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.

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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 bank Type Cashback Lowest ad. variable rate
CBA Refinance

$2,000

2.69%

Westpac Refinance

$3,000

2.19%

NAB Refinance

$2,000

2.69%

ANZ (through a broker) Refinance

$3,000

2.72%

Other lenders  

 

 

St George Refinance

$4,000

2.54%

Bank of Melbourne Refinance

$4,000

2.54%

BankSA Refinance

$4,000

2.54%

Suncorp Refinance

up to $4,000

2.68%

Bank First Refinance

up to $3,000

2.84%

BOQ Refinance

$3,000

2.59%

Credit Union SA New loans & refi

up to $3,000

2.59%

Virgin Money New loans & refi

$3,000

2.55%

Orange Credit Union Refinance

$2,020

2.89%

86 400 Refinance

$2,000

2.49%

BankVic New loans & refi

$2,000

2.74%

CUA Refinance

$2,000

2.55%

GMCU FHB loans

$2,000

2.48%

Heritage Bank FHB loans

$2,000

3.07%

Illawarra Credit Union FHB loans

$2,000

2.45%

MyState Bank Refinance

$2,000

2.69%

Newcastle Permanent Refinance

$2,000

2.59%

People's Choice CU Refinance

$2,000

2.49%

RAMS New loans & refi

$2,000

2.59%

Southern Cross CU New loans & refi

$2,000

2.78%

Reduce Home Loans New loans & refi

up to $2,000

2.39%

Police Bank New loans & refi

up to $2,000

2.79%

Homestar Finance Refinance

up to $1,500

2.29%

QBank New loans & refi

$1,500

2.74%

Beyond Bank FHB 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

Lender Rate Cashback Extra paid vs lowest - 2 yrs Extra paid vs lowest - 3 yrs Extra $ 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

Lender Cashback 2-year fixed Extra paid vs lowest 3-year fixed Extra paid vs lowest 5-year fixed Extra 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

Lowest Typically 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.

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How do you qualify for a CBA home loan with casual employment?

Qualifying for a home loan without a full-time job may be challenging, but it can be done. The first step is to understand how a CBA home loan is assessed when you have casual employment.

Most lenders will assess your expenses and savings while checking your loan eligibility, checking on factors crucial to home loan approval, such as if your bills are paid on time and what your credit score presently looks like. 

Your income can be one of the most critical factors to determine your final approved home loan amount. As such, you’ll need to provide payslip copies to lenders to assist them in assessing your income during the loan tenure, regardless of your employment status, full-time, part-time, or otherwise.

Casual employees will want to be casually employed for at least 12 months to be eligible for a home loan. Alternatively, you want to have worked as a permanent casual worker (working for a fixed number of hours per week) for at least one month, or you should have been in your current job for a minimum of three months (if the hours are irregular) to be eligible for the loan.

How do I get a pre-approved home loan with Aussie?

Getting Aussie home loan pre-approval means receiving conditional support from Aussie Home Loans to borrow the money you need to buy a home. 

It’s an indication of the approximate amount Aussie may offer you, subject to some terms and conditions. Keep in mind, having a pre-approved home loan does not guarantee an actual approval of your loan when it comes time to buy.

Aussie home loan pre-approval often involves speaking to one of the lender’s brokers. You can make an appointment online. You’ll often have to submit your personal details and other information about your assets, income, liabilities and expenses.  It’s worth remembering that a pre-approved loan is usually valid for a few months.

Can I get a NAB first home loan?

The First Home Loan Deposit Scheme of NAB helps first home buyers purchase a property sooner by reducing the upfront costs required. This scheme is offered based on a Government-backed initiative, with10,000 available places announced in October 2020.

Suppose your application for the NAB first home buyer loan is successful. In that case, you’ll only need to pay a low deposit, between 5 and 20 per cent of the property value and won’t be asked to pay lender's mortgage insurance (LMI). You’ll also receive a limited guarantee from the Australian government to purchase the property.

If you’re applying for the NAB first home buyer home loan as an individual, you need to have earned less than $125,000 in the last financial year. Couples applying for the NAB first home loan need to have earned less than $200,000 to be eligible. To be considered a couple, you need to be married or in a de facto relationship. A parent and child, siblings or friends are not considered a couple when applying for a NAB first home loan.

The NAB First Home Loan Deposit Scheme is currently offered only to purchase a brand new property, rather than an established property.

Does UBank offer home loan pre-approvals?

If you’re applying for a home loan with UBank, you can first get an approval in principle. You’ll need to provide information about your job and earnings, your household expenses, the assets you own and the debts you owe. 

UBank will assign a home loan specialist to discuss these details over a phone call, which can take about 30 minutes. 

The bank will then confirm if you’ve received in-principle approval for your home loan. Depending on how you submit your documents, this could take a few days or a few weeks. If successful, the approval will be valid for 60 days. 

How can I get ANZ home loan pre-approval?

Shopping for a new home is an exciting experience and getting a pre-approval on the loan may give you the peace of mind that you are looking at properties within your budget. 

At the time of applying for the ANZ Bank home loan pre-approval, you will be required to provide proof of employment and income, along with records of your savings and debts.

An ANZ home loan pre-approval time frame is usually up to three months. However, being pre-approved doesn’t necessarily mean you will get your home loan. Other factors could lead to your home loan application being rejected, even with a prior pre-approval. Some factors include the property evaluation not meeting the bank’s criteria or a change in your financial circumstances.

You can make an application for ANZ home loan pre-approval online or call on 1800100641 Mon-Fri 8.00 am to 8.00 pm (AEST).

Remaining loan term

The length of time it will take to pay off your current home loan, based on the currently-entered mortgage balance, monthly repayment and interest rate.

What is the average length of a home loan?

Most Aussie lenders offer home loans with a 30-year term, meaning that you should pay back the full loan amount and the interest you owe on the amount in 30 years. 

However, home loans can also have a shorter or longer term. They may be as low as ten years or up to 45 years, depending on the product and lender. 

It’s worth remembering that a longer loan term usually means you’ll end up paying a lot more interest in total, but your scheduled repayments may be more manageable. In contrast, you could opt for a shorter loan term if you are comfortable making large repayments in exchange for paying less interest over the term of the loan.

Can I apply for an ANZ non-resident home loan? 

You may be eligible to apply for an ANZ non-resident home loan only if you meet the following two conditions:

  1. You hold a Temporary Skill Shortage (TSS) visa or its predecessor, the Temporary Skilled Work (subclass 457) visa.
  2. Your job is included in the Australian government’s Medium and Long Term Strategic Skills List. 

However, non-resident home loan applications may need Foreign Investment Review Board (FIRB) approval in addition to meeting ANZ’s Mortgage Credit Requirements. Also, they may not be eligible for loans that require paying for Lender’s Mortgage Insurance (LMI). As a result, you may not be able to borrow more than 80 per cent of your home’s value. However, you can apply as a co-borrower with your spouse if they are a citizen of either Australia or New Zealand, or are a permanent resident.

Does the family tax benefit count as income?

The family tax benefits are one of several government support payments that are not considered taxable income. Other such payments include child care subsidies, economic support payments, rent assistance, and carer allowances. If you file a tax return, you typically don’t need to mention such income on the return. However, some home loan lenders may accept family tax benefits as an income source when reviewing your home loan application. You’ll still need to meet other lending requirements, such as having a sufficiently high credit score and enough savings for a deposit before the loan will be approved.

Aussies receiving family tax benefits usually have an adjusted taxable income of no more than $55,626 a year. Alternatively, one spouse can be receiving income support payments from the government to be eligible. Most importantly, they need to have children dependent on them for care at least 35 per cent of the time. Children between the ages of 16 and 19 should be either full-time secondary students or have a somewhat comparable study load unless the government exempts them from these study requirements. 

Why should I get an ING home loan pre-approval?

When you apply for an ING home loan pre-approval, you might be required to provide proof of employment and income, savings, as well as details on any on-going debts. The lender could also make a credit enquiry against your name. If you’re pre-approved, you will know how much money ING is willing to lend you. 

Please note, however, that a pre-approval is nothing more than an idea of your ability to borrow funds and is not the final approval. You should receive the home loan approval  only after finalising the property and submitting a formal loan application to the lender, ING. Additionally, a pre-approval does not stay valid indefinitely, since your financial circumstances and the home loan market could change overnight.

 

 

Can I get a NAB home loan on casual employment?

While many lenders consider casual employees as high-risk borrowers because of their fluctuating incomes, there are a few specialist lenders, such as NAB, which may provide home loans to individuals employed on a casual basis. A NAB home loan for casual employment is essentially a low doc home loan specifically designed to help casually employed individuals who may be unable to provide standard financial documents. However, since such loans are deemed high risk compared to regular home loans, you could be charged higher rates and receive lower maximum LVRs (Loan to Value Ratio, which is the loan amount you can borrow against the value of the property).

While applying for a home loan as a casual employee, you will likely be asked to demonstrate that you've been working steadily and might need to provide group certificates for the last two years. It is at the lender’s discretion to pick either of the two group certificates and consider that to be your income. If you’ve not had the same job for several years, providing proof of income could be a bit of a challenge for you. In this scenario, some lenders may rely on your year to date (YTD) income, and instead calculate your yearly income from that.

Does Westpac offer loan maternity leave options?

Having a baby or planning for one can bring about a lot of changes in your life, including to the hip pocket. You may need to re-do the budget to make sure you can afford the upcoming expenses, especially if one partner is taking parental leave to look after the little one. 

Some families find it difficult to meet their home loan repayment obligations during this period. Flexible options, such as the Westpac home loan maternity leave offerings, have been put together to help reduce the pressure of repayments during parental leave.

Westpac offers a couple of choices, depending on your circumstances:

  • Parental Leave Mortgage Repayment Reduction: You could get your home loan repayments reduced for up to 12 months for home loans with a term longer than a year. 
  • Mortgage Repayment Pause: You can pause repayments while on maternity leave, provided you’ve made additional repayments earlier.

When applying for a home loan while pregnant, Westpac has said it will recognise paid maternity leave and back-to-work salaries. All you need is a letter from your employer verifying your return-to-work date and the nature of your employment. Your partner’s income, government entitlements, savings and investments will may help your application.

Where can I get all the information about an ANZ first home buyer’s loan?

As a first home buyer, you may require help and hand-holding, and as such ANZ has the buying your first home section on its website full of important information. ANZ also has a form in this section you can fill out to get a free consultation from an ANZ First Home Coach and create your own plan for buying your first home. This coach will help you understand where your current income is being spent and plan for your home loan repayments. You’ll get a clear picture of the costs involved in purchasing a property and how to budget or save for these costs. The coach will help you understand different deposit options and manage your accounts to enhance your savings.

There are three types of ANZ first home loans - Standard Variable, Fixed, and Equity Manager. The features, interest rates, and terms for each are different, and you can compare them here.

When they apply for an ANZ home loan, first home buyers can also get guidance on applying for the First Home Owner Grant (FHOG). This is a one-off government grant that may be available to you when you’re buying your first home. The eligibility criteria for FHOG differs between the different states and territories, which is why it’s helpful to have expert advice when applying.

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.