Are you ready to buy your first home but don’t have the minimum 5% down payment that is required? Maybe you decided to use any extra cash you had to pay down some debt or haven’t had time to save enough – in that case this type of mortgage may be right for you.
The typical term offered for a cash back mortgage is for 5 years, with the cash given by the lender ranging from around 3% – 5.5%. The interest rate is higher than a standard 5 year fixed mortgage as this is how the lender recoups the cost for lending you those extra funds on your closing date. Although the lender is giving you the funds towards your down payment you will still need to come up with the closing costs associated with your purchase from your own funds as these cannot be borrowed from other sources.
If you already have enough funds for the down payment you could also use the cash back from the lender for other purposes such as buying some new furniture or paying a penalty on an old mortgage you are paying out. Each lender has their own guidelines over what you can use the cash back for, always make sure you know the rules to avoid any problems when finalizing your mortgage.
One thing to keep in mind is that if you decide to pay back your mortgage early before the term is up, not only will you need to pay the mortgage penalty but you will be required to pay back all or a percentage of the cash that the lender gave to you on your closing day.
A full financial review with a mortgage agent is always a good idea to see if this program is a good fit for you and your current scenario, and it may just be the ticket to get you into the housing market sooner than you thought!
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