What are Cash Back Mortgages?
Cash back mortgages are a type of mortgage that offers a cash incentive to homebuyers. Unlike traditional mortgages, which require a down payment and other upfront costs, cash back mortgages can help reduce these costs and provide additional cash for homebuyers to use as they see fit.
With a cash back mortgage, you can receive a percentage of the mortgage amount in cash, which can be used for a variety of purposes, such as closing costs, renovations, or other expenses. The cash back is usually paid out after the mortgage closes and can be used for any purpose the homebuyer chooses but there may be conditions associated with the cash back, such as a minimum mortgage amount or a requirement to keep the mortgage for a certain period of time.
Benefits of a Cash Back Mortgage
There are several benefits to consider when it comes to cash back mortgages, including:
Cash back amount
The amount of cash back offered can vary between lenders, but typically ranges from 1% to 5% of the mortgage amount. This can be a significant amount of money that can help reduce upfront costs and provide additional cash for other expenses.
Potential savings
By receiving cash back, homebuyers can potentially save money on upfront costs, such as closing costs and legal fees. This can be especially helpful for first-time homebuyers who may not have the funds for a large down payment or other upfront costs.
Flexibility
Cash back mortgages offer flexibility in how the money is used. Homebuyers can use the cash back for any purpose, such as renovations, furniture, or other expenses related to the home.
Other benefits
Cash back mortgages may also offer other benefits, such as the ability to pay off the mortgage faster or the option to skip a payment. However, it’s important to carefully review the terms and conditions of the mortgage to understand any restrictions or fees associated with these benefits.
Drawbacks of a Cash Back Mortgage
While cash back mortgages offer several benefits, there are also some drawbacks to consider, including:
Higher interest rates
Cash back mortgages may come with higher interest rates compared to traditional mortgages. This can result in higher monthly payments and more interest paid over the life of the mortgage.
Limited options
Cash back mortgages may have limited options in terms of mortgage terms and conditions. This can make it harder to find a mortgage that fits your specific needs.
Restrictions
Cash back mortgages may come with restrictions, such as a requirement to keep the mortgage for a certain period of time or a minimum mortgage amount. It’s important to carefully review the terms and conditions of the mortgage to understand any restrictions or fees associated with the cash back offer.
Who is Eligible for a Cash Back Mortgage?
To be eligible for a cash back mortgage, you’ll need to meet certain criteria, such as:
Credit score requirements
Most lenders require a good credit score to qualify for a cash back mortgage. The specific credit score required can vary between lenders.
Income requirements
Lenders may also require a stable income to qualify for a cash back mortgage. This can include proof of employment or income statements.
Other eligibility factors
Other factors that may be considered when applying for a cash back mortgage include the size of the down payment, the value of the property, and the type of property.
When applying for a cash back mortgage, it’s important to carefully review the terms and conditions of the mortgage and understand any fees or restrictions associated with the cash back offer.
Cash back mortgages can be a helpful option for homebuyers who need assistance with upfront costs or want extra cash for other expenses. By understanding the benefits, drawbacks, eligibility requirements, and application process, you can make an informed decision about whether a cash back mortgage is right for you.
If you’re interested in exploring your mortgage options further, our experienced mortgage brokers are located across BC, Alberta, Saskatchewan, Manitoba, Ontario, and Nova Scotia. Contact one of our mortgage agents today!
