The Basics of a Cashback Mortgage

A cashback mortgage offers a lump sum of cash in addition to the mortgage sum to the borrower up front. Essentially, a mortgage larger than the amount needed to purchase the home is issued. The additional funds are like an up-front home equity loan; the borrower can use the funds to make necessary adjustments to the home.

Uses for a Cashback Mortgage

Borrowers who intend on spending a lot of money to improve a property immediately upon purchasing the home may consider a cashback mortgage. Rather than waiting to secure a home equity loan, the borrower can immediately have liquidity to replace floors, purchase appliances, outfit window treatments or simply furnish the home.

Risks of a Cashback Mortgage

The cash provided in a cashback mortgage is by no means free. It is added to the final total of the mortgage loan, and interest must be paid to the lender on any cash back. If the mortgage interest is higher than similar home equity loan interest would be, the borrower is actually costing him- or herself more by taking the cashback option. If the mortgage interest is lower than comparable home equity loans, the borrower is saving money by taking the cash back rather than seeking an additional loan.