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The Advantages of a Cashback Mortgage

With so many terms being thrown your way, it’s not always easy to understand what kind of mortgage is best suited for your needs. Will you benefit from a cashback mortgage or a lower rate? Depending on your situation, one could be more helpful in your immediate circumstances, while the other a better financial decision in the long run. It may seem like there are lots of calculations to make, but let’s dissect them together in order for you to better understand the details of how a cashback mortgage works and whether it could benefit you.

What is a cashback mortgage?

After years of saving your money, sacrificing a much-needed vacation, and insisting on staying in rather than going out, you’re finally capable of affording a home. You’ve been to your bank or broker and gotten approved for a mortgage. You’ve found the perfect starter home, closed the deal, and gathered enough money to put a down payment. Finally, a place to call your own. While this sounds like an ideal scenario, the reality is that this often leaves buyers with little to no money left to renovate or fill the house with furniture. This is why cashback mortgages have proven helpful in many situations.

A cashback mortgage simply means that a bank or broker will award you with up to 3% cashback on the amount you are borrowing to buy your home in exchange for a higher interest rate. This money can be used to do anything you like: clear outstanding debts, buy furniture, renovate, pay lawyer’s fees or land transfer taxes, etc. You can even take a stress-relieving vacation!

Pros and Cons

Ideally, if you’re considering a cashback mortgage, it is important to know what that money will be used for and if it is really worth sacrificing a low interest rate. If you are buying a home and have little money left afterwards to furnish, then a cashback mortgage could be treated as a personal loan, and the financial institution may provide you with a lower interest rate.

Evidently, it is important to be weary of cashback mortgages because the interest rate is certainly higher. The other drawback is that if you need to refinance your mortgage to obtain a better interest term and rate later on, you may have to return your cashback, sometimes a prorated amount, and sometimes in full.

A cashback mortgage has its pros and its cons, but depending on your financial situation, it can be a great option if you need some extra money at the beginning period of your homeownership. If you are willing to accept a higher interest rate, a cashback mortgage might make the first few years less stressful and more enjoyable. For some expert advice on what financial decision will benefit you the most, contact Rose Blankenagel at Mortgage West - The Mortgage Centre for more information.