Cash Back Mortgages

If it sounds too good to be true, it generally is.  Cash back on mortgages is an optional feature that immediately pays the borrower in cash, a certain amount as a percentage of the mortgage amount.  In most cases, in exchange for the cash back, borrowers pay a higher interest rate on the mortgage than would have been obtained without this cash back feature.  So, borrowers will not get the best available rate on the mortgage market and cash back at the same time. 

This cash back feature is appealing to some borrowers as it can help pay for things such as closing costs on a new home, legal fees, renovations and even furniture. 

Lenders will have certain restrictions on the cash back feature on the mortgage, which often is not understood by the borrower.  Borrowers who wish to refinance, renew or transfer their mortgage prior to the end of the mortgage term will most likely have to repay a portion, or all of the cash back amount that was received when the mortgage was originated. 

Cash back mortgages are generally only available on residential mortgages with terms of five years or greater.  Borrowers who have larger mortgages will most probably generate higher cash back amounts, however maximum amounts do exist with most lenders. 

Borrowers are encouraged to fully understand the rules, restrictions and limitations on the cash back feature of the mortgage product they are considering.

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April 27, 2017

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