Crunch before you commit - why rewards may lose you money

Competition in the home loan market continues to run hot, especially now the spring deals are in.  If you’re looking for evidence, it’s hard to go past the recent blast of introductory offers of frequent flyer points and cold hard cash to lure you in.

Most recently, NAB has stolen the limelight, offering of a whopping 250,000 frequent flyer points for new owner occupier home loans of $250,000 or more, when used in conjunction with a NAB credit card and transaction account.

“It’s a very competitive market,” NAB general manager of consumer lending, Angus Gilfillan told the Sydney Morning Herald. “I think customers will value this more than a cash-back.”

And while a two-week jaunt around Europe or the States sounds mighty appealing, are these types of deals worth it, after you’ve packed your bags away in your new cupboard in your new home?

The answer is, probably not.

A quick RateCity comparison reveals that the lowest NAB loan, which is competitively priced at 4.15%, will cost $8,688 more than UBank’s lowest rate of 3.99%, on a $250,000 loan over 30 years. And while 250,000 points will take you to London and back twice, the cash equivalent is less than $4,000 when you factor in taxes.

“Try not to get caught up in the hype” says RateCity’s Banking Analyst Peter Arnold.  “If it looks too good to be true, then chances are, it probably is.

“Frequent flyer points and cash back gimmicks are great if they’re part of a product you’ve already selected on its merits, but if that’s what’s leading your decision-making then its time to take a step back and crunch the numbers.”

Interestingly, most of the big offers are for owner-occupiers, as part of the push by the major banks to limit the increase in investor loans to 10 per cent while keeping their overall loan book growing. “One of the unintended consequences is you can probably get an even better deal as an owner-occupier than you could before,” APRA chairman Wayne Byres told the SMH.

What all this means is that now is a great time to refinance if you’re an owner-occupier, but you might be better off taking out a lower interest rate loan and saving on monthly repayments.  

Just remember – a 30 year home loan lasts over 780 times longer than a two-week holiday to the United Kingdom. That’s a lot of slide nights before you can afford your next holiday.

There’s a sobering stat to bring you back to earth.

Compare home loans in Australia