What is a Cashback Mortgage?
To tempt those buying a property or remortgaging, some lenders offer cashback mortgages. This type of deal involves the lender paying a cash lump sum to the borrower. Read on to find out more about the pros and cons of this incentive.
Some mortgage lenders offer incentives to borrowers in order to stand out from the competition. A cashback mortgage, where borrowers receive a cash lump sum when they take out the mortgage, is one example of this.
Read on to find out more about cashback mortgages.
What types of mortgage offer cashback?
Cashback can be offered on all sorts of mortgages – they aren’t limited to just one type of mortgage or borrower.
As a result, you may be able to get cashback when you take out a fixed or variable interest rate mortgage, or even a buy to let if you’re investing in property.
However, some lenders do restrict their cashback deals to specific types of borrowers, most commonly first-time buyers.
There will be criteria covering exactly who qualifies for the cashback. For example, if you are taking out a joint mortgage then both borrowers may need to be first-time buyers to receive the money, though lenders may have different definitions of what makes a first-time buyer.
Cashback is not limited to first-time mortgages either. Some lenders offer cashback on remortgage deals too – you may even be offered the choice between cashback or having the cost of legal fees covered by the lender.
When do you get the cashback?
This will depend on the mortgage lender.
Often, the cashback is paid to your solicitor on the day you receive your mortgage, and the solicitor can pay it on to you – alternatively, you could choose to have them keep the cashback and deduct that amount from their fee.
However, other lenders may only pay the cashback a month or so after completion.
How much cashback can I get with my mortgage?
This will all come down to the lender you’re borrowing from. While some lenders will offer cashback of £250, others may reward borrowers with as much as £500. If you are interested in cashback mortgage deals, you should check with multiple providers to see what options there are.
However, as a rule, the cashback is a fixed amount ‒ the size of the cashback typically doesn’t change based on how much you’re borrowing overall.
Who offers cashback mortgages?
Not all lenders offer cashback mortgages, however they are reasonably common with some of the big high street lenders.
However, while cashback is a great bonus at a time when you might be feeling strapped for cash, it’s important to focus on interest rates and fees, as these will have a bigger impact on your finances in the long term.
How much can I borrow with a cashback mortgage?
Mortgage lenders employ the same affordability calculations for cashback mortgages as they do with regular mortgages.
As a result, the amount you can borrow will ultimately come down to your financial circumstances. Lenders go through your finances to get an idea of what you can afford, not only right now but also in the future should interest rates – and monthly repayments – rise.
The pros and cons of a cashback mortgage
Moving home can be incredibly expensive, even when you look beyond the actual cost of buying the property itself.
The big selling point of a cashback mortgage is that the money you get in cashback can help you cover some of those additional costs, such as paying for a removals firm or decorating your new property. This can be particularly attractive to first-time buyers, who may be furnishing a property for the first time.
There is a downside to that cashback though. Historically, cashback mortgages have come with slightly higher interest rates than comparable mortgage deals without a cash incentive. That means that your monthly repayments will be larger, and the mortgage will cost more to pay off overall.
As a result, borrowers need to work out for themselves how important cashback is and whether it’s worth the higher monthly payments that will follow.
» COMPARE: Cashback mortgage deals
Image source: Getty Images
John Fitzsimons has been writing about finance since 2007. He is the former editor of Mortgage Solutions and loveMONEY and his work has appeared in The Sunday Times, The Mirror, The Sun and Forbes. Read more