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  • Writer's pictureMike Hidlebaugh

Cash Back Mortgages

Updated: May 12, 2021

Cash back mortgages can be a very attractive and enticing option for individuals purchasing a home or renewing your existing mortgage. Depending on your financial situation it might be the only way you can get approved for a mortgage. When deciding on a cash back mortgage it is important to look at the pros and cons of the product as they can provide some borrowers with flexibility, but also are not the right option for everyone.

How it Works

The amount of cash back that is available is dependent on the lender. It is important to note that not all lenders provide a cash back option. Generally, you will find lenders that have options of 1%, 1.5%, 2%, and 3% of the total loan amount. So, if you were to have a $300,000 mortgage you would have

options for $3,000, $4,500, $6,000, or $9,000 in this scenario. Your mortgage size will not increase, but rather your interest rate will be slightly higher than the other rates offered to compensate for the cash back. Also, it is important to keep in mind that if you break your term early, you will likely be required to pay back some or all of the cash. The obvious advantage to the cash back is that if you use the majority of your savings for down payment of your new home, you will have some financial flexibility with the cash back option.

When to use a cash back product

· You do not have money for closing costs

· You need to furnish your new place and have used your savings for down payment

· There are renovations you would like to complete, but do not want to be tied to lender’s policies on how quick the work needs to be completed and reporting policies with a purchase plus improvements product.

· Pay off high interest debt such as credit cards or lines of credit

· If you can invest and make more on the interest of that investment than you would lose on the higher interest rate for the cash back product

When looking at cash back mortgages it is essential to discuss with a licensed Mortgage Associate or Broker so they can lay the information out for you to see if it is a fit.

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