Understanding Cash Back Mortgages
Have you heard of cash back mortgages? Well, this is a type of mortgage where the borrower receives a lump sum amount when the mortgage closes. When purchasing a home, on top of the down payment that you need to make, you may also have to set aside some cash for repairs, renovations or furnishing of the house.
A cash back mortgage option gives you the chance to cover this costs if you do not have extra money for this. Depending on the lender, you will receive a cash rebate of a certain percentage. It is usually between 1 to 7 %.
The average sum amount that many borrowers receive is five percent. The percentage is done on the difference between the home value and the down payment, i.e.
Cash Rebate= (Home Value – Down Payment) *Cash Back Percentage
Characteristics of a Cash Back Mortgage
- It has a fixed interest rate
The interest rate is set over the term of the mortgage contract. The ability to have variable interest rates in a standard mortgage product can help the borrower to save interest in the long run. This flexibility is not possible with cash back mortgage.
- Has higher interest Rate
Lenders have to receive compensation for the additional amount that you are paid up front. That’s the reason why these mortgage products almost always have a higher interest rate than the typical mortgage product.
- Penalties
After few years of using the property, one may decide to sell it and use the proceeds to pay the mortgage back before its term expires. When you break the mortgage’s term early, you may have to pay back a portion of the cash back rebate or the full amount. It all depends on the contract.
How to Qualify
For you to qualify for a cash back mortgage, you will need to:
- Prove that you have a steady income
- Have a solid credit profile
- Apply as owner-occupier
At Expert Financial Corp, we strive to match our clients with the optimal mortgage products that meet their needs. Reach out to us if you need a cash back mortgage with optimal interest rates.