One of the main problems with moving house is – it costs a lot of money! They say it is one of the most stressful things we can do in our lives, and the cost of it only adds to the stress.
Simply looking at the price of a house in an estate agent’s window will by no means tell you the whole financial story. Consider stamp duty, costs of removal companies, fees to the estate agent (if you’re selling as well), fees associated with mortgages, valuations and of course legal bills, and you will quickly add several thousand pounds to the cost of the house in the first place. On top of that, the government takes even more – in addition to stamp duty – by adding 17.5% VAT to many of the charges.
All that spending means that when you’ve moved into your new house you have nothing left to spend to make it look like your new home. That is why a cash back mortgage can seem so appealing. Have some additional cash can give you just what you need to buy new items for your new home: cooker, fridge, washing machine or wardrobes, dressers or even a TV!
Cash back mortgages give you the opportunity to receive a lump sum of cash, most often at the time your mortgage starts. It can be an agreed percentage of the amount of the loan, or it may be a fixed amount.
The percentages can be 1%, 5% - sometimes even as high as 10% - of the mortgage amount. For example, if you borrowed £120,000, and the cash back deal is 5%, then you would get back £6,000 at completion of the house purchase – or a remortgage if you’re staying put. Deals for fixed sum cash back deals typically range from £100 to £1,000.
Cash back mortgages are often not stand alone mortgage types, and can be added onto the other different mortgage types, such as trackers and fixed rate deals. In fact, pure cash back mortgages are quite uncommon.
The obvious advantage of a cash back mortgage is that it gives you some money at a vital time to enable you to buy items such as those mentioned above, or home furnishings, or you might choose to pay off your credit card debts, or use the cash to help pay off those fees that go with buying a house as discussed above.
There are some possible disadvantages to a cash back mortgage too. There may be an early repayment charge, applicable for a time, and that could take back all the cash that you received. There also might be a trade-off between the cash back and the interest rate you get on your mortgage. In other words, you get some cash back, but the interest rate on your mortgage is higher than on a non cash back mortgage. In addition there is usually an arrangement fee or a booking fee which you have to pay for a cash back mortgage.
Cash-back mortgages are often useful for first time buyers with the mortgage lender offering a lump sum of cash at the start of a mortgage, giving them a good start to their home owning life.
