Cash back mortgages – are they worth the extra interest? The major expense of buying a home can be overwhelming. Saving on your big purchase should start by shopping for your lowest rates. But, even with the promise of a low interest rate, you may realize that after all of your up-front purchasing costs – there isn’t much cash left over. You may need extra funds for a variety of reasons. Cash back mortgages help by providing you with a rebate when you take out your mortgage loan. It can be difficult to choose between low interest – or extra cash to begin life in your new home.
Your mortgage lender will make a lump sum cash payment to you when your mortgage closes. The amount advanced will vary by lender. It’s not uncommon to receive 3% cash back, but could be anywhere from 1% to 5%. As these funds are paid to you on closing, you can’t use them for a down payment. However, cash back mortgages are tax-free and you can choose how to spend the money. With more than 30 years of experience helping Canadians find low interest rates, the Mortgage Brokers Network experts can also help you shop for a cash back mortgage and choose what’s best for you.
Qualifying for a cash back mortgage with a bank lender likely means having a high credit score, a secure steady income source and a low debt-to-income ratio. Applying for a cash back mortgage can be a challenge with damaged credit, self-employment or difficult to prove income.
First, cash back mortgages are not typically advanced to purchasers who are buying rental properties. You must be residing in the home you’re buying. Second, if you aren’t sure that you’ll be staying in the home for a long time, you may want to carefully consider a cash back mortgage.
Refinancing or breaking your mortgage can trigger penalties and fees. A cash back mortgage is offered for a fixed term and lenders expect that you will stick to it. You could be required to pay back the entire amount in full or a pro-rated term amount based on the number of remaining months if you do break your mortgage early. An experienced mortgage broker can really help navigate some of the pitfalls of a cash back mortgage.
Only you can decide if a cash back mortgage is the best solution for your borrowing needs. While a mortgage broker can help guide you, ultimately, you must weigh the pros and cons. Flexibility and access to tax-free money on closing is a bonus, but you might also be paying a higher interest rate over the term of your mortgage.
If you really need money right away and additional interest doesn’t bother you, cash back mortgages can be a great way to accomplish goals. If you’re planning to use the cash rebate to reimburse higher interest sources of credit such as credit cards or unsecured credit lines, you can use these funds to consolidate debt and save money. Essentially, you must consider your overall financial needs and what you can afford. If you want the funds to buy new furniture but can’t afford a higher fixed interest rate, you may want to consider your application very carefully.
If you’ve decided that a cash back mortgage makes sense for your circumstances, we can help you find the right mortgage lender. Typically, if you’ve decided that this type of borrowing arrangement is best for you it means that you’ve considered all other options first. If you’ll be taking a cash rebate it is likely that you will need the funds for one of the following reasons:
Remember, you won’t be taxed on your cash rebate so the funds you receive can help with a variety of goals – as long as the interest over time isn’t going to put a strain on your budget.
You can trust us to be your best ally when deciding between a low fixed rate, variable rate, or cash back mortgage. We’ll help you compare rates and products and work to get your application approved. We’ve got an extensive network of lenders and we specialize in challenging circumstances. We want to understand your goals and objectives to help you make the right decision.
Even if you’ve already been to the bank and turned away for the loan you want, we can help turn that “no” into a “yes” and get you approved. Access to flexible lenders and decades of experience helps.
Discover what 30 years of experience can do for you.
|Term||Posted Rate||Our Rate||Claim This Rate|
|Home Equity Line of Credit||Prime + .50%||Prime +.50%||Claim Rate|
|Fixed 1 Year||5.24%||4.74%||Claim Rate|
|Fixed 2 Year||5.19%||4.89%||Claim Rate|
|Fixed 3 Year||5.24%||4.94%||Claim Rate|
|Fixed 4 Year||5.34%||4.99%||Claim Rate|
|Fixed 5 Year||5.19%||4.59%||Claim Rate|
|Variable 5 Year||4.70%||4.7% (prime -.90%) Net Rate 3.80%||Claim Rate|
|Fixed 10 Year||5.99%||5.79%||Claim Rate|