What are cashback mortgages?

What are cashback mortgages?

The world of mortgages can be overwhelming, with an array of different products available to suit various needs and circumstances. One such option that has gained popularity in the United Kingdom is the cashback mortgage. In this article, we’ll explore what cashback mortgages are, how they work, and the potential advantages and disadvantages associated with them.

What are cashback mortgages in the UK?

Cashback mortgages are a type of mortgage product that provides borrowers with a cash sum upon completion of the mortgage agreement. The amount of cashback offered can vary depending on the lender and the specific terms of the mortgage. Typically, the cashback sum is calculated as a percentage of the total mortgage amount, with percentages ranging from 1% to 5%. The funds can be used for any purpose, such as home improvements, debt consolidation, or simply to cover the costs associated with moving.

How do cashback mortgages work?

Cashback mortgages are designed to incentivise borrowers to choose a specific lender or mortgage product. The borrower will need to meet the standard eligibility criteria, including credit score requirements, income, and deposit amount. Once the mortgage is approved and completed, the lender will provide the agreed-upon cashback sum to the borrower.

It’s essential to understand that the cashback amount is not a discount on the overall mortgage cost. Instead, the lender is offering it as an additional benefit. Borrowers must still repay the full mortgage amount, including interest, over the agreed-upon term.

Advantages

Immediate cash injection: The main advantage of a cashback mortgage is the immediate cash injection upon completion. This can be helpful for those who need extra funds to cover moving costs, home improvements, or other expenses.

Simplified budgeting: Since the cashback sum is provided upfront, it can simplify the budgeting process for borrowers, as they can factor this sum into their financial planning.

Attractive incentive: Cashback mortgages can be an attractive incentive for borrowers considering multiple mortgage offers, as the cashback sum could sway their decision in favour of one lender over another.

Disadvantages

Higher interest rates: This type of mortgage often comes with higher interest rates compared to other mortgage products. This means that, while the cashback sum may be appealing, the borrower may end up paying more in interest over the life of the loan.

Limited flexibility: Some mortgages may have limitations on how the cashback sum can be used or may require the borrower to use the funds for specific purposes, such as home improvements or debt consolidation.

Potential for overborrowing: The temptation of a cashback sum may lead some borrowers to take on a larger mortgage than they can comfortably afford, which could lead to financial strain and difficulties with repayments in the future.

Which lenders offer cashback mortgages?

Some of the lenders that have offered cashback mortgages in the past include:

Barclays: Barclays Bank has been known to offer cashback mortgages as part of its product range. They provide cashback incentives on specific mortgage deals, particularly for first-time buyers.

Halifax: Halifax offers cashback mortgages, typically aimed at first-time buyers, with varying cashback amounts depending on the specific mortgage product.

NatWest: NatWest offers cashback mortgages, with cashback amounts that may vary depending on the terms of the mortgage and the borrower’s circumstances.

Lloyds Bank: Lloyds Bank offers cashback mortgage deals, often targeted at first-time buyers or those remortgaging.

Santander: Santander offers cashback incentives on some mortgage products, depending on the specific deal and the borrower’s eligibility.

Please note that the availability of cashback mortgages can change, and these lenders may not be offering cashback mortgages at the time of your inquiry. It’s essential to research current mortgage deals, speak to lenders directly, or consult a mortgage advisor to find the most up-to-date information on available mortgage products and any associated cashback offers.

Cashback when remortgaging

Cashback offers can also be available for borrowers who are remortgaging their properties. Remortgaging refers to the process of replacing your existing mortgage with a new one, either with your current lender or a different one. Homeowners might choose to remortgage for various reasons, such as securing a better interest rate, reducing monthly payments, or releasing equity from their property.

Lenders may offer cashback incentives as part of their remortgage deals to attract customers and make their products more appealing. Just like with cashback mortgages for first-time buyers or home movers, the cashback amount will be provided upon completion of the remortgage process.

In summary, cashback mortgages can be an attractive option for borrowers seeking immediate cash to cover various expenses. However, it’s essential to carefully consider the potential drawbacks, such as higher interest rates and the risk of overborrowing. As with any financial decision, it’s crucial to consult with a professional mortgage advisor who can help evaluate the available options and determine the most suitable mortgage product based on individual needs and circumstances.

Related articles:

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Remortgaging to release equity

Can an adverse credit mortgage help me to improve my credit score over time?

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