Mortgage Features in Canada: Porting, Assumability, Blend and Extend, Cash Back

This page covers the mortgage features to compare beyond the rate: porting and moving with a mortgage, assumable mortgages, blended rates and blend and extend, collateral charges and cash back.

Porting a mortgage

Porting lets you take your mortgage with you when you sell one home and buy another. The Financial Consumer Agency of Canada (FCAC) describes it this way: if you sell your home to buy another one, a portable mortgage allows you to transfer your existing mortgage, including the balance, the interest rate and the terms and conditions (FCAC: Choosing a mortgage). This page covers how a port works, the timing that decides whether it succeeds, and the blended rate when the new home needs a bigger mortgage. It is part of our guide to renewing and managing your mortgage during the term.

How porting works

When you sell and buy, your existing mortgage can go one of three ways:

A port stays with the same lender: to move to a different lender as part of the purchase, you would break the mortgage. Not every mortgage is portable. The FCAC suggests checking with your lender whether yours is eligible for porting and asking about any restrictions that may apply.

The size of the new mortgage changes the result:

• Same amount or close to it. The balance, rate and remaining term carry over to the new home.
• More money. The ported balance keeps its rate and the extra money is borrowed at a new rate; the two are blended (see below). The FCAC suggests asking your lender for details if you need to borrow more.
• Less money. If the new home costs less than the amount of your mortgage, the FCAC notes that you may pay a prepayment penalty, because part of the balance is being repaid early.

When porting is worth it

Porting is most valuable when your rate is below what lenders charge now (see current mortgage rates), because it keeps that rate and avoids a penalty. When your rate is above the rates on offer, a lower new rate may be worth more than the penalty you avoid by porting.

How large that penalty would be depends on your mortgage. On a fixed-rate mortgage the penalty is usually the higher of 3 months' interest on what you still owe and the interest rate differential (IRD). The lender usually uses the IRD when your mortgage rate is higher than its current rate and you signed your current contract less than 5 years ago. So when rates have risen since you signed, the interest rate differential is usually small or zero and the penalty falls back to the months’ interest, and when rates have fallen it can be large. Because the differential is charged on the interest left in your term, a fixed-rate penalty also tends to be largest early in the term, when the most months remain. On a closed variable-rate mortgage the penalty is typically 3 months' interest. How mortgage penalties are calculated works through both methods, and the mortgage penalty calculator gives an estimate.

To compare porting with breaking, set the penalty and fees against the interest you would save at the lower rate. The break-even calculation counts both the lower payments and the lower balance a lower rate leaves, and should I break my mortgage for a lower rate? covers the wider decision.

How to port your mortgage, step by step

1. Check your mortgage terms

Your mortgage commitment or contract says whether the mortgage is portable and on what conditions. The conditions that matter most:

• The portability window. Lenders set a period within which the sale of your old home and the purchase of the new one must both close for the mortgage to move. The length differs by lender and by product, so ask your lender for the window that applies to your mortgage, in writing.
• Whether a variable rate can be ported. Some lenders port variable-rate mortgages and some don’t; ask about your product.
• How extra money is priced. Ask what rate applies to new funds and how the lender blends it with your existing rate.

2. Tell your lender early and requalify

Contact your lender when you decide to sell, before you firm up a purchase. A port is usually treated as a new application for the new property: expect the lender to check your income and credit again and to have the new home appraised. If your income has fallen or your debts have risen since you first qualified, the port can be refused even for the same amount. If you add money, the lender may also apply the mortgage stress test to the new mortgage.

3. Line up the closing dates

Both closings must fall inside the portability window. The most common reason a port fails is a timing gap.

Ways to close a gap:

• Move one closing date while the deals are still being negotiated, so both fall inside the window.
• Ask for an extension. Some lenders will consider extending the window if you ask in writing with a firm purchase agreement; ask yours before you rely on it.
• Use bridge financing to cover the down payment when you buy before your sale closes. It doesn’t extend the portability window; the bridge financing calculator estimates its cost, and bridge financing explained covers how it works.

4. Complete the port

The lender issues a new commitment for the ported mortgage, and a real estate lawyer or notary discharges the mortgage from the old property and registers it on the new one. Budget for legal fees, the appraisal and any administration fee the lender charges, and for title insurance if you buy it.

The blended rate when you borrow more

When the new home needs a larger mortgage, the ported balance keeps its rate and the new money is lent at a new rate. A simple way to see the result is the average of the two rates, weighted by amount:

Blended rate = (ported amount × ported rate + new amount × new rate) ÷ total amount

The blended rate sits between your old rate and the new one, closer to whichever amount is larger. Lenders differ in how they blend: some weight the rates by the time left in each term as well as by amount, and many put the whole blended mortgage on a new term, so the rate you are quoted is the figure to compare. The blended mortgage guide covers the methods, including blending to a new term.

Questions to ask your lender

1. Is my mortgage portable, including if it has a variable rate?
2. How long is the portability window, and does it run from the sale closing or the purchase closing?
3. What rate applies to new money, and how is it blended with my current rate?
4. Will the blended mortgage keep my remaining term or start a new one?
5. Do I have to requalify, and will the new property be appraised?
6. What happens if the new mortgage is smaller than my current balance?
7. What fees apply to the port?

Common porting mistakes

Porting checklist

Before you list your home

• Confirm that the mortgage is portable and get the window in writing
• Ask how new money would be priced if you buy up
• Get a penalty quote, to compare porting with breaking

While you sell and buy

• Set both closing dates inside the window
• Apply for the port before the purchase is firm
• Arrange bridge financing if you buy before the sale closes
• Book a lawyer or notary for both transactions

At closing

• Sign the new mortgage documents
• Confirm that the old mortgage is discharged and the ported one registered
• Check the payment amount and schedule on the new mortgage

Moving provinces with a mortgage

Moving to another province with a mortgage means two transactions in two markets, often with a lawyer or notary in each, and a decision about the mortgage you already have: take it with you, pay it off and start again, or carry two properties for a while. This page covers the mortgage side of the move. The rest of the move (income tax, benefits, health coverage, the cost of living) is in our moving provinces guide, and other changes during your term are in the mortgage renewal and management hub.

Your options for the existing mortgage

Porting across provinces. A port works the same way between provinces as within one, as long as your lender lends where you are moving and the new property meets its rules. The conditions that decide it are the portability window (the time allowed between the two closings), requalifying for the new property and how extra money is priced. How to port your mortgage covers each step and the blended-rate calculation.

Breaking the mortgage. Breaking a closed mortgage, paying it off early or prepaying more than your privileges allow usually costs the higher of 3 months' interest and the interest rate differential (IRD) on a fixed rate, and typically 3 months' interest on a variable rate; your mortgage contract sets the exact method and comparison rate, and a federally regulated lender must tell you how it calculates the penalty. How the interest rate differential (IRD) is worked out, and why it is largest when rates have fallen, is on how mortgage penalties are calculated. To weigh the penalty against a lower rate, use the break-even calculation; should I break my mortgage? covers the decision.

Sell first, buy first or close on the same day

Distance makes timing harder: you may be buying in a market you can only visit a few times, and both closings need a lawyer or notary in the right province.

Sell first, then buy

Buy first, then sell

Close both on the same day, or close together

If you buy before your sale closes, bridge financing covers the down payment until the sale money arrives. Lenders usually want a firm sale agreement first. The bridge financing calculator estimates the cost.

Province-specific costs to budget for

Land transfer tax. What you pay to register the purchase depends on the province you move to. Ontario, British Columbia, Quebec, Manitoba, New Brunswick, Prince Edward Island and Nova Scotia charge a transfer tax, and Toronto adds a municipal tax on top of Ontario’s; Alberta, Saskatchewan and Newfoundland and Labrador charge registration fees instead. First-time buyer relief differs too. In Prince Edward Island, no real property transfer tax is payable when the buyer is a first-time home buyer who files a declaration at registration and intends to live in the home as their principal residence; the tax becomes payable if they don't live there for at least 183 consecutive days after the deed is registered. A first-time home buyer is a Canadian citizen or permanent resident who has lived in PEI for the six months before registration (or filed PEI returns in two of the last six years), has never held an interest in a principal residence and hasn't used the exemption before. The land transfer tax calculator has the rates, rebates and a calculator for each province and territory. Someone moving from a province with registration fees only to one with a transfer tax often finds it the largest new closing cost.

Home prices. Prices and property taxes vary widely between cities, so the mortgage you need in the new province may be much larger or smaller than the one you have. That decides whether you port the same amount, port and borrow more, or port less (which can bring a prepayment penalty on the part repaid). The housing market pages have current prices for each province and major city, and monthly carrying costs adds up what owning costs beyond the mortgage payment.

Insurance and legal fees. Home insurance rates differ by province, and a lawyer or notary licensed in the new province handles the purchase.

Taxes and employer relocation benefits

Your province of residence for income tax is the province where you live on December 31, so a move changes the provincial tax you pay for the whole year. The income tax hub has each province’s brackets and a calculator, and the tax side of moving provinces covers what changes in the year you move.

If your employer is paying for the move, some relocation benefits are taxable and some aren’t; is relocation assistance taxable? explains which. If you pay the costs yourself and move to work at a new location, you may be able to claim them; see the moving expenses deduction.

Relocation checklist for your mortgage

Three to six months before the move

• Read your mortgage contract: portability, the portability window and how the penalty is calculated
• Ask your lender whether it lends in the new province and whether your mortgage can be ported there
• Get a penalty quote, so you can compare porting with breaking
• Get preapproved for the price range in the new province
• Look up the land transfer tax, property tax and home insurance costs in the new province

One to three months before

• List your home, or confirm what your employer’s relocation package covers
• Hire a lawyer or notary in each province
• Book inspections in the new province, with someone you trust attending if you can’t
• Arrange home insurance for the new property

At closing

• Set both closing dates inside the portability window, or arrange bridge financing
• Confirm the old mortgage is discharged and the new one (or the ported one) registered
• Update your address with the Canada Revenue Agency, your bank and your insurer

Assumable mortgages

An assumable mortgage lets a buyer take over the seller’s existing mortgage, including its rate, balance and remaining term. When the seller’s rate is well below what new mortgages cost, both sides can come out ahead: the buyer keeps the lower rate for the rest of the term, and the seller doesn’t pay a penalty to break the mortgage. The catch is that the lender (and, for an insured mortgage, the insurer) must approve the new borrower, and the buyer needs enough cash or other financing to cover the seller’s equity. This page is part of our guide to mortgage types and features.

What Is an Assumable Mortgage?

What Transfers and What Doesn’t

How It Works

Example Scenario

Benefits for Buyers

Financial Benefits

Cost Comparison Example

How Much the Rate Gap Is Worth

The saving depends on the gap between the seller’s rate and the rate on a new mortgage. As a rough guide, each percentage point of gap is worth about $1,000 a year per $100,000 borrowed:

The gap shrinks as low-rate mortgages reach maturity and as rates move, so the value of any particular assumption depends on today’s rates. Current offers are on our mortgage rates pages.

Benefits for Sellers

How large the avoided penalty would be depends on the rate and the contract. Breaking a closed mortgage, paying it off early or prepaying more than your privileges allow usually costs the higher of 3 months' interest and the interest rate differential (IRD) on a fixed rate, and typically 3 months' interest on a variable rate; your mortgage contract sets the exact method and comparison rate, and a federally regulated lender must tell you how it calculates the penalty. When the seller’s rate is below current rates, the interest rate differential is small, so the penalty is often close to three months’ interest: about $3,200 on $400,000 at 3.2% in the example above. The methods are explained in how mortgage penalties are calculated.

Qualifying as the Buyer

What Buyers Must Prove

For an insured mortgage, CMHC caps your housing costs at 39% of gross income (GDS) and your housing costs plus other debt payments at 44% (TDS); lenders set their own limits for uninsured mortgages. How the ratios are calculated is in GDS and TDS ratios explained.

The Stress Test

A federally regulated lender usually applies the stress test to the buyer, as it would for a new mortgage; some credit unions and other lenders set their own policies, so it is worth confirming with the lender holding the mortgage. You qualify at the greater of your contract rate plus 2% or 5.25%. The full rule is in the mortgage stress test.

How to Assume a Mortgage

Step 1: Confirm the mortgage is assumable

• Review the mortgage commitment or the mortgage document for an assumability or transferability clause
• Contact the lender to confirm its assumption process
• If the mortgage is insured, confirm the insurer’s requirements too

Step 2: The buyer applies

The buyer applies to the seller’s lender and qualifies as if for a new mortgage, as set out above. For an insured mortgage, the lender also submits the buyer to the mortgage insurer, which must approve the assumption.

Step 3: Approval (or denial)

If the lender approves, it issues an assumption approval. If it declines, the assumption can’t go ahead and the buyer needs other financing, which is why an offer conditional on the assumption needs a realistic condition period.

Step 4: Legal transfer

• Both lawyers (or notaries) coordinate the transfer
• The mortgage isn’t discharged; it remains registered on the property
• The borrower on the mortgage changes to the buyer
• Title transfers to the buyer as in a normal sale
• Legal fees may be somewhat higher because of the extra work ($500-$1,000 extra)

Process Timeline

Documents Typically Required

The Seller’s Liability: Getting a Written Release

Until the lender formally releases the original borrower, the seller may remain jointly liable for the mortgage. That means:

• If the buyer defaults, the lender could pursue the seller
• The mortgage keeps appearing on the seller’s credit report
• The outstanding mortgage counts against the seller’s own borrowing capacity

A written release of the original borrower, as part of the assumption agreement, closes off that risk. A seller who isn’t released is still exposed for the rest of the term.

Handling the Equity Gap

The equity gap is the biggest practical obstacle. If a home is worth $700,000 and the assumable balance is $350,000, the buyer needs $350,000 in cash or other financing. Few buyers have that much, which is why second mortgages and seller financing often appear in assumption deals. The gap financing carries a higher rate, so the test is whether the combined cost of the assumed mortgage plus the gap financing still beats one new mortgage at current rates.

The Math

Ways to Cover the Gap

If the gap is covered mostly with expensive second-mortgage money, the combined payment can end up close to a single new mortgage, so the assumption’s advantage is largest when the buyer covers most of the gap in cash.

When an Assumption Works, and When It Doesn’t

Lender Policies and Fees

Lenders That Allow Assumptions

What Lenders Charge

Risks and Considerations

Risks for Buyers

Risks for Sellers

Questions to Ask

Alternatives to an Assumption

A seller who wants to keep a low rate can instead move it to their next home: porting a mortgage keeps the rate with the seller rather than passing it to the buyer. If the next home needs a larger mortgage, the lender typically blends the ported rate with today’s rate on the new funds, as shown in blended mortgage rates.

The Bottom Line

When a seller holds a low-rate mortgage and the buyer has the cash to cover the seller’s equity, an assumption can save tens of thousands of dollars over the remaining term compared with a new mortgage. Assumptions aren’t common in Canada and need lender (and insurer) approval, so they work best when both sides plan for them from the offer onward. A mortgage broker with assumption experience can help confirm the lender’s policy before an offer is made conditional on it.

Blended rates

A blended mortgage rate is what you get when your lender combines two interest rates into a single weighted-average rate on one mortgage. The usual case is borrowing more mid-term: you have an existing mortgage at one rate and need additional funds, so the lender blends your old rate with today’s rate according to the dollar amounts involved. The result sits between your existing rate and the current rate, and your existing maturity date stays the same (a “blend to term”). This page is part of our guide to mortgage types and features.

The other version, blend and extend, also resets the term to a new full period, so the blend is weighted by time as well as dollars and you commit to the lender for longer. This page covers only the blend to term.

When Blended Rates Come Into Play

The most common use is the mid-term increase: borrowing more against your home for renovations, debt consolidation or other purposes without breaking your existing mortgage and paying the penalty.

How the Blended Rate Is Calculated

The Weighted Average Formula

Blended Rate = (Balance₁ × Rate₁ + Balance₂ × Rate₂) ÷ (Balance₁ + Balance₂)

Example: Mid-Term Increase

In this example the blended rate of 4.25% is well below the 5.49% it would cost to refinance the whole $450,000 at the new-funds rate.

Payment Comparison

The blend also avoids the prepayment penalty on the existing $350,000, which on a fixed-rate mortgage can run to five figures. Breaking a closed mortgage, paying it off early or prepaying more than your privileges allow usually costs the higher of 3 months' interest and the interest rate differential (IRD) on a fixed rate, and typically 3 months' interest on a variable rate; your mortgage contract sets the exact method and comparison rate, and a federally regulated lender must tell you how it calculates the penalty. The full method is in how mortgage penalties are calculated.

Blended Rate When Porting With an Increase

When you sell and buy mid-term, many lenders let you move the mortgage to the new property. If the new home costs more, the extra funds are added at today’s rate and blended with the ported balance. The porting process itself (deadlines, requalifying, what happens if the sale and purchase don’t line up) is covered in how to port a mortgage.

Example: Porting With an Increase

Alternative: Break and Take a New Mortgage

In this case, porting and blending saves over $20,000 compared with breaking the mortgage and starting fresh.

Who Offers a Blend to Term

Availability varies by lender and by product. Some lenders offer a blend to term on a mid-term increase, others offer only blend and extend, and some won’t add funds mid-term at all and require a refinance instead. Before choosing a lender, it is worth asking which of these it allows if you expect to need more money during the term.

When a Blended Rate Makes Sense

Situations where blending tends to work

Situations where it doesn’t

The Math: When Does Blending Stop Making Sense?

The answer depends on how much you are borrowing relative to your existing balance and on the gap between the two rates.

Blended Rate by New Funds as % of Total

When the existing rate is 5.00% and the new-funds rate is 5.50%, the blend saves only 0.12%-0.45%, and the flexibility of a full refinance (new term, new amortization, possibly a different lender) may be worth more than that.

Things to Watch Out For

The Rate on the New Funds

Some lenders quote the new-funds rate slightly above their rate for a brand-new mortgage. Asking which rate will be used for the new portion, and comparing it with a new-mortgage quote, shows whether the blend is priced fairly. Checking the lender’s blended figure with the formula above takes a minute.

Payment and Amortization

When the balance goes up, the monthly payment usually rises even if the blended rate is low, because there is more principal to repay. Some lenders recalculate the amortization, others keep the remaining amortization and raise the payment.

Insurance on the Added Funds

Adding funds without a purchase counts as borrowing more against the home. Under the Bank Act, a bank's loan to buy, renovate or improve a home, or a refinance of such a loan, together with any mortgage ranking equal to or ahead of it, can't exceed 80% of the home's value. Mortgage insurance can't lift an ordinary refinance above that limit: under the federal mortgage insurance rules, an insured high-ratio loan has to be for buying the home or for paying off an earlier uninsured low-ratio loan. So if your original mortgage was insured, the new funds on a mid-term increase are uninsured, which can affect the rate the lender offers on them.

A Future Penalty

If you later break the blended mortgage, the penalty is calculated on the blended rate and the full new balance. If rates have fallen below the blended rate by then, an interest rate differential penalty can be large.

Step-by-Step: Getting a Blended Rate Increase

Alternative: A Separate HELOC

Instead of blending, a separate line of credit can carry the additional funds:

A HELOC may cost less if prime falls or the additional funds are repaid quickly; a blend gives certainty and a fixed payment. Current HELOC pricing is in HELOC rates in Canada, and the wider choice is compared in HELOC vs refinance.

Blend and extend

A blend-and-extend lets you move to a lower rate before your term ends without paying a prepayment penalty. Your lender extends the mortgage into a new term and blends your old rate with the new term’s rate. This page explains how the blended rate is worked out and how to compare it with breaking the mortgage. It is part of the refinancing and home equity hub.

How it works

The Financial Consumer Agency of Canada (FCAC) describes blend-and-extend as an early renewal option (FCAC: Breaking your mortgage contract):

• Lenders may allow you to extend the length of your mortgage before the end of your term.
• If you choose this option, you don’t pay a prepayment penalty, but you may have to pay administrative fees.
• The lender blends your old interest rate and the new term’s interest rate. Lenders call it blend-and-extend, or a blended mortgage.
• Your lender must tell you how it calculates your new interest rate.

The FCAC also notes that you’ll usually pay fees when you set up a new mortgage, including with a blend-and-extend, and that lenders may be willing to pay some or all of them.

How the blended rate is calculated

The FCAC gives a simplified method “for illustration purposes”: each rate is weighted by the number of months it covers in the new term.

Blended rate = (current rate × months left in current term + new rate × (months in new term − months left)) ÷ months in new term

Here is the FCAC’s own example, recomputed from its inputs.

The FCAC’s page states the same result: a blended rate of 4.6% for 60 months. In effect, you keep paying for the months you had already committed to at your old rate, spread across the new term. Your lender’s own method may differ from this simplified one, which is why the FCAC says the lender must tell you how it calculates the rate.

Blend-and-extend compared with breaking

The trade-off is cash now against a higher rate later. Breaking gets you the full new rate but costs the prepayment penalty and fees; blending avoids the penalty but leaves you at the blended rate for the whole new term. Using the FCAC example, both at the lender’s five-year rate and with the 22 years of amortization left:

The blend costs $64.18 a month more than the new rate, or $3,851 over the 60-month term. The higher blended rate also leaves a higher balance at the end of the term: $170,307 against $168,491 at the new rate, $1,815 more. Together that is about $5,666 more interest over the new term with the blend. In this example, breaking costs less over the new term only if the penalty plus fees come to less than about that amount, with the same balance and amortization in both cases; see the break-even calculation for the method, and how mortgage penalties are calculated to estimate the penalty side.

Things to weigh

The FCAC lists these pros and cons of breaking your contract, whether to take a new mortgage or to blend-and-extend:

Two points specific to a blend:

• You stay with your current lender. The new-rate part of the blend is your lender’s rate for the new term, so the result is worth comparing with what other lenders offer, net of the penalty to leave.
• You commit to a new term. The extension replaces the date when you could otherwise have renewed or switched lenders without a penalty.

Keeping your payment unchanged after the rate drops sends the difference to principal; the FCAC mentions this as one way to pay off a mortgage faster (FCAC: Paying off your mortgage faster).

Collateral charges

Many Canadians don’t know whether their mortgage is registered as a collateral charge or a conventional (standard) charge, and the difference can add $1,000 or more to the cost of switching lenders at renewal. TD, Tangerine and National Bank register collateral charges by default (often up to 125% of the home’s value), which makes borrowing more later easier but makes leaving the lender harder. The registration type is set when you sign, so it is worth asking about before closing. This page is part of our guide to mortgage types and features.

A note on terms: “conventional” here means a standard charge registered for the exact loan amount. The same word also describes a mortgage with 20% or more down, a different meaning covered in what a conventional mortgage is.

Collateral vs Conventional Mortgage

How Each Type Works

Conventional (standard) charge

Collateral charge

Cost Comparison: Switching Lenders

Conventional (standard) charge

Collateral charge

Actual costs depend on the lenders and the province. The full process of moving a mortgage at maturity is in switching mortgage lenders.

Who Uses Which Type

Collateral charge lenders

Conventional (standard) charge lenders

Advantages of a Collateral Charge

Easier Access to Equity

Example: Future Borrowing

Disadvantages of a Collateral Charge

Switching Costs

Limited Secondary Financing

Example: Second Mortgage Blocked

Collateral Charges and Readvanceable Mortgages

Readvanceable products (a mortgage and a line of credit under one registration, where the credit limit grows as the mortgage is paid down) are registered as collateral charges, because the registration has to cover more than the starting balance. How the credit line grows, the products on offer and who they suit are covered in readvanceable mortgages.

Weighing the Trade-off

Collateral tends to suit:

Conventional tends to suit:

If You Already Have a Collateral Mortgage

At Renewal

Break-Even Calculation

In this example a saving of more than 0.1% a year recovers the $1,500 cost within a five-year term. Broader renewal steps are in the mortgage renewal guide.

Questions to Ask Your Lender

Cash back mortgages

A cash back mortgage gives you a lump sum at closing in exchange for a higher interest rate. Offers are usually a percentage of the mortgage amount, commonly quoted from 1% up to 7%: on a $500,000 mortgage, that is $5,000 to $35,000 deposited on closing day, with no restriction on how you use it. This page is part of our guide to mortgage types and features.

The catch is the rate. Over a five-year term the extra interest often equals or exceeds the cash received, which makes cash back an expensive way to borrow. It stays popular because it solves a real problem: buyers who are house-rich and cash-poor at closing.

How Cash Back Mortgages Work

The Basic Deal

Cash Back Amounts by Mortgage Size

The True Cost of Cash Back

The cash feels like a bonus, but the rate premium is charged on the whole balance for the whole term.

5% Cash Back Example

In this scenario the cash back mortgage leaves a net benefit of under $1,000 over the five-year term, and a slightly larger premium would erase it.

When Cash Back Costs More Than It Gives

In this table the result turns into a net cost at a 0.25% premium on 1% cash back, and at premiums of 1.25% or more on the larger offers. It also leaves out the opportunity cost of the higher monthly payment, which could otherwise be saved or invested.

The Full 25-Year View

The premium can outlast the first term. If you renewed at a similar premium and kept the mortgage for the full amortization:

The premium may not carry over, since at renewal you can negotiate a standard rate or switch lenders, so this table shows the risk of starting with a higher rate rather than a likely outcome. Renewal options are covered in the mortgage renewal guide.

Clawback Rules: What Happens if You Break Early

If you end a cash back mortgage before the term is up (by selling, refinancing or switching lenders), you repay some or all of the cash back. This is the clawback.

How the Clawback Is Calculated

Most lenders use a pro-rata formula:

Clawback = Cash Back × (Months Remaining ÷ Total Term Months)

Clawback Examples on $25,000 Cash Back (5-Year Term)

Total Cost of Breaking a Cash Back Mortgage Early

If you break the 5% example above after 2 years:

The penalty comes on top of the clawback. Breaking a closed mortgage, paying it off early or prepaying more than your privileges allow usually costs the higher of 3 months' interest and the interest rate differential (IRD) on a fixed rate, and typically 3 months' interest on a variable rate; your mortgage contract sets the exact method and comparison rate, and a federally regulated lender must tell you how it calculates the penalty. How lenders work out the interest rate differential is explained in how mortgage penalties are calculated. Together, the clawback and the penalty make a cash back mortgage costly to leave before the term ends.

Which Lenders Offer Cash Back Mortgages

Cash back offers change often, and some lenders run promotions that differ from the classic percentage-of-mortgage structure. The table describes how offers are typically structured; it is not a list of current amounts.

Lenders aimed at first-time buyers are compared in best mortgage lenders for first-time buyers. Whatever the offer, the number to compare is the cash received against the extra interest at the quoted rate.

When a Cash Back Mortgage Can Make Sense

Situations where it can help

Situations where it tends to cost more than it gives

Cash Back vs Other Options

Current HELOC pricing is in HELOC rates in Canada.

Tax Implications

Cash back on a mortgage for your own home is generally treated as a reduction in the cost of borrowing, not as income you report. If you invest the cash in a non-registered account, the investment income is taxable, and interest on a mortgage for your principal residence isn’t deductible, so the rate premium is a pure cost.

How to Evaluate a Cash Back Offer

Checklist

The Bottom Line

Cash back mortgages solve a real problem, not having enough cash at closing, at a high price. In many scenarios the higher rate costs more than the cash received, and the clawback adds risk if you need to break early. Savings, the RRSP Home Buyers’ Plan, an FHSA or a family gift can cover closing costs without the higher rate. When cash back is the only option, a smaller percentage with a smaller premium keeps the cost down, and every basis point taken off the premium improves the math. Negotiating approaches are in mortgage negotiation tactics.

Related pages

• How a mortgage works
• Fixed vs variable mortgages
• Open vs closed mortgages
• Amortization period