Manulife officially entered the broker space two-and-a-half years ago to much fanfare. As a balance-sheet lender, brokers expected a wide array of balance-sheet products.

The products that brokers got turned out to be a nice appetizer. What Manulife has recently released, however, is finally closer to the main course.

Last week the bank made several notable improvements. It added:

  1. 1- to 4-year fixed rates for its uninsurable Manulife One (M1).
  2. 1- and 5-year fixed insurable rates for its M1.
  3. The ability to automatically readvance fixed-rate sub-accounts in its M1.
    • Auto-readvancing is available up to 65% LTV in its insurable version of the product; the excess must be in an amortizing non-readvanceable portion
  4. The ability to have up to five sub-accounts in the M1 (two at origination, and up to three more after closing on the uninsured version).
  5. The ability to transfer into an M1 from another lender.

Hundreds of thousands of clients demand HELOCs that automatically create extra borrowing room on a credit line as they pay down their mortgage. At present, brokers have few other so-called “automatically readvanceable mortgage” options besides Scotia, Desjardins, MCAP and a few credit unions. This extra choice is what makes Manulife’s new offerings valuable.

The “Switch”

Probably the best news in all this is the ability for borrowers to transfer (switch) their mortgage into an M1, get a line of credit that grows over time and still get insurable mortgage rates.

Here’s how it works:

  1. Clients can transfer their insurable mortgage to Manulife, choosing either a 1- or 5-year fixed term with a 90-day rate hold.
    • Manulife’s insurable rates are excellent at the moment, and available up to 80% LTV.
  2. The total authorized limit of the amortizing portions cannot be more than the mortgage being paid out plus $3,000.
    • For those who need more of a traditional refinance, Manulife also offers an uninsurable option.
  3. The total authorized limit (on all portions combined) can be up to 80% LTV.
    • The client can borrow up to 80% LTV if they qualify, but the portion above 65% is non-readvanceable.
    • The minimum credit line at Manulife is $1 but the benefits of the M1 only accrue if the LOC is big enough to handle the client’s monthly spending. That way, the client can take advantage of interest offsetting (i.e., using their deposits to offset borrowing and thus reduce total interest).
  4. The fixed-rate sub-account can be fully readvanceable up to 65% LTV.
    • Clients can get only one readvanceable sub-account at origination, but more after closing.
    • Credit line accounts can be locked into fixed-rate portions later at uninsurable rates.
  5. For transfers, the maximum loan amount is up to $3 million (over $800,000 requires the original mortgage to have been funded prior to November 30, 2016). For purchases, the maximum purchase price is $1 million.
  6. The amortization cannot be extended or exceed 25 years.
  7. Minimum credit score is 700 (650 for the co-applicant if insurable; 570 if uninsured).
  8. Each portion of the M1 is qualified individually using OSFI’s stress test and 39%/44% debt service (GDS/TDS) limits.

Apart from this excellent switch option, Manulife also has a range of fixed terms for its uninsurable M1.

How It Stacks Up

The good news:

  • Manulife’s 1- and 5-year fixed insurable rates make it today’s most cost-effective option for many seeking a readvanceable mortgage (the 1-year fixed can also be a decent alternative to a variable in a rising rate environment).
  • Manulife gives much-needed uninsurable 1- to 4-year fixed options to a broker market that badly needs well-priced short terms.
  • Manulife’s broker comp is based on the entire approved limit. Top tier brokers get trailers too.

The “not as good” news

  • Clients must still pay the $16.95 monthly M1 fee ($1,017 over five years), but that includes full e-banking and interest offsetting. Moreover, Manulife’s rates should save the average borrower over $1,000 in interest expense, assuming Manulife maintains its current exceptional 1- and 5-year rates. One more thing: this fee is waived if you get a cash-back Infinite VISA from the bank (rules apply).
  • Manulife still does not have a true switch program, so clients pay legal fees when transferring into an insurable M1.
  • Buydowns are not available on any M1 portion (this seems like an unnecessary restriction given most competitors allow buydowns, and given buydowns are sometimes needed to compete with RBC, BMO, CIBC and NBC).
  • Unlike competing products, the M1 still has no deep-discount variable-rate option (the 1-year fixed is a start, however).

All told, these new products are enough to arm brokers with an edge over big-bank competitors in certain cases. Assuming pricing remains competitive, I suspect these improvements will be enough to push Manulife’s broker market share from 1.9% in Q2 to over 3% next year.