Zach Silverman | Nov 15, 2023
As the name implies, a cashback mortgage is similar to a standard mortgage, except that you receive a lump sum of cash upon closing. This lump sum will either be a fixed amount of money or a percentage of the mortgage amount, usually between 1-7%, depending on the mortgage term selected.
In the realm of mortgage options, cashback mortgages have gained popularity for the apparent immediate financial benefit they offer. While they might seem like a lucrative choice at first glance, especially for first-time homebuyers, it's crucial to consider the potential drawbacks. Banks aren’t altruistic; they’re in the business of making money by lending money. Securing a mortgage that provides you with cash back at closing will cost you a higher interest rate over your mortgage term.
Here are some key points to ponder before opting for a cashback mortgage:
Eligibility for a cashback mortgage.
Simply put, a cashback mortgage isn’t for everyone. This is a mortgage product that has tougher qualifications than standard mortgage financing. Any lender willing to offer a cashback mortgage will want to see that you have stable employment, a fabulous credit score, and healthy debt service ratios. If your mortgage application is in any way “unique,” the chances of qualifying for a cashback mortgage are pretty slim.
Get independent mortgage advice.
So while a mortgage that offers a cash incentive upon closing might initially seem like an attractive offer, before committing to a cashback mortgage, it's advisable to carefully analyze your financial situation and consider consulting with a mortgage professional. Understanding the terms, potential penalties, and long-term implications is essential to making an informed decision that aligns with your financial objectives. Remember, the right mortgage for you is not just about immediate gains but about ensuring a stable and sustainable financial future.
If you’d like to discuss what a cashback mortgage or any other mortgage product would look like for you, please get in touch with our team here at Silverman Mortgage. It would be a pleasure to work with you.