Cash Back Mortgages
Cash Back mortgages provide borrowers with a lump sum of money when they take out a mortgage.
They usually come as an addition to a normal mortgage, where a person borrows an amount of money from a lender to pay for their home. However, the cash back is offered as an added incentive to attract people to that mortgage.
The amount depends on the lender. Some provide cash back as a percentage of the loan you have originally taken out. Others might offer it at the same rate as their standard variable rate (SVR) so you could receive as much as five or six per cent.
Other lenders give cash back alongside another kind of special deal, such as a fixed-rate or a discounted rate. The cash sum is usually smaller in these cases.
The cash back is usually paid after the mortgage has been completed – up to two or three weeks after.
Apart from the cash sum, these deals do not differ from mainstream deals and therefore still, in most cases, require a deposit and will be subject to the usual checks.
Who are Cash Back Mortgages for?
Anyone could potentially take advantage of a cash back mortgage. However, they often appeal to first-time buyers who need a cash lump sum to pay for the costs of setting up their new home. Some borrowers use their cash to pay for the fees and legal costs involved in taking out a mortgage.
Lenders also use cash back deals to lure in new customers from other deals and lenders, so people planning to remortgage are likely to be cash back customers.
Pitfalls of Cash Back Mortgages
Cash back deals are usually used as an incentive, by lenders, to tie borrowers into a long-term deal with them. If the initial cash sum is particularly high this usually means the interest rate will also be high and you could find yourself paying back more money in the long-term. Applications fees can also be more expensive on these deals.
Watch out for early repayment penalties, which are also more commonly applied to cash back deals. They are also likely to be much higher than for mainstream mortgages.
Where to buy Cash Back mortgages
As cash back deals are incentives used to lure in new customers, there may not always be that many deals on the market at any one time.
In fact, sometimes, there may be none. If there do happen to be deals available, they may not always suit your circumstances. If, for example, you are also looking for a fixed-rate there might not be any which also have cash back. It is essential, therefore, if you are set on finding a cash back mortgage you go to an independent source first of all to check out what’s on the market.
An independent mortgage broker will provide you with a vantage point from which to spot the best deals. Alternatively some lenders might be promoting their cash back deals via price comparison websites, so it is worth visiting some of these.