If the only thing keeping you from buying your own home is the inability to save for a down payment, then a Cash Back Mortgage can make the dream of owning your own home a reality.
What is a cash back mortgage?
With cash back mortgages the financial institution gives you the money to be used as a down payment for your home purchase. So if you get a cash back mortgage for $250,000, the lender will provide you with the minimum 5% down payment needed, in this case $12,500. You then pay back only the remaining $237,500. In exchange for the down payment, the lender will typically charge you a mortgage interest rate that is 1.0% to 1.5% higher than the traditional mortgage rates available at the given time. Once the initial term on your mortgage (typically 5 years) ends however, you are free to shop around for the best mortgage rates available like everyone else.
With cash back mortgages the financial institution gives you the money to be used as a down payment for your home purchase. So if you get a cash back mortgage for $250,000, the lender will provide you with the minimum 5% down payment needed, in this case $12,500. You then pay back only the remaining $237,500. In exchange for the down payment, the lender will typically charge you a mortgage interest rate that is 1.0% to 1.5% higher than the traditional mortgage rates available at the given time. Once the initial term on your mortgage (typically 5 years) ends however, you are free to shop around for the best mortgage rates available like everyone else.
Penalties...
Now what happens if you try and get out of your mortgage before the initial 5 year term is over. If you were to break any mortgage before the term ends you would typically pay a standard penalty of 3 months interest or the calculated interest rate differential, whichever is greater. The same holds true with a cash back mortgage, but in addition to that penalty you will also be required to pay back a portion of the down payment the lender provided to you. How much you end up having to pay back will be calculated based on the amount of the monies given to you and the time remaining on the term of the mortgage.
There are many considerations that should be taken into account when deciding whether a cash back mortgage is right for you. Your ability to save for a down payment; how quickly house prices are rising in the neighbourhood your looking to purchase a house in; and how likely you are to stay in the house for at least 5 years.
There is no question however, that for those with little or no down payment, cash back mortgages can provide a viable solution for making dreams of home ownership a reality.
If you have any questions about this article or if you would like to explore your mortgage financing options please call 416.303.4480 or visit my website at http://www.thescooponmortgages.com/
If you have any questions about this article or if you would like to explore your mortgage financing options please call 416.303.4480 or visit my website at http://www.thescooponmortgages.com/
Domenic Mirabelli
Mortgage Agent
Lic #M10000364
416.303.4480
“Whatever you’re financing needs, it pays to work with a professional”
Great article Domenic! Very informative :)
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