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15 Aug



Posted by: Debra Carlson

Cash back mortgages are typically a 5 year term and you receive a percentage of the mortgage financing back in cash, after the mortgages is disbursed. The percentage of cash back received varies from 1% to 5%, in most cases. Funds can be used to build a fence, landscape, buy window coverings, etc. The idea behind the cash back mortgage is to use the money to help assist with purchases/costs that are not covered by down payment or closing costs when purchasing a home. The following are a few points to consider when taking a “cash back” mortgage:

  1. There are several lenders who have cash back mortgages. Do not sign up for the first one that you look into; they all have different terms and conditions.
  2. Interest rate given is the banks “posted” rate, not a discounted rate.
  3. The cash back portion received is basically a loan on top of the mortgage. In most cases you will have paid the “cash back” and more by the end of the term. Remember, lenders do not give money away for free and the cash back repaid can sometimes be twice as much as what is received in cash.

Most cash back mortgages are a 5 year term. The average Canadian historically moves every 36 months, therefore be very careful when trying to terminate the mortgage contract prior to the end of the term. With a cash back mortgage you are required to pay a penalty as well as a prorated portion of the loan given. For example, when 36 months into a 60 month mortgage term you are required to pay back 2 years worth or 40% of the cash back; In some cases the lenders require 100% repayment of the cashback portion of the mortgage.

Before signing for a cash back mortgage do your due diligence and speak with a professional mortgage advisor; we can provide alternatives that could potentially save a lot of “hard earned money”.
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