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How do “cash-Back” Mortgages work?

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The lender incentive “cash-back” mortgages offer more options for clients with little to no down payment. Here’s how it works; at closing the lender will pay the client a certain percentage of the mortgage. For example, on a $250,000 mortgage with 5.5% cash back the client will receive $13,750. They can use this for the 5% down payment ($12,500), moving costs or whatever else they may need extra money for. I must point out that interest rates are slightly higher to compensate for the cash being given back to the clients. Let’s compare options using a $250,000 mortgage over 35 years with a 5 year term.
Type Rate Monthly Payment
cash-back ~ 5.19% ~ $1283
No cash-back ~ 4.04% ~ $1108
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