Usually I am not a big proponent of cash back mortgages but my office recently sold a 5 year fixed rate mortgage at 2.64% instead of the regular 1.99% rate that this lender was offering. The mortgage amount was approximately $500,000 which meant a $15,000 cash back that allowed the borrowers to pay off their car loan. This in turn increased their purchase price power by $100,000 because there was no longer a car loan to increase their debt servicing ratios. The result was the purchase of a semi-detached home in Cambridge. The buyers will pay a few thousand dollars more in interest because of the higher rate (2.64% vs 1.99%) even with the cash back factored. On a positive note, remember they paid off a car loan which had a higher rate than the mortgage rate so they save interest here and they were able to get into the housing market. They now are paying off their own mortgage instead of renting and paying off someone else’s mortgage!
Lastly, the clients can take a lessor cashback and have the rate reduced if their situation calls for this. So for clients who are qualifying for a smaller mortgage than they want due to debt a cash back mortgage used to consolidate debt may be a perfect solution!