Home Financing Options & All in One Account (Manulife®)
Where down payment is 5% or less than 20% of the home price, it is best to stick to mortgage finance from the Bank. Here one pays the Interest + Principle = Total Monthly mortgage. This payment stretches over the amortized 30 years to 40 years, as calculated by the bank. The bank makes money on the interest by stretching the payment schedule and neglecting to pay down your amount owed, based on their policy of calculating the interest Bi-Annually ( every 6 months).
Hence your accumulated principle for six months is only applied once in July and again in January, resulting in your overpaying the interest and underpaying the amount owing.
The Other option to mortgage is, by using the principal owed on the home to increase your own net worth.
See how this works: The principal amount is separated from the interest on the home mortgage payment in the All - In - One A/c. The interest is paid on the amount owed on the home at a variable rate of interest.You may use the principal amount along with any excess you may have left over in your chequing account to pay off the amount owing as frequently as you like. OR you may pay the variable interest on the home loan but still use the principal amount to grow your own net worth. This may free up your own cash to perhaps buy more rental property OR, it may be invested in RRSP's, Tax Free Savings Account, DRSP's or in the capital market and earn substantially higher returns in future value. You may alternatively buy real estate properties to multiply investment returns, hence save money for your golden years of retirement.
Of the Canadians retiring at age 65, on an average, 59% are still saddled with unpaid debt. Most alarmingly, they have not saved enough in other asset classes while they had a chance. Their unpaid home is still their biggest asset !
That is definitely not a retirement plan!
The bank profits on the interest by extending the payment schedule. Your principal is only calculated biannually ! You the(Home Owner) lose both ways ........