This post is sponsored by Manulife Bank. All expressed opinions and experiences are my own words.
Looking to pay off your mortgage sooner since interest rates are on the raise? I take a look at Manulife One and explain how it works to potentially help you become debt-free sooner.
But first, let me share my homeowner story with you.
My Homeowner Story
This month marks my 2-year anniversary of becoming a homeowner. Although this past year has been a pretty easy one in terms of homeownership (no big appliances have broken!), the path to getting to this point wasn’t straightforward. Not by a long shot.
Even though I did as much research as I could before diving into homeownership, hindsight is always 20-20. If I’d known what I do now, I definitely would have done some things differently.
If you’ve been a longtime reader of mine, you may have even read some of my posts about my first round of house hunting. If not, check out some of these gems from 2015.
- How I Dodged a Bullet By Not Buying a House in Toronto
- Another Week, Another Round of House Hunting
- Beware of the Buyer Representation Agreement When Shopping for a House
- My First Bidding War (But Not My Last)
- House Hunting in Toronto: My Experience in a Seller’s Market
House Hunting Round 1: 2015
As you may have guessed, that first experience of house hunting came to nothing. My husband and I looked at dozens of houses in Toronto over the course of a few months and eventually threw in the towel. It was a combination of not having a realtor that truly understood what we were looking for (or the budget we were working with), and trying to buy a house at the height of Toronto’s real estate market.
Still, it was a good experience overall. What looking at a bunch of overpriced fixer-uppers in Toronto showed us was that even though we were working with a budget of $500,000-$550,000, we still couldn’t comfortably afford to buy a house.
House Hunting Round 2: 2016
Instead, we took a year off and continued to rent. In the summer of 2016, when I was about to turn 30, we started talking seriously about house hunting again. Our budget hadn’t changed, and prices had continued to rise, but our mindset about the whole thing shifted.
Originally, we were fixed on the idea that we needed to own land. Houses historically rise in value more than condos or townhouses. We wanted to make the smartest investment decision, so that’s why we really wanted a house. But, no matter how we moved around the numbers, buying a house would cost us above our ideal budget, and we really didn’t want to be drowning in debt because of a big mortgage.
So, we found a new realtor and started looking at townhouses. On the first day of looking at townhouses, we found our home. It was actually the fourth place we looked at that day. It was in an up-and-coming neighbourhood. It was located right near the train station and subway station. Best of all, it was priced at only $460,000. That was way below our budget, which meant we could put more money down for our down payment.
Knowing we found a steal of a deal, we put in an offer right away. After a slight bidding war with another couple, we nabbed the place for $462,500.
Now, we’ve been living in our townhouse for 2 years and are absolutely loving it. Because we were able to put 25% down and found a place below our budget, moving in didn’t change our cost of living that much (maybe just by a few hundred dollars per month).
Not only that, recently we went to an open house of an identical unit in our complex, and it was listed for $562,000. That place sold pretty quickly, so it’s safe to say since we bought our place, it’s already increased in value significantly.
What I Wish I Knew Before Buying a Home
As I already mentioned, I absolutely love being a homeowner. But, that doesn’t mean there aren’t some things I wish we’d done differently.
Interview More Than One Realtor
In our first search for a home in 2015, we made a ton of mistakes. The biggest mistake being we chose the wrong realtor. We only interviewed one realtor because she was a recommendation by a friend who I trusted. In hindsight, we should have looked at other options. On first impression, she seemed like a perfect fit. However, after a few property visits, it was clear that she wasn’t the right realtor for us. She didn’t understand that there wasn’t any flexibility in our budget (she kept showing us places out of our price range), and she was a bit too pushy and too eager to make a sale.
In the end, we were able to end the relationship amicably, and I’m so glad we made that choice. It gave us enough time to rethink what we really wanted, and then do our due diligence next time before choosing a realtor.
Buying a House Isn’t Necessarily the Best Investment
Another thing I wish I realized sooner was that buying a house, instead of a townhouse or condo, isn’t necessarily the best investment. I think a lot of people get caught up in the idea that you need to buy a house with land. Well, guess what? Even if you buy a townhouse or condo in which you don’t own the land (just the unit), that’s still an investment. Case in point, if we listed our place now, the value would have already risen by $100,000.
Buying Below Your Budget Is Awesome!
Because we opted to buy a townhouse instead of a house, we saved a ton of money! That means we got to take out a smaller mortgage, and can comfortably make our mortgage payments and have enough left over to save for any home repairs or renovations we need to make in the future.
How to Pay Your Mortgage Off Sooner
Although home prices are still high, the markets in Toronto and my hometown of Vancouver are starting to slow down. I think this has a lot to do with interest rates rising, meaning mortgages are getting more expensive.
When interest rates were low, it didn’t make much sense to focus on aggressively paying down your mortgage. You would earn a better return by simply investing your extra money. But, since interest rates are on the rise, accelerating your payments to pay down your mortgage quicker may be a good idea.
Make Accelerated Bi-Weekly Payments
One simple thing you can do to knock off years of your mortgage is by choosing the accelerated bi-weekly payment plan. Instead of paying your mortgage payments monthly or semi-monthly, bi-weekly payments mean you’ll make a few extra payments per year. This is something my husband and I chose to do, and we hardly notice those extra payments. Not only that, we’ve calculated that it will reduce our 25-year amortization period by 2 years. Since we’re already 2 years in, that means we only have 21 years before we become mortgage-free.
Make Extra Payments
If you get a windfall, bonus, or raise, where do you usually put that money? Most people tend to “celebrate” extra money by splurging on something they really want, even though that money could be put to better use.
If mortgage payoff is something you’re really focused on, then that’s where you should put any extra money that comes your way. Make sure to read the fine print in your mortgage contract to understand how much in extra payments you can make every year without penalty first.
Consider Alternative Financial Products
Another way to pay down your mortgage quicker is by looking at other financial products that may help you do just that. One such financial product you may want to look into is Manulife One.
What Is Manulife One & How Does It Work?
To give you a visual explanation of what Manulife One is and how it works, check out this video first.
For some background, Manulife One has been around since 1999. Since then, over 100,000 Canadians have switched over to this new type of mortgage solution.
Manulife One is essentially one account that operates as a mortgage, home equity line of credit, and savings account, with a monthly fee of $16.95 ($9.95 for seniors 60 and over).
One big advantage of this account is that it can consolidate your different debts so you can pay one lower rate of interest on all of your debts. This is great if you have a few credit card balances charging you 19%, a mortgage at 3%, and a personal loan at 11%. With Manulife One, you can combine all those debts together for one low rate of interest (with a current base rate of 4.20%), saving you money on interest and helping you pay off your debt quicker.
No Restrictions on Extra Debt Payments
Many mortgages and types of loans have strict rules on how much you can make in extra payments. Some mortgages don’t even allow extra payments. Manulife One wants you to become debt-free sooner, so there are no penalties for making any extra payments. Make as many as you want!
Deposits Go Directly to Debt Principle First
This is the big innovation by Manulife One, even if it is a bit hard to wrap your head around. With Manulife One, whenever you make a deposit into that account, that money can go put directly towards the principle of your debt.
Normally, after paying all of your living expenses, you would tuck away any extra funds into a savings account. Savings accounts typically don’t offer very high rates of interest, especially in comparison to the rates of interest on the debt. Manulife One hopes to bridge that gap and use that money you would put into a savings account to put directly on the principle of your debt. That’s the key word too — principle. By paying down your principal sooner, you’ll save thousands of dollars in interest.
If you want to keep a positive balance in your account (not put funds towards debt), you’d also earn 1.40% interest on those funds.
You Can Still Withdraw Funds
You may be wondering what happens if you want to withdraw funds. As I mentioned, deposits can go directly to your debt’s principle. If you want to withdraw funds, it simply adds back the amount you withdrew to that principle you owe. Essentially, it’s a way to temporarily reduce your debt’s principle, saving you interest (since interest is calculated daily), until you make a withdrawal.
Test Out Their Calculator to See If You’d Save Money
I know this is a lot of information, which is why I highly recommend you contact a rep at Manulife Bank to learn more and to see if it makes sense for you.
Another thing you can do to visualize how this could work for your financial situation is to test out their calculator to see if it would save you money.