Lock-ins

Watch out for the lock-ins.

This is the next key factor you need to take into account with a cashback mortgage. Lenders understandably don’t want to hand out a big cash payment to a new customer one day only to see them jump ship and remortgage with a rival the next. So the terms and conditions will normally include stiff so-called ‘early redemption’ penalties. If you want to go to a new lender (or even if you want to sign up to a new deal with the same lender) then in the first few years you are almost certainly going to be asked to repay the entire cashback first. With many deals you will face a penalty of 5 per cent of the mortgage (£7,000 on a £140,000 loan) if you switch in any of the first five years. The only real good news is that cashback mortgages are portable if you want to move house and stick to the same deal. The loan can normally be transferred easily to your new property and if you are earning enough and want to borrow any more you can normally pick any of your lender’s other best-buy rates for the new borrowing.