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Occasionally lenders like to offer special deals to increase their market share of mortgage business. Many times the offers are unique and often beneficial to the Client BUT many times they are unique and more beneficial to the lender. Cash back programs generally fall into the later part.

We will try to keep our analysis simple and base it on a purchase of $143,000. with 5% down payment. That results in a mortgage of $135,850. The CMHC fee is $5943. for a total mortgage of $141,793. AND also assumes the cash back is based on the total and not the net mortgage.

We will look at a cash back offer of 3%, which is usually the maximum offered. (When 3% is offered there is generally no rate discount.) The cash back would be $4253. Cash back funds are generally not to be used for down payment but can be used for legal and other closing costs.

Based on "current posted bank rates" of 7.15% for a 5-year term the mortgage payment would be $1016. per month. Based on our best discount of 1% the rate would then be 6.15% with a payment of $920. per month.

At the end of 60 mo. the Client would pay $60,378. in interest at 7.15% and only $55,132. at 6.15% - a saving of $5246!

The balance owing on the 7.15% mortgage at maturity would be $129,338. while the 6.15% mortgage would have a balance owing of $127,661.
or $1,677. LESS.

The cash back program offered $4253. But the rate discount amounts to approx. $6923. savings during the first five years. It also has the benefit of
showing clients how to negotiate a better deal. Of course the best way for them
to receive unbiased advice is to have them speak with an independent broker.
We get paid the same basic fee regardless of the program offered and we
generally have all programs available including cash back. We then put the
Client in the best deal for them.

There are of course, times when a cash back deal is the only way clients can
afford to buy a property. Then the cash back program makes sense to all
parties.