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Cash Back Mortgages
With a cash back mortgage the lender pays the borrower a lump sum upon completion of the deal. The lump sum will be a percentage of the mortgage - usually less than 12%. This is often used to furnish the house, and so is most useful for first time buyers.
How
it works
A cash back mortgage is really just an incentive to attract new customers just like a discounted interest. Usually the interest rate charged will be slightly higher than average though, to cover the extra risk to the lender.
As with all incentive offers a cash-back mortgage is likely to come with a redemption penalty or perhaps an overhanging redemption penalty. This is to prevent borrowers from taking advantage of the cash back lump sum and later remortgaging to find a lower interest rate.
Usually the larger the cash back the worse the redemption penalties.
Beware that the cash-back lump sum may be subject to capital gains tax, meaning you might get less than you think.
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