Pros and Cons of Cashback Mortgages

In cashback mortgages, a lender usually refunds a cash lump sum to the borrower once the loan application has been completed. There are also some lenders that offer long-term cashback loans that provide payouts for several years based on the value of the debt. More often than not, this special type of loan is offered alongside other mortgage products, such as fixed-rate home loans. People who avail of a cashback mortgage usually receive the payout within a month after the mortgage is approved. Although this mortgage is very enticing because of the promise of a cashback, you should not immediately sign up for one. Here are the pros and cons of getting this type of mortgage.

Pros of Cashback Mortgages

  • The number one advantage of a cashback home loan over other types of mortgage products is the cash payout. The cash lump sum that lenders usually give back can reach as high as 6 percent of the mortgage amount. What’s more, there are no conditions on how you can use the cash payout. The borrower is free to do anything with the money received from a cashback home loan. First time homebuyers can use the money to buy furniture and appliances.
  • Next, for people who have availed of long-term cashback home loans, they can use the cash refund as partial payment for the loan itself. This is a good deal if you are struggling to repay your financial obligations.
  • Lastly, borrowers who are disciplined enough and have good financial sense can end up making money from the cash incentives that they get from cashback loans. If you are a savvy investor, you can put the money that you get from the loan in an investment vehicle that can offer high returns.

Cons of Cashback Mortgages

  • Although this loan can be very tempting, many people decide not to take a cashback mortgage loan primarily because it has a high interest rate. The rates applicable to this type of loan are always higher compared to regular mortgages.
  • Also, the terms in cashback mortgages usually come with higher early repayment charges. The option to repay your loan earlier should not entail exorbitant fees. Early payment of your loan should save rather than cost you money.
  • Aside from high interest rates, this type of loan also has stiff application and closing costs. It is very important for people who are considering a cashback loan to compute the sum of the fees applicable to the loan. The amount of money that will go to charges and fees could be bigger than the refund or payout.
  • Since cashback loans are usually bundled with other less popular mortgage products, you may end up getting a mortgage that does not provide competitive rates and ideal terms, even if you get a cashback offer.
  • Finally, lenders provide consumers only with limited choices when it comes to cashback home loans. Borrowers have little space to negotiate for better interest rates, longer or shorter repayment period, or cheaper application costs.
blog comments powered by Disqus