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Cash Back Mortgages – Pros and Cons

27 May, 2010 / by marketing

Cash Back Mortgages: Are They Worth It?

We all know that buying a home or condo is expensive. That’s a given. Especially, if one considers the usual associated costs of home ownership: down payment, legal and bank fees. What about those buyers who want to do either minor or major upgrades, need furniture and window coverings. None of these items are inexpensive. What’s a new homeowner to do?

Sometimes it’s difficult to not be seduced by the thought of taking a cash back mortgage. From the outside, it looks like free money. While most banks offer them, but they’re not for everyone.

When I inquired about the possibility of taking out one of these mortgages my mortgage specialist explained it to me in different terms: it’s like taking out a loan. It’s not free money and the interest rate is going to be, in some cases, significantly higher than if you’d selected a regular mortgage product.

Like all financial products, each has pros and cons. Obviously, the biggest pro for this product is the cash, which you can use to do anything with – it doesn’t even have to be housing related – and it certainly would come in handy for some buyers in certain circumstance who are having a hard time putting together a five per cent down payment.

The biggest cons are the higher interest rate and the fact that if you sell the house before your term is up, you’re going to be on the hook to repay part of the cash.

If you really need the five per cent, but are looking for a better interest rate than a cash back mortgage will allow, there are other options: take out a line of credit or loan, use your RRSPs, or set aside some money each month.

Talk to your mortgage broker about whether or not a cash back mortgage makes sense for you.