While there are a number of different versions to a cash back mortgage, essentially the mortgage lender is providing cash back to you on closing of the mortgage, and potentially during the mortgage term, as an incentive for you to commit to a variable or fixed rate mortgage for a period of time.
For the rate shopper, this can provide a very competitive, and sometimes best available effective mortgage rate. This is accomplished when the cash back received is immediately applied to the principal balance outstanding on the mortgage, reducing the interest costs over time, and lowering the overall effective rate you’re paying.
For those looking for a mortgage refinancing where one of the applicant’s goals it to free up some additional capital out of equity via a larger mortgage, certain cash back programs can provide advantages over conventional mortgage programs. For instance, if the new mortgage rules regarding maximum loan to value for mortgage refinancing is not going to allow you to generate the amount of incremental funds you’re looking for through a refinancing action, the cash back mortgage is an interesting option to consider.
With certain cash back mortgage programs, you can refinance to the maximum loan to value allowed according to the value of your property and immediately receive a cash back payment on closing of anywhere from 1% to 3% of the new mortgage amount, providing incremental funds to be used however you wish.
You’ll also need to keep in mind that breaking a cash back mortgage before the term is up can be fairly expensive as most programs require the repayment of the cash back amounts advanced in full as well as any prepayment penalties that may apply.
The cash back mortgage program is not going to be the best fit for everyone, but for rate shoppers that are prepared to lock in for a period of time and mortgage refinancing actions that need to generate a bit more leverage, these programs can be a very good fit.
If you’d like to know more about cash back mortgage programs and how they may fit into your mortgage financing requirements, please give me a call so we can go over your situation together and work through the numbers to see if a cash back option makes sense for your mortgage needs.
Coming in both fixed and variable offerings, these products are designed to provide competitive mortgage terms as well as giving you cash in hand to either pay down the mortgage right away or to use the funds for other purposes.
For instance, with the variable mortgage option, the mortgage rate is priced at prime minus 0.50 and will provide 2% of the mortgage balance at closing in cash back to you for mortgage amounts under $400,000 and 3% for mortgage amounts over $400,000.
In this variable rate example, if you were to apply the cash back portion from a $400,000 plus mortgage against the outstanding balance immediately after closing, the effective rate of the mortgage would drop below prime minus 1.1%, making it one of the lowest cost products on the market.
And if you are looking for a debt consolidation through mortgage refinancing, or want to pull some equity out of your house for some other reason, the cash back option may also be very attractive to you.
With a mortgage refinancing, you can now only secure a mortgage up to 85% of the value of the property, down from 90% earlier this year.
So if you’re pushing against the 85% limit and still can’t get enough funds to meet your requirements, a cash back mortgage can provide additional capital to you and still keep you within the qualifying requirements. For instance, a 3% cash back bonus at closing of a $450,000 mortgage refinancing will provide you with $13,500 cash in hand to use as you see fit. This would be the same as an 88% loan to value mortgage in terms of the funds advanced to you.
On the fixed interest rate side, the cash back program will reduce the posted fixed mortgage rate by up to 140 basis points and also provide cash back on closing of 0.25%.
There are different terms and conditions that can apply to a particular scenario, so you’ll have to work through the numbers to see how this can work for your requirements.
This is a very interesting mortgage program that provides some interesting options to customers in terms of great rates and additional cash.
If you’d like to know more about the CIBC cash back mortgage programs available through The Mortgage Centre, I suggest that you give me a call and we’ll go through your particular requirements together.