You are probably wondering what a cashback mortgage is and why would I get one?
This is where you can get anywhere from 1-5% of the total mortgage amount back in cash when your mortgage funds.
For example: If your total mortgage amount is 300,000.00 and you did a 3% cashback you would get back 9,000 back from the Lender.
You are probably wondering …What’s the catch?
Well… nothing is ever truly Free so here is how it works…
The cashback is built into your interest rate over the term so your rate will be higher with a cashback than would be without.
Now with that said, I never have never believed in cashback mortgages as the rates were at least 1% higher than non cashback rates BUT that has changed and now they have been only about .50-.70 higher.
This makes it a great option for those who want to pay off debt to eliminate high interest debt or qualify for a higher amount, are short on closing costs, have extra fallback money in savings, etc. It can be used for anything except down payment.
Here is an example:
Mortgage amount is 300K
3% cashback @3.09 for 5 year fixed- Interest paid over term is 42,883.27
Regular rate with no cashback for 5 yr fixed is 2.59 – Interest Paid over term is 35,815.39
42,883.27 – 35,815.39 = 7,067.88 difference in interest.
Cashback money is 9,000 – 7,067.88 = 1,932.12. So taking into account the money you are getting in the long run you are ahead 1,932.12 doing the cashback.
As you can see in this sample that the interest paid is more, but the cash received is higher than the difference. This isn’t counting any potential interest saved if you are paying off a high interest credit card with the cashback.
To wrap it up the cashback can be very beneficial to some people depending on the situation. For more information don’t hesitate to reach out to me or your Mortgage Broker.
Sheila Cooper
Mortgage Broker/Partner
CENTUM Mortgage Choice