How the cashback works
Lenders typically offer a percentage of your mortgage amount, often somewhere between one and five percent, paid to you as a lump sum shortly after closing. In exchange, you accept a higher interest rate than a standard mortgage.
What it actually costs you
The higher rate is applied over your entire term, meaning the extra interest you pay can end up costing significantly more than the cashback amount you received, especially if you keep the mortgage the full term.
- Higher rate applies for the full mortgage term
- Extra interest paid often exceeds the cashback received
- Some lenders require repayment of cashback if you break early
Early payout penalties
Many cashback mortgages include a clause requiring you to repay some or all of the cashback if you break the mortgage before the term ends, which is an important detail to review before signing.
When it might make sense
This product can work for buyers who genuinely need extra cash at closing and plan to keep the mortgage for its full term, but it's rarely the cheapest option if you can cover closing costs another way.
Frequently asked questions
- Do I have to pay tax on cashback received from my mortgage?
- Cashback from a mortgage is generally not treated as taxable income, but it's worth confirming with a tax professional for your specific situation.
- Can I use the cashback for anything I want?
- Yes, there are typically no restrictions on how you use the funds once they're deposited to you after closing.
- Is a cashback mortgage a good alternative to a personal loan?
- It can be, since mortgage rates are usually lower than personal loan rates, but you should compare the total cost carefully against other options.