Cash back mortgages

Q: How much cash can I get on a cash back mortgage?

Five per cent of your total mortgage amount is a typical amount of cash you might be able to receive from a cash back mortgage, but it does depend on your mortgage provider. Different lenders set different cash back amounts that they allow, generally between 1% and 7%. Some lenders also cap the amount of money you can receive as part of a cash back mortgage, generally around the $20,000 mark.

Q: Can I get a cash back mortgage with a variable rate?

No, you can't get a cash back mortgage with a variable mortgage rate . Cash back mortgages are only available in Canada with fixed-rate mortgages.

Q: Are cash back and zero down payment mortgages the same?

There is a difference between cash back and zero down payment mortgages . Cash back mortgages still require you to supply a cash down payment in order to be approved. Zero down payment mortgages are no longer available in Canada.

Q: Is mortgage cashback taxable in Canada?

Cash back mortgages are not taxable, as they are classified as discounts by the Canadian Revenue Agency, and not earned income.

Q: Who offers cash back mortgages?

Many of Canada’s big banks, credit unions and smaller lenders offer cash back mortgages. If you’re interested in this kind of product, it’s a great idea to work with a mortgage broker, who has insight into which lenders are offering the best cash back deals.

Jamie David, Sr. Director of Marketing and Mortgages

May 6, 2024

Key takeaways

Cash back mortgages are a specific type of mortgage, where the borrower receives a lump sum back based on the size of their loan. This is different from a promotional cash back bonus some lenders may offer to incentivize certain mortgage products.

A cash back mortgage provides the borrower with a tax-free cash sum on the closing of their mortgage, based on a percentage of their mortgage amount.

The cash can be used however the borrower chooses, but common uses include covering closing costs, renovating the new home, or paying off other debt.

Cash back mortgages have higher interest rates than traditional mortgages, and incur additional fees to break the mortgage.

Buying a home is an expensive prospect, so it may leave you a little cash poor when you first take out a new mortgage, especially if you're a first-time home buyer. If this is something you're concerned about, then a cash back mortgage might be worth considering.

Cash back mortgages return to you a percentage of your mortgage principal in a tax-free lump sum when your mortgage closes (i.e. when your property purchase is finalized). Cash back mortgages differ from '0% down' mortgages (which are no longer available in Canada) as they still require you to put your own money upfront for a down payment, but you receive the lump sum after your mortgage closes.

Frequently Asked Questions

What is a cash back mortgage?

With a cash back mortgage, your lender advances you a tax-free cash lump sum when your mortgage is finalized. You might use that cash to start a renovation, buy furniture, or finance some other purchase associated with your new home. The catch is that you'll pay a higher interest rate on a cash back mortgage than on a normal mortgage, which will generally see you pay more overall. You will still need to provide a down payment from traditional sources.

How much cash can I get on a cash back mortgage?

Can I get a cash back mortgage with a variable rate?

Are cash back and zero down payment mortgages the same?

Do cash back mortgages have higher rates?

Generally, cash back mortgages come with higher rates than comparable traditional mortgages. This higher rate compensates your lender for the lump sum cash back payment that you receive. Generally, you'll end up paying more in interest over your mortgage term than the amount of cash back you'll receive. Your mortgage rate will increase between 15 and 25 basis points for every 1% of cash back you receive on your mortgage.

Is mortgage cashback taxable in Canada?

Who offers cash back mortgages?

Is mortgage cash back free?

While the mortgage cash back amount is tax-free and doesn’t need to be paid back as long as the borrower doesn’t break the mortgage term, it is not free money. The lender charges a higher interest rate in order to cover the expense of providing the cash back lump sum, which means the borrower will pay more over the course of the mortgage. The benefit of cash back mortgages is they offer extra money at the start of the mortgage, which borrowers often use to offset closing costs and other moving expenses.

Is there a downside to cashback?

Mortgage borrowers should be aware that they will be charged a higher interest rate on a cash back mortgage, in exchange for the lump sum given up front. This means the borrower will make higher interest payments on their mortgage than they otherwise would have, often exceeding the amount of the cash back they received. As well, if the borrower wishes to break their mortgage mid-term, they may be required to pay all of, or a portion, of the cash back amount back.

Compare today’s lowest mortgage rates

Saving on your home purchase starts with the lowest rates. Let Ratehub.ca help you compare the best Canadian lenders.

4.79%

Best 5-year fixed in Canada

compare rates

Cash Back Mortgage Guide

How does a cash back mortgage work?

If you choose to take out a cash back mortgage, the lender will deposit the lump sum amount in your back account when your mortgage closes. This amount is based on the total size of your mortgage (not the home’s purchase price), including any mortgage default insurance premiums. Most cash back mortgages offer 5% of the total mortgage amount, but this can range between 1 - 7%.

Take a look at the chart below to see how your mortgage cash back amount can vary based on the mortgage size and cash back percentage.

Cash back mortgages pros and cons

Cash back mortgages aren't without their downsides, and you need to be fully aware of the true cost of them before you pull the trigger. Here are a few ways a cash back mortgage can be more expensive:

Higher mortgage rate

Cash back mortgages come with higher mortgage rates, which compensate your lender for the upfront cash that they give you. Generally, this rate more than covers the cash back amount, which means you're worse off overall. If you don't absolutely need a cash back mortgage, it's generally cheaper to opt for a traditional mortgage instead.

Cash back repayment penalty

If you break your mortgage before its term maturity, you must pay the designated cash back mortgage penalty. The cash back penalty can be as much as the entire cash back amount, or a pro-rata amount of the cash back, based on how much of your mortgage term is remaining. Note that the cash back repayment penalty is charged in addition to the standard penalty for breaking your mortgage. Since cash back mortgages are only offered with fixed rates, the standard penalty may already be quite expensive.

Cash back mortgage providers in Canada

There are a number of lenders in Canada who provide cash back mortgages, including several of the big banks. It’s best to connect with your lender of choice directly (or with the help of a mortgage broker) to get information on the following:

The cash back percentage offered
The maximum amount of cash back that can be paid
Any applicable penalties (in addition to the interest rate differential) should the borrower choose to break their mortgage.

Which banks do not offer cash back mortgages?

Not all banks offer cash back mortgages. If you are set on getting a mortgage with any of these providers, you'll need to consider a traditional mortgage instead. Here are some of the larger financial service companies in Canada that do not offer cash back mortgages:

Tangerine (previously ING Canada)
BMO (Bank of Montreal)

Reasons to consider a cash back mortgage

The cash required to purchase a home can be overwhelming, especially for first-time home buyers. In addition to saving for a down payment of 5% or more, home buyers must cover closing costs, home furnishings, and, in some cases, surprise home renovations and repairs. For some, the assurance of receiving a lump sum returned to them is an attractive option; however, it is important to understand the full cost of a cash back mortgage.

It may even be possible to be loaned a portion of your down payment from immediate family ('traditional sources') and repay the loan upon receipt of the cash back lump sum. However, the Canadian Mortgage and Housing Corporation (CMHC) says it will only insure mortgages with non-repayable monetary gifts from immediate family.

What is the difference between a cash back mortgage and a mortgage cash promotion or bonus?

Unlike a cash back mortgage, which is a type of mortgage in which is a lump sum of money paid to the borrower based on the loan’s size in exchange for a higher interest rate, a promotional mortgage cash offer is a bonus offered as part of an advertising campaign. It is designed to incentivize borrowers to pick a certain mortgage product, or to drum up business during peak or low mortgage seasons. Cash promotion amounts tend to be much smaller than what is available through a cash back mortgage, but they usually come with fewer strings, such as no repayment penalties.

As cash promotions and bonuses are meant to create business for the lender, they’re typically only offered to brand-new customers; if you’re looking to renew your mortgage with your existing lender, it’s unlikely you would be offered a cash promotion. They may also come with other product requirements, such as taking out a bank account with the bank, and may have required minimums in terms of mortgage size and term length. Always be sure to read the fine print when taking out any mortgage product with a promotional cash bonus.