What Is a Cash Back Mortgage?
Moving into a new home is an exciting time, but sometimes there can be some additional expenses you want to prepare for. For these circumstances, lenders can offer a specific type of mortgage – a cash back mortgage – to provide you with the funds you need to cover these expenses.
These extra costs typically include things like buying new furniture and window coverings, appliances, or even paying down existing debt to make your new mortgage payment easier.
A cash back mortgage allows you to receive up to 5% of your mortgage principal amount in the form of a lump sum at the time of closing. For example, if your mortgage principal amount is $400,000, you can receive up to $20,000 in cash back. Some lenders offer a higher cashback value, up to 7% of your principal amount; you’ll want to shop potential mortgage lenders to find the best solution to suit your needs.
This type of mortgage is unique in that it doesn’t require specific uses for the funds, so it can be used freely to cover any type of expenses you may need.
When Is It Ideal To Take A Cash Back Mortgage?
Taking a mortgage with a cash back option is something to be carefully considered. Like the standard principal amount on your mortgage, the outstanding balance is subject to interest. Taking advantage of this option also means it’s subject to the interest incurred by taking the lump sum.
Furthermore, this type of mortgage is typically offered at a higher rate of interest than that of other mortgages. However, if you have high-interest debt to pay off, this option can be worth the payments and interest as it can reduce your overall outgoing funds. It can also be a better option than high-interest credit cards or lines of credit to help pay for landscaping or home improvements.
Your cash back mortgage is subject to the same terms as any other mortgage. If you sign up for a five-year fixed mortgage, for example, you’re obligated to fulfill this term and make payments on time. Should you need to break the mortgage before your term is up for renewal, you may be required to pay back the cash back amount – in full or in part – at the time of mortgage cancellation. Lenders have different policies in this regard, so it’s best to familiarize yourself with the terms of this type of mortgage before signing the agreement.
Potential Uses For A Cash Back Mortgage
Cash back mortgages are a great solution for first-time buyers who may have more expenses than other homeowners on their first home purchase. Additionally, for homeowners building a brand-new home, a cash back mortgage can help offset the costs of landscaping, fencing, and other factors to completing a new home. This lump sum can also pay for the closing costs and other associated fees related to a home purchase.
The funds from a cash back mortgage can also help you supplement your income in the months following your move. Moving can be stressful, and the extra funds may help to alleviate some of the stress from additional expenses and time away from work.
Not all lenders offer this type of loan, so it’s important to shop for your mortgage to find the best solution for your unique needs. However, a cash back mortgage can be the answer to a variety of financial needs after you move into your new home. After all, moving into a new home should be a positive experience and a cash back mortgage will take care of any associated or upcoming expenses.
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About the Author:
At Sterling Homes, our mission is to provide the opportunity for affordable homeownership without compromise. Over the last 70 years, Sterling Edmonton has quickly become one of Edmonton’s most popular builders. We bring more than seven decades worth of exceptional customer service, superior design and unparalleled craftsmanship to the greater Edmonton area. As a member of the Qualico Group, Sterling Homes focuses on greater Edmonton’s finest family communities, while being able to offer some of the region’s most family friendly prices thanks to volume purchasing power for materials, trades and land. This has not only made Sterling one of Edmonton’s bestselling, move-up builders, but also one of the industry’s most respected home providers.
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