Cash Back Mortgage
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Do you need some extra cash and are either buying a home, up for renewal and shopping around. This could be a great mortgage option for you.
Is A Cash-Back Mortgage Worth It?
Let’s discuss how a cash-back mortgage works… There are 2 different types of cashback mortgages:
1) Mortgage Loan Balance Based Cash-Back Mortgage
- the client receives a rebate on their mortgage at the time of closing of the mortgage.
- This rebate varies anywhere from 1% to 5% of the mortgage amount depending on the lender and term chosen.
- Rates are generally higher on these types of products
Example: You buy a new home, 5% down payment from your own funds and borrow $400,000 mortgage money
If you had a debt you wanted to pay off, or was needed to be able to qualify for the mortgage this can be a great product. Mortgage interest rate may be a bit higher but if you did a 3% cashback thats $12,000 cash back!
2) Mortgage and Banking Product Bundle Cash Back
- this is where a mortgage uis obtained with an institution also offering a cashback for being a client
- generally having a mortgage alone doesn't suffice to qualify for this cashback like option #1
- most of these options want you to open a bank acct with that same lender and very often have your mortgage pmts set up to come from the bank acct
Example: Same new home, same 5% down, same $400,000 mortgage
With most options you open the new bank acct and after closing within 30 days you will see a direct deposit of a varying amount bank to bank but on average approx $500-$2000
It is important to note that these mortgage types are not granted for free. Having paid products like bank accounts or increases to interest rate on the mortgage allows the lenders to recoup their costs.
Why would I want a Cash-Back mortgage?
- If you have saved up enough money to purchase your home, but are concerned you may be a little short after the mortgage closes the cash-back mortgage acts as a buffer to get you through the first couple months as a new home owner.
- You utilized the RRSP Home Buyers program and withdrew your down payment out of your RRSPs. Now you need money to pay for your legal fees and moving expenses.
- You have some debts you are almost done paying or just want to be free of when you move into your new home
- You were already considering changing your day to day bank account or credit products so a new one is no big deal to you to have
1) Cash-Back amounts will be clawed back (on a prorated basis) if you decide to pay off your mortgage early, transfer it, or make a significant change to it within the term of the mortgage.
2) Once you have completed that term and are up for renewal the cash provided to you is considered "paid" and you are then eligible for best rates.
3) The cash back CANNOT
be used towards the down payment - a lot of people ask me this as it used to be something that was doable but has been gone since Oct 31, 2012 when the federal regulator, named OSFI, changed the rules for all lenders taking this option away from home buyers.
