Do the Math! Are Cash-back mortgages a good deal?
Cash-back mortgages are starting to get a lot of attention again lately, likely due to the fact that the rate can be as low as 5.75%.The question “is this a good a deal” gets asked to us a lot. The answer lies in the same place it always does, in the MATH.Let say you are getting a $250,000 mortgage with a 5% cash back or $12,500. The rate for a non-cash back mortgage is 4.19% today.Therefore if you take a cash back mortgage your interest cost for the next five years is: $67,543Your interest cost over five years without a cash back is: $48,804.So, your interest cost in five years of your cash-back is $18,739. Is this a good deal?Well we should look at why you were taking the cash-back mortgage in the first place. Knowing what you know now could there really be ANY reason you would take this expensive cash? The only reason I think you would use a cash-back mortgage would be for the down payment. Gasp, yes it’s true you can still get 100% financing. Anyway, the logic behind using it for down payment is that when compared with renting the cost of the additional interest will still be better then the rent money you just throw away, PROVIDED you have full confidence that the housing market is near the bottom and rising…hint, according to the statistics it is.
