Cash Back

Is a Cash-Back mortgage worth it?

First let’s discuss how it works…

With a Cash-Back mortgage, the client receives a rebate on their mortgage after the mortgage closes (usually within 3-7 business days). This rebate varies anywhere from 1% to 5% of the mortgage amount depending on the Bank and term chosen. The most common of the Cash-Back mortgages is the 3% Cash- Back featured by many of the Canadian Chartered Banks.

The money from a Cash-Back mortgage is especially handy for the fist time buyer who needs extra funds to purchase home improvement items such as blinds, carpet, appliances, or even furniture. Thus, first time buyers are the number one consumer of Cash-Back mortgages in Canada.

It is important to remember that this rebate is never directly paid back to the Bank. Instead the Bank increases the interest rate on the entire mortgage to recoup their costs.

Why would I want a Cash-Back mortgage?

You have saved up enough money to purchase your home, but may be a little short after the mortgage closes. The Cash-Back acts as a buffer to get you through the first couple months as a new home owner.

You utilized the RRSP Home Buyers program and withdrew your down payment out of your RRSPs. Now you need money for legal fees and moving expenses.

You received a gift from your family to put towards your down payment but want some money in order to feel more comfortable taking on this new liability.

Why wouldn't I want a Cash-Back mortgage?

Simply put, a Cash-Back mortgage usually costs you more in the end and Banks never offer their best rates on a Cash-Back mortgage.

Cash-Back mortgage vs. Zero Down mortgage…

It is more difficult to qualify for a Zero-Down mortgage than a 4% Cash-Back mortgage even through a Zero-Down is essentially a 5% Cash-Back.

With a Zero-Down mortgage you do not have to come up with any down payment at the time of home possession. Whereas, with a 4% Cash-Back mortgage you are required to pay 5% of the purchase price as a down payment at the time of closing and will receive the 4% rebate 3 to 7 business days later.