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Why Pay A Higher Rate

Cash-back-mortgage Why would someone ever want to pay a higher mortgage rate than he or she had to?

Some people trade a low rate for cash back.

Most cash-back mortgages are pricey, but there are a couple of lenders out there that do it somewhat economically.  FirstLine might be the most popular example.

FirstLine lets you pay a reasonable rate premium and get cash back on closing. And, if the amount of cash back is under 2% (roughly), there’s often no clawback if you terminate the mortgage early. Most cash-back mortgages have clawback provisions. (A clawback is where a lender asks you to return a pro-rata portion of the cash-back they gave you, if you break the mortgage early.)

People use cash back for a variety of things. Two interesting ones are:

  • Making additional RRSP contributions to generate a tax refund
  • Getting cash back on a rental-property mortgage and using it to make a prepayment on a non-deductible home mortgage

This last part is more of an observation than anything else. We don’t advocate specific tax strategies so consult a licensed financial advisor or tax practitioner before employing anything similar to the above.