Cash Back
A cash back mortgage is one where a cash lump sum is paid to the mortgage applicant on completion of the mortgage.
There are two main ways a cash back mortgage can be offered by a mortgage lender.
Cash Back Mortgage with a lenders standard variable rate SVR
A cash back mortgage with a lenders standard variable rate, this can offer a large cash back on completion of the mortgage. This cash back can be as high as 6% of the new mortgage amount and can be used for any purpose.It is worth noting that the cash back is often paid 2 to 3 weeks after the mortgage has completed, making it difficult to use for a deposit on a house purchase.
Cash Back Mortgage offered along side another mortgage product
A cash back mortgage offered along side another mortgage product such as a fixed rate or discount rate scheme, these cash backs are usually a small amount to cover say a refund of the mortgage valuation or contribution towards legal costs for the house purchase/remortgage .
Pros and Cons of Cash back mortgages
Advantages
The additional cash can be useful at a time when you may have little spare cash.
Disadvantages
Early redemption penalties can be onerous and expensive and will apply for a long period if the lender offers a large cash back.
You may have to pay an application fee when arranging your cash back mortgage.
Interest rates tend to be higher than other mortgage products available.