A cashback mortgage is a mortgage which offers you cashback once you complete on your house purchase.
The cashback could be immediately you complete on your house purchase or after you have made a few monthly mortgage repayments.
Cashback mortgage lenders may offer a cashback of between £200 and £1,000.
What are Cashback Mortgages
A cashback mortgage is a mortgage whereby the mortgage lender gives you a cashback upon successful completion of the mortgage.
These offers are of course usually offered with mortgages which most borrowers are not interested in and for good reason. Cashback mortgages might have unfavourable terms and it is worth using a mortgage broker to fully understand what the cashback mortgage terms could mean for you.
Cashback mortgages will usually have high rates and these rates will be fixed for between 2 and 5 years of the cashback mortgage.
The mortgage lender will let you know how much in cash back you will receive and what will trigger the cashback.
In some cases the mortgage lender will request you make your first mortgage repayment before they begin the cashback or usually the cashback will be paid immediately the mortgage has completed.
In some other cases, the mortgage lender will offer you a cashback mortgage where the cashback is done every time you make a monthly mortgage repayment.
Due to cashback mortgage having high rates the mortgage lenders that offer cashback mortgages will also try and lock you in a cashback mortgage by putting high early repayment charges on the cashback mortgage and making it very expensive for you to remortgage to a cheaper mortgage after benefitting from the cashback mortgage.
Early repayment charges on the cashback mortgage could be as much as 3% to 5% of the cashback mortgage.
You will be able to spend the cash back you receive as you please once you have received it from your cashback mortgage.
Is there any real benefit of cashback mortgages?
Yes, cashback mortgages can offer enough sum to recover the mortgage fees which you have paid initially. In some cases, the lender will offer to pay your council tax for a set period of time or your stamp duty.
Disadvantages of cashback mortgages?
- The interest rates on cashback mortgages will, of course, be incredibly high and could end up costing you a lot of money than a similar mortgage product even with the cashback.
- Cashback mortgages will also have high costs such as early repayment costs or long lock-in periods where you are stuck with an unfavourable rate for a long period of time.
- Cashback mortgages will also discourage overpayments by levying high charges of up to 5% on any overpayments made.
- Cashback mortgages might seem like a good deal at first but you must always work out the full cost and compare it with similar products.
Is a cashback mortgage a good idea?
When looking at a cashback mortgage you should really only get a cashback mortgage if it is the best mortgage your mortgage broker has recommended to you.
If you get a cashback mortgage simply on the basis that it is a cashback mortgage then it may not be the most suitable mortgage for you and the benefits gained from the cashback may be outweighed by the total cost of the cashback mortgage in comparison with a more suitable mortgage.
Can you get cash back at closing?
Yes, mort cash back mortgages will pay you the cashback at closing.
If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.
You can also contact the debt charity “Step Change” if you are in debt and need help.