Personal Finance

# Effective Mortgage Rate minus Cashback

• Last Updated:
• Aug 20th, 2021 10:16 am
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[OP]
Member
Jul 31, 2018
397 posts

## Effective Mortgage Rate minus Cashback

Many mortgage lenders nowadays offer cashback instead of lowering the mortgage interest rate. I want to calculate the effective mortgage rate after deducting the cashback amount.

Here is an example I want to calculate the effective mortgage rate:

Purchas Price = \$500k
Down Payment = \$100k (20%)
Interest Rate = 1.50% 5 year variable 25 Yr Amortization
Monthly payment = \$1599
Cashback = \$950

Total Principal and Interest = 1599x(5x12) = 95,940
Minus Cashback = 95,940 - 950 = 94,990

If you pull out a mortgage calculator, this is equivalent to having mortgage interest 1.42% without cashback
Total Principal and Interest = 95,038

In summary a 1.50% with \$950 cashback is almost equivalent to having 1.42% with no cashback.

Let me know if I did the math correct, or I am missing anything
full time realtor + medical professional
3 replies
[OP]
Member
Jul 31, 2018
397 posts
bump
full time realtor + medical professional
Sr. Member
Feb 9, 2018
597 posts
That doesn't seem correct. Its little complex than that. Here is one calculator from ratespy.

https://www.ratespy.com/mortgage-rate-c ... calculator

According to this if you input mortgage rate 1 as 1.5 and rate 2 as 1.446 (trial and error), your cashback is \$950. They calculate nominal rate difference and true cost difference on which cashback should be based on. They have an article on it explaining that:

https://www.ratespy.com/cashback-rates-04105297
Sr. Member
Jan 19, 2003
966 posts