CASH BACK MORTGAGE

January 4, 2015 | Posted by: Dennis Street

cash back mortgage is a five year mortgage that gives a cash amount at the time of the mortgage closing. This amount of money is a percentage of the mortgage and the mortgage has a higher interest rate due to the cash advance.buy-the-new-house-10052388

This cash can’t be used for down payments but serves as a solution for those who a limited budget to purchase a home and need the extra funds for the closing costs. Cash back mortgages can be especially attractive to homeowners who refinance using the cash to pay off the mortgage penalties they have incurred. It’s also useful as cash for renovations.https://www.youtube.com/channel/UCXW2CkQ3avZhGiKRsgLd4SQ

There are drawbacks, however, due to the higher interest rates. In most cases, the cash advance is not enough to make up the difference in the extra interest payments that are accrued. Overall, for the cash back mortgage to be right for you, you would need to evaluate your situation to determine if the cash upfront is worth the higher interest rate. Here is a comparison of a current five year fixed rate and a cash back mortgage rate.

3.09%
Period              Total Paid   Interest    Principal     Balance
Year 1 1 – 12   $ 11,469.00  $ 6,064.98  $ 5,404.02  $ 194,595.98
Year 2 13 – 24 $ 11,469.00  $ 5,896.71  $ 5,572.29  $ 189,023.69
Year 3 25 – 36 $ 11,469.00  $ 5,723.16  $ 5,745.84  $ 183,277.85
Year 4 37 – 48 $ 11,469.00  $ 5,544.26  $ 5,924.74  $ 177,353.11
Year 5 49 – 60 $ 11,469.00  $ 5,359.76  $ 6,109.24  $ 171,243.87
Totals:             $ 57,345.00 $ 28,588.87 $ 28,756.1

4.79%
Period              Total Paid     Interest  Principal     Balance
Year 1 1 – 12   $ 13,673.04   $ 9,393.53  $ 4,279.51  $ 195,720.49
Year 2 13 – 24 $ 13,673.04   $ 9,186.10  $ 4,486.94  $ 191,233.55
Year 3 25 – 36 $ 13,673.04   $ 8,968.59  $ 4,704.45  $ 186,529.10
Year 4 37 – 48 $ 13,673.04  $ 8,740.55  $ 4,932.49   $ 181,596.61
Year 5 49 – 60 $ 13,673.04  $ 8,501.44  $ 5,171.60   $ 176,425.01
Totals:            $ 68,365.20   $ 44,790.21 $ 23,574.99

As you can see with the higher interest rate the impact on how much more interest you end up paying.

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