5.5% Cashback mortgage… is this a good deal?

There are some interesting cashback mortgages available these days…. I’ve been asked if they are worth considering…

Let’s take a look at one of the better ones being offered out there…

The deal is simple.. you must take a posted 5 year fixed rate….currently at a very low 5.39%.  You get 5.50% back in cash.  Sounds pretty good but how does this compare with taking a discounted 5 year fixed rate of 3.69%?

We’ll use a $200,000 mortgage with a 25 year amortization in this example….

CASHBACK OFFER

• 5.5% cashback equals $11,000 in cash to you.
• mortgage rate of 5.39% will give you a monthly payment of $1,208.01.

• your mortgage balance after 5 years will be $178,080.91

NO CASHBACK AND A DISCOUNTED RATE

• interest rate would be 3.69%.
• monthly payment is $1,018.70
• your mortgage balance after 5 years will be $173,155.72.

And the end result is…..your monthly payments alone would almost balance out… there is a savings of $358.60 in favour of the discounted rate.   But look at the difference in the balance at the end of 5 years…. a $4,925.19 additional savings.

The obvious first choice is to take the discounted rate….but the Cashback is a good option for those that are just starting out or need funds for the initial expenses associated with buying a home….  The best choice for you will depend on your circumstances, goals and plans….. Talk to a qualified Mortgage Broker that doesn’t work for any one bank to understand the differences…