What is a Readvanceable Mortgage?
Few home financing products are as powerful as a readvanceable mortgage. Readvanceables give homeowners a source of low-cost cash—anytime they want it. You can become your own lender!
It is also a source of funds that grows. Readvanceables are mortgages linked to a line of credit. As you pay down your mortgage principal, you can re-borrow that principal off your line of credit.
In other words, your LOC credit limit increases over time.
Most 5-year fixed readvanceable mortgages offered by the main Canadian banks are more mortgage than line of credit, in that they have the same terrible pre-payment penalties as a traditional mortage.
But there is one standout: Manulife Bank. Manulife is a fair-penalty lender that has one of the best readvanceables on the market, the Manulife One (M1).
Why We Recommend Manulife One For Your Readvanceable Mortgage
Manulife doesn’t penalize you for breaking a mortgage early
- If you end an M1 with a fixed-rate mortgage portion before maturity, Manulife’s favourable penalty formula means you’ll most likely only pay a three-month interest charge instead of the dreaded interest rate differential (IRD) penalty. Common reasons for breaking a mortgage include selling the home (and not rebuying right away) or refinancing before one’s maturity date. On an average-sized mortgage, avoiding pre-payment penalties can save you thousands of dollars
It’s an “All-in-One”-style line of credit (LOC)
- You can do all your banking from it, including unlimited e-transfers and bill payments. This means each time you make a deposit to your line of credit, you are paying down your mortgage, and reducing interest.
Readvancing is automatic
- Some lenders make you wait weeks to re-borrow the principal that you paid down on your mortgage portion. Or they make you submit an abbreviated application to increase your LOC limit. Not Manulife. As soon as a principal payment is recorded on the mortgage, you can reborrow those funds immediately from the LOC. That’s key if you’re using the M1 for leveraged investing strategies like the Smith Manoeuvre.
It’s a cheaper reverse mortgage alternative
- While most reverse mortgages are in the 3.99%+ range, an M1 starts at prime + 0.60%. It’s important to set this up before retirement as you’ll be able to get better rates.
You can handle emergencies such as the COVID-19 Crisis more easily
- If unexpected income loss occurs, having a readvanceable mortgage avoids figuring out how to defer mortgage payments, plus you can live off the balance of your line of credit. Manulife says its loan losses have been well below industry averages during the pandemic.
If you’d like more information about implementing the Smith Manoeuver through a Manulife One mortage, Book a Call with us today.