Manulife Bank has rolled out another balance sheet product in the broker channel: the Manulife One for investment properties. We’ll call it the “M1R” (M1 for rentals) for short.
It’s an important product that broadens choice for broker customers, as there are few other automatically readvanceable HELOCs for rental properties (Scotia STEP being its main competition in the broker space).
“We are very pleased to be expanding further our commitment to mortgage brokers across Canada and appreciate the confidence they are showing in partnering with us,” said Jeff Spencer, Manulife Bank’s VP, Retail Sales & Distribution. This is the second balance sheet product that the bank has launched in the broker market in the last month.
Here’s a quick rundown of M1R’s features:
- Maximum LTV: 80% (75% for high-rise condos; note: any portion over 50% LTV must be in a non-readvancing 5-year fixed sub-account)
- Maximum loan amount: $750,000
- Rental treatment: Manulife allows Gross Rental Income x 50% for the net rental income (on the subject property or an owner-occupied rental; note: Manulife removes heat and property taxes from the debt ratios). On non-subject, non-owner-occupied properties, it allows gross rents less allowable operating expenses (actual expenses as noted on the T776)
- Rate Hold: 120 days for purchases and 90 days for refinances (on the 5-year fixed portion)
- Minimum credit score: 700 (primary applicant)
- Rate: The LOC rate is prime + 0.70%
What’s to love:
- The fact that Manulife has filled a key niche with a competitive new product that lets brokers better compete with big banks
- The LOC is fully readvanceable. Clients can set up multiple readvanceable sub-accounts after closing (Tip: do it in the first 30 days to ensure you get the same rate on the LOC)
- The 5-year fixed portion can be qualified on the contract rate (the LOC must be qualified using the BoC’s 5-year posted rate)
- The LOC account is a bank account, and can be used to segregate and track expenses pertaining to the subject rental property
- Broker compensation is notably higher than Scotia, and paid on the limit of the LOC
What could be improved:
- The 5-year fixed rate is 15 bps higher than Scotia’s rental rate
- Clients can’t have more than $1 million of rentals with Manulife (hopefully they look at raising this limit in the future, as it’s quite limiting to some clients)
- The only term option for sub-accounts is the 5-year fixed
- It’s not available in Quebec
- It’s got M1’s $14 monthly fee. A lot of customers aren’t keen about it. But, on a positive note, the fee can potentially be written off (speak to your accountant) and includes unlimited e-banking, which is essentially a dedicated accounting solution for that rental property.
All in all, the M1R is a solid new rental financing option that should do decent volume in our channel. And if Manulife addresses a few of these wrinkles, its uptake will be all the greater.