One of the newest mortgage products available to Canadian home buyers is the cash back mortgage. Conceived largely as a substitute for zero down payment loans, the cash back mortgage has gained in popularity since it was first issued a few years ago. It is a suitable product both for those who are buying their first house and for those who have purchased multiple homes. Since you are considering this mortgage option, we want to help you discover whether a cash back mortgage is right for you. We are the best resource for finding the lowest cash back mortgage rates in every Canadian province. Because we have access to the best lenders and brokers in the Canadian mortgage industry, we are able to find the cheapest cash back mortgage interest rates for you. Learn more about cash back mortgages and get access to the best rates on this page.
What is a Cash Back Mortgage?
As its name indicates, a cash back mortgage is a mortgage in which the home buyer receives cash back at the closing of his or her loan. Buyers can use this cash as they see fit, but it is common for them to use the money toward their down payment on a home. Many people say that a cash back mortgage is the new form of the zero down mortgage loan because the cash received at closing is often used toward the down payment. This is not universally the case, however, as some people choose the cash back loan even if they have a sufficient down payment because they need the cash to furnish a new home.
In any case, the cash that you might receive from a cash back loan is not exactly free money. Although you receive a certain percentage of the home’s purchase price at closing, your loan is still subject to cash back mortgage rates, which are higher than the rates charged on traditional mortgages.
Cash back loans are available directly from your existing bank, or you can choose a mortgage broker to shop your loan around in order to find the best cash back mortgage rates. Brokers force lenders to compete with one another for your business, driving down the interest rates available on a cash back mortgage. Thus, it is wiser for many people to go with a mortgage broker than it is to contact their bank directly for a cash back loan. Unless you know that you can get the best rate on a cash back loan or you prize the convenience of having all your loans and accounts at the same institution, you will likely want to choose a broker for your cash back mortgage loan.
Pros and Cons of the Cash Back Mortgage
Like other home financing products, the cash back mortgage has several things going for it. At the same time, there are several factors that count against the mortgage for many people. Here are some of the main pros and cons of borrowing money at current cash back mortgage rates:
PROS
• A cash back mortgage allows individuals with little to no money saved for a down payment to get a mortgage and buy a home.
• A cash back mortgage can be particularly useful for younger home buyers or first-time home buyers because of the option to use the cash toward the down payment.
• You can refinance and renegotiate your interest rate on your cash back mortgage before the end of the amortization term if necessary.
• Cash back mortgages can help buyers take advantage of low housing prices even if they do not have money saved for a down payment.
• When real estate is appreciating quickly, Canadian cash back mortgage rates can be lower than the rate of appreciation. Effectively, this saves you money even if you have no down payment because with a cash back mortgage, you can buy the house before it appreciates to a price that you will never be able to afford.
CONS
• As far as cash back mortgage rates Canada lenders charge about 1 percentage point more in interest than they do for standard variable or fixed mortgage loan rates.
• The penalties for refinancing a cash back mortgage or repaying it in full before the end of the amortization term are usually greater than the penalties you incur for refinancing or repaying in full a standard closed mortgage earlier than the contract stipulates.
• If you refinance or repay your loan in full before the end of the amortization term, you may have to pay some or all of the cash you received at closing back to the bank.
• Over the life of a cash back loan, you could end up paying several thousand dollars more in interest than you would with a traditional loan.
Is a Cash Back Mortgage Right for Me?
The aforementioned pros and cons of cash back mortgages should be very helpful in deciding whether or not you should look for a cash back mortgage. By way of summary, a cash back mortgage at the best cash back mortgage interest rates is probably an ideal choice for you if you need to buy a home now and do not have enough money saved for a down payment. This is especially true if home prices are appreciating faster than the interest rates on cash back mortgages are increasing. On the other hand, if you want to save the most money in interest over the life of your loan, you will probably not want a cash back mortgage. If you are all but certain that you can pay off your loan early, a cash back mortgage at current cash back mortgage rates is not the solution for your particular home financing needs.
Canadian Cash Back Mortgage Rates: Important Facts
We have only scratched the surface of the cash back mortgage. Much more could be said, so here are few more details about this financing option:
• The amount of cash you can get back in a cash back mortgage ranges from 1 to 7 percent of your home’s purchase price.
• The permitted debt-to-income ratio for cash back loans, as well as other mortgages in Canada, is no greater than 44 percent for insured lenders.
• Canadian laws regarding mortgages tend to be stricter than U.S. mortgage regulations.
Get the Best Rates on a Cash Back Mortgage Today!
If you are in the market for a cash back mortgage or any other mortgage product, we want to make it as easy as possible for you to find the perfect loan. Choose a rate on this page or fill out the mortgage application form to get the best cash back mortgage rates in Canada.
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