The One Thing

In the 1991 movie “City Slickers”, Curly (Jack Palance) asks Mitch (Billy Crystal): 

“Do you know what the secret to life is?” 

Holding up one finger, he says “One thing. Just one thing...” 

Mitch questions: “But, what is the one thing?”

Smiling, Curly imparts his wisdom: “That’s what you have to find out”.

It may not be a secret to life as a Canadian homeowner, but there is one thing that, if you own your home, or will be, you should be finding out about. This one thing is transforming the way homeowners can use their house to adapt to changes in circumstances from cash flow to health. 

The great boom in Canadian real estate prices from 1999 to 2011, fuelled by exceptionally low interest rates, has dramatically increased homeowners’ net worth and sense of security. However, this abnormal growth pattern has also concentrated and expanded the risk of change when it affects homeowners’ largest and relatively illiquid asset. Home equity is the ultimate “backstop” and “shock absorber” relied on by many homeowners to provide stability in the face of change. The solution to change and uncertainty is flexibility. Having options, within a diversified strategy, allows a planned approach to making choices within your control, rather than outside it. This one thing delivers flexibility and options that, as part of a strategy, can de-risk the concentration of value in home equity, unlocking it for change. 

Retired clients tell us they want to stay in their home and neighborhood as long as their health permits. Sometimes staying becomes a cash flow issue when increased property care and taxes or personal care costs pinch retirement income. Fortunately, the BC government may provide part of the solution with a Property Tax Deferment Program (BCPTDP), allowing homeowners over age 55 to defer payment of their principal residence taxes as long as they own and live in their home. The loan is at Prime minus 2% simple interest (currently 1%), making deferment a logical first step in improving retirement cash flow. Deferral may allow changing taxable distribution levels from RRIFs and other investments, thereby reducing clawback on OAS benefits, age tax credits or complex care subsidies. 

Decreasing expenses like property tax, and income tax on the income to pay the property tax, can certainly help increase spendable cash flow, but what if more is needed each month, or in a lump sum, for emergency repairs, strata levies or health-related expenses? 

The second part of the solution is a readvancable, layered, global credit facility secured by home equity at industry leading rates and available without requalification when it might be needed. Many clients have a line of credit with their financial institution, but some mistakenly settle for a higher-rate, unsecured line to keep the title to their home clear, while forgetting that their personal guarantee on the line gives the lender a default pledge of all their assets and income. They may as well benefit from their home equity and get the lower-cost secured credit line available at Prime plus .5% (currently 3.5%). 

There’s more to getting the right credit facility in place than just the rate of interest though! The qualification is based on property value and the guarantor’s income. Lenders will provide flexible credit limits up to 50% of fair market value (FMV) with no income qualification, to 65% of FMV readvancable government limit with income proof, and to 80% of FMV uninsured limit with a non-revolving fixed layer of at least 15%. The lender must be on title ahead of the BCPTDP so planning ahead avoids having to pay off the low, simple interest loan to add a credit facility later. 

The ideal would be having a credit facility that the lender can’t demand you to pay back, requalify for, or renegotiate the rate spread on. A multi-layer credit facility with several sub-accounts, both fixed rate and variable, to track different purpose draws, separate deductible interest accounting or simplify administration of inter-generational loans is a key criteria that narrows the number of lenders to a handful. If you add transferability to another property on right-sizing, no demand call or requirement to pay the interest accruing on credit balances within limit, and lender-covered costs for FMV appraisal and legal fees for credit registration, we narrow the field to one. The one. 

Manulife Bank offers the only readvancable credit facility that provides all of these flexible options and more. It is called Manulife One. It’s no secret that they offer best in class variable and fixed borrowing rates, the most flexible 20%/20%, penalty-free, pre-payment options on fixed terms, twenty separately tracking nameable layers, all rolled into one multi-purpose “thing”. 

Manulife One is unique as a pre- and post-retirement pressure relief valve on cash flow. The One can be your mortgage and revolving line of credit for building home equity or unlocking it. One even offers free chequing, overdraft protection, a Platinum MasterCard with cash back or travel points, high daily interest on savings, and online autonomous banking capabilities or links to your existing account. 

The secret is: One is only offered by referral from your financial advisor, including preferred rates. So, now you know the One thing. Curly would be proud. He liked independent advice.