Cash Back Mortgages – Will it work for you?
Cash Back Mortgage Option
With a cash back mortgage, your lender advances you a cash lump sum when your mortgage closes. The most common sum you receive is 5% of your mortgage amount, but it’s possible to get between 1% and 5% depending on the lender you choose.
There are some down sides to this type of mortgage. First- you will pay about 1.5% higher interest rate for the duration of the mortgage term. Usually this is a five-year term and if you take a look at how much extra interest you are paying you will find that it takes you five years to pay this sum back to the lender.
Another point to consider is that Canadians move on average every three years. If you have to break the mortgage, you owe the lender the usual three months interest or Interest Rate Differential (IRD) as well as the balance of the cash back balance. This could be a very pricey move. If your lender allows it , it’s best to port your mortgage to your new home to avoid the double hit of the penalty and paying the cash back.
A cash back mortgage is a great option but it’s not for everyone. Be sure to tell your mortgage broker if it’s at all possible that you will have to move before your mortgage term is over so that he or she can advise you on what your penalties would be. Call me to discuss if this option is best suited for your family 905-252-0501