Cashback Deal a Good Investment
Have you heard the news? Some of the major mortgage broker Brisbane are now offering cashback deals of up to $3,000 to borrowers who refinance their home loans. While this may sound like a tempting offer (who doesn’t love a cash giveaway?!), not all refinancing cashback deals are created equal. So, why are so many lenders suddenly offering such tempting cashback deals? Is refinancing for a cashback deal a good investment? And how can you determine which refinance offers will deliver the best long-term value?
Why Are Lenders Offering Cashback Deals to Refinance Your Home Loan?
Cashback deals aren’t a new concept – lenders have been offering cashback deals as a lure to refinance your home loan for years now. But since COVID-19, interest rates in Australia have dropped to historically low levels, creating a surge in the number of homeowners looking to refinance. Based on data from the Australian Bureau of Statistics, over 200,000 Australians refinanced with a new lender during 2020. As a result, competition amongst lenders has suddenly grown quite fierce, which has led to lenders dropping rates and looking for new ways to attract new customers. And one of the most effective ways is to offer a cashback deal to new customers looking to refinance home loan. .
Is Refinancing for a Cashback Deal a Good Investment?
With lenders currently offering cashback deals of up to $3,000, it certainly seems like a good incentive to refinance. However, when contemplating a refinance cashback offer (deal), it’s important to consider why you want to refinance. The most common reasons are:
- Debt consolidation
- Accessing equity
- Gaining better home loan features
- Saving money
If you fall into any of the first three categories listed above, then a cashback deal can be a great incentive (provided the home loan on offer is competitive and suits your needs). However, if you’re mainly looking to save money, then it’s worth asking a few more questions before you commit to a refinance cashback offer.
- What is the Loan to Value Ratio (LVR)? If your loan is going to be more than 80% of the property value, you may be charged Lender’s Mortgage Insurance.
- Have you missed any repayments recently? If your credit history is a little lacklustre, then you may not be eligible for the lowest interest rate deals.
- Is your current interest rate competitive? If you already have a highly competitive fixed interest rate, then it could be worth waiting until your fixed term ends.
Who Should Refinance for a Cashback Deal?
Refinancing for a cashback deal can definitely be a good investment for homeowners with an LVR of less than 80% and a good credit rating, especially for those seeking a more competitive interest rate. This is particularly relevant if your fixed term has now ended (since most fixed-rate home loans will automatically roll over to the lenders’ standard variable interest rate once the fixed term expires). As a result, many mortgage holders end up paying substantially more interest than they need to.
Refinancing for a cashback deal can also be beneficial for those who have an older mortgage. If you’ve had your interest rate for more than three years, it’s highly unlikely your interest rate is still competitive. The average 3 year fixed rate home loan in 2018 was 4.1%. By November 2020, this had dropped to just 2.2%, with some lenders offering interest rates as low as 1.79%. If you have a $500,000 home loan with a 30 year term and a 4.1% interest rate, you could potentially save over $600 per month by refinancing to a comparable home loan with a 1.79% interest rate.
Which Cashback Deals Offer the Best Long-Term Value?
When deciding which cashback refinance deals offer the best value, you’ll need to consider more than the cashback amount. A lower interest rate will typically save you more money over time than a cashback home loan with a higher interest rate. To evaluate a mortgage deal for long-term value, make sure you compare the:
- Interest rates
- Ongoing fees
- Suitability of the home loan features
The best way to assess a home loan cashback deal is by talking to one of the experienced brokers at Borro. We can evaluate your current situation and compare a broad selection of refinance deals currently available from over 50 different lenders (including cashback deals).