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CASH BACK MORTGAGE, IS IT REALLY WORTH IT?
CASH BACK MORTGAGE, IS IT REALLY WORTH IT? Recently, I have been hearing a lot of people being offered a Cash Back Mortgage by their agents or by Bank Representatives. Worse, they are being presented as if it is a free money. Banks DO NOT GIVE FREE money. Furthermore, this product s pros and cons are not properly explained. But let us go back to the basic. If you do not have money saved up as down payment and you have a lot debts in place and you opted to go for Cash Back Mortgage, you just placed yourself in a Financial Suicide. Below is a link the article of Financial Post dated April 20, 2014. This article maybe dated but the facts about Cash Back Mortgage stays the same. To read the Financial Post Article , click here. Now, if you read the entire article, let us apply it to the current Cash Back Mortgage being offered by CIBC. For example, and I am not saying this is the actual rate, you are buying a house for $400,000 and CIBC gives you a cash back of 5% ($20,000) at 3.49% 5 year fixed rate compare to possible 2.44% rate you could get if you are not doing a cash back. With Cash Back:Without Cash back: Monthly Payment=$1994.97 Monthly Payment=$1,690.94 Interest Paid after 5 years=$64,754.97 Interest Paid after 5 years=$42,690.97 Based on the above estimates and example, you are paying $304.03 more on monthly payment and at the end of 5 years, you would be paying $22,064 more interest if you go for a Cash Back Mortgage. Please note, the computation above does include Mortgage Default Insurance premium which is applicable if your down payment is less than 20%. So if you are getting an Insured Mortgage, you could be paying more. In addition, if you pay off, transfer or refinance your Cash Back Mortgage before your term is up, you would need to pay back if not in full, a portion of your cash back. Which basically leaves you trapped by your Bank. Now, let us go ahead and use CIBCs Mortgage Prepayment calculator by going to https://www.cibc.com/ca/mortgages/calculator/mortgage-prepayment-calculator.html . Assuming, you did get the Cash back Mortgage in 2016 with Maturity of June 1, 2021. And for example purposes, We will use current rate offer of 3.49% 5 year fixed ,Cash Back of 5%, and the Principal Balance after 1 year is $390,000 and current posted rate of 4.79% for 5 year fixed. Your rate discount is the difference between posted rated of 4.79% and rate special offer of 3.49% (1.3%) . So, this is what you should come up with: Prepayment Charge of $11, 291.36 Cash Back Repayment of $20,000 Prepayment charge including cash back $31,291.36 That is a HUGE penalty! Now, is Cash back Mortgage bad? No. Is it for everybody? No. Cash back can be beneficial to a specific situation. That is where Professional Agents or bank Representatives come into play. They should be able to explain to you the Pros and Cons and not just sell you a product. So always make sure to talk to you licensed Mortgage Professional.
Professionals who can help you with home buying
Because purchasing a home is probably the biggest investment you will ever make, youll definitely want a team of professionals working with you throughout the process. The Real Estate Agent Helps you find the ideal home Writes an Offer of Purchase Negotiates on your behalf Gives you important information about the community Can help you plan the home inspection The Lawyer/Notary A lawyer (or a notary in Quebec) protects your legal rights. He or she will review all contracts before you sign them, especially the Offer (or Agreement) to Purchase. Remember that a lawyer/notary should: Be a licensed, full-time lawyer/notary Be local and understand real estate laws, regulations and restrictions Have realistic and acceptable fees Be able to explain things in plain language The Home Inspector Performs an inspection of the visible components of the home Tells you the condition of the house; what is working properly; what needs to be changed; what is unsafe; and what repairs need to be made Can tell you where there may have been problems in the past Usually belongs to a provincial or industry association
A good credit report and credit score are important factors in determining whether or not you will be approved for a mortgage. Here are some simple steps you can take to maintain a good credit history, and improve your chances of being approved.
What is a Credit Score Your credit score is a number that illustrates your financial health at a specific point in time. It also serves as an indicator of your financial past, and how consistently you pay off your bills and debts. This is one of the factors mortgage professionals consider in qualifying you for a mortgage. How to Check Your Credit Score To find out your credit score, contact Canadas two credit-reporting agencies: Equifax Canada at www.equifax.ca and TransUnion Canada at www.transunion.ca. For a fee, these agencies will provide you with an online copy of your credit score as well as a credit report a detailed summary of your credit history, employment history and personal financial information on file. You can also obtain a free copy of your credit report by mail. If you find any errors in your report, notify the credit-reporting agency and the organization responsible for the inaccuracy immediately. If You Do Not Have a Credit Score Its important to begin building a credit history as early as possible. You can begin to build one by applying for and responsibly using a credit card. Your financial institution or mortgage professional can help. How to Improve Your Credit Score Demonstrating your ability to manage credit is key to maintaining a good credit score. There are a number of things you can do to improve your credit score. These include: Always pay your bills in full and on time. If you cannot pay the full amount, try to pay at least the required minimum shown on your monthly statement. Pay off your debts (such as loans, credit cards, lines of credit, etc.) as quickly as possible. Never go over the limit on your credit cards, and try to keep your balances well below the limits. Reduce the number of credit card or loan applications you make. Once your credit score has improved, work with your mortgage professional to obtain a mortgage that works for you. Find Out More To find out more about credit scores and reports, visit the Financial Consumer Agency of Canada website and download or request a free copy of their guide, Understanding Your Credit Report and Credit Score. This guide provides practical, straightforward information on how to obtain and understand your credit report and score, as well as how to build and maintain a good credit history.