Cash Back mortgages were once available for you to use as down payment. Sometime after 2010 when CMHC started all of their major changes this practice was discontinued. While cash back mortgages still exist they are now restricted on what they can be used for during your purchase.
Cash back mortgages work like this:
- First you have to qualify at a higher rate.
- Secondly you can only take out 1 to 3% of the mortgage amount in actual cash back and
- Thirdly you will need to qualify and pay a slightly higher interest rate.
Today these rates range from 3.29% to 3.84% for a five year fixed cash back mortgage. The regular rate for a 5 year fixed mortgage is in the 2.89% range. In this volatile market, rates change often and quickly so they will vary.
So you are probably wondering if I can’t use it for down payment what is it that I can use a cash back mortgage for when I’m purchasing my new home. One of the things we see a lot of client use it for is the expensive cost of moving into your new home, the movers, the utilities hook ups and the cost of window covering is something that many buyers forget they will need money to complete. While CMHC requires you to have an additional 1.5% in closing costs that money goes out very quickly and having access to another 3% will come in very handy.
One of the other features of a cash back mortgage is that if you break the mortgage before the end of the 5 year period you will have to pay back part of the cash back money. If you break the mortgage in the first year you will owe it all back, if it’s the second year then 80% and third year 60% all the way down to owing nothing at the end of the fifth year. This is important to remember if you enter into this program be sure that you are going to be in the home for the full five years.
So cash back mortgages have their place in the industry and they have helped many clients get a good start in their new home without them being in a poor cash flow situation. See your mortgage broker today to see if a cash back mortgage is something that might work for you.