Cashback mortgages have gained popularity in Canada in recent years, offering borrowers a unique financial option. With this type of mortgage, borrowers receive a lump sum cash payment from the lender at the time of closing.
How It Works
Cashback mortgages involve lenders providing borrowers cash upon closing. This sum, usually ranging from 1% to 7% of the mortgage amount, can help in a number of ways such as covering closing expenses, enhancing the home, or paying off high-interest debts. The cashback amount is typically integrated into the mortgage balance, incurring interest throughout the loan's duration.
Benefits of Cashback Mortgages
Financial Assistance: Particularly helpful for first-time buyers or those needing extra liquidity, cashback mortgages help manage initial homeownership expenses or refinancing costs.
Home Enhancement: This option empowers borrowers to make home improvements or settle high-interest debts, effectively boosting their property's value and financial well-being.
Flexibility and Security: Borrowers can allocate the lump sum according to their financial needs and aspirations, ensuring flexibility and financial security.
Drawbacks of Cashback Mortgages
Elevated Interest Rates: Cashback mortgages often feature higher interest rates compared to traditional mortgages, translating to increased overall interest expenses.
Restrictive Terms: Borrowers might encounter restrictions on refinancing or early repayment, potentially limiting their future mortgage flexibility.
Extended Costs: As the cashback sum is rolled into the mortgage balance, borrowers accumulate interest on this amount over the loan's life, leading to prolonged costs and an extended mortgage term.
Delayed Mortgage Payoff: Borrowers focused on swift mortgage repayment might find cashback mortgages counterproductive, as diverting the cashback payment elsewhere could extend the mortgage term and heighten interest expenses.
In Canada's real estate scene, cashback mortgages offer an exciting path for homebuyers and refinancers. By teaming up with financial advisors, you can make smart choices that match your homeownership goals and financial health.