Tell me about "All in One" Mortgages

[old-fart]

I'm just setting up one myself with my bank by leveraging a HELOC to replace my mortgage. Say deal basically as the Manulife ONE and yes - the critical deal is 'are you a saver or a spender'.

If you can control yourself, I believe the best bet is the HELOC, deposit the paycheck into the HELOC account, and live off a points based credit card (Aeroplan, or Airmiles, or cash back... whatever you prefer). Then when the credit card bill comes in, pay it off with the HELOC. HELOC will go down, then up, then down... etc. The challenge is not just cranking up the credit card or blowing any excess you might get with your HELOC.

In my case, the HELOC is just enough for the morgage plus about $10K "in case". Again, as long as you are disciplined, I figure I can take at least 7 years off my mortgage by not changing my lifestyle in any significant fashion.

If you are not disciplined and that money tends to burn a hole in your pocket, a HELOC is a bad idea. You'll find yourself in more debt than when you started.

[old-fart]

Originally Posted by Ford Prefect

So what's the upside for the financial institutions with M1s? There must be some or they wouldn't be offering this product.

Exactly as Incinerator said... in my case the bank tried to talk me into getting a HELOC that was about $180K more than I needed to pay off the mortgage, "just because you can and why not have the room, you know sir, in case you want to spend it".... Many people in that situation would say sure, never intending to spend it but.... oh look a new flat screen... a good deal on a car... a nice trip to Cuba... before you know it you owe what you used to pay on the mortgage, plus a crapload more.

[tvp2003]

Thanks for the info everyone. As someone who is a saver and currently has money at the end of the month but doesn't do a whole lot with it (i.e. investing, pay down the mortgage, etc.), this could be a viable option... I'll have to get used to a psychological shift of working out of a negative balance, but if the numbers work out I will certainly consider it.

How hard is it to get everything set up? I'm guessing I'll need to requalify for everything (which shouldn't be a problem as my credit is good). Do I go through a financial planner like Slava? Are there Manulife brokers/reps that I can speak with to get more info?

[Ford Prefect]

Originally Posted by Incinerator

most people does not have the self-discipline to manage their own finances, you give the average joe $200K to play with they will usually put the new car and vacation on it without thinking whether they can afford to.

Ah yes, the old give someone enough rope to hang themselves ruse. Yep. That makes sense.

[tvp2003]

One other question -- aside from undisciplined spending, are there any other pitfalls inherent to this type of product?

[Slava]

Originally Posted by macker

MFC just reported a fourth-quarter loss of $1.87 billion as they took a pounding because of their exposure to the stock market. The Manulife One and Manulife Income Plus are products that were introduced in much different market conditions and they could cause MFC even more pain and suffering going forward. Good thing they also sell DI & CI as it could be a bumpy recovery for them! Best CEO in the business though too bad he is leaving...This quarterly loss is almost AIGish...

The 4Q loss for Manulife is nothing compared to the AIG situation. AIG was in a spot where they were losing money and on the hook for a huge amount of further losses because of their insuring of CDS issues. Manulife has taken a 4Q loss which was a little larger than projected due to its exposure to the equity market. Manulife is still very well capitalized and with their income as diversifed as it is, Manulife is still incredibly strong and sturdy. Most analysts suggest that while the losses here might be the worst of the bunch, the recovery over the next year or two will be the best of the class.

Originally Posted by tvp2003

Thanks for the info everyone. As someone who is a saver and currently has money at the end of the month but doesn't do a whole lot with it (i.e. investing, pay down the mortgage, etc.), this could be a viable option... I'll have to get used to a psychological shift of working out of a negative balance, but if the numbers work out I will certainly consider it.

How hard is it to get everything set up? I'm guessing I'll need to requalify for everything (which shouldn't be a problem as my credit is good). Do I go through a financial planner like Slava? Are there Manulife brokers/reps that I can speak with to get more info?

I am direct with Manulife and could answer any questions/concerns you might have.

[Slava]

Originally Posted by Ford Prefect

So what's the upside for the financial institutions with M1s? There must be some or they wouldn't be offering this product.

Well Manulife in particular makes money a few ways. (A) They have profit built into the spread...they borrow for cheaper than they lend. (B) Because Manulife markets investments and similar strategies they can reap a lot benefit by having people get out of debt faster...when people are out of debt they can/traditionally do invest more. Manulife clearly wants those investments in the door! So what better way to earn a consumers trust and loyalty than by helping to get them above water sooner?

[macker]

[quote=Slava;1657113]The 4Q loss for Manulife is nothing compared to the AIG situation. AIG was in a spot where they were losing money and on the hook for a huge amount of further losses because of their insuring of CDS issues. Manulife has taken a 4Q loss which was a little larger than projected due to its exposure to the equity market. Manulife is still very well capitalized and with their income as diversifed as it is, Manulife is still incredibly strong and sturdy. Most analysts suggest that while the losses here might be the worst of the bunch, the recovery over the next year or two will be the best of the class.

Your right it is nothing compared to AIG but it is still a very ugly loss for Canadas largest insurer. In December they came out and warned of a $1.5 billion loss so at $1.87 billion they missed their guidance and the stock goes into the penalty box as a result. They also had $1 Billion exposed to sub-prime mortgages. BTW : I would buy Manulife if it goes below $15 but I wouldn't touch AIG even though it is around $85 cents today...

[Top Shelf]

Originally Posted by tvp2003

One other question -- aside from undisciplined spending, are there any other pitfalls inherent to this type of product?

The interest rate is not tied to Prime. Apparently many investment advisors sold the M1 product as being tied to Prime. For the longest time it was too. However, when the shat hit the fan with the banks last year, and the Bank of Canada started dropping interest rates, Manulife did not pass the entire savings along to the customer. Just a buyer beware thing really, make sure you know what you are signing.

[MoneyGuy]

I'm not worried about the security of Manu. It's the only corp in the country with a triple-A rating, or it was last time I checked.

[Slava]

[quote=macker;1657293]

Originally Posted by Slava

The 4Q loss for Manulife is nothing compared to the AIG situation. AIG was in a spot where they were losing money and on the hook for a huge amount of further losses because of their insuring of CDS issues. Manulife has taken a 4Q loss which was a little larger than projected due to its exposure to the equity market. Manulife is still very well capitalized and with their income as diversifed as it is, Manulife is still incredibly strong and sturdy. Most analysts suggest that while the losses here might be the worst of the bunch, the recovery over the next year or two will be the best of the class.

Your right it is nothing compared to AIG but it is still a very ugly loss for Canadas largest insurer. In December they came out and warned of a $1.5 billion loss so at $1.87 billion they missed their guidance and the stock goes into the penalty box as a result. They also had $1 Billion exposed to sub-prime mortgages. BTW : I would buy Manulife if it goes below $15 but I wouldn't touch AIG even though it is around $85 cents today...

Right, but that $1 Billion is out of $165 Billion of investable assets...so not even 1/2%. If Manulife goes below $15 there is something very wrong. That would be over 25% from where they are today (IIRC), and they are still in the bidding for AIG Asia which will make them the largest insurer in the world.

[macker]

Credit rating agency Moody's Investors Service placed Manulife's Aa1 ratings on review for a possible downgrade following the release of the company's quarterly results.
“Today's decision to place Manulife's ratings on review for possible downgrade reflects Moody's view that the Canadian life insurer's financial flexibility and economic capitalization has been weakened by the substantial decline in equity markets in the latter half of 2008,” stated senior credit officer Peter Routledge.

http://business.theglobeandmail.com/.../Business/home


Messenger quietly leaves before being shot......

[macker]

[quote=Slava;1657832]

Originally Posted by macker

Right, but that $1 Billion is out of $165 Billion of investable assets...so not even 1/2%. If Manulife goes below $15 there is something very wrong. That would be over 25% from where they are today (IIRC), and they are still in the bidding for AIG Asia which will make them the largest insurer in the world.

It was off 6% today alone. $15 is not out of the question and if it gets there I have an email alert being sent to me to buy, buy, buy....I think they can growth just fine without picking up AIG Asia and I really hope they don't go that route!

[Slava]

Originally Posted by macker

Credit rating agency Moody's Investors Service placed Manulife's Aa1 ratings on review for a possible downgrade following the release of the company's quarterly results.
“Today's decision to place Manulife's ratings on review for possible downgrade reflects Moody's view that the Canadian life insurer's financial flexibility and economic capitalization has been weakened by the substantial decline in equity markets in the latter half of 2008,” stated senior credit officer Peter Routledge.

http://business.theglobeandmail.com/.../Business/home


Messenger quietly leaves before being shot......

haha!

I suspect that this discussion should quickly be moved to the other thread. (Manulife still has a captial ratio of 233%, which is far and away more than enough to meet their obligations. Plus the ratio that is the AAA is the Standard and Poors).

[macker]

Originally Posted by Slava

haha!

I suspect that this discussion should quickly be moved to the other thread. (Manulife still has a captial ratio of 233%, which is far and away more than enough to meet their obligations. Plus the ratio that is the AAA is the Standard and Poors).

Also up for downgrade with S&P. It's not like one rating agency does this exclusively. Besides, rating agencys are over-rated in this new era.
I think we are strecthing this thread and should take it outside. Or is this an all in one thread

[Slava]

^ Every thread turns into this now! All I know is that Manulife has a huge amount of capital and is going to come through things in great shape. Even buying the stock at $21 or near current values is a great bargain.

[macker]

Originally Posted by Slava

^ Every thread turns into this now! All I know is that Manulife has a huge amount of capital and is going to come through things in great shape. Even buying the stock at $21 or near current values is a great bargain.

It almost seems that way....lot's of overlap in some of these threads. Anyways, I agree Manulife is well positioned and should do fine. I may get it at $15 but if not that's ok to. There is no big rush to buy it at this point.

[Bobblehead]

I think the ratings agencies have done a horrible job over the past decade, and acted like a rubber stamp on many of these instruments that crashed. They deserve a solid chunk of the culpability, but seem to be escaping unscathed! How did all these highly rated assets suddenly crash?

Yeah, the banks are themselves the root cause, no question. But wouldn't it have been good if the agencies that were rating these instruments actually demanded to know what was in them and rated them accordingly?

[JiriHrdina]

Boy this thread blew up since I last was on CP. Thanks for the info guys - it's actually been very helpful.

[macker]

Originally Posted by Bobblehead

I think the ratings agencies have done a horrible job over the past decade, and acted like a rubber stamp on many of these instruments that crashed. They deserve a solid chunk of the culpability, but seem to be escaping unscathed! How did all these highly rated assets suddenly crash?

Yeah, the banks are themselves the root cause, no question. But wouldn't it have been good if the agencies that were rating these instruments actually demanded to know what was in them and rated them accordingly?

Good points!
It is also worth mentioning that Standard & Poors failed to predict the bankruptcy of Iceland in 2008 and the country had a very high rating until it suddenly collapsed. One of the few times where you question one of Warren Buffett's investments as he took an 18.6% stake in long-established rating agency Moodys. Rating agencies were investigated by the SEC for what that is worth as it is one boys club checking over anothers work....I am a bit of a cynic on this topic!