As you plan to buy your dream home, whether for the first time or as an additional place to call home, you may realize that you need a few more extra bucks on top of the down payment. The money could be for paying for the costs incurred in the home buying process, to furnish the house or even to simply have a safety net for the few months of adjusting to the new home.
Several lenders in Canada offer Cash Back Mortgages. The mortgage works in such a way that the bank gives you an advance cash lump sum when the mortgage closes. The amount you receive may vary from 1% to 7%, depending on the lender, but the common denominator is a 5% cash rebate.
Properties of a Cash Back Mortgage
- Have a Fixed Interest Rate
These mortgages come with a fixed interest rate that you will pay over the term of the lease contract. The rates are also, usually higher than the other standard mortgages. It is so, as a way to compensate the lender for letting you borrow extra money.
- To qualify, you need to have good credit
Most of the lenders who offer cash back mortgages are A-paper lenders. Thus, the usual criteria used to offer mortgages, also applies here. Typically, the mortgage is available to individuals with an average to good credit score.
- Penalties on early repayments
Depending on the lender and mortgage contract, you may have to pay the cash back rebate in full or only a portion of it. It applies to those borrowers who would like to break the mortgage term early or refinance. If you have to pay a portion of the amount it will be a Pro-rated amount.
This amount is calculated depending on the number of months remaining in the term of your mortgage contract.
Even though taking a cash back mortgage may not be ideal for everyone, it could be a good choice for a borrower who needs a financial boost when making such a significant financial transaction for your dream home. It is so, more so, if you don’t mind paying a higher interest rate as compared to others.