Cashback Mortgage

Stamp duty, arrangement fees, valuation fees, solicitors' fees and all the other fees associated with taking a mortgage can soon add up to be a large amount of money. A cashback mortgage can be an excellent way of helping to pay for all these fees.

What is a cashback Mortgage?

A cashback mortgage is one where you receive a lump sum cash payment when you take the mortgage. This can be useful for paying the initial costs involved with buying a property. The amount of the lump sum you will receive is either a percentage of the mortgage taken or a fixed amount set by the lender.

Cashback mortgages work in same way as a discounted mortgage but instead of giving a discount on a monthly basis, these are added together and given as a lump sum at the start of the mortgage. Under no circumstances will the lender provide cashback before mortgage completion.

Cashback may be offered on fixed, variable or capped rate mortgages but typically cashback mortgages are variable rate. Due the the lump sum payment given at the start of the mortgage, you will find that cashback interest rates aren't very competitive and will often be higher than their non-cashback counterparts.

In order to prevent you taking a cashback mortgage, receiving the lump sum and then switching to another product or mortgage lender, all cashback mortgages carry an early repayment charge (ERC) which will be at least the intital amount of cashback provided (i.e. a 5% cashback mortgage is likely to have an ERC of 5%). The ERCs also last for a significant time and typically last for between 5-10 years.

Advantages of Cashback Mortgages

• You will receive a large lump sum payment when you take the mortgage. This can help towards the payment of fees, stamp duty and other mortgage costs

Disadvantages of Cashback Mortgages

• An ERC will apply for a set period (usually 5-10 years) and would be the equivalent of paying back all of the cash lump sum you received
• Interest rates for cashback mortgages are generally not that competitive and are usually variable rates
• These is typically an arrangement fee payable for a cashback mortgage

Advice when choosing a cashback mortgage

• Only consider a cashback mortgage if you really need the lump sum amount. Whilst it appears as a nice bonus and you may think it could pay for a few luxuries, note that you will pay back more through higher interest in the long term
• There is a limited choice of cashback mortgages available and most are variable rate. Ensure you can still afford the repayments should interest rates increase

For more information about 'Cashback Mortgages', you can call us on 020 8783 1337 or submit an online quote.