Canadian Tire Corp. Ltd. says its new all-in-one mortgage account, launched recently by its financial services unit, will help expand its burgeoning suite of banking products, deepen its relationship with customers and possibly even change the way Canadians pay for a home.

“We look for ways that we can differentiate ourselves and ways that we can bring value to Canadian consumers,” says Pam Dodaro, associate vice president, retail banking products, with Toronto-based Canadian Tire Financial Services Ltd.

In early September, Canadian Tire Financial launched the Canadian Tire One-and-Only account in three test markets in a pilot program: Calgary, Kitchener-Waterloo, Ont., and London, Ont. The product is also available online, but only in Ontario, Alberta, and British Columbia due to regulatory reasons. The company won’t say how long it plans to run the pilot program nor when it will launch the product nationally.

The new mortgage account combines a customer’s mortgage, loans and credit card debt, and chequing and savings accounts into one vehicle, giving him or her the chance to pay down debt faster, the company says.

“We’re marketing the product as getting your mortgage out of your way,” Dodaro says.

The account works, in essence, like a line of credit, secured for up to 80% of the value of the holder’s home. All the debt — mortgage, credit card and loans — is combined and charged interest at prime. Any deposits in the account are given credit against the value of the debt, thereby lessening the interest charges, which are calculated daily.

For example, on a $300,000 home with an outstanding mortgage of $150,000, the account will allow a customer to have an additional $90,000 in credit, representing 80% of the value of the home in total. Any money deposited into the account, even for just a day, will lessen the value of the overall debt, for as long as the deposit is there. Over time, Dodaro says, accountholders can reduce the overall cost of paying off their home.

“The true benefit is that your cash offsets any debt that you owe,” Dodaro says. “And it’s really simplified because it’s one account.”

She says the ideal client for the product is someone who has already built up equity in their home, has regular cash flow that exceeds monthly expenses, and could benefit from the opportunity of refinancing existing high-interest debt into lower-rate debt within the Canadian Tire mortgage account.

All-in-one mortgages are popular in both Britain and Australia, where they are known as “offset” mortgages, Dodaro says. In those markets, the products represent one-third of all mortgages.

“We thought that they would be very appealing to Canadian consumers,” Dodaro says.

The Canadian Tire mortgage account is neither the first all-in-one mortgage account on the market nor the best known. Manulife Financial Corp. , based in Waterloo, Ont., launched its popular Man-ulife One account in 1999, selling it through its extensive financial advisory network, which then refers clients to Manulife’s team of mortgage specialists. Although Manulife declines to disclose sales information for Manulife One, it does say that the product has been a big contributor to the growth of Manulife Bank’s total assets to more than $9 billion as of the end of September, up from $1.6 billion in December 2002.

Canadian Tire, with its brand recognition and 40 years of experience in financial services through its credit card line, says it can reach a whole new market of Canadians with its all-in-one mortgage account. Ninety per cent of Canadians, Dodaro notes, live within 15 minutes of a Canadian Tire store. “We want to utilize that footprint,” she says.

The company says it’s not worried that its go-slow approach to rolling out its banking products, including the new mortgage account, could allow other retail players to steal its thunder by introducing their own banking products.

“We’re taking the time to learn and ensure we get this right before we launch across the country,” Dodaro says. “There are a number of new entrants to banking at this time. But I can say, quite boastfully, that none has the distribution power that Canadian Tire has.”

In October 2006, Canadian Tire Financial launched its first full suite of banking products — high-interest savings accounts, GICs and conventional mortgages — in a pilot program in the same cities (adding London, Ont., in June of this year). Unlike President’s Choice Financial, which sees grocery giant Loblaw Cos. Ltd. partner with CIBC to provide banking products, Canadian Tire finances it own banking operations through Canadian Tire Bank, which had $867 million in assets at July 31.

@page_break@“Consumers who are interested in an alternative to the banks — it’s because they’re not happy with their current bank,” Dodaro says. “This is truly a Canadian Tire operation.”

Although the domestic market for all-in-one mortgage products is still small, industry observers say there is plenty of room for new products and services and that Canadians are increasingly receptive to alternative mortgages from non-traditional providers.

“I think we’ve seen, over the past five or 10 years, a real development in terms of mortgage products and providers,” says Jim Murphy, president and CEO of the Toronto-based Association of Accredited Mortgage Professionals.

“The appeal [of the all-in-one mortgage] is that it’s one-stop shopping,” Murphy adds. “All of your financial needs and requirements are dealt with in one account. There are certain segments of the market that find that very appealing.”

Canadian Tire Financial says that it has carefully structured the account to appeal primarily to responsible borrowers, marketing it as paying down the mortgage sooner rather than unlocking the equity in the home.

“Looking at our guidelines and our approach,” Dodaro says, “I’m sure that this is the right time to be entering the market with this
product.” IE