Is a cash-back mortgage right for you?

Tracy Head • October 10, 2022

With rates rising and house prices dropping slowly, I’m finding some clients are having a tougher time qualifying right now.

I feel like I have been saying the same thing for different reasons over the last few years.


A significant number of the clients I work with live in northern B.C. I was chatting with a realtor in Fort St John this week and shared that the challenge finding financing for northern clients is slightly different (sweeping generalization here) than clients in the Okanagan.


I have not done statistical research, so I am speaking based on my experience with my clients in both areas, and my comments don’t apply to clients across the board in either area as there are always exceptions.


In northern B.C., in resource-based communities, I regularly see family incomes of $150,000 or more. In the Okanagan, I see family incomes more in the $75,000 to $90,000 range.


House prices are of course very different in various parts of the province. In Mackenzie, I have clients buying fully renovated family homes with large yards for under $200,000. In Smithers and Fort St John prices run between $400,000 and $500,000 for similar homes.


In the Okanagan. I’m noticing more of price drop but similar homes to what I’ve just described are still well over $700,000.

What evens the playing field is lifestyle choice.


In northern B.C., it’s rare for me to work on an application where the clients don’t own several “toys” (trailers, quads, boats, etc) which usually come with loan payments. Although some clients in the Okanagan also have those items, I find more of my applicants might have a vehicle payment and otherwise limited credit usage.


This week, I’m working with first-time buyers in northern B.C. I took their application and was pleased to see all of their toys but one were owned outright. They did, however, finance a brand-new, shiny pickup truck three months ago to the tune of $80,000, or $1,350 per month.


Then he was offered an amazing opportunity in a different community. They have been saving for a down payment, so have their down payment and closing costs taken care of.


They found a home they love but with the new truck payment and the quad payment their ratios are a little high.


For these clients, we will be working with a lender that offers a cash-back program. They will be getting three per cent of the mortgage balance as cash at the time of closing.That cash will be used to pay off their quad loan. Win-win.


As a rule, I am not a huge fan of cash-back mortgages.


There is one particular chartered bank that really promotes its cash-back option, but if the borrowers need to pay the mortgage out early for any reason (before their initial five-year term is up) they have to repay every single penny of the cash-back funds, regardless of how long they have been paying on the mortgage.


The lender I took these clients to also offers three per cent cash back, and if clients have to pay the mortgage off before the initial five-year term is up, they have to repay a portion of the cash-back funds, but on a sliding scale depending on how long they have had the mortgage.


The key takeaway here is if you are considering a cash-back mortgage program, it is important you understand the fine print. Life happens so a little time researching up front may save aggravation down the road.


For these particular clients the mortgage is the right fit.


If you are looking at applying for a mortgage in the near future, I suggest holding off on any purchases that require financing until you’ve had a chance to work with your mortgage person to see how a new loan payment might affect your borrowing power.

If you’d like to play with numbers to see what you qualify for, and how a potential loan payment might affect your borrowing power, feel free to download the link to My Mortgage Planner.


If you are able to hold off on a purchase until you are into your new home, you will likely find it easier to arrange mortgage financing.


Happy Thanksgiving.

Tracy Head

Mortgage Broker

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By Tracy Head February 7, 2025
This week I had a panicked call from a realtor I work with on a regular basis. One of her sellers had a sale that looked like it was going to collapse. He was counting on the sale of that home for the down payment of his next home. She called mid-day Wednesday. The sale was supposed to complete on Friday. She asked if I could talk to the purchaser and potentially arrange financing for her. Before you read the next part, this is not intended to single out any particular bank or mortgage person. It could just as easily be a mortgage broker or a branch employee. The back story is that the purchaser had been working with a mortgage specialist from one of the chartered banks since mid-December. The specialist gave the client the go-ahead to remove her financing subject January 17th. The specialist then said they needed to extend the closing date by a week. Then by another week. Then she told the client she would have to come up with twenty per cent for her down payment. The client scrambled and came up with the additional money needed for her financing to be approved. I might not have believed this story except I did see the email chain. So what actually happened? My guess is that the mortgage specialist did not have an approval in place with the insurer or her bank when she gave the client the ok to remove her financing. The client had not seen nor signed any mortgage paperwork before removing her financing subject; she was trusting that her mortgage person had things well in hand being as she was told she was approved and things were fine. The buyer in this case is a first-time home buyer and did not know any different. I have pulled off the odd miracle in my days but I had serious doubts about being able to help this client in one day, especially being as she was buying in a smaller remote community so we had fewer options. We were working on her application and 6:00 pm Wednesday evening had word that the bank she was originally working with had come through and would be sending mortgage instructions to the lawyer the following morning (we are now at the day prior to closing). When you are purchasing a home and applying for mortgage financing, I feel it is so important to work with a team of professionals that have your back. As someone who has never bought a home before or maybe hasn’t done so in many years its important to do your homework and understand the process. If you think things are going sideways with your financing please make sure you ask questions to better understand what’s happening. If you have a feeling that something is really wrong, don’t wait until you have no other options. When you choose a mortgage professional to work with (and realtor for that matter) do a bit of homework. Ask your friends who they have used and what their experience was like.  Buying a home is stressful enough on a good day, but what this poor client has been through could have been avoided had she had a better idea of what the home-buying process was supposed to look like.
By Tracy Head January 24, 2025
The easy fix isn’t always the right fix. I’ve been wondering how long it would take to see the fallout as clients who have been paying really low interest rates come up for renewal. We have all experienced a steep increase in the cost of living. Even though rates now are sitting where most clients qualified with the stress test when they originally got their mortgages, for many people life has happened in the meantime. What do I mean by that? Often clients are having to push right to the top of what they qualify for just to get into the housing market. As we are going through the mortgage approval process we talk about keeping big consumer purchases (financing a car or furniture as an example) to a minimum as additional loan payments reduce borrowing power. Once clients are into a home life does indeed happen. The older car dies and a new car is necessary. Little ones come along and that can affect family income and add a daycare bill to the bottom line. Property taxes increase. Grocery prices skyrocket. You know the list. Balances start creeping up on credit cards or lines of credit. There are lots of different mortgage products to help with consolidation of debt. Lately the challenge has been that even if clients have significant equity in their homes with the increased interest rates they may not qualify with traditional lenders. Alternative lenders and private lenders come into play as options in this case. I’ll leave the alternative lenders to another day because I have a cautionary tale about private lenders. Not all private lenders are created equal. I have several that I work with when my clients need a solution in the private world. There is a time and a place where a private mortgage is the ideal fit. As long as you have an exit strategy (a plan as to how it will be paid out in a relatively short time frame ie: one year) this can be a great option for clients. Then there is the private lender that hurts my heart. Heavy catchy marketing bombards us from multiple venues. Their jingle is running through my head as I write this. For them the bottom line is that if you have adequate equity in your home you are approved. Cool. That fixes the immediate problem. However, more times than I like to think about, this lender creates far bigger problems for people. Despite the fact that you have equity in your home you still have to make the payments on these private mortgages. Interest rates are usually around the 14% mark so payments are high and you are not making any headway with paying down the mortgage. If there is no significant increase in your income you struggle and find yourself in a financial bind again. They set up another mortgage with an even higher rate. When you sign on for a private mortgage your are responsible for covering your legal fees, the lender’s legal fees, and there is also a lender fee that is included. Even a small private mortgage can end up costing almost $10,000 to put in place. If you couldn’t cover expenses with your first mortgage (at reasonable rates) guess what happens when you start adding in more and bigger payments on top of your normal expenses? For most people the only out at this point is selling their home. That is a very hard conversation for me to have with clients, especially when they’ve been in their home for many years. If you are finding that there is more month than money, sitting down and reviewing your expenses is the first step to take. Are there any areas that you are able to cut back? Do you have any options for increasing your income?  If the answer is no, talking to a mortgage professional sooner rather than later may help identify some options before you end up in a never-ending cycle of sleepless nights and missed payments.
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