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 cash back 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.