A cash back mortgage offers exciting possibilities. It allows you to take out a mortgage while receiving a lump sum of cash. That’s right…at closing, you’ll receive the keys to your home and a check! 

Here’s everything you need to know about this exciting mortgage product. 

Using Your Cash Back Mortgage

You can use your cash back mortgage for a variety of purposes.

  • Cover closing costs like property transfer tax
  • Purchase furniture for your new home.
  • Pay moving expenses.
  • Place it into a savings account.
  • Make repairs or renovations.
  • If your income varies from month to month, you can use it to smooth out the rough spots and ensure your mortgage gets paid.
  • Pay college expenses. 
  • Pay wedding expenses. 
  • Pay off higher-interest and lower-value debt to place yourself in a stronger financial position.
  • Pay back a portion of your mortgage immediately.
  • Anything else you can think of!

There’s only one thing you can’t use your cash for, and that’s paying the down payment on your mortgage. You have to come up with that money on your own, just as you would for a standard mortgage.

My lenders do allow gifted down payments on this mortgage product. If you are using a gifted down payment, the rest of your application does need to be strong. Lenders still want to know that you have the means to pay off the mortgage.

Pros and Cons of a Cash Back Mortgage

The advantages of a cash back mortgage are:

  • Minimal Down Payment Requirements – Get up to 3% cash back when you put down as little as 5% down. And if you have 20% down payment you can get up to 5% cash back.
  • Mortgage payments – When these mortgages are structured correctly, the monthly mortgage payments are lower, even if you don’t use the cash on your mortgage. This improves your monthly cash flow.
  • Borrowing power  – You can borrow up to 95% of the home’s value.
  • Convenience – Buying a fixer-upper? Cash back mortgages are a convenient way to finance the repairs. You also go into that purchase secure in the knowledge that you’ll have the resources to give the home the TLC it requires to become livable. 
  • Lower balances at maturity – The way that mortgages are structured means that we can provide a lower “effective” interest rates. That means that while you may be borrowing more than you otherwise would, the interest on that purchase is less. As the interest can add thousands of dollars to any mortgage you save a considerable amount of money in the long run. 
  • The cash itself! – Let’s face it, receiving a large sum of money, all at once, is always useful. 

The disadvantages of a cash back mortgage are:

  • Interest rates – The interest rates on these mortgages are a little higher. The advantage of this is that the cash back is factored into the rates, which means you’re not borrowing more money or increasing your mortgage principal.
  • Strict qualification requirements – The cash back mortgage is not a good product for a buyer who is struggling with their credit or who has other challenges to their credit file. If you are a considering a cash back mortgage, lowering your debt-to-income ratio is a good immediate start. Finally, you cannot take out this mortgage at all if you are new to Canada; there are other products that I would recommend to those who are becoming a resident of Canada for the first time. Self-employment is also a difficult barrier to overcome when considering a cash back mortgage. 
  • Clawbacks – I advise my clients to be sure that they’re going to be in the home for the entire 5 year term before I recommend this product to them. This is because the lender will claw back a portion of the cash back amount if you pay off the mortgage before the end of the term. That is, you’ll sell your house, pay off the mortgage with the sale, but will still be asked to immediately write a cheque for whatever portion of the cash back you received. 

Who should consider a cash back mortgage?

You should consider a cash back mortgage if:

  • You have a clear vision for how you’re going to use the money, and the money either helps you turn your house into a home or helps you manage your finances in an advantageous way. It is definitely a top-notch product for anyone who is looking at buying a fixer-upper, as you’ll go into that purchase knowing you have the resources to make the necessary repairs.
  • You have strong credit and a reasonable degree of income security. You know that you can absorb the higher interest rates and are comfortable with the impact that will have on your long-term financial plan.
  • You plan to stay in the house for 5 years or longer. You’ll start with less equity in your home than borrowers who choose a traditional mortgage product. Since you’re borrowing money over the worth of the house you’ll need a little longer to gain significant equity. In addition, it takes 5 years to fully pay back the cash back amount, allowing you to pay off the mortgage, refinance the mortgage, or sell your home to pay off the mortgage without penalty.
  • You need a lump sum of cash right away for any reason at all. 

Why turn to Alan Harder for your cash back mortgage? 

There are several reasons why it’s smart to turn to my mortgage brokerage for your cash back mortgage.

  • Rates and Terms – I can help you secure great rates and flexible terms on your cash back mortgage. In many cases, the terms will be far more generous than the ones you’d find at any bank. 
  • Expertise – I’ll sit down with you to discuss the math. If you want your mortgage to improve your cash flow and increase your chances of paying off the mortgage in full in the long run, then we’ll run the numbers together and develop the right strategy. I’ll also help you decide whether or not this mortgage is right for you. 
  • More Cash – My lending partners offer up to 5% cash back. This is a generous lending amount that is not at all industry standards. Most mortgage lenders offer far, far less. 

Frequently Asked Questions

You must borrow a minimum of $75,000. You can borrow a maximum of $924,999. That means you’ll be eligible to by almost any home that’s available in the Vancouver metro area. 

In British Columbia, the money that you get back on your mortgage is tax-free. It’s a loan, not income. 

No. The cash back mortgage is only available on insured and insurable mortgages.

  • Eligible transactions – purchases, switches and transfers, but not refinance.
  • Property Use – Owner Occupied (no rental properties)
  • Property Value – Less than $1 million

* Other lending requirements apply. Contact me for details.

You have options. You can borrow 1%, 1.5%, 2%, 3%, or 5% of your mortgage amount. The 5% option requires at least 20% down payment, but the 1% – 3% options are available with as little as 5% down.

There are no caps on the cash back amount. It’s all percentage driven based on the size of the mortgage.

The terms are sometimes used interchangeably. 

Most of my lending partners require you to have a Beacon or FICO score of 680 or more. Is your credit score too low? Talk to me about the steps that you can take to help improve your credit score.

You can prepay up to 20% of the original principal balance each year, to a minimum of $100. You can increase payments by up to 20% of the original registered amount. You can also prepay or increase payments in combination. Combined prepayments must be within 20% of the original principal balance.

The terms of your loan will require you to repay a prorated portion of the cash back amount. Additionally, there’s also a prepayment penalty, which is the greater of 3 months interest or the Interest Rate Differential (IRD). The repayment of the cash back amount is prorated.

When you renew your mortgage after the 5th year, your normal mortgage payments have covered the cash back amount, and you’ve essentially got a normal mortgage. This is one reason why we say that this loan is best for people who know they’ll be spending several years in the house.

You can choose from either 5 year variable or 5 year fixed.

Yes. Cash back mortgages are available on mortgages up to 95% of the home value. The mortgage is only available on insured or insurable mortgages.

Usually you’ll need a 30 day close, which is the same length of time a regular mortgage takes to complete. This leaves room for the lender to approve the mortgage, and for the solicitor to prepare the signing documents.