Cash-back mortgage explainer.

A "cash-back" mortgage is a type of loan that provides borrowers with a cash advance on top of their basic loan amount. Upon closing, borrowers can receive a "cash-back" of up to 5 percent of the purchase price, which can be used to cover closing costs or minor property repairs. However, "cash-back" mortgages typically have slightly higher interest rates due to the cash advance component. Borrowers are not required to repay the cash advance until they sell or refinance their home, although some lenders may allow borrowers to repay the initial lump sum in full before selling their house. One potential benefit of taking out a cash-back loan is that the cash advance can help with the down payment or closing costs.

This is how a cash-back mortgage works...

Cash-back mortgages provide a lump sum payment of up to 5% of the mortgage amount upon closing, which can help alleviate the burden of additional closing costs. Once approved, the lender adds the cash-back amount to the total loan amount and advances it to your lawyer on closing. The cash-back amount is tax-free and can be up to $25,000 for a $500,000 mortgage.

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Cash-back mortgages can help with closing costs.

When purchasing a home in Canada, the down payment can be covered through personal savings, gifted money, or other acceptable forms of payment. It's important to note that a "cash-back" mortgage does not cover the down payment and evidence of the down payment is required to qualify for this type of mortgage. However, a "cash-back" mortgage can be used to cover unexpected costs after closing or to help with some closing costs.

Here's what happens if you break your mortgage early and you've received a cash-back...

​If you decide to end your mortgage contract before the agreed-upon term, you will be subject to a pre-payment penalty. The amount of the penalty will depend on whether you have a fixed or variable rate mortgage. Additionally, any cash-back you received at the start of the mortgage will also need to be repaid, in addition to the penalty amount. For example, if you received $10,000 in cash-back, you will need to repay that amount in addition to any penalty associated with ending your mortgage early.