A Cash back mortgage is popular with first time home buyers. A cash back mortgage allows the mortgage borrower to get cash back after Closing. Sound good? On the surface it is a great idea but you should know the pro’s and con’s of a Cash Back Mortgage.
How Does a Cash Back Mortgage Work
When you obtain a mortgage loan, you can possibly get a cash amount anywhere from 1% to 5% of the mortgage amount depending on the lender and term.
What are the Pro’s
- If you’re a first time home buyer and you are short after the mortgage closes, the cash will give you breathing room and get you through the first couple of months.If you have spent most of the money on a down payment, you can get cash back for associated costs such as legal costs. You can also use the money for renovations or furniture or other necessities.
- You can own your home faster if you are short on funds. You may be in a position to get a great rate or found the perfect home at a great price.
What are the Con’s
- If you decide for any reason to terminate the mortgage term prematurely, you will have interest penalty, you would also need to return the cash back amount and could incur a penalty.
- You don’t usually get the best rate from your lender so a Cash-Back mortgage usually costs you more in the end. You will want to start crunching the numbers and calculate if it’s worth it in the long term. A good way to start is to start calculating the cost of renting versus buying a home.
Before you get a cash back mortgage, know the facts, evaluate your options and read the fine print. To find out more information about a Cash Back Mortgage and how it will impact interest rates, contact a mortgage broker. You can find a mortgage broker at CompareMyRates.ca or get a personalized mortgage quote by answering a few questions and we will match you up with a mortgage broker in your area who specializes in your particular situation.