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Cashback mortgages

Compare cashback mortgages with Mojo Mortgages[1]

 

House with sold sign

What is a cashback mortgage?

Cashback mortgages give customers a cash bonus. It’s essentially an incentive from providers to encourage people to take out a mortgage with them.

Cashback sums can vary from a few hundred to several thousand pounds. The money is usually paid once the mortgage has begun, or a few months into the term.

A few hundred pounds could be helpful to cover costs such as basic legal work for a remortgage.

Deals offering larger sums of money (such as £750-£1,000 or 1% of the balance) could be designed to cover costs like stamp duty. These deals may appeal to certain people, like first-time buyers purchasing a property over the stamp duty exemption.

Should I get a cashback mortgage?

If you're buying a property and you're on a tight budget, the idea of getting free cash can be tempting – especially when you need money to buy essentials for your new home.

Mortgages that offer free cash might seem like a perfect solution, especially if you’re a first-time buyer keen to save every penny. But they don’t necessarily offer the best rates and might not be as good as they seem.

Conditions for cashback mortgages

You’ll need to meet certain conditions to take out a cashback mortgage.

Some mortgage lenders insist you hold a current account with them to qualify for a cashback mortgage. You may also have to hold the mortgage for a certain amount of time before you can claim the money.

Check the terms and conditions of any deal before signing, so you're not left disappointed.

A mortgage adviser will be able to go through any conditions with you and will check you qualify before choosing a deal. Some mortgage advisers charge a fee, but fee-free advice is available.[1]

Advantages of a cashback mortgage

Whether or not you should opt for a cashback mortgage depends on your circumstances.

Cash lump sum

Cashback is useful for paying fees, moving costs and kitting out your new home.

In this way, cashback helps reduce overall costs associated with buying a home. Even if the rate on a mortgage cashback deal is higher, the cashback might make the deal better all-round, compared with what might initially look like a more competitive non-cashback deal.

Disadvantages of a cashback mortgage

There are a number of drawbacks to taking out a mortgage with cashback.

Higher interest rates

When looking at mortgage deals you need to consider interest rates, fees and length of the deal.

While cashback mortgages may be tempting, sometimes they can be hiding the fact that the mortgage itself has a less-than-competitive interest rate.

If a mortgage has a higher interest rate than others, you'll end up with higher monthly payments and the mortgage may cost more overall.

Depending on the amount of the lump sum however, it may work out cheaper. Do your sums to find out or speak to a mortgage adviser.[1]

Higher fees

A cashback bonus may also be compensating for higher fees, which cancel out the bonus. You might be better off taking out a fee-free mortgage with no cashback.

Speak to an advisor

Before you settle on a cashback mortgage, it may be worth speaking to a mortgage adviser. They'll advise you on what kind of mortgage is best for your needs.[1]

By Emily Bater