This would act just like the M1 mortgage BUT with lower overall fees and interest.

If you're too dumb/lazy to sweep your excess every pay cheque against the homeline, you're too dumb to save money with the M1. M1 is a good idea that effs people in the end with its terrible rates.

Well its not exactly the same, as I've tried to explain here, but sure. You could probably duplicate results with a few accounts and moving around the money.

[THE SCUD]

Originally Posted by Slava

Well its not exactly the same, as I've tried to explain here, but sure. You could probably duplicate results with a few accounts and moving around the money.

How so? It's EXACTLY the same. ALL an M1 account does is reduce your mortgage balance by your excess cash. You can do that easily yourself and sign a mortgage that's more to your liking, and not a variable, floating at prime completely uncompetitive piece of garbage mortgage.

Sorry - just a huge non-fan of the M1. I'll leave it be though, I am sure some people like them?

/disclaimer: I was going to us an M1 until I saw how uncompetitive it is. I now use an RBC Homeline for a Smith Manoeuvre.

[THE SCUD]

Originally Posted by fotze

What were the M1 fees again? Those seemed annoyingly high, IIRC.

$14 a month. Not bad, it's the TERRIBLE mortgage terms. Seriously. At Prime?!? variable and their 'ability' to lock in 75% of the balance is at insane, 8-10% rates. it's truly terrible.


#donenow

[KTrain]

Originally Posted by Sliver

Edit - And the CALM teacher ended up marrying a girl in my CALM class a couple years after high school graduation.

Did you go to Churchill?