Cash Back Mortgage
Cash Back Mortgage
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Do you need some cash at closing to help you pay for some expenses such as lawyers, moving expenses furniture etc? 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…
With a 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.
The money from a Cash-Back mortgage is especially helpful for the first time buyer who needs extra funds to purchase home improvement items such as blinds, carpet, appliances, or even furniture. Thus, first time buyers are the number one consumer of Cash-Back mortgages in Canada.
It is important to acknowledge that this money is not given to you for free. The Banks increases the interest rate on the entire mortgage to recoup their costs. The higher the percentage of cash back will reflect an increased on the fixed rate mortgage.
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 received a gift from your family to put towards your down payment but want some money in order to feel more comfortable taking on this new liability.
A common misconception is that Cash-Back mortgages are only for home purchases. However, they can also be used for refinances and revenue property purchases. Do note that the lenders that provide Cash-Back mortgage only typically only offer them in fixed 5 year terms.
Cash-Back amount 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 5 year term of the mortgage.
Once you have completed that 5 year term and are up for renewal the cash provided to you is considered "paid" and you are then eligible for best rates.
