If you’re purchasing a home and find yourself close to maxing out your budget, a cashback mortgage may prove beneficial in freeing up some of your cash flow. A cashback mortgage loan allows you to secure a mortgage with an additional lump sum advanced at or after closing. Cashback can be used for any costs, including furnishing your new home, renovating, or paying down higher interest debts.

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Key Takeaways

• Cashback mortgages provide borrowers with an upfront lump sum amount available upon closing.
• Cashback promotional offers incentivize borrowers to choose a lender with a lump sum payout after closing.
• Cashback mortgages have higher interest rates and may require all or part of the cashback to be repaid if you break the mortgage before the end of the term.

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What is a Cashback Mortgage?

At closing, lenders that offer cashback mortgages advance a lump sum of money, typically a percentage of the loan amount. Cashback amounts vary based on the lender, but since they are based on the loan amount, the more mortgage you have, the more cash back you can receive. 

Some lenders place a maximum allowable amount on the total cash back you can receive, so it’s important to read the fine print for any restrictions. While your downpayment and closing costs must come from your own sources to secure a cashback mortgage, there are no other rules around what you can use the cashback amount on once received. 

How a Cashback Mortgage is Calculated

Cashback mortgages are calculated based on a percentage of your mortgage amount and typically range from 1% to 7%, depending on the lender. If you have a $500,000 mortgage and your lender offers cashback of 1%, 5%, or 7%, you can choose to take $5,000, $25,000, or $35,000 as cashback. 

Mortgage Amount	1% Cashback	5% Cashback	7% Cashback
$500,000	$500,000 x 0.01 = $5,000	$500,000 x 0.05 = $25,000	$500,000 x 0.07 = $35,000

Difference Between Cashback Mortgages and Cashback Promotional Offers

Cashback mortgages are a type of mortgage that provides a lump sum of money based on a percentage of the mortgage amount and is paid at closing. Your real estate solicitor or notary is responsible for disbursing cashback, as laid out in your mortgage instructions from the lender. 

Lenders use cashback promotional offers as incentives or bonuses to generate new business. They may have minimum mortgage amount requirements or mortgage amount tiers that base the cashback offer on the tier your mortgage amount falls into. For example, tiers could be $1,000 cashback for mortgages between $250,000 and $500,000, $2,000 cashback for mortgages between $501,000 and $999,999, etc. 

Promotional offers can also have strings attached, requiring you to open a chequing or savings account or make mortgage payments from a specific lender account to receive the offer. The lump sum payment for cashback promotional offers is typically paid after closing, so you may be required to wait a few weeks before receiving the cashback in your bank account. 

Note: Both cashback mortgages and cashback offers may have clawback conditions requiring you to repay a portion or all of the cashback should you break the mortgage term early.

Common Ways to Spend Your Cashback Mortgage

The allure of cashback mortgages lies in their versatility. The funds can be used for various purposes, allowing borrowers to allocate the cash where they need it most. Some of the common ways to allocate cashback can include:

• Cover closing costs 
• Fund renovations or repairs
• Furnish your new home
• Pay for moving costs
• Pay down high-interest debts

A cashback mortgage offers a one-time payment that can be utilized before receiving the loan to clear debts and meet the lending criteria set by the lender or insurer. Even though the funds are not given to the borrower, they are sent directly to the real estate lawyer or notary to settle outstanding debts as outlined in the lender’s mortgage agreement signed by the borrower.

This type of mortgage is beneficial for borrowers who need assistance covering certain expenses related to the mortgage process. By receiving a lump sum upfront, borrowers can effectively manage their financial obligations and ensure they meet the lender’s or insurer’s requirements. This can help borrowers qualify for the mortgage and secure the funding needed to purchase a property or renew their mortgage.

If borrowers utilize the cashback for closing costs, they must demonstrate that they have the necessary funds before the mortgage is funded. However, applying the cashback to cover their closing costs eliminates the need to withdraw a corresponding amount from their savings or investments. Once the closing costs, such as legal fees, mortgage discharge fees, or refinance expenses, have been deducted, the borrower’s lawyer or notary can disburse the remaining amount.

Which Lenders Offer Cashback Mortgages?

Cashback mortgages are less frequently offered compared to cashback offers. Only a few lenders list cashback mortgages as part of their mortgage offerings. 

RBC Cashback Mortgage

RBC offers up to 7% cashback based on the size of your mortgage. Mortgages must be fixed-closed with a term of 1-10 years. Cashback is limited to a maximum of $20,000. Cashback is paid on the date the mortgage is advanced and is yours to keep as long as you hold the mortgage to the end of the selected term. If you break the mortgage before the end of the term, you must repay the cashback based on a prorated amount related to the remaining time left on the mortgage. 

Scotiabank Cashback Mortgage

Scotiabank offers up to 5% cashback based on the mortgage principal. Mortgages must be 3, 4, 5, 7, or 10-year closed fixed terms. If you pay out, assume, transfer, or renew the mortgage before the end of the term, you must repay the cashback based on a prorated amount calculated on the remaining time left on the mortgage term. 

Which Lenders Have Cashback Offers?

Many lenders have cashback offers to attract new business. These promotional offers are more widely available than cashback mortgages today. 

nesto Cashback Offer

nesto offers 1% cashback for the newly funded or renewed mortgage amount. The purchase price or property value cannot exceed $999,999.99, and the total loan amount must be between $125,000 and $925,000 to be eligible. 

Once your mortgage is disbursed, the cashback will be deposited into the bank account from which your nesto mortgage payments are made within 7 to 14 days. If you discharge, transfer, or refinance the mortgage before the end of the term, all or a portion of the cashback must be repaid. 

BMO Cashback Offer

BMO has a summer promotion where you can get up to $4,100 cashback with a new fixed or variable rate closed-term mortgage or Homeowner ReadiLine. The term must be 3 years or longer, and the loan amount must be a minimum of $100,000 to be eligible.

Cashback is tiered and determined based on the principal amount. You must also have or open a chequing account as the mortgage preauthorized debit (PAD) account. If you do not hold the mortgage at BMO for at least 5 years, you must repay a pro-rated portion of the cashback you received. 

CIBC Cashback Offer

CIBC offers up to $3,500 cashback for new or transferred mortgages that are either fixed-rate closed with a 3-year or longer term or 5-year variable flex mortgages. Cashback is tiered based on the principal amount with an additional $1,000 incentive for transferring from another financial institution. To be eligible, you must make pre-authorized mortgage payments through a CIBC chequing account. Cashback will be deposited 6-8 weeks after the mortgage is funded. 

TD Cashback Offer

TD offers up to $4,100 cashback for new, refinanced, or switched mortgages with minimum 3-year closed terms. Cashback is tiered based on the principal amount. The principal must be $100,000 or more, and preauthorized mortgage payments must be debited from a TD chequing or savings account to be eligible. Cashback will be deposited within 60 days after the mortgage is funded. 

Alternatives to a Cashback Mortgage

If a cashback mortgage isn’t for you, there are other mortgage options you can explore that can help you secure additional cash. 

Equity Takeout (Cash-Out Mortgage) 

Equity takeout is a type of refinance that allows you to borrow more than what you owe on your mortgage using the equity you’ve built as collateral. When you refinance for a higher loan amount, you can take out the difference in cash. This is commonly confused with cashback mortgages. However, the difference with cash-out mortgages is that the amount you take out is added to your mortgage balance and paid off as you pay off the mortgage. 

Home Equity Line of Credit (HELOC) 

A HELOC allows you to have multiple mortgage products, such as a line of credit with your mortgage. This will enable you to access the equity in your home as you pay down the mortgage. The more of your mortgage you pay down, the more equity you can access. You can take out and use these funds at any time without the need to refinance. 

Drawbacks to a Cashback Mortgage

While the sound of immediate tax-free cash can be appealing, there are some drawbacks to choosing a cashback mortgage to be aware of. 

Clawback

If you break a cashback mortgage before the end of the term, you may be required to repay all or a part of the cashback amount received on top of prepayment penalties.

Higher Interest Rate 

Cashback mortgages also have higher interest rates to compensate for the cost of providing additional cash upfront. Compared to other mortgage types, higher interest rates could cost you more than the cashback amount received over the mortgage term. A cost-savings comparison of interest expenses over the intended amortization is recommended to understand if the overall benefits outweigh the higher interest rate.

For example, if you are offered an interest rate of 4.54% on a $500,000 mortgage with a 5% downpayment and a 5-year term, you’d pay approximately $105,000 in interest over the term. Now, say you opt for a 5% cashback mortgage with an interest rate of 5.94%. You’d receive $25,000 upfront as cashback but pay approximately $138,000 in interest over the term. That’s an additional $33,000 in interest over 5 years to have $25,000 in cash upfront, meaning you’re netting a loss of $7,000 in total.

Frequently Asked Questions

Final Thoughts

A cashback mortgage can be a valuable option for homebuyers needing immediate cash flow for expenses like renovations or debt repayment. Still, it is essential to weigh the potential long-term costs, including higher interest rates and repayment conditions, against the benefits of receiving upfront cash. Ultimately, carefully considering individual financial circumstances and lender terms is crucial before proceeding with this type of mortgage.

Are you still looking for some cashback to pad your hard-earned savings? nesto’s 1% Cashback Mortgage is always available – wherever and whenever you want it. Reach out to nesto’s mortgage experts to see if it’s right for your mortgage strategy.

Why Choose nesto

At nesto, our commission-free mortgage experts, certified in multiple provinces, provide exceptional advice and service that exceeds industry standards. Our mortgage experts are non-commissioned, salaried employees who provide impartial guidance on mortgage options tailored to your needs and are evaluated based on client satisfaction and advice quality. nesto aims to transform the mortgage industry by providing honest advice and competitive rates using a 100% fully digital, transparent, seamless process.

nesto is on a mission to offer a positive, empowering and transparent property financing experience – simplified from start to finish.

Contact our licensed and knowledgeable mortgage experts to find your best mortgage rate in Canada.

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