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How do Cash-Back Mortgages work?

Is it possible to get a mortgage with little to no down payment saved? The simple answer is yes.

Here is how it works…


There are several lenders who will give you between 1-5.5% of your mortgage amount back at closing to use towards your down payment. The interest rate will get higher with the percentage of cash that is being given back in order for the lender to recover the funds being given to you at closing.


If you were to use the maximum cash-back, here is a sample breakdown of what it could look like*:


$200,000 purchase price
-$ 10,000 minimum 5% down payment
+$ 5,605 default insurance premium
= $195,605 total mortgage amount


The amount of cash back being given is 5.5% of the total mortgage amount and would therefore be $10,758.28.


The one thing to take note of when entering into a cash-back mortgage is that if you break the contract term earlier then the time you have committed to, the lender may “claw-back” all or a portion of the cash that was initially given to you. This means that you would have to potentially pay the money back to the lender.


Although cash-back mortgages are not for everyone, they can be a very useful tool. They give borrowers the ability to become a homeowner significantly sooner then if they had to save the entire down payment.


*based on a 5 year fixed rate mortgage over 30 years. Rates subject to change

http://www.christinebuemann.com/

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