Slightly better mortgage rate or $500 extra cashback

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

Thank you for your opinion

How big is your mortgage ?

Basic break even point somewhere around $450k.

My mortgage will be 570k.

OPtion 1

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'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

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.

Noted. Thank you for clarification everyone.

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

Thank you for your opinion

Take Option #1 + Pay the $1,500 Cash Back immediately as a lump sum principal payment to reduce the balance owing + raise your regular monthly payment to be the same amount as if you were paying the 1.33% rate