A Guide to Understanding Cash-Back Mortgages
Many banks are offering cash-back mortgages. A cash-back mortgage usually has a higher interest rate than does a regular mortgage. The trade-off is having extra money available when your mortgage closes.
Cash-back mortgages can help when buying or refinancing a home. You can use the money you get for whatever you want. Many people have used the money to pay a lawyer, to pay fees on another mortgage, to buy furniture and appliances, or to put money in the bank.
How much money you get back depends on the size of your mortgage and the percentage of cash-back the bank gives.
For example, 3% cash-back on a $200,000 mortgage means you will get $6,000 on the day the mortgage closes.
If you pay off your mortgage early you will have to pay back some of the money.
To find out how much money you will need to pay back, take the amount of money you received, divide it by the number of months in the term and multiply that by the number of months left in the term.
For example, if you received $6,000 cash-back for a five-year term (60 months) and paid off the mortgage after 36 months, the calculations are 60 months – 36 months = 24 months, then ($6,000/60) x 24 = $2,400. You would have to pay back $2,400.
While cash-back mortgages aren’t for everyone, they’ve helped many people reach their home ownership goals.
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