Cash-back Mortgages

Mortgages with a lump sum that you can use during the buying process

In a Nutshell...

• You get a lump sum of cash when you take out the mortgage or after the first repayment.
• Most deals offer 3% to 5% of the loan as cash back.
• The interest rate tends to be higher if the amount of cash back is higher.
• There may be severe early repayment charges if you switch lender or product.
• More competitive conventional deals offering smaller amounts of cash back are also available.

What is it?

Cash-back is designed to be an incentive for borrowers who decide they need a bit more cash available when they buy a home. You receive the money either when you take out the loan or after the first monthly repayment.

Most deals offer around 3% to 5% cash-back but it's possible to find deals with as much as 10%. It can also be a set figure. However, the higher the percentage, the longer you are likely to be tied in for and some mortgages carry heavy early repayment charges that may even require you to pay back some of the cash-back to the lender.

There are other mortgages that offer a relatively small cash-back deal - from £200 to £400. They are designed to appeal to people who need a cash sum to spend on legal fees or surveyors' costs - although sometimes this will be specified. Often, though, these mortgages are not described as cash-back mortgages at all, coming under a 'fixed rate with cash-back' heading, for example. An advantage is that they will not usually have such severe early redemption charges.

If you need some extra cash at the start of your mortgage, there are several options other than a cash-back mortgage you could consider:

- A discount mortgage with a very good initial rate will mean low payments at the beginning before it reverts to a standard rate.
- A larger mortgage - at 85% rather than 80%, for example - will mean you need less money for the deposit and have extra money at the start of the term.
- An unsecured personal loan will be at a higher rate than your mortgage but it won't carry the same early redemption charges.

Costs and charges

Fixed, variable, discounted and capped rates can all come with cash-back and they are also available for people who are remortgaging. You may find that the higher the cash-back, the less competitive the interest rates. This is because the lender will look to recoup the cash-back money over the life of the loan by charging you more for borrowing it. You will probably have to choose between a cash bonus and a favourable fixed or discounted rate.

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