#WednesdaysatHomeLove – Cash Back Mortgage

#WednesdaysatHomeLove – via Canadian Real Estate Magazine.

“…Some buyers may find that they get close to buying their home but need a little extra to cover closing costs. Or, they may buy the house, move in, and find they suddenly need to spend on repairs, renovations, or furnishings.

After having just put so much money into your mortgage and your home, it can be hard to suddenly find more funds to cover the rest. But luckily, there is an option that can allow you to use your mortgage to get some of these funds. This is known as a cash-back mortgage.

Lenders who offer cash-back mortgages provide their borrowers with a lump-sum rebate of some of their mortgage value when the mortgage closes. This is designed to help those who have put a lot of money into their home but need a bit more to tie up loose ends.

Though having some extra money can make you more comfortable in your new home, it isn’t without its downsides. You should consider the pros and cons before taking out a cash-back mortgage. Remember, your bank will never give you money for nothing.

In this article, we will cover what a cash-back mortgage is, how it works, and whether or not it may be a good adoption for you when buying your home.

How does a cash-back mortgage work?

A cash-back mortgage is like any other mortgage in that the bank will provide you with funding to buy your home. The difference is that in a cash-back mortgage, the bank will also give you an extra lump sum of cash after your mortgage closes.

The amount advanced to the borrower will depend on the mortgage in question, though the amount is generally between 1% and 7% of your mortgage.

For example, imagine you wanted to buy a home for $750,000 with 20% down and 2% cash back. Your down payment would be $150,000 for a total loan value of $600,000. Once your mortgage closes, the bank will also pay you a lump sum of $12,000.

You can use this money for essentially whatever you want. However, common uses may be for closing costs such as legal fees or land transfer tax, home improvements, and buying furniture or appliances. You can not use your rebate to pay your down payment, but you can offset some of the upfront costs of your mortgage by getting your money back…

Who provides cash-back mortgages?

Cash-back mortgages are a pretty standard offer from many financial institutions. Major mortgage lenders such as RBC, TD, and CIBC offer their own form of cash back mortgages, as well as a range of alternative lenders.

Though it may seem too good to be true that your bank would pay you to take a mortgage, the widespread availability of these mortgages among regulated lenders should speak to their popularity and viability…”

To read the full article, read here.