Another variation on the standard variable rate mortgage is the cash back mortgage. Cash back mortgages work along the same principles as discount mortgages but instead of having a discounted period wherein you pay back less interest for a pre-agreed period, you will receive a pre-agreed amount of cash back or a lump sum. The amount you will get back will depend on the size of the loan you take out – as an example if you were to take out a loan of £100,000 with a 3% cash back deal attached to it, you would receive £3000 back. Meanwhile, your payments each month will be linked to the standard variable rate.
Advantages of Cash Back Mortgages – The chief advantage is that a cash back mortgage will give you an injection of cash in hand at the one time in your life when you will need it the most. Chances are you have just put everything you have into your mortgage and your deposit so getting some cash back straight away can be incredibly useful, particularly if there is any refurbishment or decorating you need to do on your new place. Alternatively you can put it in the bank and save it for anytime in the future where you might have a difficult couple of months and be short in your payments.
Disadvantages of Cash Back Mortgages – One of the downsides of cash back mortgages is that in return for getting the lump sum in cash you will most likely be put on a less advantageous rate of interest than other mortgage types. Also, your cash back will not be available at the time of signing so you cannot use it as part of your deposit. Finally, as with all SVR mortgages it is important to remember that your interest rate could go up at any time and you could face increased monthly payments.