Cashback mortgages are often useful for first time buyers, but are also available with remortgaging and home mover mortgages. We’re often asked whether or not cashback mortgages are worth it, so we’ll break down the meaning of cashback mortgages, and how they work, as well as the advantages and drawbacks of them.
This mortgage type is helpful for alleviating upfront costs of buying a home.
Cashback mortgages include getting cash back as a lump sum from the lender, as an incentive to take out a mortgage with them. Mortgage rates are usually higher with this mortgage type however, so it’s important to factor in all costs before making the decision to go with this mortgage type.
This lump sum is often helpful when covering moving costs, legal fees or buying new furniture, and can be a vital financial bonus for first time buyers.
How cashback mortgages work
Cashback mortgages work by paying you a lump sum as you succeed in buying or remortgaging a house. This money can be spent however you want, designed to support your finances in a time where you’re likely to be spending a lot of money.
With higher mortgage rates, cashback plans often lead to you spending more money in the long term, but for some people the upfront cash is very helpful to support during the hardest times financially. The money is often sent from a lender to a solicitor, who then passes it on to the home buyer.
Advantages of a cashback mortgage
There are some strong advantages to getting a cashback mortgage, making them the ideal choice for certain buyers:
- Upfront cash injection – This lump sum of money can be what helps keep buyers afloat, particularly first time buyers who are struggling financially.
- Helping with upfront costs – The cashback plan can help deal with some of the extensive costs associated with buying a house. This could include decorating, paying for movers, paying legal fees and much more.
- Flexibility – As the lump sum of money can be spent however you see fit, this can actually be used to pay for other things you were worried about. Such as paying off existing debts or similar things. Whilst you’ll likely be left with higher mortgage rates, this can be managed in advance.
Primarily, the benefit of a cashback mortgage is that you’re receiving a flexible lump sum as soon as you buy the house. This, during a financially straining situation can ease many worries and alleviate lots of issues.
Disadvantages of a cashback mortgages
There are also a few disadvantages of cashback mortgages which should be considered before you make a decision:
- Higher interest rates – Usually, interest rates on a cashback mortgage would be higher to compensate for the upfront cash. This can be more expensive in the long term.
- Early repayment charges – Cashback mortgages may come with strict early repayment charges. If you plan to pay your mortgage off early, or re-mortgage, there might be costs which include repaying the cashback.
- Harsh eligibility criteria – In some cases, you’ll be expected to be borrowing a certain minimum amount, or already hold a current account with the lender.
The disadvantages indicate that, whilst the money upfront is beneficial, there are other financial factors to consider before opting for a cashback mortgage.
Who are cashback mortgages best for?
Cashback mortgages are generally most suitable for first time buyers who don’t have too much in the way of upfront money. Whilst you must have some money for a deposit and legal fees, a cashback mortgage can be a great way to provide those vital additional funds to keep everything above board as a first time home buyer.
Learn more about mortgage rates and fees as a first time buyer.
Cashback mortgages are also suitable for anybody looking for upfront financial aid as an incentive, not necessarily just first time buyers. If you’re prepared to pay slightly higher long term rates, this upfront cash sum can be ideal for anybody prioritising their short term financial needs.
A cashback mortgage won’t be suitable for anybody looking for the outright cheapest deal in the long run.
Should you choose a cashback mortgage?
If you feel you’d benefit from a lump sum at the start of your mortgage, and you understand the possible higher rates you’ll pay as a result, we would definitely recommend choosing a cashback mortgage. You should NOT choose a cashback mortgage if you’re not sure what the impact of higher rates in the long term would be.
Barlow Irvin financial services can help you to assess your options and advise as to whether a cashback mortgage is a viable solution for you. Get in touch to find out more.
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