Cashback Mortgages or Remortgages Advantages and Disadvantages.
A real incentive which is sometimes hard to turn down. A cashback mortgage pays you a lump some on completion. This cash payment is an incentive to go with the lender and can be useful for first time buyers or those moving house when funds are tight and expenditure is high.
Certain factors can lead to Cashbacks of 5%, up to £10,000 or more. Normally the larger the loan the bigger the payout. Smaller loan to value ratios give higher payouts. Bigger clawbacks give higher payouts.
A clawback is a way that the lender will ensure that you stay with them. By giving you the one off payout the lender is giving you a lot of the profit that it would make. Therefore they need you to stay with them for a longer term to make any profit at all.
The clawback will make you pay a large early redemption charge sometimes equivalent to the cashback size. Periods typically will be 5 years although the time varies.
| Advantages | Disadvantages |
| Large cash lump sum available at the completion stage. | Large clawback redemption penalties if loan paid back early. |
| No need to repay lump sum. | Normally higher rate of interest due to large cashback. |
| Can help a first time buyer with costs of furnishing their new home. | Limits period of time that you can remortgage in future so planning is important. |
| Can help someone moving home decorate or with other home improvements. |
Who are Cashback Mortgages most suitable for ?
- 1st Time Buyers
- People moving home.
- Someone who is remortgaging and needs a cash injection to help with home improvements or consolidation.
When is the best time for a Cashback Mortgage ?
- When a first time buyer is getting their first home a lot of expenses occur and this is a good time for a Cashback Mortgage.
- When remortgaging for home improvements sometimes a Cashback loan can give those extra funds needed.
- Anytime a good deal is on offer.
What to watch for ?
- Long early redemption fees.
- Large arrangement fees and long early redemption charges.
- Check how long the clawback is for.
- Check to see if the mortgage is transferable i.e. you can take the Cashback mortgage with you if you move home in the future.
