With the Reserve Bank steadily increasing Australia’s cash rate in 2022, and home loan interest rates creeping higher, you may have noticed lenders offering cashback offers for home loans.
But is a home loan cashback offer as simple as it sounds? What is involved in applying for a cashback offer home loan? And what do you need to know about this type of home loan? Let’s explore this growing trend.
What is a Refinance Cashback Offer?
Generally speaking, a cashback offer is an offer made by banks or property lenders, whereby the lender will pay the customer back a certain amount in cash in exchange for taking out a home loan with them.
Cashback offers can be seen as a sign of high competition in the home loan market, in a time where few lenders are able to afford to offer lower-than-average interest rates. The cashback offer may be seen as attractive to potential borrowers for a number of reasons. Some borrowers may see the opportunity to use the cashback to further pay down their loan, while others may see it as a welcome buffer to combat rising costs of living.
It’s important to mention up front that while you may see more and more of these types of offers popping up, it’s unlikely that any two will be the same. The details of each cashback home loan offer are usually different.
For example, some lenders may offer cashback for new and existing customers, while others will use cashback to attract new customers only. You may see some cashback offers geared towards both owner-occupier loans and investment loans, while some will be owner-occupier only.
It’s important when shopping around for a cashback home loan offer that you examine the eligibility criteria carefully before following up with any hard-credit enquiries which may impact your credit score.
Make sure you’re able to find a deal that will apply to, and potentially benefit someone with your specific financial circumstances.
How Do Cash Back Home Loans Work?
Cashback offers encompass a range of offers, whereby a bank or home lender offers a borrower a financial incentive of some sort to take out a home loan with them.
The offer could come in the form of cash deposited as a lump sum into a bank account once the home loan has settled, or it could be deducted from home loan fees you would otherwise have to pay.
Generally, you’ll see a range of cashback offer sizes between $1,000 - $5,000. Different lenders will offer different amounts depending on how aggressively they want to attract lending customers.
By and large, home loan cashback offers are only available for a limited time, and not something lenders usually continue to use indefinitely.
What Do I Need to Know About Cash Back Offers?
1. There’s cashbacks, and cashbacks
Firstly, every cashback offer is different. Not just in terms of the amount of financial incentive you may be eligible for, but also the criteria you’ll have to meet in order to gain access to said financial incentive.
Make sure you do your research before acting on any one single offer that may seem attractive up front.
2. Will you be better off?
While the idea of a healthy cash injection for your savings may seem attractive in the short term, it’s worth your while to take a look at the structure of any new loan you’re considering taking out to access a cashback offer.
While cashback might be the thing that gets you in the door, it’s worth making sure that you’ll be better off in the long run.
Will the new loan have you on a better interest rate? Will you be paying less in fees? These are important factors to consider.
3. How will cashback be paid?
If you’ve been able to identify a home loan offer that stacks up better than your current one, and it comes with a cashback offer, be sure to find out exactly how you will receive your financial benefit.
It would be a shame to take out your new loan planning on using your cashback to make improvement to your home, only to find out your incentive is in the form of reduced fees.
Benefits of Cashback Payments
Cover your refinancing costs
If you’re considering a cashback deal for the purpose of refinancing, you might be able to use your financial incentive to cover the associated costs. Refinancing can mean you’ll be up for exit fees (for fixed term loans), and application and evaluation fees, which you may be able to wipe clean once you are paid your cashback amount.
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Investing in your home
Whether a first-time buyer or refinancer, a cashback payment can free up some room in your budget to significantly invest in your home.
Cashback offers running into the thousands of dollars can mean new appliances and whitegoods, or can be put towards larger scale upgrades to kitchens, bathrooms or outdoor areas. This can be especially helpful for first-time buyers.
Moving costs
If you’re buying for the first time, or taking out a new loan for your next home, your cashback incentive could be used to cover your moving costs.
As more and more of us look to relocate greater distances following the pandemic’s shift towards remote working, a few thousand dollars could come in handy to help get all your belongings from place to place safely, and stress-free.
Is A Cash Back Offer Better Than a Low Rate?
Interest rates
While it’s true that home loan cash back can provide borrowers with a boost to their savings in the short term, some lenders will use cashback to attract new borrowers. They may also use this to mask the fact that borrowers will typically be placed on a higher-than-average interest rate. The result of this may be that over time, a borrower will pay more in interest than they otherwise would on a loan with a lower-than-average interest rate.
If your goal is to repay your home loan as quickly as possible, paying the minimum amount in interest you can, be sure when considering a cashback offer to check what your new interest rate will be, making sure that it is at least the same or better than your current one.
Do Home Loan Cash Back Offers Apply to Fixed and Variable Loans?
This will depend entirely on the lender and home loan cash back offer you are considering.
Many lenders do include the option to refinance to a fixed rate or variable rate home loan, but not all. Be sure to carefully scrutinise the eligibility criteria of any cashback offer before taking out a new loan or refinancing.
Are Investors and Owner Occupiers Eligible?
You will find that many lenders offer cashback home loans for both owner-occupiers and investors, but not all.
Eligibility criteria will vary between lenders, so be sure to find a deal that is suitable for your specific circumstances.
Considering Cash Back Refinance? What Do I Need?
- An up to date picture of your finances is a good start – get a handle on where your budget stands, how you are tracking with all existing loans. Remember, you’re looking to paint as favourable a picture as possible to your lender for when it comes time to consider your loan.
- Do your homework – before approaching a lender, get an understanding of the eligibility criteria involved in their cashback offer, and make sure that you meet them, to the best of your knowledge.
We’re Here to Help
At Greater Bank, we’re proud of our reputation as a helpful, responsible lender. It’s one we’ve been cultivating since 1945, and we’ve ben able to help generations of locals turn their home ownership dreams into reality as a result.
To start a conversation with your nearest expert lender, make an enquiry today and we’ll come to you at a time that suits.
This article is intended to provide general information of an educational nature only. This information has been prepared without taking into account your objectives, financial situation or needs. Therefore, before acting on this information, you should consider its appropriateness having regard to these matters and the product terms and conditions. Terms, conditions, fees, charges and credit criteria apply. Information in this article is current as at the date of publication.