When it comes to choosing a mortgage, there are many possibilities. A cash back mortgage is often recommended to first-time homebuyers because it gives you exactly what its name states: Cash back – money in your pocket to use as you please.
How do cash back mortgages work?
With a cash back mortgage you will need to come up with a down payment – like any other mortgage – but you will be entitled to a lump sum after your mortgage closes.
What can I use my cash for?
This is entirely up to you. Most people use the money to help them with moving, closing costs, land transfer tax, lawyer’s fees or renovations – basically things required to get them into their new home.
How is the amount of cash calculated?
The amount you receive is based on the size and term of your mortgage. This translates to roughly 5-7% of its value with a maximum of $20,000.
When do I get access to my cash?
Usually, you are given access to your cash directly following the closing of your mortgage. This works out well for most people since they need these funds to cover the expenses that go along with moving, renovations, and other similar factors.
What are the benefits of this type of mortgage?
Besides using the advanced cash to pay for fees and taxes associated with moving, you can also use the money to apply it towards your mortgage as an immediate prepayment of the principal.
What are the drawbacks of a cash back mortgage?
If you break your mortgage terms before it’s reached maturity, you will unfortunately have to pay back the cash you received along with the standard penalty that goes along with refinancing. Also, rates are higher with cash back options and they are not available for variable rate mortgages.
Is this type of mortgage right for me?
Cash back mortgages aren’t ideal for every homebuyer, but the Canadian housing market is conducive to different types of mortgages that suit every kind of buyer. If you’re a first-time homebuyer, a cash back mortgage may be better suited to you because it can help pay for the expenses linked with purchasing a home.
Northwood Mortgage™ can advise you on which type of mortgage products will work for your particular situation. Your mortgage should fit your needs because it’s your home and your money. Talk to our experts today to find out more!