When thinking about remortgaging, it’s easy to get bogged down by the multitude of options that are available, yet even small financial benefits have a meaningful effect on your overall situation.
Owning a home involves more than just your monthly mortgage payments because there are various hidden or unexpected costs that quickly add up. And, if you’re looking for extra funds at the time of remortgaging as a consequence, a cashback mortgage is worth considering.
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What is a Cashback Remortgage?
A cashback remortgage is a form of mortgage refinancing where you move your loan to a different lender and, in return, receive a lump sum of cash. This payment, which is a percentage of the total loan, is offered by the new lender as an incentive to encourage you to switch. In essence, it’s a way of providing yourself with immediate funds after remortgaging.
It’s vital to know that cashback remortgages aren’t a separate mortgage type in themselves, but rather a feature attached to certain remortgage products, being used as a marketing incentive by lenders to attract borrowers who are switching from another provider, particularly in a competitive mortgage market. This implies the cashback should always be considered alongside the overall cost of the mortgage, rather than as a standalone financial benefit.
How Does a Cashback Remortgage Work?
A cashback remortgage works much like a standard remortgage, with the main difference being the lump sum of cash you receive. The process itself entails settling your current mortgage using funds from a new loan.
Although the process is similar to a standard remortgage, it still involves affordability checks, a valuation of your property, and legal work to transfer the mortgage between lenders. The cashback element doesn’t change these steps, but it is factored into the overall product terms offered by the lender.
What Can You Use the Cashback For?
The cashback you receive can be used for lots of different purposes in that it can cover remortgaging costs, for example, such as legal fees, or be put towards personal financial goals like renovating your home, getting a second property, or consolidating debts.
However, it’s important to remember that this money is effectively borrowed as part of your mortgage, meaning you will pay interest on it over time, so using cashback for non-essential spending will increase the overall cost of your borrowing.
When Will You Receive the Cashback from Your Remortgage?
The cashback will be paid directly to your solicitor along with the mortgage funds shortly after completion of the remortgage, sometimes within a set period (e.g. 30–60 days), or otherwise after you’ve made your first mortgage payment.
It’s important to discuss with your solicitor how you’d prefer to receive the cashback, since some lenders offer the option to apply the cashback to your monthly payments rather than receiving it as a lump sum.
Eligibility Criteria for Cashback Remortgages
Your eligibility for a cashback remortgage depends on a range of personal factors including your financial situation and credit history, as it does with any mortgage product.
There are also distinct criteria you’ll need to meet. For instance, many lenders want you to have an active banking relationship with them or to be a first-time buyer. There could be a minimum loan amount required alongside this too, or other conditions specific to the lender’s policies which will determine whether you qualify.
Even if you meet the basic eligibility requirements, the range of cashback deals available to you still differs, given that lenders will adjust their offers based on perceived risk, meaning two borrowers with similar circumstances could end up being presented with different incentives or interest rates.
Factors Lenders Consider
Despite specific requirements varying between lenders, most will assess your application based on several core factors, including your LTV ratio, which compares your mortgage balance to the value of your property, as well as your income, employment status, and overall affordability.
Your credit history also plays a big part here, alongside the type and condition of the property. Meeting these criteria doesn’t guarantee acceptance, but it’ll influence the range of deals available to you.
It’s also worth noting that lenders will periodically adjust their cashback offers in response to market conditions, as such, the availability and value of cashback incentives changes over time, even for the same borrower profile, depending on interest rate trends and lender competition.
Are Interest Rates Higher for Cashback Remortgages?
The central consideration with cashback remortgages is that they have higher interest rates attached to them when compared to standard remortgages without added incentives, such as fixed-rate options.
This higher rate is slightly balanced by the cash benefit, making them more appealing in the short term. However, you really need to weigh the long-term costs, given that without comparing different products, you could end up with a larger financial outlay owing to higher monthly payments.
Because the cashback is effectively funded by the lender, it’s built into the overall pricing of the mortgage, which is why borrowers see slightly higher interest rates or reduced flexibility compared to similar deals without incentives.
How to Compare Cashback Remortgage Deals
When comparing cashback remortgages, it’s integral to look beyond the initial cash incentive because a deal offering a higher cashback amount is likely to come with a higher interest rate, as we’ve said, which will cost more over the full term of the mortgage.
To make a fair comparison, consider the total cost of the deal over the initial period and review the APRC. This provides a broader picture of the overall cost, including fees and interest, so that you can determine whether the cashback offers genuine value.
It’s also useful to run a side-by-side comparison of cashback and non-cashback deals with similar loan sizes and terms, since this highlights whether a lower-rate product without incentives would be more cost-effective.
Advantages of Cashback Remortgages
The benefits of cashback remortgages are that:
- You’ll receive a lump sum of cash
- You can use this lump sum to reduce the financial burden of home improvements, or other personal expenses
- Some cashback remortgages give you additional perks, such as covering legal fees
Disadvantages of Cashback Remortgages
Unfortunately, there are some downsides to getting a cashback remortgage, i.e.:
- Cashback remortgages do come with higher interest rates
- The fees mentioned may not be competitive, as opposed to those associated with other remortgage options
- Certain cashback remortgages have stricter conditions on making overpayments or repaying early
ERCs and Tie-in Periods
Many cashback remortgage deals come with ERCs, which apply if you choose to leave the deal before the agreed period ends. These charges are significant, particularly within fixed or discounted rate periods.
Lenders generally include tie-in periods of two to five years, during which switching to another mortgage could result in additional costs, making it consequently important to factor this in when considering whether the upfront cashback benefit outweighs the potential restrictions on future flexibility.
Alternatives to Cashback Remortgages
Cashback is just one type of incentive offered by lenders, therefore depending on your priorities, you could find better value in alternative deals that offer lower interest rates or reduced fees instead of an upfront payment.
For example, some remortgage products include free legal work, free property valuations, or no arrangement fees. In certain cases, choosing a deal with fewer incentives but a lower rate results in greater long-term savings for the reasons we’ve mentioned.
Should You Get a Cashback Remortgage?
Deciding whether a cashback remortgage is the best option comes down to how you weigh the immediate benefit of a lump sum against the potential long-term costs due to higher interest rates. For some, those extra funds after remortgaging represent the ideal solution to their financial needs.
To make an informed decision, it’s essential to evaluate all available options and, if necessary, seek expert advice. Our user-friendly online platform makes comparing remortgage deals across the UK simple. With daily updates, it gives you access to a wide range of competitive offers, ensuring you’re always aware of the best rates.
Once you’ve found a deal that suits you, our team of professionals is here to provide personalised support. We take the time to understand your financial situation and goals, helping you choose the most appropriate option.
If you’re uncertain or have questions, don’t hesitate to reach out. We’re here to make the process straightforward, remove any confusion, and assist you in securing a mortgage deal which fits your financial future.
Cashback is only offered if you choose a remortgage deal that includes it. With a cashback remortgage, your lender gives you a one-off payment once the new mortgage is in place.
Cashback remortgages are tempting if you’d like a bit of extra money, however, they do come with higher interest rates than standard remortgages. And, that increased rate applies to the whole mortgage balance, not just the portion paid to you as cashback.
Cashback remortgages only provide a single lump sum when the mortgage begins, so they don’t give ongoing or monthly cashback on your regular repayments.
No, lenders issue a single cashback payment for each remortgage application, regardless of how many applicants are on it.
The amount of cashback available varies between lenders and mortgage products, but it’ll be either a fixed sum or a small percentage of the loan amount, with this ranging from a few hundred pounds to around £1,000.
About the Author:
Matt is a top contributor at Speedy Remortgage and has worked in the financial services industry for over a decade now. Through his expertise on mortgage and remortgage has helped hundreds of customers to achieve their property goals.