The truth about the cash back mortgage

Mortgage minute is a regular column by Barb Ten Bos

We often see ads from the major lenders offering cash back incentives on their mortgage products.

Gone are the days where a cash back mortgage could be used to facilitate a purchase without the required minimum of a five per cent down payment. Cash back incentives are now made available for other enticing uses; new furniture and appliances, renovations and the other great hook: Apply the cash back portion directly on your mortgage for a better effective rate.

Just a few weeks ago, I was emailed an offer from a major lender who shall remain unnamed;

“NEW PROMO … Cash back for purchases. Effective five year Rate as low as 2.62%….”

First off, the cash back mortgages are offered at a premium (higher) compared to other standard rates available. The ploy suggested by the lender here is pay it straight down on principle and lower your effective interest rate over time.

Read the fine print

The kicker here and warning to all….there is a catch. If you are to break the mortgage midterm, whether to sell your home or refinance, you not only have to pay the interest penalty, you also have to return the cash back portion to the bank. Even if you used it to pay down your mortgage. This is in the fine print on the websites and in your contract for you to see.

I have seen this happen to a few people that I know and it ended up being a $10,000 to $20,000 factor in their decision not to move or change careers.

There are other more cost-effective ways to obtain financing in better programs such as purchase plus improvements, or home equity lines of credit (HELOC), that expose you to less future risk and still provide you with flexibility to accomplish your goals.

 

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

Police say Chilliwack driver who flipped car on overpass Sunday was impaired

Witnesses say rollover incident was preceded by vehicle and motorcycles speeding all over town

Chilliwack teachers and EAs concerned with health and safety plans

As schools get ready to open, many worry measures won’t be enough to protect students from COVID-19

Mission prison COVID-19 outbreak declared over

Dr. Bonnie Henry hails work done to halt outbreak, which saw more than 130 people contract COVID-19

Camo-clad man carrying guns arrested in Chilliwack

Turns out the guns were trigger locked and the man was subsequently released by RCMP

Barn swallows filt about Harrison once again, in smaller numbers

Birds are in danger with destruction of nests, habitat

Mission prison COVID-19 outbreak ends, 9 new cases in B.C.

New positive test at Port Coquitlam care home

Facing changes together: Your community, your journalists

The COVID-19 pandemic has changed the world in ways that would have… Continue reading

Man who bound, murdered Vancouver Island teen still a risk to public: parole board

Kimberly Proctor’s killer is still ‘mismanaging emotions,’ has had ‘temper tantrums’

VIDEO: Humpback whales put on quite a show

The ‘playful’ pod lingered by a Campbell River tour operator’s boat for quite some time

Getting hitched at historic B.C. gold rush town still on table during COVID-19 pandemic

Micro-weddings, online visits, offered at Barkerville Historic Town and Park

VIDEO: Police look for suspect seen tripping elderly woman in Burnaby

The elderly woman was walking near the SkyTrain station when she was randomly tripped

Revelstoke woman finds welcoming letter on her Alberta-registered truck

There have been multiple reports online of vandalism to vehicles with Alberta licence plates

Spirit bear possibly spotted in West Kootenay

A local resident spotted the white-coloured bear while on an evening trail run near Castlegar on May 27

B.C. businesses ‘can’t shoulder burden’ of COVID-19 sick pay

Trudeau’s plan should be tied to federal emergency aid

Most Read