Australia’s lowest 2-year fixed rate now comes with $3K+ cashback

Australia’s lowest 2-year fixed rate now comes with $3K+ cashback

Home loan cashback deals are heating up again, with international bank, HSBC, today offering a $3,288 cashback to refinancers on its fixed and variable rate loans.

Although this isn’t the largest cash incentive on the market, the deal is available on the bank’s 1.88 per cent two-year fixed home loan, which is currently the equal lowest two-year rate in Australia for owner-occupiers paying principal and interest.

Out of the 25 lenders offering cashback, this is the lowest rate loan.

Crunching the numbers – are cashbacks worth it?

RateCity.com.au has compared the 2-year fixed rate cashback deals from the big four banks and HSBC against the lowest variable rate on the market. The calculations consider interest, fees and cashback.

After two years, the average refinancer would be $2,715 better off on HSBC’s 2-year fixed rate than if they had opted for the lowest variable rate loan in the market of 1.79 per cent.

Westpac and ANZ’s 2-year fixed rate cashback deals also leave the average refinancer ahead after two years.

However, after the fixed rate term expires, these customers could find themselves behind, if they don’t refix or refinance their loan.

Cashback deals on a 2-year fixed rate vs lowest variable rate

Based on an owner-occupier with a $400K loan balance.

Hsbc table.PNG

Analysis of cashback loans on the RateCity.com.au database:

  • 25 lenders offering cashback deals.
  • In February 2020, there were just 12 lenders offering cashback.
  • Most cashbacks range between $1,500 and $4,000 (see list below). Note: Reduce is offering $5,000 cashback for home loans of $1+ million.
  • All big four banks are offering cashback deals (ANZ through a broker).
  • Most cashbacks are for refinancers only.

RateCity.com.au research director, Sally Tindall, said HSBC is in hot pursuit of refinancers who are also looking for a cash perk.

“This is the lowest rate loan in our database that also offers a cashback,” she said.

“While the average refinancer is likely to come out ahead in the first two years when compared to the lowest variable loan, anyone who forgets to refix or refinance at the end of the fixed term will end up on a revert rate of 2.54 per cent.

“Cashbacks are booming. There are 25 lenders offering up to $5,000 to help bring in new customers.

“Previously, the upfront sugar hit of cold hard cash was usually a dud deal because the loans often had non-competitive rates. These days banks are increasingly offering both low rates and cash – making them a far more attractive proposition in the short-term.

“People who refinance regularly and know how to drive a hard bargain on rates and fees could end up ahead on a cashback deal. However, anyone who sets and forgets their loan might be better off on a low ongoing variable rate.

“Don’t get lured down a cashback rabbit hole without thinking it through properly. Take a step back and make sure the loan suits your finances, otherwise you could be shooting yourself in the foot,” she said.

Highest refinance cashback home loan offers on RateCity.com.au

Lender Cashback Lowest variable rate Lowest 2-yr fixed rate
St.George Bank/Bank of Melbourne

$4,000

2.49%

1.99%

BankSA

$4,000

2.54%

2.09%

RAMS

$4,000

2.59%

2.09%

People's Choice Credit Union

$4,000

2.49%

2.09%

Citi

$4,000

2.59%

2.09%

HSBC

$3,288

2.44%

1.88%

Westpac

$3,000

2.19% for 2 yrs then 2.69%

1.99%

ANZ (broker only)

$3,000

2.72%

2.04%

Reduce Home Loans

$3K - $5K

2.49%

N/A

Source: RateCity.com.au. For home loans under $850,000. Rates are for owner-occupiers paying principal and interest. LVR and loan size restrictions may apply. Reduce Home Loans offers $5K cashback on $1M loans however for the average loans, $3K cashback applies.

Before refinancing for a cashback deal – check:

  • Is the interest rate competitive? Look for a rate starting with a ‘2’ or even better a ‘1’.
  • Pick a loan that suits that 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% deposit or equity.
  • Can you put the cashback bonus into your mortgage? Extra repayments help reduce your interest charges in the long run.

Notes: Calculations are based on an owner occupier paying principal and interest, with a balance of $400K switching 5 years in to a 30-year loan. Costs include interest charged plus fees minus any cashback offered. Lowest variable rate is from Homestar Finance. Rates are the lowest available from each lender in each category and some rates require a low LVR to qualify (Westpac 70% LVR, Homestar Finance, 60% LVR). ANZ's cashback is only available to new customers applying via a broker. Assumes variable rates remain the same.

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Learn more about home loans

What is the difference between fixed, variable and split rates?

Fixed rate

A fixed rate home loan is a loan where the interest rate is set for a certain amount of time, usually between one and 15 years. The advantage of a fixed rate is that you know exactly how much your repayments will be for the duration of the fixed term. There are some disadvantages to fixing that you need to be aware of. Some products won’t let you make extra repayments, or offer tools such as an offset account to help you reduce your interest, while others will charge a significant break fee if you decide to terminate the loan before the fixed period finishes.

Variable rate

A variable rate home loan is one where the interest rate can and will change over the course of your loan. The rate is determined by your lender, not the Reserve Bank of Australia, so while the cash rate might go down, your bank may decide not to follow suit, although they do broadly follow market conditions. One of the upsides of variable rates is that they are typically more flexible than their fixed rate counterparts which means that a lot of these products will let you make extra repayments and offer features such as offset accounts.

Split rates home loans

A split loan lets you fix a portion of your loan, and leave the remainder on a variable rate so you get a bet each way on fixed and variable rates. A split loan is a good option for someone who wants the peace of mind that regular repayments can provide but still wants to retain some of the additional features variable loans typically provide such as an offset account. Of course, with most things in life, split loans are still a trade-off. If the variable rate goes down, for example, the lower interest rates will only apply to the section that you didn’t fix.

What happens to my home loan when interest rates rise?

If you are on a variable rate home loan, every so often your rate will be subject to increases and decreases. Rate changes are determined by your lender, not the Reserve Bank of Australia, however often when the RBA changes the cash rate, a number of banks will follow suit, at least to some extent. You can use RateCity cash rate to check how the latest interest rate change affected your mortgage interest rate.

When your rate rises, you will be required to pay your bank more each month in mortgage repayments. Similarly, if your interest rate is cut, then your monthly repayments will decrease. Your lender will notify you of what your new repayments will be, although you can do the calculations yourself, and compare other home loan rates using our mortgage calculator.

There is no way of conclusively predicting when interest rates will go up or down on home loans so if you prefer a more stable approach consider opting for a fixed rate loan.

What is a variable home loan?

A variable rate home loan is one where the interest rate can and will change over the course of your loan. The rate is determined by your lender, not the Reserve Bank of Australia, so while the cash rate might go down, your bank may decide not to follow suit, although they do broadly follow market conditions. One of the upsides of variable rates is that they are typically more flexible than their fixed rate counterparts which means that a lot of these products will let you make extra repayments and offer features such as offset accounts.

When do mortgage payments start after settlement?

Generally speaking, your first mortgage payment falls due one month after the settlement date. However, this may vary based on your mortgage terms. You can check the exact date by contacting your lender.

Usually your settlement agent will meet the seller’s representatives to exchange documents at an agreed place and time. The balance purchase price is paid to the seller. The lender will register a mortgage against your title and give you the funds to purchase the new home.

Once the settlement process is complete, the lender allows you to draw down the loan. The loan amount is debited from your loan account. As soon as the settlement paperwork is sorted, you can collect the keys to your new home and work your way through the moving-in checklist.

What do people do with a Macquarie Bank reverse?

There are a number of ways people use a Macquarie Bank reverse mortgage. Below are some reasons borrowers tend to release their home’s equity via a reverse mortgage:

  • To top up superannuation or pension income to pay for monthly bills;
  • To consolidate and repay high-interest debt like credit cards or personal loans;
  • To fund renovations, repairs or upgrades to their home
  • To help your children or grandkids through financial difficulties. 

While there are no limitations on how you can use a Macquarie reverse mortgage loan, a reverse mortgage is not right for all borrowers. Reverse mortgages compound the interest, which means you end up paying interest on your interest. They can also affect your entitlement to things like the pension It’s important to think carefully, read up and speak with your family before you apply for a reverse mortgage.

What are the features of home loans for expats from Westpac?

If you’re an Australian citizen living and working abroad, you can borrow to buy a property in Australia. With a Westpac non-resident home loan, you can borrow up to 80 per cent of the property value to purchase a property whilst living overseas. The minimum loan amount for these loans is $25,000, with a maximum loan term of 30 years.

The interest rates and other fees for Westpac non-resident home loans are the same as regular home loans offered to borrowers living in Australia. You’ll have to submit proof of income, six-month bank statements, an employment letter, and your last two payslips. You may also be required to submit a copy of your passport and visa that shows you’re allowed to live and work abroad.

Cash or mortgage – which is more suitable to buy an investment property?

Deciding whether to buy an investment property with cash or a mortgage is a matter or personal choice and will often depend on your financial situation. Using cash may seem logical if you have the money in reserve and it can allow you to later use the equity in your home. However, there may be other factors to think about, such as whether there are other debts to pay down and whether it will tie up all of your spare cash. Again, it’s a personal choice and may be worth seeking personal advice.

A mortgage is a popular option for people who don’t have enough cash in the bank to pay for an investment property. Sometimes when you take out a mortgage you can offset your loan interest against the rental income you may earn. The rental income can also help to pay down the loan.

What is the difference between a fixed rate and variable rate?

A variable rate can fluctuate over the life of a loan as determined by your lender. While the rate is broadly reflective of market conditions, including the Reserve Bank’s cash rate, it is by no means the sole determining factor in your bank’s decision-making process.

A fixed rate is one which is set for a period of time, regardless of market fluctuations. Fixed rates can be as short as one year or as long as 15 years however after this time it will revert to a variable rate, unless you negotiate with your bank to enter into another fixed term agreement

Variable rates is that they are typically more flexible than their fixed rate counterparts which means that a lot of these products will let you make extra repayments and offer features such as offset accounts however fixed rates do offer customers a level of security by knowing exactly how much they need to set aside each month.

Does the Home Loan Rate Promise apply to discounted interest rate offers, such as honeymoon rates?

No. Temporary discounts to home loan interest rates will expire after a limited time, so they aren’t valid for comparing home loans as part of the Home Loan Rate Promise.

However, if your home loan has been discounted from the lender’s standard rate on a permanent basis, you can check if we can find an even lower rate that could apply to you.

What is a fixed home loan?

A fixed rate home loan is a loan where the interest rate is set for a certain amount of time, usually between one and 15 years. The advantage of a fixed rate is that you know exactly how much your repayments will be for the duration of the fixed term. There are some disadvantages to fixing that you need to be aware of. Some products won’t let you make extra repayments, or offer tools such as an offset account to help you reduce your interest, while others will charge a significant break fee if you decide to terminate the loan before the fixed period finishes.

What is a standard variable rate (SVR)?

The standard variable rate (SVR) is the interest rate a lender applies to their standard home loan. It is a variable interest rate which is normally used as a benchmark from which they price their other variable rate home loan products.

A standard variable rate home loan typically includes most, if not all the features the lender has on offer, such as an offset account, but it often comes with a higher interest rate attached than their most ‘basic’ product on offer (usually referred to as their basic variable rate mortgage).

What is a comparison rate?

The comparison rate is a more inclusive way of comparing home loans that factors in not only on the interest rate but also the majority of upfront and ongoing charges that add to the total cost of a home loan.

The rate is calculated using an industry-wide formula based on a $150,000 loan over a 25-year period and includes things like revert rates after an introductory or fixed rate period, application fees and monthly account keeping fees.

In Australia, all lenders are required by law to publish the comparison rate alongside their advertised rate so people can compare products easily.

What is the Home Loan Rate Promise?

The Home Loan Rate Promise is RateCity putting its money where its mouth is. We believe that too many Australians are paying too much for their home loans. We’re so confident we can help Aussies save money, if we can’t beat your current rate, we’ll give you a $100 gift card.*

There are two reasons it pays to check your rate with the Home Loan Rate Promise:

  • You can find out how much you could save on your home loan by switching to a loan with a lower interest rate
  • If we can’t beat your current rate, you can claim a $100 gift card with our Home Loan Rate Promise*

Why does Westpac charge an early termination fee for home loans?

The Westpac home loan early termination fee or break cost is applicable if you have a fixed rate home loan and repay part of or the whole outstanding amount before the fixed period ends. If you’re switching between products before the fixed period ends, you’ll pay a switching break cost and an administrative fee. 

The Westpac home loan early termination fee may not apply if you repay an amount below the prepayment threshold. The prepayment threshold is the amount Westpac allows you to repay during the fixed period outside your regular repayments.

Westpac charges this fee because when you take out a home loan, the bank borrows the funds with wholesale rates available to banks and lenders. Westpac will then work out your interest rate based on you making regular repayments for a fixed period. If you repay before this period ends, the lender may incur a loss if there is any change in the wholesale rate of interest.