Is a cashback deal on a home loan better than a low rate
One of my children is doing the rounds of the lenders at the moment to finance their first home and they were telling me they are being besieged by cash-back offers on home loans.
There are now 29 lenders offering cashback deals of up to $4,000 for the average homeowner looking to refinance their mortgage… a new record and more than twice the number available in February.
Research group RateCity (www.ratecity.com.au) has just completed a major analysis of the sector and found;
. 29 lenders are offering cashback deals, up from 12 in February (list at end).
. Deals range from $1,000 up to $4,000 for average mortgages.
. Most cashbacks are for refinancers only.
. All big four banks are offering cashback deals (ANZ through a broker).
The latest ABS lending indicator figures show 137,372 loans have been refinanced in the five months from April to August inclusive, with May hitting a record high.
RateCity.com.au compared the cashback specials from the big four banks and their subsidiaries to the lowest rate options on the market, based on a typical refinancer (see assumptions at end).
VARIABLE: Big four lowest variable rates (+cashback) Vs lowest ongoing variable rate
. After 2 years: The cost of the Westpac, St George, Bank of Melbourne loans at this point were cheaper than the lowest variable rate loan.
. After 3 years: Only the Westpac loan was cheaper.
. After 5 years: All of the loans tested were more expensive after 5 years, despite the cashback.
FIXED: Big four lowest fixed rates (+cashback) Vs lowest fixed rate loans on market
. 2-year fixed: St George, Bank of Melbourne, Westpac, ANZ and NAB deals were all cheaper at the end of the 2-yr fixed period when the cashback was included.
. 3-year fixed: St George, Bank of Melbourne and Westpac were cheaper at the end of the fixed period.
. 5 year fixed: None of the big bank loans were cheaper, than the lowest 5-yr fixed rate, despite the cashback.
. All big bank loans tested were significantly more expensive after the fixed rate period finished if the loan rolled over to the revert rate.
RateCity.com.au research director Sally Tindall said, “Don’t just assume you’ll be better off with a cashback special. Do the maths yourself to work out if the whole package is going to put you ahead or leave you in the red,” she said.
Before refinancing for a cashback deal – check:
Is the interest rate competitive? Look for a rate starting with a ‘2’.
Pick a loan that suits your finances.
Are the fees high? Ask the new lender to waive them if there are.
Can you refinance? You’re likely to need a steady job and at least a 20 per cent deposit or equity.
Can you put the cashback bonus into your mortgage? Extra repayments help reduce your interest charges over the years to come.
List of lenders offering home loan cashback deals on RateCity.com.au
|Big Four bank||Type||Cashback||Lowest ad. variable rate|
|ANZ (through a broker)||Refinance||$3,000||2.72%|
|Bank of Melbourne||Refinance||$4,000||2.54%|
|Suncorp||Refinance||up to $4,000||2.68%|
|Bank First||Refinance||up to $3,000||2.84%|
|Credit Union SA||New loans & refi||up to $3,000||2.59%|
|Virgin Money||New loans & refi||$3,000||2.55%|
|Orange Credit Union||Refinance||$2,020||2.89%|
|BankVic||New loans & refi||$2,000||2.74%|
|Heritage Bank||FHB loans||$2,000||3.07%|
|Illawarra Credit Union||FHB loans||$2,000||2.45%|
|People’s Choice CU||Refinance||$2,000||2.49%|
|RAMS||New loans & refi||$2,000||2.59%|
|Southern Cross CU||New loans & refi||$2,000||2.78%|
|Reduce Home Loans||New loans & refi||up to $2,000||2.39%|
|Police Bank||New loans & refi||up to $2,000||2.79%|
|Homestar Finance||Refinance||up to $1,500||2.29%|
|QBank||New loans & refi||$1,500||2.74%|
|Beyond Bank||FHB loans||$1,000||3.24%|
Source: RateCity.com.au. For home loans under $850,000. Reduce Home Loans offers higher cashbacks for larger loans. FHB = “first home buyers”.
VARIABLE RATES – Cashback deals V refinancing to the lowest rate lender
|Lender||Rate||Cashback||Extra paid vs lowest – 2 yrs||Extra paid vs lowest – 3 yrs||Extra $ vs lowest – 5 yrs|
|Westpac||2.19% for 2yrs, then 2.69%||$3,000||-$2,843||-$910||$2,813|
|Bank of Melbourne||2.54%||$4,000||-$835||$567||$3,265|
Source: RateCity.com.au. Notes below.
FIXED RATES – Cashback deals V refinancing to the lowest rate lender
|Lender||Cashback||2-year fixed||Extra paid vs lowest||3-year fixed||Extra paid vs lowest||5-year fixed||Extra paid vs lowest|
|Bank of Melbourne||$4,000||2.24%||-$2,043||2.24%||-$735||2.74%||$2,621|