Cashbacks can be any of the aforementioned types of mortgage (fixed rate, discount etc) but with the added benefit that the lender will give you back a cash lump sum – usually upon completion of the home purchase. These can be a particularly attractive prospect for first-time buyers as money is likely to be tightest right at the start of the mortgage. This cashback money can then be spent on whatever the borrower wishes – handy for solicitor bills or furnishing a house.
Depending on your particular mortgage deal, the ‘cashback’ will be either a fixed amount or a percentage of the mortgage loan. For example, if you have a 5% cashback deal on a mortgage worth £150,000, you’ll receive £7,500 upon commencement. Some lenders will even allow the cashback to be used as a mortgage deposit for those in a hurry to get on the property ladder.
Sounds too good to be true, but remember, with mortgages you rarely get something for nothing. Interest could be higher than a non-cashback deal, so you could pay more than your up-front bonus in the long term. There may be an arrangement fee that will instantly eat into your cashback. Also, the penalty for early repayment could be equivalent to the entire cashback, and the ‘tie-in’ period is likely to last longer the bigger the cashback.
So, as with all mortgages, check the small print and do the sums before taking the plunge.
Next - Part 17: Combined Mortgages
