Archive November 8, 2020

Frequently asked questions about cash-back mortgage

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Frequently asked questions about cash-back mortgage

Loan Alternative 

Firstly, if you understand cash-back mortgages and are looking for an alternative, perhaps a loan is the best option for you. Whether it be a personal, unsecured loan or secured loan, there are endless reasons why they are useful.  

You may have had about cash-back mortgage but you are not very clear about what it is. Use our FAQs below to get a better understanding of what cash-back mortgage is.

What is cashback Mortgage?

 Anyone who has bought a home will tell you how expensive and financially draining it can be. Once you’re done with the payments, you will realize that there are some expenses that may arise that you had not initially thought of. Lenders are privy to this information and will offer you the cash-back mortgage as a way of helping you have money that you can use for such expenses.  They will calculate the cash-back rate using the principal amount as the basis. Depending on the lender you can get between 1 to 7% of the mortgage amount.

Who is a cash-back mortgage broker?

A cash-back mortgage broker is a regular home broker, but one who can negotiate cash-back terms with lenders. It is important to realize that not all lenders give cash-back mortgages, and this means that not all brokers know how to negotiate this. If you know you may require the cash-back option, you may need to look for a mortgage broker who has experience in this field.

Are cash-back rates competitive?

 Most lenders will tell you upfront that the interest rates you will pay on cash-back are higher than the standard interest you pay on a mortgage loan. The rates vary from lender to lender and usually range between 1 to 7% of the principal amount paid.

When taking cash-back loans, you should always consider the overall cost that you will end up paying. There are mortgage calculator tools you can use, but it would behoove you to use a mortgage broker who will be able to negotiate for you the best rates.

What is the main advantage of taking cash-back loans?

Cash-back loans are taken because you do not have the money to complete a project you might need to do in a newly purchased home. This is, therefore, the main advantage of cash-back loans. It gives you a lump sum that you can use for whatever expenses that may have arisen with the purchase of your home.

 What is the main disadvantage of taking cash-back loans?

The main disadvantage of taking cash-back loans is that you will be getting yourself deeper into debt and will have to contend with the higher interest rates. The accessibility also makes people take loans that they may not necessarily need. Some repairs or purchasing of furniture can wait for a period of time as you recover financially, however, with the lure of quick money people find that they will take the loans which they will have to pay back.

 What penalties can one incur if they’re unable to pay back the cash-back loans?

 If you had collateral, you will lose them to the bank because they will sell them to recover their money. Cash-back loans are also very rigid when it comes to refinancing or lump sum payment of the amount borrowed.  Be very clear about the terms and conditions on the penalties you will incur in case of anything.

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Previous Post: Click here to read the more about cashback loans. 

Start Saving Today | Texas Cash Back

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Begin your savings journey

It is getting to the very end of January, have you began your yearly saving yet? Not to worry if not, it’s never too late.

Here at Texas Cash Back, we do understand the struggle of saving up money. Especially when you believe you don’t have enough to save or even know where to start. Therefore, we have decided to help you find the right path and the easiest method for you which will save you money without even realising.

Our top saving tips

Debt – You should add up how much you spend paying your debt each month, and you’ll quickly see that eliminating your debt should be one of your priorities. Once you have got that out the way, you will be able to go full force with your savings. This will give you a great chance when it comes to saving to your full potential and reaching your end goal.

Eliminating your debts can be difficult if you don’t currently have the resources to do so, but have you considered a debt consolidation loan? Although they may not be the best idea as you are going from paying off one debt to another. They help you repay all of your debts in one go. This means that you only have one to focus on. This makes it easier for you to manage.

Set goals – Setting goals is essential when saving as it gives you an endpoint. Not only this, setting a goal might act as some sort of motivation to help you get on track. Or give you a different mindset where you are aspiring to reach that specific amount.

Choose a specific amount – Everyone’s income and their outgoings are different. You need to find the perfect amount for you, whether it be an amount you think will be the easiest for you, or whether it be one which will push you to your best ability. There are plenty of examples on the internet of ways you can save money quickly and efficiently.

One of our favourites has to be the 50/30/20 rule. The rule is a simple plan that categorises spending into three categories: needs, wants and savings. It explains that for the best, easiest results you should split your monthly income into 50% spent on needs like food and basic things to survive throughout the month. 30% on things that you want and lastly, 20% for your savings. This lets you live the lifestyle which you want to live. But also enables you to build up some cash behind you. This is so if you ever need some extra cash for unexpected bills you don’t have to get a loan or use a credit card.

Get rid of unnecessary habits  – Your biggest negative spending habits are right in front of your eyes. But you probably can’t see them. Is that right? Whether it is your unused gym membership, your morning coffee or your daily trip to the supermarket. Sometimes you don’t always realise how much you are spending as it has become the norm for you, but once you take a minute to look at your outgoings smartly, you will see the problem.

Do it yourself – Are you one of those people who buys your lunch every day at work? Or someone who takes a trip to a big chain coffee shop for a morning drink to wake you up? Well maybe it is time to fix that problem, and also fix the bank. You will save yourself a lot more money if you bring your own lunch from home and prepare your morning coffee before you leave the house. It will probably be money you didn’t even know you had.

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Read our previous post on the pros and cons of cash-back mortgages here.

Cash Back Mortgages

Cash Back Mortgages

Personal loan

Before a home becomes what you really want you to be. It takes so much more than just purchasing the house. You will find that you have some additional expenses that may come up afterwards. This is including renovation, buying of furniture, paying maintenance fees if you live in areas that require that. You should remember that a cashback mortgage isn’t for everyone. There are a lot of reasons people aren’t eligible for one, for example, a bad credit score. If you are in desperate need of extra funds why not consider a personal loan? A personal loan allows you to borrow money and repay it over a fixed term. Some lenders and brokers offer bad credit loans which give you a fair chance, especially if you are rejected from a cash-back mortgage. 

 You will, therefore, find that you may not have sufficient funds to cover these additional expenses. Therefore, you can apply for a cash-back mortgage from your lender. The lender will advance you a lump sum of money when your mortgage closes. This usually ranges between 1 to 7% depending on your lender.

 You need to know that not all lenders offer cash-back mortgage and a good mortgage broker will be able to advise you on which lender to go-to for the best rates.

What is the cost of a cash-back mortgage?

Cash-back mortgages come with fixed interest rates which are usually higher than what you would pay for a standard mortgage. This is the way the lenders protect themselves because they advance you the cash upfront.

 The main advantage of cash-back is that you get a tax free cash rebate. This means that you can use this money to take care of some of the expenses including renovations, you can save them money, and you can use it to pay legal fees, land transfer taxes amongst other things.

 Other than the high-interest rates, you need to be careful about adhering to terms of payment. Refinancing or breaking mortgage terms can result in you paying back a portion of your cash rebate or even the full amount depending on the lender.

A good mortgage broker should be able to advise you on the best cash-back mortgages available in the market since they are not consistent and may vary from lender to lender or from time to time.  Lenders will offer cash-back on mortgages as a way of getting customers to borrow. It is really reassuring because it shows the borrower that they will have money even after the mortgage closes.  Some lenders require that a customer stays with them for up to three years before they can benefit from cash-backs. .A mortgage broker will, therefore, negotiate with a bank on your behalf from a position of power because they deal with their lenders all the time and therefore know how to negotiate with them to your benefit.

Cash-backs are a reward given to you by lenders. They are an incentive for you to stay with them for a long period of time. The cash-back allows the bank to lock you in for a period of time. Before taking the cash-back, you need to be sure that you understand all the terms and conditions because they vary from lender to lender. One thing to note is that some banks will take back the cash-back if you refinance your mortgage. If you retain your lending with the bank, they will normally not take it back.

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Previous post: Review of cashback loans – click here to read. 

Pros and cons of cash-back mortgages

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Pros and Cons

The Alternative | Loans 

Perhaps a cash-back mortgage isn’t the right thing for you, so why not consider an alternative? Personal Loans can offer you up to £35,000 for up to 6 years. These loans can be used for whatever, whether it be the unexpected home inspection fees, renovations or even repairs, making them perfect if a cashback mortgage isn’t right. Personal loans are all repaid in fixed monthly instalments. This is to make it as easy as possible for you to borrow money with no stress. 

Buying your dream home has some unexpected expenses including home inspection fees, insurance fees, renovation, and repairs amongst others. Financial experts recommend that you put aside at least 5% of the price of your home towards such expenses. The reality is that most people would not be able to put aside this amount of money because of the huge expenses they incur while making the actual purchase of the home.

You, however, have the option of taking a cash-back mortgage. When you put down your money for the down payment of the mortgage, the bank will give you back a percentage of the principal sum when your mortgage closes.

You may then ask yourself why is it that the bank is so willing to give you back that amount of money.   The answer may be as simple as the bank is able to charge you higher interest on their standard rate due to the cash-back facility. The rates could be as high as 2% above the standard mortgage rates. There could be other penalties including the bank may withdraw the cashback if you refinance or transfer your mortgage before it reaches maturity.

 Most cash-back mortgages will have a clause on them to help protect the bank. If you sell the property and pay off the mortgage and do not take a new mortgage, then you will pay back what you had initially taken on a pro-rated basis, thus encountering substantial penalties.

 Who can get a cashback mortgage? | Who can get loans?

Not everyone is eligible for a cash-back mortgage. Only those with high credit scores, low debt to income ratio and those with steady incomes are eligible. In some countries, insurance will not provide cover for those who cash-back as a down payment. If you’re not eligible, personal loans could be your best choice. Make sure you understand the ins and outs of them before you apply as they do come with potential risks. 

 When should you use the cashback mortgage?

Chances are that after affording to buy a home, you will not have too much money left over. While it may not be a good idea to go deeper into debt, sometimes it is the only option.  You may want to consider other means of getting money, for example, taking secured lines of credit. This will result in you spending less money in paying back the debt because you avoid the high-interest rates associated with cash-backs.

 Some mortgage industry players are cautious about advising their clients to take cash-backs due to the high-interest rates. This is because banks use it as an incentive to get people to borrow more. They would actually recommend that if you’re able to save to buy what you need, then you should consider putting off unnecessary expenses until you can do it from your own savings.

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