Consider the benefits of Manulife One versus a reverse mortgage for your clients.
Due to persistent inflation and the highest interest rates in a generation, many concerned Canadians are looking for more cost-conscious strategies to mitigate the dramatic rise in mortgage and other loan debt payments.
For homeowners who are unprepared for the sudden increases in what they may owe various institutions, there are options when it comes to reining in debt and making the best of an affordability crisis. A serious worry is the effect of costly increases on what is typically a person’s biggest purchase of their lifetime – a home – and the mortgage that typically comes with it.
A report released by Manulife Bank earlier this year had interesting insights on Canadians’ views about mortgages. It found that 59 per cent of those who needed to renew their mortgage gravitated toward a fixed-rate term mortgage, after considering how much interest rates have risen over the past two years.1 However, 25 per cent were undecided as to whether to choose a variable-rate mortgage, and only 16 per cent stated a preference for a variable-rate term.2 In comparison to these options, the prospect of using an all-in-one re-advanceable mortgage and banking account could be the game-changer that appeals to more mortgage customers, based on the ways it can work in their favour.
As consumers look to fight back against rising costs with good planning, professional support and the right financial tools, they may want to understand how a reverse mortgage stacks up against a mortgage payment strategy that resides within a flexible, all-in-one account.
Let’s look at the differences.
How a reverse mortgage works
In Canada, a reverse mortgage enables homeowners who are 55 years of age and older to access up to 55 per cent of the value of their home while they live in it.3 Eligible homeowners can request access to all the funds at once or through a series of fixed payments over a period of time. Essentially, the money is being withdrawn from the owner’s previous mortgage payments that have amassed over many years. No repayment of the cash being re-borrowed is required until the owner sells the home or passes away, at which time the loan, plus all accrued interest, comes due.
Reverse mortgages are one way for older homeowners to tap into a sizable amount of funds – yet there are other options when it comes to borrowing money from the equity contained in the home, including a Manulife One or M1 account.
Here are five reasons clients might find the flexibility of an M1* account aligns better with their financial habits or lifestyle, in comparison to a reverse mortgage.
No age restrictions. Forget about the 55+ rule associated with reverse mortgages – M1 accounts have no age restrictions (aside from being over 18). A single account combines access to savings, mortgage and a secured line of credit. Every dollar deposited helps to automatically reduce debt and build equity, regardless of the account holder’s age.
Flexible access to funds. Account holders can draw as little or as much as they need whenever they need it (up to 80 per cent of the value of their home4), which is more flexible and manageable than the lump sum or scheduled series of payments offered through a reverse mortgage.
Flexible repayment options. M1 account holders can choose how much of their mortgage they wish to pay off at any given moment without risking a financial penalty, which is rare with reverse mortgages, especially during the early phase of the repayment cycle.
Lower interest rates. Interest rates for reverse mortgages tend to be higher than the market norm for variable- and fixed-rate term mortgages, whereas M1 rates generally remain competitive with current market rates. There’s also the ability to lock in rates for subaccounts, which can be a huge help in rolling multiple debts into one easy-to-manage, lower-interest space.
Convenience. Aside from providing access to a significant portion of home equity, most reverse mortgages don’t offer much in terms of convenience. Flexible accounts conveniently combine several banking features in one account, which can all be accessed through ATMs, cheques and transfers via multiple formats and online devices.
Important insights
Although the Manulife Bank report notes that Canadians are feeling an overall sense of optimism about their financial health, only half the respondents believe that inflation will retreat to an acceptable level over the next year, while the other half don’t expect lower inflation quite as soon.
The report also underscored the importance of working with an advisor and how having a plan can significantly help reduce stress in people’s lives, compared to those who face financial challenges alone. Six in ten admitted they would not have a financial plan if it weren’t for their advisor, and more than two-thirds say they are now better off financially than they were before engaging an advisor’s services. Moreover, the research revealed that most Canadians who have a financial plan feel that it has helped them improve their ability to cope with the current economic environment both mentally (75 per cent) and financially (79 per cent).5
There’s no question that Canadians are taking action to meet the challenge of higher payments and costs head-on. Homeowners of all ages are using the best available solutions and the guidance of their advisor to protect their financial future. The all-in-one account is designed to respond to unpredictable circumstances, reduce stress and help keep a personal financial plan on track – an attractive combination of factors that resonates with today’s consumers.
Manulife Bank recently launched the Manulife One Discovery Centre, an information hub about our Manulife One account. Through this online tool, customers – and anyone interested in learning more about Manulife One – now have easy access to details on how the account works and other tips about financial wellbeing.
1 Manulife Bank’s Financial Health Survey
2 Ibid.
3 Financial Consumer Agency of Canada
4 Amounts above 65 per cent must be allocated to a term subaccount.
5 Manulife Bank’s Financial Health Survey
* Manulife One is offered through Manulife Bank of Canada.
