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Cash back mortgages are a great tool to leverage your financing, ideally when you are short on down payment or when you know your fixer upper is going to need some TLC. However, like everything else it has its pros and cons. A cash back mortgage basically means a certain percentage call mark typically up to 4% will be offered back to the purchaser upon closing. As an alternative to a second mortgage, or borrowing money from friends and family, or even an unsecured loan can have a higher cost compared to a cash back mortgage. But it's important to remember, when the bank will offer a mortgage along with cash back, that increases the loan to value or risk for the bank on the property.

Wondering, what is Cash Back Mortgage?

A cash back mortgage is a specialized product offered by lenders to entice clients. let's face it, purchasing a home is not cheap and can leave you scrambling for funds after the closing. If you need access to a buffer of money, replenish your safety net savings or just for renovations, the cost back mortgage is a great tool however not a product designed for every customer.

With every additional feature the bank adds an additional fee for its use so cash back mortgages are nice but do come with a price tag. this price tag may be in the form of a higher interest rate, in some cases a lending fee, and can even result in a long term commitment, so if you decided to renovate your home and then sell it using the cash back mortgage feature call my be prepared for a hefty penalty and to return the cash back as well.

How is Cashback Mortgage different from Purchase plus Renovation?

With cash back mortgages, you have access to the funds in approximately 10 days from the closing date. the amount is capped to a percentage of what your purchase price is and therefore can be less then what you need.  It comes out of higher cost of interest, As for every percentage of cash back your rate goes up by a certain basis points.

Now the purchase plus renovation mortgage is an offer to get additional funds to renovate your home at the same interest rate, this is a benefit to many. However you must have the money to pay for the renovation of front, lenders require an appraisal before the closing, an estimation from a licensed contractor detailing estimates of your renovation, so when the mortgage is approved the lender will permit the approved additional funds to be allocated to words the renovation could be added onto the original requested loan amount once the renovations have been completed. This means the client will be required to complete another appraisal at their cost to validate 100% completion of renovation, and another fee could apply with the lawyer to allow for the additional funds to be released. Generally there is still a cop on how much you can borrow as additional funds towards a renovation.

Cashback Offer Vs. Cashback Mortgage

A new incentivization being offered by many lenders and brokers alike, is the cash back offer when completing a transaction. If you qualify for an interest rate, to entice you to close the mortgage with a certain service provider, the client will be eligible to receive at times up to $4000 in cash back after closing. This amount of money is generated from the commissions or profits earned by the service provider. Sometimes mortgage brokers will also offer an incentive like a cash back upon successful closing of a mortgage. Mortgage advisors that offer cash back are in return trying to use a cash component and an upfront payment to lower down the interest rate over the course off the mortgage term by utilizing their Commission towards the customers loyalty. Sometimes these cash back offers may also originate directly from the lender and can be passed down to the customer as an additional discount on the final net rate. Situations where a cash back is offered for completing a transaction within a certain time duration or based on a certain program qualification, this is to attract customers to specific mortgage types which allows the lender to sell the mortgage investment forward and make money on volume making it a win win for both the borrower as well as the broker.

It is important to note that sometimes a cash bank offer may be associated with a mortgage product that is less desirable or comes with strict claw backs incase of mortgage contract termination resulting in restrictions when switching or refinancing or even selling the property, or could accompany high penalties as well.

 

Qualification Criteria:

Unfortunately, not everybody can get a cash back mortgage with the qualifying rate. Most traditional or classical lenders may only offer this option if you meet a certain client criteria, examples of these may include requiring:

• You have a credit score of 680+
• You can get closer to a debt-to-income ratio of 39/44
• You have a provable and documented income

Additionally, only specific mortgage lenders offer this type of real estate option. Some of those who offer in terms of banks and credit unions include:

• CIBC
• PC Financial
• TD Bank
• RBC Royal Bank

Is Cash Back Mortgage for you?

Understanding what your needs are is important before you step into a cash back mortgage. So will you be able to arrange for the money elsewhere or do you have to rely on the bank to offer you a cash back? Answering this question will help you decide if you should proceed with the cash back mortgage, and be impacted by a higher interest rate as well as the cost of borrowing, resulting in restrictions and panalties upon cancellation of the mortgage as well.

Some of the Things You Could Use Your Cash Back for Cash Back Mortgage Are:

Fees and charges associated with home buying don’t work as the traditional option. Aside from the downpayment matrix, you also have to pay for related costs out of your pocket. As a rebate, the money you would receive could help you pay legal fees, land transfer tax, and other charges.

• Supplemental cash during homeownership-You could use your rebate to cushion your finances during the initial months of purchasing a new home. In addition, the process can somewhere help you become more stable after working on money prospects to buy a new home.
• Renovations-Should there be fixes or upgrades you would like to make to your new home buying option by buying a new home. Alternatively, you can use the currency to purchase new furniture for you home prospects.
• Pay off higher-interest debts. If you have some high-interest duties such as credit cards or other loan options, your rebate could be the worth of advice. You can use the money to cross out some obligations you have to pay.

Which are the Top Advantages of Cash Back Mortgage?

Having an extra couple thousand dollars upfront can be helpful, but this loan option has a few catches that you might want to consider:

• Higher interest rate-As mentioned, a mortgage lender offering a cash back mortgage may charge you a higher interest rate to compensate for the money they will look at upfront. How much higher depends on your mortgage lender, but they may charge anywhere from 1 to 2% higher than the fixed-rate mortgage.
• No variable rate option- If you would like to get a variable-rate mortgage, your luck is not the brightest option most of the time as it doesn’t involve a time period. Cash back home loans are only available with the best option as a fixed-rate mortgage.
• Penalties-Breaking a mortgage contract comes with the required penalties and fees, but with a cash back mortgage, you may be required to repay all or at least part of the cash advance. It’s just to fill the required penalties to make sure that you are making a steady payment.
• Not available for everyone. An astronomical credit score may be needed for a mortgage lender to approve you for a cash back mortgage. Unfortunately, most lenders only extend this option to borrowers who have a healthy credit rating, a sound credit profile, or a steady income—all of which need to be easily proven.

Conclusion

A cash-back mortgage is just one of the many loan products you have to sift through before finding the best one that fits your needs. But, again, getting a helping hand from a professional, such as a mortgage broker, could be the key to your success. Today, if you are seeking the best help from the professional to get the entire top guide to cash back mortgage and related things, don’t miss out on all the new curated content about mortgages and savings on mortgagebids.ca. Today, they stand as one of the leading platforms to get insights into how to compare mortgage interest rates in Canada on a more accessible note.