Mortgage Rate News

You have probably heard of cash out home equity loans. In these arrangements, you take a home equity loan out on your home for more than you owe on the home. For example: you owe $130,000, and you get a home equity loan for $150,000. You pocket the difference of $20,000 in cash.

However, home equity loans are getting hard to come by. With home values dropping and mortgage lenders tightening their standards, it is no surprise that getting cash out home equity loans is becoming more difficult.

But, you ask, how will the banks make the money on interest?

A good question. Enter the cash back mortgage.

Basically, you put a “down payment” on your home, and then, at closing, you get your “down payment” back. Granted, this is a home mortgage trend mostly seen in Canada, where there is a crackdown on $0 down mortgages and other lending practices that got the U.S. into the mortgage market mess. But one never knows where the next home mortgage trend in the U.S. will come from.

Here is what Million Dollar Journey points out about the cash back mortgage:

For the “privilege” of keeping the $10,000 down payment in the home buyers pocket, the higher interest rate will cost an extra $18,096.34 in 5 short years. It’s no wonder that banks are quick to offer this type of product, it’s cash back in their pockets. To put this in perspective, if the $10,000 cash back was invested, it would take an annual return of 23% (before tax) over 5 years to break even.

It would not surprise me if something similar started happening here in the U.S. I can see where mortgage lenders would find a good marketing hook: “You get a better interest rate for making a down payment, but you get that money back!”

Tags: home equity loans, home equity, home mortgage loan, home mortgage trend,
Canadian mortgage trend, mortgage lenders, home values