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.