RateCity.com.au
powering smart financial decisions

Cashback home loans soar since COVID-19 – but are they worth it?

Cashback home loans soar since COVID-19 – but are they worth it?

There are now 29 lenders offering cashback deals of up to $4,000 for the average homeowner looking to refinance their mortgage – a new record.

This is more than twice the number available in February this year before the COVID-19 pandemic was declared.

Analysis from RateCity.com.au:

  • 29 lenders are offering cashback deals, up from 12 in February (list at end).
  • Deals range from $1,000 up to $4,000 for average mortgages.
  • Most cashbacks are for refinancers only.
  • All big four banks are offering cashback deals (ANZ through a broker).

With refinancing booming during COVID, cashbacks are an increasingly popular perk being offered by lenders to attract new customers.

The latest ABS lending indicator figures show 137,372 loans have been refinanced in the five months from April to August inclusive, with May hitting a record high.

Sally Tindall, RateCity research director, said the record number of cashback specials is an indication of the competitiveness of the refinancing market.

“The rise in refinancing is forcing banks to be more competitive than ever,

“Banks need to be winning new business, not losing it, and they’re throwing large sums of cash at anyone willing to refinance, particularly if they’ve got a good track record of paying down their debt and a steady job,” she said.

Read more...

Are cashback deals worth it?

RateCity compared the cashback specials from the big four banks and their subsidiaries to the lowest rate options on the market, based on a typical refinancer (see assumptions at end).

VARIABLE:Big four lowest variable rates (+cashback) Vs lowest ongoing variable rate

  • After 2 years: The cost of the Westpac, St George, Bank of Melbourne loans at this point were cheaper than the lowest variable rate loan.
  • After 3 years: Only the Westpac loan was cheaper.
  • After 5 years: All of the loans tested were more expensive after 5 years, despite the cashback.

FIXED: Big four lowest fixed rates (+cashback) Vs lowest fixed rate loans on market

  • 2-year fixed: St George, Bank of Melbourne, Westpac, ANZ and NAB deals were all cheaper at the end of the 2-yr fixed period when the cashback was included.
  • 3-year fixed: St George, Bank of Melbourne and Westpac were cheaper at the end of the fixed period.
  • 5 year fixed: None of the big bank loans were cheaper, than the lowest 5-yr fixed rate, despite the cashback.
  • All big bank loans tested were significantly more expensive after the fixed rate period finished if the loan rolled over to the revert rate.

RateCity research director Sally Tindall said, while most cashback deals were more expensive in the long term, the tide is turning.

“Banks are increasingly offering sign-up specials on their lowest rate loans, making them far more competitive than they used to be,” she said.

“While a low ongoing rate typically trumps a sign-up special over the longer term, if you’re someone who refinances regularly, and knows how to drive a hard bargain on rate and fees, you could end up ahead in the first couple of years.

“Don’t just assume you’ll be better off with a cashback special. Do the maths yourself to work out if the whole package is going to put you ahead or leave you in the red,” she said.

Before refinancing for a cashback deal – check:

  • Is the interest rate competitive? Look for a rate starting with a ‘2’.
  • 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 over the years to come.

List of lenders offering home loan cashback deals on RateCity.com.au

Big Four bankTypeCashbackLowest ad. variable rate
CBARefinance

$2,000

2.69%

WestpacRefinance

$3,000

2.19%

NABRefinance

$2,000

2.69%

ANZ (through a broker)Refinance

$3,000

2.72%

Other lenders

St GeorgeRefinance

$4,000

2.54%

Bank of MelbourneRefinance

$4,000

2.54%

BankSARefinance

$4,000

2.54%

SuncorpRefinance

up to $4,000

2.68%

Bank FirstRefinance

up to $3,000

2.84%

BOQRefinance

$3,000

2.59%

Credit Union SANew loans & refi

up to $3,000

2.59%

Virgin MoneyNew loans & refi

$3,000

2.55%

Orange Credit UnionRefinance

$2,020

2.89%

86 400Refinance

$2,000

2.49%

BankVicNew loans & refi

$2,000

2.74%

CUARefinance

$2,000

2.55%

GMCUFHB loans

$2,000

2.48%

Heritage BankFHB loans

$2,000

3.07%

Illawarra Credit UnionFHB loans

$2,000

2.45%

MyState BankRefinance

$2,000

2.69%

Newcastle PermanentRefinance

$2,000

2.59%

People's Choice CURefinance

$2,000

2.49%

RAMSNew loans & refi

$2,000

2.59%

Southern Cross CUNew loans & refi

$2,000

2.78%

Reduce Home LoansNew loans & refi

up to $2,000

2.39%

Police BankNew loans & refi

up to $2,000

2.79%

Homestar FinanceRefinance

up to $1,500

2.29%

QBankNew loans & refi

$1,500

2.74%

Beyond BankFHB loans

$1,000

3.24%

Source: RateCity.com.au. For home loans under $850,000. Reduce Home Loans offers higher cashbacks for larger loans. FHB = “first home buyers”.

VARIABLE RATES – Cashback deals Vs refinancing to the lowest rate lender

LenderRateCashbackExtra paid vs lowest - 2 yrsExtra paid vs lowest - 3 yrsExtra $ vs lowest - 5 yrs
CBA

2.69%

$2,000

$2,280

$4,253

$8,052

Westpac

2.19% for 2yrs, then 2.69%

$3,000

-$2,843

-$910

$2,813

NAB

2.69%

$2,000

$2,080

$4,053

$7,852

ANZ

2.72%

$3,000

$1,465

$3,553

$7,573

St George

2.54%

$4,000

-$835

$567

$3,265

Bank of Melbourne

2.54%

$4,000

-$835

$567

$3,265

Lowest rate

2.17%

$0

$0

$0

$0

Source: RateCity.com.au. Notes below.

FIXED RATES - Cashback deals V refinancing to the lowest rate lender

LenderCashback2-year fixedExtra paid vs lowest3-year fixedExtra paid vs lowest5-year fixedExtra paid vs lowest
CBA

$2,000

2.29%

$349

2.29%

$1,846

2.99%

$9,392

Westpac

$3,000

2.19%

-$1,435

2.19%

-$315

2.69%

$2,670

NAB

$2,000

2.19%

-$435

2.29%

$1,846

2.79%

$5,574

ANZ

$3,000

2.29%

-$651

2.29%

$846

2.69%

$2,670

St George

$4,000

2.24%

-$2,043

2.24%

-$735

2.74%

$2,621

Bank of Melbourne

$4,000

2.24%

-$2,043

2.24%

-$735

2.74%

$2,621

LowestTypically none

1.99%

$0

1.99%

$0

2.39%

$0

Source: RateCity.com.au.

Notes: Based on an owner occupier paying principal and interest switching 5 years in to a 30-year loan with a $400,000 balance. Rates are for an LVR of 70%. Costs are based on interest paid plus fees minus any cashback. Refinancing fees do not include discharge fees from the old lender or government fees. Assumes cashback dollars are not used to pay down the mortgage. The lowest 3 year fixed rate includes a cashback of $750.

Need help with your next loan? Talk to a broker.

Did you find this helpful? Why not share this news?

Fact Checked -

This article was reviewed by Research Director Sally Tindall before it was published as part of RateCity's Fact Check process.

Advertisement

RateCity
ratecity-newsletter

Money Health Newsletter

Subscribe for news, tips and expert opinions to help you make smarter financial decisions

By signing up, you agree to the RateCity Privacy Policy, Terms of Use and Disclaimer.

Advertisement

Learn more about home loans

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 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.

How long can you fix a home loan rate for?

Most lenders should let you fix your interest rate for anywhere between one and five years. While rare, a few lenders may offer fixed rate terms for as long as 10 years.

Fixing your home loan interest rate for a longer term can keep your budgeting fairly straightforward, as you shouldn't have to factor in changes to your mortgage repayments if variable rates change, such as when the Reserve Bank of Australia (RBA) changes its rates at its monthly meeting. Additionally, if variable rates rise during your fixed rate term, you can continue to pay the lower fixed rate until the fixed term ends, potentially saving you some money.

Of course, a longer fixed term also means a longer length of time where you may have less flexibility in your home loan repayments. It’s also a longer period where you won’t be able to refinance your mortgage without paying break fees. If variable rates were to fall during this period, you may also be stuck paying a higher fixed rate for a longer period.

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 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 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.

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.

How much are repayments on a $250K mortgage?

The exact repayment amount for a $250,000 mortgage will be determined by several factors including your deposit size, interest rate and the type of loan. It is best to use a mortgage calculator to determine your actual repayment size.

For example, the monthly repayments on a $250,000 loan with a 5 per cent interest rate over 30 years will be $1342. For a loan of $300,000 on the same rate and loan term, the monthly repayments will be $1610 and for a $500,000 loan, the monthly repayments will be $2684.

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.

Who offers 40 year mortgages?

Home loans spanning 40 years are offered by select lenders, though the loan period is much longer than a standard 30-year home loan. You're more likely to find a maximum of 35 years, such as is the case with Teacher’s Mutual Bank

Currently, 40 year home loan lenders in Australia include AlphaBeta Money, BCU, G&C Mutual Bank, Pepper, and Sydney Mutual Bank.

Even though these lengthier loans 35 to 40 year loans do exist on the market, they are not overwhelmingly popular, as the extra interest you pay compared to a 30-year loan can be over $100,000 or more.

How will Real Time Ratings help me find a new home loan?

The home loan market is complex. With almost 4,000 different loans on offer, it’s becoming increasingly difficult to work out which loans work for you.

That’s where Real Time RatingsTM can help. Our system automatically filters out loans that don’t fit your requirements and ranks the remaining loans based on your individual loan requirements and preferences.

Best of all, the ratings are calculated in real time so you know you’re getting the most current information.

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 does Commonwealth Bank charge an early exit fee?

When you take out a fixed interest home loan with the Commonwealth Bank, you’re able to lock the interest for a particular period. If the rates change during this period, your repayments remain unchanged. If you break the loan during the fixed interest period, you’ll have to pay the Commonwealth Bank home loan early exit fee and an administrative fee.

The Early Repayment Adjustment (ERA) and Administrative fees are applicable in the following instances:

  • If you switch your loan from fixed interest to variable rate
  • When you apply for a top-up home loan
  • If you repay over and above the annual threshold limit, which is $10,000 per year during the fixed interest period
  • When you prepay the entire outstanding loan balance before the end of the fixed interest duration.

The fee calculation depends on the interest rates, the amount you’ve repaid and the loan size. You can contact the lender to understand more about what you may have to pay. 

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.

Can you borrow the deposit for a home loan?

Most lenders will want the majority of your home loan deposit to be made up of ‘genuine savings’ which is income earned from your job. While a small number of lenders may let you use a personal loan or a credit card to help cover the cost of your deposit, this may potentially cost you more in interest, and put your finances at higher risk.

If you haven’t saved a full deposit, it may be possible to effectively borrow the deposit for a mortgage with the help of a guarantor. This is usually a parent of other family member who guarantees your mortgage with the equity in their own property.

It may also be possible to borrow the money for a home loan deposit from a family member (e.g. the Bank of Mum & Dad) or a friend, provided you draw up a formal legal agreement to pay this money back, showing your mortgage lender that you’re taking responsibility.

How fast can you get a home equity loan?

Completing an application for a home equity loan may only take 20 to 30 minutes. It may take a lender anywhere from a day to a few weeks to process and approve your application. This may be affected by your financial situation, your level of equity, and whether or not your lender needs to organise an in-persona valuation of the property.

 Before you can apply for a home equity loan, you’ll need to build up some equity in your property. The more money you can put towards extra repayments to reduce your home loan principal, the faster you can increase your equity. Also, if property values in your area increase, this may help deliver an instant equity increase once your property has been valued.

How do I refinance my home loan?

Refinancing your home loan can involve a bit of paperwork but if you are moving on to a lower rate, it can save you thousands of dollars in the long-run. The first step is finding another loan on the market that you think will save you money over time or offer features that your current loan does not have. Once you have selected a couple of loans you are interested in, compare them with your current loan to see if you will save money in the long term on interest rates and fees. Remember to factor in any break fees and set up fees when assessing the cost of switching.

Once you have decided on a new loan it is simply a matter of contacting your existing and future lender to get the new loan set up. Beware that some lenders will revert your loan back to a 25 or 30 year term when you refinance which may mean initial lower repayments but may cost you more in the long run.

How do I save for a mortgage when renting?

Saving for a deposit to secure a mortgage when renting is challenging but it can be done with time and patience. If you’re on a single income it can be even more difficult but this shouldn’t discourage you from buying your own home.

To save for a deposit, plan out a monthly budget and put it in a prominent position so it acts as a daily reminder of your ultimate goal. In your budget, set aside an amount of money each week to go into a savings account so you can start building up the ‘0’s’ in your account.  There are a range of online savings accounts that offer reasonable interest, although some will only off you high rates for the first few months so be wary of this.

If you aren’t able to save a large deposit, you can consider ways of entering the market that require small or no deposits. This can include getting a parent to act as guarantor for your home loan or entering the market with an interest only loan.

What is an interest-only loan? How do I work out interest-only loan repayments?

An ‘interest-only’ loan is a loan where the borrower is only required to pay back the interest on the loan. Typically, banks will only let lenders do this for a fixed period of time – often five years – however some lenders will be happy to extend this.

Interest-only loans are popular with investors who aren’t keen on putting a lot of capital into their investment property. It is also a handy feature for people who need to reduce their mortgage repayments for a short period of time while they are travelling overseas, or taking time off to look after a new family member, for example.

While moving on to interest-only will make your monthly repayments cheaper, ultimately, you will end up paying your bank thousands of dollars extra in interest to make up for the time where you weren’t paying off the principal.

How is the flexibility score calculated?

Points are awarded for different features. More important features get more points. The points are then added up and indexed into a score from 0 to 5.