Manulife Bank’s new online calculator illustrates the impact of interest costs on mortgages
WATERLOO, ON, Nov. 7 2006 – Less than one-third of Canadian homeowners in a national survey say they understand how much it costs for a mortgage when they buy a home, according to a Maritz Research telephone omnibus poll for Manulife Bank of Canada.
“Many people understand that when they buy a $200,000 home, they’ll actually pay $200,000 plus ‘more’ for mortgage interest. What they don’t appear to appreciate is exactly how much that ‘more’ could really cost,” says Roman Fedchyshyn, President and CEO of Manulife Bank of Canada.
Seventy per cent of respondents either didn’t know or guessed lower than the actual cost when asked how much they might pay for a $200,000 mortgage at six per cent, paid over 25 years. It actually costs more than $385,000, including principal and interest -almost twice the home’s purchase price.
When presented with possible options to help lower their mortgage costs, 39 per cent (the largest single group) believed a lower interest rate is the best answer. A combined half of respondents said the key to paying less interest was making more frequent payments (34 per cent) or the ability to make lump sum payments (16 per cent).
The survey also found almost one quarter of those surveyed did not have any extra money at the end of the month. Of the nearly three-quarters of respondents (73 per cent) who had “extra cash” at the end of the month, 45 per cent actually used it to reduce their debts. The remaining 55 per cent chose to leave their money in a bank account or to invest it somewhere else.
“The survey shows some encouraging signs that people are aware of ways to reduce household debt, yet we were surprised at how many are committed to inefficient ways of managing their hard-earned money,” added Mr. Fedchyshyn.
“Once we learn to appreciate the true impact that mortgage and other debt interest charges have on our overall daily finances, it’s easier to make decisions to properly address those costs.”
Online calculator highlights options to reduce costs
Manulife Bank developed an online financial calculator to help more Canadian homeowners understand how interest can impact their cost to own a home. Available on manulifeone.ca, this tool compares their current mortgage approach against a combination of alternatives: consolidating debt, using short-term savings to lower their debt, as well as using left-over cash to lower their costs.
Manulife Bank believes that by comparing their current mortgage against a number of cost-reducing alternatives, mortgage-holders may gain a better sense of what works best for their particular situation to help them lower their interest costs.
Using money more efficiently
“Obviously, there is no one right answer. The fact that so many people actually do have cash left over at the end of the month is a clear sign that they can reduce their mortgage costs,” says Mr. Fedchyshyn.
“One way that homeowners can lower their debt is to set up a Manulife One account where they can combine all outstanding debts at one low interest rate, then deposit any savings and their income into their mortgage. This could help lower their debt – and their interest costs accordingly – and still give them access to that money when they need it.”
The Maritz Research telephone omnibus poll was conducted between July 27 and August 1, 2006. A total of 2,001 Canadians were interviewed. From this sample, 677 individuals owning their home with a mortgage were selected to answer the Manulife One questions. The margin of error for a sample size of 677 is +/- 3.77%, 19 times out of 20.
About Manulife Bank of Canada
Manulife Financial established Manulife Bank of Canada in 1993 as the first federally regulated bank to be opened by a life insurance company following Canada’s financial reform legislation of 1992.
Manulife Bank was created to support the sale of the parent’s core products and assist financial advisors in providing fully integrated financial plans to their clients. Today, Manulife Bank is Canada’s eighth largest domestic bank with more than $7 billion in assets, serving clients across Canada in all provinces and territories. To see Manulife Bank’s most recent financial statement, visit the OSFI website at www.osfi-bsif.gc.ca.
About Manulife Financial
Manulife Financial is a leading Canadian-based financial services group serving millions of customers in 19 countries and territories worldwide. Operating as Manulife Financial in Canada and Asia, and primarily through John Hancock in the United States, the Company offers clients a diverse range of financial protection products and wealth management services through its extensive network of employees, agents and distribution partners. Funds under management by Manulife Financial and its subsidiaries were Cdn$381 billion (US$341 billion) as at September 30, 2006.
Manulife Financial Corporation trades as ‘MFC’ on the TSX, NYSE and PSE, and under ‘0945’ on the SEHK. Manulife Financial can be found on the Internet at www.manulife.com.