What is cash-back mortgage?

Whether cash back on transactions are connected with buying a car or household appliance it is widely used as a sales incentive these days. In order to entice first time buyers in a competitive market some large developers even run cash back schemes on the purchase of new homes. Most people recognize Cash Back term and it is not surprising that it can be linked to the selection of a mortgage. The offer of cash back helps to make products stand out against similar offerings and always makes a noticeable splash.

For first time buyers cash back mortgages can be ideal and also for those who have very little money to cover the various costs in obtaining a mortgage. If you have bad credit mortgage cash back mortgages can be good as they allow you to borrow up to 95% of the value of the property with the cash back that you can use for covering the deposit or other costs such as higher loan to value fees, legal fees or stamp duty. After completion of the mortgage most lenders will pay the cash back, however in some cases you can negotiate getting the cash back paid at the same time as the mortgage advance, enabling it to be used as the deposit.

You can get a cash back mortgage by the following ways.

• Cash Back mortgage with SVR – a lenders standard variable rate
• # Cash Back mortgage offered along side another mortgage or bad credit mortgages products

Usually lenders offer the cash-back as a package of benefits and discounts, but pure cash-back mortgages are not uncommon. Besides the cost of legal fees or survey charges mortgage lenders may offer a sum of money. However as a rule these mortgages are attached with redemption penalties. A redemption penalty is a fee for borrower if he switches mortgages to bad credit mortgages before the mortgage has been paid off. This means you could are tied to a mortgage and have to pay interest at the lender’s Standard Variable Rate (SVR).

Advantages of a Cash Back mortgage

• You can use the cash back sum to pay off a credit card debt, for paying home furnishings, or to assist with the initial costs involved in purchasing a home e.g. solicitors fees.

Drawbacks of a Cash Back mortgage

• If you repay mortgage earlier repayment charge may apply for a set period, which can be equal of paying back all of the cash you received.
• You may find that the interest rate payable is not competitive for larger cash back and may be even a variable rate.
• There is usually booking fee payable or an arrangement for a cash back mortgage

Also if you need some extra cash at the start of your mortgage especially with bad credit mortgage, there are several options other than a cash-back mortgage you could consider:

- A discount mortgage that offers a very good initial rate and thus you have low payments at the beginning before it reverts to a standard rate.

- Remortgages that will help you to borrow more cash and improve your house for example, as well as to consolidate credit card and personal loan debts.

- A larger mortgage up to 85% rather than 80%, for instance, and thus you have extra money at the start of the term and need less money for the deposit.

- An unsecured personal loan, it has a higher rate than your mortgage but it won’t have the same early redemption charges.

Cash Back mortgages may not be right for everyone and should be approached with caution. There are other alternatives available if you’re just looking for some extra cash to help you get started in your home. But in some cases cash back mortgage is the right option.