Agent Will

TD CanadaTrust has been advertising pretty heavily on the radio (I’m in my car a lot) about their “great” new product - the 7% cash back mortgage. They make it sound so tempting. The pitch: Get a mortgage with TDCT and get 7% cash back up to $50,000 which you could then use for anything, like a super neato bath tub (example in the radio spot)… terms and conditions apply.

Let’s look closer at those terms and conditions:

• Not available on a 100% homebuyer program (good)
• Cannot be combined with any other offer or rate discount (hmmmmm…)

I don’t see whether the mortgage is transferable or what the payout before end of term penalty is (if any).

So let’s look even closer at that “cannot be combined with any other offer or rate discount”. Looks to me like the only way to get the 7% cash back is to go with their 7 year fixed rate term. So to get the 7% back you must take out a loan fixed at 7.60%. The variable rate is currently 5.75% (and is predicted by TD to go down another 0.50% according some TD brokers I work with).

Best way to see if this offer is any good is to run the numbers. To keep it simple we’ll use $100,000 as the loan amount and we’ll go for the old standard of 25 years for the amortization.

100,000@7.60% = $737.85/month and you get $7000 cash back.

100,000@5.75% = $625.03/month.

So, in effect, you are borrowing an additional $7000 for $112.82/month. Is that any good? NO! You are paying 19.95% interest on that $7000! That is absolutely terrible.

In fact, if you go with the variable rate at 5.75% that same $112.82/month payment is worth $18,052 to you. According to TD’s logic you’d be better off reducing down payment and borrowing more at the reduced rate.

This is just a sham/scam/bamboozle to get you to borrow money at a rate likely higher than even your credit cards. Of course, I don’t see any of this printed there. How fitting that they use a bathtub as an example of what you could buy because that is what you’ll be doing; taking a bath. And if you really, really cannot afford the house and the furniture to fill it perhaps you should look at making alternative plans.