Personal Finance

# Slightly better mortgage rate or \$500 extra cashback

• Last Updated:
• Jul 13th, 2021 4:19 pm
Tags:
SCORE
[OP]
Newbie
Apr 11, 2021
25 posts

## Slightly better mortgage rate or \$500 extra cashback

Hi,

I have 2 banks offering me slightly different packages. These are the scenarios and which do you think is better?

1. I will receive 1.30% on a 5 year variable rate and \$1500 cashback
2. 1.33% 5 year variable rate and \$2,000 cashback

8 replies
Nov 13, 2013
4214 posts
Ottawa
Amazonboy wrote: Hi,

I have 2 banks offering me slightly different packages. These are the scenarios and which do you think is better?

1. I will receive 1.30% on a 5 year variable rate and \$1500 cashback
2. 1.33% 5 year variable rate and \$2,000 cashback

How big is your mortgage ?

Basic break even point somewhere around \$450k.
[OP]
Newbie
Apr 11, 2021
25 posts
My mortgage will be 570k.
Jr. Member
Feb 6, 2019
199 posts
OPtion 1
[OP]
Newbie
Apr 11, 2021
25 posts
Hi Rychicken,

Is it better on the long run?
I'm so new to this and any explanation would be very helpful.

Thank you
Deal Fanatic
Jan 15, 2017
5544 posts
Ottawa
It's Option 1. Just go to any mortgage payment calculator and pump in the numbers for the two scenarios and compare the outcomes. This calculator even allows you to use the cash back amounts as a pre-payment at the beginning of the mortgage.

https://itools-ioutils.fcac-acfc.gc.ca/ ... g&lang=eng
Deal Fanatic
Jan 19, 2017
9067 posts
Amazonboy wrote: Hi Rychicken,

Is it better on the long run?
I'm so new to this and any explanation would be very helpful.

Thank you
It is not 100% clear or sure which is better because they are variable rates. From the surface, it looks like option 1 is better because you are saving \$570000 x 0.0003% = \$171 per year or about 5 x \$171 = \$855 over 5 years while you get \$500 less cash back. So you are ahead by \$355. But since they are variable rates, the rates can change any time. Both rates don't have to change by the same amt every time. So option 1 can go up to 2.0% while option 2 can stay put or go up to 1.8% only.
[OP]
Newbie
Apr 11, 2021
25 posts
Noted. Thank you for clarification everyone.
Deal Fanatic
Sep 9, 2012
6528 posts