Pros and cons of cashback mortgages
Given the costs associated with buying a new home, cashback can really help boost the appeal of a deal, with the amounts offered typically ranging from a couple of hundred pounds to as much as a few thousand. Cashback tends to be offered as a set lump sum, but can also be a percentage of the amount you are borrowing.
Here, we look at some of the pros and cons of cashback mortgages, and why you need to read the small print carefully so you can be certain the deal you’re getting really is good value for money.
Advantages of cashback mortgages
Moving costs and legal fees are often steep, so a mortgage which comes with cashback can be a real help for buyers or movers who might be finding it difficult to cover these costs, especially in the current tough financial climate.
It can also be useful in helping to reduce the set up costs when remortgaging.
The cashback is usually paid as soon as the mortgage completes, so you might decide to use it to furnish your new home rather than spending it on moving costs – what you do with it is up to you.
Even though cashback mortgage rates may not be the lowest, they can offer better value than a low mortgage rate with a big fee, but it’s still important to run the figures and tailor your mortgage search to your individual situation.
Disadvantages of cashback mortgages
Although cashback might be tempting, it’s vital to look at all the costs associated with any mortgage before signing up.
The rates offered by deals which come with cashback may be higher than those which don’t carry any extra benefits, which means they could end up costing you more overall. For example, whilst £500 or £1,000 cashback might be an immediate help with covering moving costs, if your deal comes with a higher rate than one which doesn’t provide cashback, you could end up paying more overall.
Bear in mind too that cashback isn’t the only kind of incentive lenders offer. For example, some deals offer free valuations, or free legal costs if you’re remortgaging, which might be more useful for you depending on your individual circumstances. If you’re not sure which deal is right for you, seek professional advice so you can find the best combination of rate, fees and incentives to suit your needs.
