What is a Cashback ?

Posted by admin On December 24th 2020

Cashback is an incentive offered by many lenders to their customers. A lump sum is paid to the borrower immediately on completion of their mortgage. This might take the form of a fixed amount or a percentage of the advance itself.

Generally, the lower the loan-to-value ratio (commonly abbreviated as LTV), the higher the cashback, as the risk of the lender losing money is reduced, and a lower LTV makes the borrower more attractive to the lender. For example, the cashback may be 3% of the advance for an LTV ratio of up to 80 per cent, and 2 per cent for a higher LTV ratio.

Some or all of the cashback would have to be repaid if the loan is repaid within a specified period.

Discounted rates and cash back may be used as loyalty bonuses or as a way of tempting clients away from competitors. Paying the borrower’s legal fees is another offer commonly made to encourage the borrower to switch to a different lender while incurring the minimum by way of costs.