Cashback Mortgage Financing

Lisa Manwaring • October 18, 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.

How you use the cash is entirely up to you. Some of the most common reasons to secure a cashback mortgage are to:

Cover closing costs.
Buy new furniture.
Renovate your property.
Supplement cashflow.
Consolidate higher-interest debt.

Really, you can use the cash for anything you like. It’s tax-free and paid to you directly once the mortgage closes.

Understanding the cost of a cashback mortgage.

Now, while it might appear like a cashback mortgage is a great way to get some free money, it’s not. 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.

A cashback mortgage is like getting a fixed loan rolled into your mortgage. Your interest rate is increased to cover the additional funds being lent.

Now, with so many different cashback options available and with interest rates constantly changing, it's nearly impossible to run through specific calculations on a simple article to outline how much more you’d pay over the term. So, if you'd like to identify the true cost of securing a cashback mortgage, the best place to start is to discuss your financial situation with an independent mortgage professional.

When you work with an independent mortgage professional instead of a single bank, you receive unbiased advice, more financing options, and a clear picture of the cost associated with securing a mortgage.

Getting cashback at closing is a mortgage feature that makes the bank more money at your expense. This isn’t necessarily a bad thing; the key is to be informed of the costs involved so you can make a good decision.

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.

Breaking your mortgage term early.

In addition to paying a higher interest rate to cover the cost of receiving the cashback at closing, a cashback mortgage also limits your options down the line.

If your life circumstances change and you need to break your mortgage mid-term, depending on the conditions set out in your mortgage contract, you’ll most likely be required to either pay all of the cashback received or at least a portion, depending on how long you’ve had the mortgage.

As all cashback mortgages are tied to fixed-rate terms, so in addition to repaying the cashback, you’d also be required to pay the interest rate differential penalty; or 3 months interest, whichever is greater for breaking your mortgage term early.

Sufficed to say, should you need to pay out your mortgage early, breaking your cashback mortgage will be costly. Certainly, this is something to consider when assessing the suitability of this mortgage product.

Get independent mortgage advice.

Understanding the intricacies of mortgage financing can be difficult at the best of times. With all the different terms, rates, and mortgage products available, it’s hard to know which mortgage is best for you.

So while a mortgage that offers a cash incentive upon closing might initially seem like an attractive offer, make sure you seek out the guidance of an independent mortgage professional to help you navigate the costs associated with a cashback mortgage. While it might be a great option for you, there might be other mortgage options that better suit your needs. It's worth a conversation for sure!

If you’d like to discuss what a cashback mortgage or any other mortgage product would look like for you, please get in touch. It would be a pleasure to work with you.

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LISA MANWARING

MORTGAGE EXPERT

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What Banks Won’t Tell You About Mortgage Financing

By Lisa Manwaring • 13 Nov, 2024

If you’re looking to buy a property or have a mortgage up for renewal, and you’re thinking about connecting with your bank directly, save yourself a lot of money and regret by reading this article first. Here are four things that your bank won’t tell you, accompanied by four reasons that explain why working with an independent mortgage professional is in your best interest. Banks have Limited Access to Mortgage Products. Now, while this one may seem pretty straightforward, if you’re dealing with a single institution, they can only offer mortgages from their product catalogue. This means that you’ll be restricted to their qualifications which are usually very narrow. Working with a single institution significantly limits your options, especially if your financial situation isn’t straightforward. In contrast, dealing with an independent mortgage professional, you will have access to products from over 200 lenders, including banks, monoline lenders, credit unions, finance companies, alternative lenders, institutional B lenders, Mortgage Investment Corporations, and private funds. Working with an independent mortgage professional will give you considerably more options to secure a better mortgage. Banks Employ Salespeople, not Mortgage Experts. Banks don’t employ mortgage experts; they employ salespeople. Banks pay and incentivize salespeople to sell their products. There is a fundamental misalignment of values here. If the bank incentivizes a banker to make a profit for the bank, how can they at the same time advocate for you and your best interest? They can’t. Banks don’t have your best interest in mind. In fact, the more money they make off of you, the better it is for their bottom line. However, when you work with an independent mortgage professional, you get the experience of someone who understands the intricacies of mortgage financing and will advocate on your behalf to get you the best mortgage. It’s actually in our best interest to assist you in finding the mortgage with the best terms for you. Once your mortgage completes, we get paid a standardized finder’s fee by the lender for arranging the financing. So although we get paid by the lender, that lender has had to compete with other lenders to earn your business. When you work with an independent mortgage professional, everyone wins. You get the best mortgage available, we get paid a standardized finder’s fee, and the lender gets a new borrower. Banks Rarely Offer You Their Best Terms Upfront. Banks are in the business of making money, and they’re usually pretty good at it. As such, banks will rarely offer you their best terms at the outset of your negotiation. This is especially true if you’re looking to refinance your existing mortgage. With over half of Canadians simply accepting the renewal offer they get sent in the mail without question, banks don’t have to put their best rate forward. Instead, they rely on you to be ignorant of the process and will take advantage of your trust in them. When you work with an independent mortgage professional, we don’t play games with rates and terms. Our goal is always to seek out the lender who has the best mortgage for you from the start of the process, and if there are any negotiations to be had, we handle them for you. There is no reason for us to do otherwise. In fact, the better we do our job, the more likely it is that you’ll be happy with our services and refer your friends and family. Banks Promote Restrictive Mortgage Products. As if it’s not bad enough that banks don’t offer their best terms upfront, they actually promote mortgage products that are restrictive in nature. The fine print in your mortgage contract matters; understanding it is challenging. Banks do what they can to make it hard for you to leave. Now, if you’ve ever heard stories of outrageous penalties being charged, this is what’s called an Interest Rate Differential penalty (IRD). Each lender has its own way of calculating the IRD. Chartered banks are known for their restrictive mortgages and high IRD penalties. When you work with an independent mortgage professional, we take the time to listen to your goals and assess your mortgage needs based on your life circumstances. The best mortgage is the one that lowers your overall cost of borrowing. So not only will we walk through the cost of the mortgage financing, but we’ll also clearly outline the costs incurred should you need to break your mortgage before the end of your term. This might be the deciding factor in choosing the right lender and mortgage for you. Working with an Independent Mortgage Professional is in Your Best Interest. Banks have limitations to the mortgage products they offer. Working with an independent mortgage professional gives you mortgage options! Bankers work for the bank; they are incentivized to make money for the bank. An independent mortgage professional advocates on your behalf to get you the best mortgage available. Banks rarely offer their best terms upfront; they leave negotiations up to you. An independent mortgage professional outlines the best terms from multiple lenders at the start of the process. Banks promote restrictive mortgage products that make it difficult to leave them. An independent mortgage broker will outline all the costs associated with different mortgage products and recommend the mortgage best suited for your needs. So if you’d like to talk about the best mortgage product for you, you’ve come to the right place. Please connect anytime. It would be a pleasure to work with you.

4 Signs You’re Ready for Homeownership

By Lisa Manwaring • 06 Nov, 2024

Buying your first home is a big deal. And while you may feel like you’re ready to take that step, here are 4 things that will prove it out. 1. You have at least 5% available for a downpayment. To buy your first home, you need to come up with at least 5% for a downpayment. From there, you’ll be expected to have roughly 1.5% of the purchase price set aside for closing costs. If you’ve saved your downpayment by accumulating your own funds, it means you have a positive cash flow which is a good thing. However, if you don’t quite have enough saved up on your own, but you have a family member who is willing to give you a gift to assist you, that works too. 2. You have established credit. Building a credit score takes some time. Before any lender considers you for mortgage financing, they want to see that you have an established history of repaying the money you’ve already borrowed. Typically two trade lines, for a period of two years, with a minimum amount of $2000, should work! Now, if you’ve had some credit issues in the past, it doesn’t mean you aren’t ready to be a homeowner. However, it might mean a little more planning is required! A co-signor can be considered here as well. 3. You have the income to make your mortgage payments. And then some. If you’re going to borrow money to buy a house, the lender wants to make sure that you have the ability to pay it back. Plus interest. The ideal situation is to have a permanent full-time position where you’re past probation. Now, if you rely on any inconsistent forms of income, having a two-year history is required. A good rule of thumb is to keep the costs of homeownership to under a third of your gross income, leaving you with two-thirds of your income to pay for your life. 4. You’ve discussed mortgage financing with a professional. Buying your first home can be quite a process. With all the information available online, it’s hard to know where to start. While you might feel ready, there are lots of steps to take; way more than can be outlined in a simple article like this one. So if you think you’re ready to buy your first home, the best place to start is with a preapproval! Let's discuss your financial situation, talk through your downpayment options, look at your credit score, assess your income and liabilities, and ultimately see what kind of mortgage you can qualify for to become a homeowner! Please connect anytime; it would be a pleasure to work with you!