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….
- 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…