Low interest rates may not be enough to attract new mortgage customers, but cash could sweeten the deal, according to new research by Finder.
A new Finder survey of 1004 respondents has revealed that 1 in 4 Australians (25 per cent) – equivalent to almost 5 million people – would prefer a home loan with a cashback offer over a low interest rate.
A cashback offer is where your lender deposits a certain amount of money (usually between $1000 and $4000) into your account once you settle your home loan. They are becoming increasingly common as lenders seek to entice borrowers to switch.
Despite this, almost half the population (46 per cent) would still prefer the benefit of a slightly lower interest rate on their mortgage.
Richard Whitten, home loans expert at Finder, said that home loan customers now have the upper hand.
“Cashback offers have been around for a few years, with lenders using this as a way to entice new customers,” Mr Whitten explained.
“But we’re now seeing cashback offers on home loans that already have exceptionally low interest rates.
“In an increasingly crowded market, lenders are really having to up the ante to stand out from their competitors,” he said.
The research found that men (34 per cent) are more than twice as likely as women (16 per cent) to favour a one-off cash bonus over long term loan savings.
Around one in three millennials (34 per cent) would prefer a cashback loan, compared to just 10 per cent of baby boomers.
A separate Finder study also revealed that one in three borrowers (34 per cent) are planning to refinance their mortgage over the next 12 months.
Mr Whitten urged mortgage customers to think about their options before refinancing.
“While it’s hard to ignore a dangling cashback carrot, you need to first consider whether this is the right option for you,” he noted.
“The cashback incentive is often enough to cover the costs of refinancing, but if the interest rate isn’t as competitive or the loan is less flexible or has less features, it might not be the best fit.
“If you tend to refinance every few years, you may be financially better off by choosing a one-off cash bonus, but a lower interest rate is always going to save you more money over time.
“It’s also important to take into account any fees involved, how flexible the loan is, and whether you can put the cashback funds back into your mortgage.
“If you’re unsure where to start, you can compare home loans with cashback offers at Finder,” he said.
