Some financial institutions may offer borrowers a cash rebate equal to 5% of the amount of their loan if, in return, the borrowers agree to borrow at a higher interest rate. This practice can be very advantageous for them.
Indeed, it is possible for a borrower wishing to contract a loan of $200,000, with a term of five years at the interest rate of 4% rather than 2.8%, to immediately pocket a cash back of 10 000$. The 1.2% increase in the interest rate results in a $125 increase in monthly payments, which corresponds, after five years, to an additional payment of $7,500 and saving $2,500. Cash back can help offset some of the expenses incurred by purchasing a property. In addition, this option may be of interest to owners of rental properties as interest on mortgages is tax deductible. It should be noted, however, that in the event of the total repayment of the loan, if done before the expiration of the term, the lender will require the repayment, pro rata of the period, of the amount of the rebate.