Cashback Mortgages and the Lowdown

Posted by Gurpreet Ghatehora on Thursday, February 26th, 2015 at 10:16pm.

What’s the worst part of being a first time home buyer? After tightening your belt to save up  for a mortgage, you go through the song and dance of all the procedures, and then pay a down payment. That’s okay, you were prepared for that, you did those calculations…but then your lawyer’s fees come out, moving expenses and all of sudden you are looking at a property tax bill. Talk about financial stress and strain!

Lucky, banks such as CIBC, offer something called a cashback mortgage, which is geared toward first-time buyers, and yes, it means exactly what you think it does. You get cash in hand from you mortgage – just in time to cover all those last minute expenses.

CIBC says that “The amount of money you receive is based on the size and term of your mortgage-up to 7% of its value up to a maximum of $20,000.” What’s that mean in laymen’s terms? Simple. Let’s say you have $100 000 mortgage, 4% cashback on that would be $4000, and 7% would be $7000. The percentage you earn will depend on the term of your mortgage.

So what’s the catch?

Well there is one small detail of the program that should not be overlooked, and that is that you must hold your mortgage until the end of it’s term –let’s say 5 years – and the money is yours to keep, however, if you break that term you will have to pay back a pro-rated amount.

Before entering into a program like this, consider your 5 year forecast. If it is likely that you will sell your home sooner (it’s a starter home, you move periodically for work, or you outgrow it) then this isn’t a good deal for you. Having to pay that money back will simply be an additional financial strain in the midst of selling a home, hunting for a new one and perhaps even packing for a further than average move.

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