Mortgage Blog

Could a Cash-Back Mortgage Help Get You into a Home?

October 8, 2020 | Posted by: Brandi Pierik and Matthew Pierik - Red Deer and Calgary Mortgage Brokers

If you’ve been thinking about buying a home, chances are that saving your down payment is one of the biggest obstacles you’ve faced. This can definitely be a struggle with all the other expenses life throws your way. Sometimes you just need an extra boost that can help take care of other homebuying costs, especially if you’re a first-time homebuyer.

And POW! That’s where your Dominion Lending Centres Supergirl comes in with a cash-back mortgage to save the day!

With a cash-back mortgage, you’ll be advanced a lump sum of money when your mortgage closes. This can be used to cover closing costs, help furnish or renovate your new place, or any way you choose except as a down payment, as these funds must come from your own resources.

Cash-back amounts vary from lender to lender, but a predetermined percentage of the property’s value becomes eligible as a rebate at closing. So, the larger your mortgage amount, the more money you can receive through a cash-back mortgage. The most common amount is 5%, but some lenders provide anywhere between 1% and 7% as a cash-back option.

As your Red Deer Mortgage Broker, I’ll swoop in and find the product that best meets your unique needs. It’s important to note that cash-back isn’t just available if you’re buying a new property. You may even be eligible for a cash-back mortgage on the refinance of an existing mortgage.

Cash-back mortgages come at a cost

You should expect to pay a higher interest rate on your mortgage if you opt into a cash-back program – paying as much as the lender’s posted rate vs discounted rates, although some lenders will just boost the rate 1-2% higher than the discounted rate.

Either way, it’s calculated, a higher rate will result in a larger out-of-pocket interest expense for you over your mortgage term. It’s this added interest that’s paying for the cash-back you receive at closing. Lenders never give out free money.

Cash-back options are only available through fixed-rate mortgages so, if you’re a fan of variable rates and their potential to save on interest payments, you won’t be receiving cash back at closing.

As well, cash-back mortgages aren’t available unless you have a strong credit rating. Any blemishes in your credit history can make you ineligible for this product.

And, finally, if you choose a cash-back incentive and then need to break your mortgage for any reason, you’ll face a clawback on some or all of the cash-back money you received. So, not only will you have to pay back the funds you received at closing – in addition to regular early payout penalties associated with exiting your mortgage term prematurely – but you’ll also have paid higher interest rates throughout the mortgage term before you broke the deal. This can prove quite costly so, before you select a cash-back option, be sure you’re in it for the full term.

Have questions about whether a cash-back mortgage makes sense for you? Answers are just a call or email away!

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