Home Loan Cashback Offers
Home loan cashback offers are incredibly tempting, especially now that interest rates are high. Cashback is usually part of mortgage refinancing.
Unfortunately, two of the largest banks in Australia will no longer offer the incentive after June 2023, and experts predict other banks will soon follow.
If a specific lender still has cashback, is it an automatic good deal? Let us look at a cashback offer, what it entails, how it affects your home loan, and whether a cash rebate is as helpful for home buyers.
What is a home loan cashback?
Home loan cashback is an incentive that banks or lenders provide where you receive a one-time rebate. Once the loan settles, the cashback is deposited into your bank account.
These home loan offers amount to $2,000 to $5,000 depending on your loan amount and loan-to-value ratio (LVR).
Home loan cashback is generally offered to clients who are refinancing their mortgage. When you switch lenders, this rebate is a way for lenders to beat the competition and make their mortgage products more competitive.
Cashbacks aren’t usually offered to clients who are refinancing within the lender that already holds the home loan.
Why are banks stopping their home loan cashback offers?
Since cash rebates are at the lender’s discretion, they can pull the pin on this offer at any point. And with the government lowering the rates during the previous years, lenders are now removing refinance rebates and reducing discounts for new loans to deal with lower profitability.
Mortgage brokers believe that the incentive has contributed to driving up inflation. Rate Money CEO Ryan Gair mentions that cashback is negative for mortgage holders as “it’s causing inflation and pushing up interest rates,” according to him.
The focus now is less on providing quick rebates and more on providing helpful, long-term mortgage products for customers.
Are home loan cashback offers still worth it?
Home loan cashback offers can be appealing, as it is instant money in your bank account. But while it provides short-term financial benefits, you must check the other fees and loan features.
Interest rate: Some mortgage products come with higher interest rates even with the signup bonus. Review the loan terms and overall cost carefully to see if the cost is competitive.
Offer period: Will the cashback offer coincide with your home loan settlement? Also, if the offer is only for the first year, and the interest rate or fees increase after the offer period, the loan might be more costly overall.
Other loan features: Cashback is enticing but should not be the only reason to pick a home loan product. You must review all the loan features (e.g., Do I need an offset account? What about the line of credit with additional fees?) to determine whether they suit your financial situation.
Home loan cashback offers tips
If you’re considering home loan products with cashback incentives, take note of these tips:
- Ensure you carefully review the terms and conditions. Take note whether the cashback offer applies per loan, per property, or if there is a maximum rebate limit per borrower.
- Calculate the cost of the loan over a 4-year period, considering any rebates. Factors such as overall cost, interest rates, ongoing fees, and deducting any rebate over the duration of your home ownership. This gives you an estimate if the refinance is worthwhile.
- Shop around for interest rates. While rates are significantly higher now, you could always check other more competitive rates in the market. Remaining with your existing lender may end up with a higher loyalty tax. A cheaper interest rate and minimal fees may save your money more so than a one-off cashback.
Need help dealing with home loan fine print? At Intellichoice, our expert mortgage brokers are here to review offers and products from reputable lenders. Assessing the total cost of the loan, regardless of the cashback offer, will help you make the most informed choice. We work closely with lending institutions, so you won’t miss out on a mortgage product tailored to your needs. Call us today to get started.
