Cashback Mortgages
Cashback mortgages are a popular choice with home buyers - after all, who wouldn’t like to receive a cash payment when their mortgage has completed? So what exactly are they? Basically, a cashback mortgage is where, once the mortgage has completed – or after the first mortgage payment has gone through - a sum is paid by the lender to the borrower and the borrower can do whatever he or she wishes with the money.
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This cash amount will be either a fixed sum or a percentage of the amount borrowed. Many people will use the money to pay towards – or, depending on how much they get, pay off - the costs of moving, such as legal fees, removal costs or the other incidental expenses of buying a property.
An example might be someone who takes out a £100,000 mortgage may get a £5,000 cashback - or, depending on the cashback scheme, maybe even £10,000 - once the mortgage completes, so the attraction to these mortgages is obvious.
A mortgage claiming to be a cashback mortgage may not necessary be a cashback mortgage in the same sense as discussed above. Where the lump sum is a relatively small amount (that is, the amount is in the hundreds rather than the thousands of pounds) the lender’s description will include a phrase like “£300 cash rebate on completion”.
There are numerous cashback deals available in the mortgage marketplace, some offering up to 10% of the amount borrowed as a rebate. As an added incentive, some lenders will offer a free valuation or similar. And, despite their reputation, cashback mortgages are not just available for first time buyers – cashback deals are available to all borrowers (providing they meet the lender’s individual criteria of course) and for remortgages as well as house purchases.
However, as with all good things, there can be disadvantages to types of cashback deals. Many have long tie-in periods, meaning that should you wish to pay off your loan early, you will be penalised financially. Borrowers who want to redeem early will generally lose some or even all of the original cashback, as well as maybe facing some other penalties as well.
Or, there may be other strings attached to taking out a cashback mortgage. For example, to get a cashback deal, you may have to give up the option of an initial discount or a competitive fixed rate. If you are looking for a flexible loan, perhaps where you can overpay or top up your mortgage payments, then you will probably be unlikely to be offered a cashback scheme.
