Cash Back Mortgages

You may or may not have seen local banks advertise cash back mortgages. These mortgages allow borrowers to receive money back after the closing of a mortgage. Sounds great? As with any financial product we need to dig deeper to see if this mortgage type is right for you.

So what is a Cash Back mortgage?
A Cash Back Mortgage involves you agreeing to the selling price of the home plus a pre-determined amount of cash that is yours for anything you desire. When buying a new home this extra cash is great for legal fees, furniture, renovations, debt payment, or landscaping. You could also reinvest the money in your child’s education or a retirement fund. The only restriction when it comes to the extra cash is that it may not be used for the down payment on the home. This rule was established a few years ago when the government stepped in to make regulatory changes.

How much extra cash can you get?
Cash Back Mortgages offer up to 5% of the mortgage against your new home in extra cash. The larger your home purchase, the more money you will receive. If your mortgage is $250 000 you’re eligible to receive up to $12 500 cash back, but if the new home costs $500 000 then you’re eligible for up to $25000 cash back.

What are the benefits?
Homes don’t come cheap and always have unexpected costs lurking around the corner. Having a little extra cash, borrowed at today’s low interest rates, can go a long way in the home buying process.

Are there any disadvantages?

Overall, Cash Back Mortgages carry a higher interest rate than a conventional mortgage. Lenders typically issue Cash Back Mortgages with a rate premium up to 1% higher, which means your monthly payments will be higher. If you are not able to make the payments at some point over the mortgage term, the money becomes payable in full and may be subject to additional lender penalties. These mortgages require a fairly strong credit history as the mortgage premium is riskier for the lender. You should always consult with your lender before you commit to a Cash Back Mortgage so you know exactly what you’re getting into.

How do you get a Cash Back Mortgage?

Cash back Mortgages are available either when you purchase a home or refinance your mortgage upon renewal. You will get to determine your amortization, choose your payment frequency (weekly, biweekly, monthly), and have the choice of a 5, 6, 7, or 10 year term. Prepayment privileges are also permitted up to 20% depending on the lender. These funds will be handed off to the lawyer the day the mortgage closes who will in turn funnel them back to you.

If you have any questions about Cash Back Mortgages or are interested in applying for one yourself contact your mortgage professional or AC Lending Group today!