Cashback mortgages explained
Who wouldn’t love a bit of extra cash, particularly when buying a home? Well, a cashback mortgage gives you just that - but there are some downsides to be aware of. Let’s get stuck in.
Cashback mortgages summary:
Cashback mortgages give you a tax-free lump sum of cash (usually after completion), which can help to boost your finances after an expensive home move
An attractive cashback offer often comes with a slightly higher interest rate, so it’s vital to look at the bigger picture
Always calculate the total cost over the initial deal period, as a mortgage with a lower rate could save you more money in the long run than a deal offering cashback
A mortgage broker can help to compare the market for you, recommending a deal that provides the best long-term value
What are cashback mortgages?
Exactly as the name suggests, cashback mortgages are a type of mortgage where your lender offers to give you a lump sum of money back.
Cashback mortgages are particularly appealing to first-time buyers and even home movers - a few hundred pounds can be a big draw when you’ve got loads of other moving costs to think about.
So what’s the catch? Well, cashback mortgages often come with higher interest rates which means you’ll likely end up paying more each month and overall than you would with a non-cashback deal. You’ll need to weigh up whether you’d rather pay more in the long-term to get some extra cash in your wallet now.
Each cashback mortgage deal will offer a different cashback amount. You could get a lump sum of up to £1,000+, you might be offered a set percentage of your mortgage amount, or get your first monthly repayment refunded.
How do cashback mortgages work?
What about cashback mortgage rates? Will I end up paying more overall?
The interest rate you’re offered will depend on various factors, including the mortgage you choose, your financial situation and deposit size. However, cashback mortgage rates are usually higher than other types of mortgages such as standard fixed-rate or variable-rate mortgages without cashback deals.
It’s a good idea to use the Annual Percentage Rate of Charge (APRC) when comparing mortgages. This will tell you the cost of the mortgage over their whole term, giving you a clearer way to see how much your cashback mortgage could cost compared to other non-cashback deals.
As you can see from the table below, while a thousand pounds in your hand now does sound appealing, even a small increase to your mortgage interest rate can add up significantly over the initial term… let alone the lifetime of your mortgage. So you really do need to weigh things up carefully before committing.
Mortgage amount | Cashback incentive | Interest rate | Monthly repayment | Total cost over 2 years (not including cashback) | Total cost over 25 years (not including cashback) |
|---|---|---|---|---|---|
£300,000 | £0 | 4.5% | £1,667 | £40,008 | £500,249 |
£300,000 | £500 | 4.7% | £1,702 | £40,848 | £510,521 |
£300,000 | £1,000 | 5% | £1,754 | £42,096 | £526,131 |
*The rates used in this example are illustrative only, assuming a £300,000 mortgage over a 25 year term. The actual rate you are offered and your monthly payments will depend on your personal circumstances.
Compare your mortgage options
Working with a mortgage broker can help you figure out your options. We’ll compare thousands of deals from over 70 lenders, recommending the best fit for your circumstances.
Pros and cons of cashback mortgages
Advantages of cashback mortgages
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Extra money upfront. The cash you get can be used towards anything you like. Many use it to cover other costs that crop up throughout the house buying process, such as solicitor’s fees.
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Additional benefits. Some cashback deals may include other incentives, like a refund on product fees or contributions towards legal fees.
Disadvantages of cashback mortgages
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Stricter terms. Your lender may have tighter restrictions on things like overpaying your mortgage. This can be limiting if you’re planning to make overpayments, as you could face penalties.
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Higher interest rates. You’ll likely face higher interest rates compared to other standard mortgage deals. This can make the cost of your mortgage more expensive overall.
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You won’t get the cashback straight away. You’ll usually get your cashback after completion. If you were hoping the extra cash would come in handy during the moving process, or to pay for things like furniture up front, the delay in receiving your cashback might be frustrating.
What other incentives can I look out for?
It’s pretty common for lenders to offer fee-free mortgages, which means there’s no arrangement or product fee. You might also see lenders offer free legal fees or free valuation fees - particularly for remortgage products.
Some lenders, including Halifax, also offer 'green' mortgage incentives, providing cashback specifically for customers to spend on energy-efficient home improvements.
Cashback mortgages FAQs
The timing of your mortgage cashback depends on the details in your mortgage offer but usually the cashback is paid out once your mortgage completes and everything has been processed. This can take anywhere from a few days to a few weeks, depending on your lender.
You’ll need to make sure you meet your specific lender’s eligibility criteria. For example, some lenders only offer cashback mortgages to those who bank with them, or offer cashback mortgages exclusively to first-time buyers.
Depending on your lender, you might need to agree to some additional terms, such as:
Staying with the lender for a certain period (for example, the duration of the initial deal)
Setting up regular mortgage payments via Direct Debit
Keeping the mortgage in place without making major changes (like paying it off early)
If you break the terms you may be required to pay back some or all of the cashback.
Good news - you don't have to pay any tax on mortgage cashback. HMRC generally views it as a discount on your loan rather than taxable income, so it's considered a tax-free bonus.
Cashback is typically paid directly to your bank account or paid via your solicitor, but some lenders might credit it to your mortgage account. Double check your mortgage offer to know exactly how it will be paid out.
If you're waiting for your cashback and it seems to be taking longer than expected, it’s always a good idea to reach out to your lender. They’ll be able to update you on the status and make sure everything is in place!
No, unfortunately not. You’ll only receive cashback per mortgage application, rather than per person.