HawthorneVillager.com

Is it a good idea to have cashback on your mortgage??????
Say you have a 5 year Fixed rate at 3.5% and with a 2% cashback your Rate will be 3.9%...... i.e. 6K on a 300K Mortgage.....

I tried to do some calculations and I don't know if i'm doin it correctly, What I found was that one will pay close to $5,500 more in interest and around $1,900 less in principle just by having the rate from 3.5% to 3.9% to get that cash back, thats alot of ineterest, wouldn't it be better to use some of those don't pay for 1-2 year promotion than getting this cask back......

Am i missing something???? or this cashback deals will be too costly in the long run.

Cash back mortgages have their pros and cons:

pros:

*if you need the cash back then it is nice to have it
*if you take the cash back and put it directly on the mortgage as a lump sum payment you may end up ahead

cons:

*often a lower rate will end up putting you further ahead when you look at the monthly paymnent, interest paid and principal balance at the end of the term
*if you break the mortgage you will need to pay back a pro rated amount of the cash back
*some lenders do not port the cash back portion of the mortgage so if you move within the term you can port the mortgage (rate and term) however may need to pay the cash back at this point

Hope this helps. If you care to discuss more case specific feel free to give me a call.

_________________
Christina Jackson
Mobile Mortgage Specialist
TD Canada Trust
T: 647 292 7597
F: 905 377 1634
P: 866 767 5446
email: christina.jackson@td.com

IMHO, try to get the best "no-frills" mortgage rate that you can get. All these cash back etc. stuff are gimmicks that banks want you to fall for and I doubt anyone has come ahead out of this...

Most of the time Cash back costs you more; banks will never give money away. Usually the amount that you get in cash back equivalent to 15% interest rate on these money, since your total mortgage interest rate is going up. So it’s mostly an emotional decision to get money now, rather than to save over the long term, unless you need this money to buy furniture or appliances.

_________________
Dmitri Ivanov
Mortgage Broker
Lic # M09000265
Office: 905 876 4751
Cell: 905 691 6706
Fax: 905 693 1858
email: dmitri.ivanov@migroup.ca
www.home-mortgage-advice.com

As the man with the accent would say, "Couldn't have said it better myself"

The accent.... I got plenty of that

_________________
Dmitri Ivanov
Mortgage Broker
Lic # M09000265
Office: 905 876 4751
Cell: 905 691 6706
Fax: 905 693 1858
email: dmitri.ivanov@migroup.ca
www.home-mortgage-advice.com

Some cash back can work pretty good...it depends what the purpose is.

For example if someone is at prime +.80% from last year and wants to stay variable for another year or two before converting, through one of my lenders i can pay the penalty and offer prime -.10%. If he is planning on staying VRM for 5 years than he is better to take the deeper discount, but it's a good cash back option for the right client.

On purchases, i have a handful every year that pick the cash back because that is the best option for them. Not everyone will qualify with lender with lowest rate. If i compare my quick close rates with/without cash back with the same lender (4.09% vs. 3.69%) over a 5 year period it will be a break even based on a 2% cash back even if i was to increase the payment of the lower rate one to match the 4.09%.
$ 250,000.00 - 300 - 3.690 % - 60 - $ 1,327.28 - Monthly - $ 212,901.25
$ 250,000.00 - 300 - 4.090 % - 60 - $ 1,327.28 - Monthly - $ 217,974.50

If someone qualifies for a 3.50% say, then they are ahead by about $2,500 after 5 years.

Not for everyone but a very good product for the right client.

And for sure, cash back that have no claw backs is always a better option as well.

_________________
Mathieu Fugere
Mortgage agent
Licence #M08005933
Office: 416.945.9123
Cell: 416.899.7847
Fax: 905.693.8657
mathieufugere@mortgageedge.ca
www.mortgageedge.ca