In an increasingly competitive mortgage market you start to see the banks push mortgage products that will give them an edge over their competition. They will offer any incentive they can to get you committed to a mortgage for as long a term as possible.
With cash back mortgages they offer to give you 5 percent of your mortgage amount as cash back. What you have to remember is that everything you receive as cash back is calculated into what you are paying in the first term of your mortgage. When you consider what your options are and what rates you will pay for the cash back mortgage it is a very expensive option.
If you are a first time buyer and you have been struggling for years to get into home ownership and can't quite get there than this is an extremely useful option to get you into your first home. It is much more expensive to remain a renter.
If you are using this money to decorate or to furnish your home then a cash back mortgage is very expensive. The bank loves it because we are presently in a market where interest rates have been falling and if they can get you to commit for a higher interest rate it means more profit for them. With cash back mortgages if you don't complete the first term of the mortgage you will have to pay back a percentage of what is left owing on the cash back amount.
If you need to furnish or decorate your home after you move in there are plenty of interest free option loans that you can get that give you an opportunity to pay for the merchandise without paying extra.
With a cash back mortgage you usually pay a premium over a conventional fixed rate mortgage as well as an increased percentage in the CMHC fee. Also with cash back mortgages you don't have the option of making it a variable rate mortgage which is also lower than a fixed rate mortgage. This means when you look at the bottom line this deal sounds like it is fantastic and it is except the bank is the one that is getting the best end of the deal. They make thousands of dollars more in profit and lock you in as a customer for 5 years. What could be better than that?
It is important to remember when you are sitting in front of that person in the bank to fill out the mortgage application that they will tell you what they can do for you but they work for the bank. They are offering products that will make the bank the most profits and not what is going to be the cheapest for you.
If you decide to deal with a registered Mortgage specialist the mortgage that you get will still come from a bank but the mortgage broker is working for you to get you the best deal that will save you the most. They don't charge a fee in most cases because they receive a commission from the bank that they place your mortgage with. The only difference is that when you use a mortgage broker it almost always means a better deal for you.
