Lenders have offered up to $5,000 cash back on home loan rates under two per cent, but Australians should read the fine print before signing up.
A new Rate City analysis has indicated there are 25 lenders offering cash back deals, with 21 of these lenders also offering at least one rate under two per cent for owner-occupiers refinancing.
With refinancing hitting a record high in June, cash backs have been popular perk being offered by lenders to attract new customers.
The latest ABS lending indicator figures showed $151 billion in home loans have been refinanced in the last 12 months.
Rate City research director Sally Tindall noted while a low ongoing rate was previously looked on more favourably by consumers, banks have started increasing offerings on low rates and cash back deals.
“Cashback deals can potentially work in a person’s favour if they commit to finding the best deals and refinance regularly. However, anyone who doesn’t look past the lure of instant cash could potentially shoot themselves in the foot if they’re not careful,” she said.
“It all comes down to your personal circumstances,including the type and size of your loan, the rate you’re switching to, any fees, and whether you’re likely to refinance regularly.
“If you’re thinking about taking out a cash back deal, do the maths to make sure you’re going to end up ahead when compared to the lowest rates available,” she said.
Fixed rates
The lowest two year fixed rate on the market is generally 1.79 per cent, according to the website.
However, on the average-sized mortgage of $500,000, 17 lenders are offering cheaper two year deals over the fixed rate term when cash back, interest charges and fees are included.
For example, if the average variable rate customer refinanced to the lowest two year fixed rate on the market, they could potentially save up to $12,505 in the first two years.
But if they went with the lowest two year fixed rate loan offering cash back (1.84 per cent), they could save $14,200, which is $1,695 more.
Rate City warned a fixed rate loans may roll onto the bank’s revert rate, which can be significantly higher.
It was recommended to set a reminder a few months before the fixed rate ended to shop around for a new deal, with the goal of avoiding rolling onto a high variable revert rate.
Variable rates
Rate City also noted cash back deals were drastically different on variable loans.
After just two years, only two cash back deals (one other lender) come out ahead against the lowest variable rate on the market. After three years, none of them trump the lowest ongoing rate (assuming these rates stay the same).
Before refinancing for a cash back deal, Rate City recommended consumers check:
- Is the interest rate competitive? The lowest variable is 1.77 per cent and the lowest two-year fixed is 1.79 per cent.
- Read the terms and conditions carefully. Make sure you’re eligible for the cash back.
- Are the fees high?Ask the new lender to waive them if they are.
- Does the loan offer the flexibility you need? This may include an offset account, ability to make extra repayments.
- Are you in position to refinance? This typically includes having a steady job, owning at least 20 per cent of your home and that you’re not currently on a fixed rate, as break fees may apply.
- Can you put the cashback bonus into your mortgage? Extra repayments help reduce your interest charges over the years to come.
- Refinance regularly: Don’t set and forget your loan, especially if you are on a fixed loan, as potentially high revert rates may quickly eat away at any savings you’ve made.
