What is the difference between a cashback mortgage and a non-cashback mortgage?

2021-08-30

As a mortgage broker in Dublin, we help hundreds of clients every month qualify for a mortgage and buy the home of their dreams.

Part of our role in guiding people through the mortgage process is answering their questions. And one of the questions we get asked the most is about the differences between cashback and non-cashback mortgages.

This is not surprising.

In Ireland, there are more than 250 mortgage products on the market. Frequently, cashback offers are included in mortgage products but there are a few things to consider.

Cashback offers on mortgages vary

Many lenders in the Irish market have cashback mortgage offers. These types of mortgages have been present for a long time and often represent good value for home buyers.

However, not all cashback offers are the same.

It’s important to run the numbers with your mortgage broker to understand whether an offer you’re considering is suitable for your needs. We crunch the numbers forensically for our customers to ensure they understand exactly what they are getting in a cashback offer.

Some lenders offer as much as a 3% cashback offer. This can be a substantial sum. For example, on a €300,000 mortgage, a 3% cashback offer would amount to €9,000.

Usually, the way cashback offers work is to pay 2% of the offer into your bank account a number of days after you draw your mortgage down. The remaining 1% will be paid into your account after you have completed a certain period of time repaying your mortgage. Most often, this is a five year term.

We do encounter scepticism from people who are unsure what the “catch” is.

But there isn’t necessarily a catch. Cashback offers aren’t a gimmick, but you do need to be aware of the following:

You may have higher monthly instalments to pay on your mortgage
After an equivalent period of years, you may owe a larger balance on your mortgage if you went with a cashback offer than a non-cashback lender
You will pay more interest over the duration of your mortgage

However, there are also pros to taking out a cashback mortgage.

You will receive cash at a time when you need it most
Cashback offers can amount to big sums for big mortgages
You have the option to switch your mortgage later which can reduce your payments
The cash you receive from a cashback offer is tax-free

Understanding more about non-cashback offers

Some lenders also offer non-cashback offers.

Again, it’s worthwhile to investigate what a non-cashback offer would mean for you with your mortgage broker. Each case is unique but most often non-cashback offers make sense if you still have substantial savings after completing your house purchase.

If you have savings in reserve, then we’d ask you to consider the benefits of a non-cashback offer. These include:

You will pay less interest over the duration of your mortgage
Your monthly instalments will be lower
You reserve the right to switch your mortgage at any time which can further reduce your repayments
One mortgage provider in particular gives every new mortgage holder a contribution of €1500 towards legal fees. Not exactly a cashback, but a benefit nevertheless.

Both offers have their merits

There is definitely a place in the Irish market for both types of mortgage offers.

However, it is important to ensure you understand that your own circumstances will dictate which offer works best for you. An offer that may be suitable for another homebuyer could be unsuitable for you.

A cashback offer may turn out to be a good decision for your home purchase depending on your circumstances. Run your numbers carefully with your mortgage broker to understand the value of a cashback offer. (The Competition and Consumer Protection Commission shares more details on cashback offers here.)

Contact us for a confidential chat about your mortgage requirements. We’d be delighted to answer your questions and help you take your first steps towards owning your new home.