What is a cashback mortgage?

Cash back mortgages are offered by some mortgage lenders, who give a one-off lump sum payment to new borrowers at the beginning of a mortgage. These kinds of mortgages are generally seen as a good solution for first time buyers looking to get on the property ladder.

The cash back lump sum is often marketed as free cash, but in reality it is funded by the mortgage interest paid by the borrower. The size of the lump sum depends on the size of the mortgage and is usually offered only on certain mortgages in a mortgage lender's range.

Cashback on mortgages remains popular with first time buyers, who often do not have any surplus funds after paying the deposit on their new home. The cashback is usually put towards buying furniture or is used to pay the various fees associated with moving into a first home. Lenders commonly arrange cashback mortgages as standard variable rate mortgages or tracker mortgages.

Nationwide Mortgages agreed nearly £9 billion worth of home loans in the six months to the end of September, which is 48 per cent up on 2010 . It included 10,000 loans to first-time buyers. It has launched a “Save To Buy” account offering 95% cash back mortgages, giving a £1,000 lump sum to people with a £10,000 deposit. Nationwide boss Graham Beale advises that 10,000 people have signed up for the scheme which marks a return to how lenders used to operate.

Article published: Sunday, January 01, 2012
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