Lenders sweeten refinancing deals with thousands of dollars in cashbacks

Lenders sweeten refinancing deals with thousands of dollars in cashbacks

Lenders are tempting mortgage holders with thousands of dollars in cashback offers in hopes of drawing in new customers, as the home loan war heats up. 

Twenty-seven mortgage lenders on RateCity’s database offer cashback perks between $1,000 and $4,000 to eligible customers. This is up from 13 lenders which were handing out up to $3,000 in May

  • A cashback is when a mortgage lender rewards a new customer with a set amount of money, typically a few thousand dollars. In some cases, the cashback can help pay for any refinancing costs that may be charged.

All the big four banks have rolled out cashback incentives, with ANZ trumping the other majors with a $3,000 cashback, though it is only available for customers refinancing through a broker

NAB recently brought back its cashback offer, after removing it in mid-April, now giving away $2,000.

Other lenders which are using cashbacks as a pitch to bring in customers include bigger players like Bank of Queensland, as well as neobank 86 400.

Cashback deals favour refinancers

Most lenders are not giving cash away to any borrower.

Refinancers, or those who have been paying off their mortgage for a few years, are better positioned to benefit from cashback offers than borrowers who are taking on a new loan. 

While all 27 of the cashback offers are open to refinancers, only nine are available to new borrowers.

Credit Union SA is shelling out the biggest cash perk to those taking out a new loan of up to $3,000, though the full amount is only available to members of the South Australian education community.

Sally Tindall, research director at RateCity, said lenders typically want to bring in more refinancers as they are likely to have a more reliable repayment record.

“These cashback deals are often targeted at refinancers because they’re often seen as more stable borrowers,” she said.

“People in a position to refinance typically have a bit of equity in their home, a steady job and a good track record of paying down their debt, which in this market is important.”

Why lenders are giving cash away for your business

Refinancers have been active during COVID-19. More than 113,000 people have switched lenders in the four months to July, clocking up nearly $54 billion worth of refinanced home loans, the latest Australian Bureau of Statistics (ABS) data showed. 

Yet new borrowing activity from both owner-occupiers and property investors has been slowing, despite a rebound in June and July, as the uncertainty of the pandemic and recession takes its toll on many would-be buyers. 

“There had been a large amount of refinancing activity, with a greater-than-usual share of borrowers moving to fixed-rate home loans,” according to the Reserve Bank of Australia’s (RBA) minutes of the September monetary policy meeting, where the cash rate was held at 0.25 per cent. 

“Growth in housing credit to owner-occupiers had eased in recent months to around 5 per cent on an annualised basis, while housing credit to investors had continued to decline. 

“This largely reflected reduced demand from borrowers, given the weak and uncertain economic environment and its effect on the housing market.”

Ms Tindall said refinancing has “gone through the roof” during COVID-19. 

“Banks need to be at the receiving end of this business if they want to keep their loan books afloat,” she said.

“Refinancing involves a bit of paperwork and for many Australians complacency just gets the better of them. But money is a great motivator and the banks are using this to shake off people’s inertia.”

Should you refinance for the cashback?

Ms Tindall said over the life of the loan, a low rate is “almost certainly” going to beat a one-off perk, with potential savings running into the tens of thousands. 

However, the low interest rate environment means that the lenders advertising cashback perks to borrowers signing up are likely also offering competitive home loan rates as well.

“Someone who refinances every couple of years to a competitively priced loan, and knows how to haggle on fees, could potentially come out on top taking up a cashback special,” Ms Tindall said.

A RateCity analysis found that someone with a $500,000 home loan balance could potentially come out ahead by nearly $3,000 after two years when factoring in the cashback, if they refinanced to Westpac's lowest variable rate loan instead of the lowest variable rate loan on the market. If they refinanced to the other three big banks though, the figures may not stack up for them. 

However, if they refinanced to a fixed rate loan with a big four bank, it is possible they could end up ahead by about $1,500 after two years, especially with the big banks’ two-year fixed rates.

Variable rates – cashback deals vs. refinancing to the lowest rate lender

Bank Rate Cashback After 2 yrs - diff to lowest After 3 yrs - diff to lowest After 5 yrs - diff to lowest
CBA 2.79%

$2,000

$4,282

$7,225

$12,896

Westpac 2.19% (2yr intro, then 2.69%)

$3,000

-$2,804

-$388

$4,266

NAB 2.69%

$2,000

$3,099

$5,566

$10,315

ANZ 2.72%

$3,000

$2,544

$5,154

$10,179

St George,

Bank of Melbourne

2.64%

$4,000

$872

$3,101

$7,390

Lowest rate 2.17%

$0

$0

$0

$0

Fixed rates – cashback deals vs. refinancing to the lowest rate lender

Lender Cashback 2 year fixed Difference to lowest 3 year fixed Difference to lowest 5 year fixed Difference to lowest
CBA

$2,000

2.29%

$936

2.29%

$2,717

2.99%

$10,828

Westpac

$3,000

2.19%

-$1,043

2.19%

$265

2.69%

$2,675

NAB

$2,000

2.19%

-$43

2.29%

$2,717

2.79%

$6,055

ANZ

$3,000

2.29%

-$64

2.29%

$1,717

2.69%

$2,675

St George, Bank of Melbourne

$4,000

2.24%

-$1,554

2.24%

-$9

2.74%

$2,864

Lowest Typically none (lowest 3 year offers $750)

1.99%

$0

1.99%

$0

2.49%

$0

Source: RateCity. Note: Based on an owner occupier paying principal and interest switching 5 years to a 30-year loan with a $500,000 balance. Rates are for an LVR of 70%. Costs are based on interest paid plus fees. Upfront fees do not include discharge fees from the old lender or government fees.

Ms Tindall warned prospective refinancers against overfocusing on the cashback and switching lenders solely for the perks on offer.

“Do the maths to work out if it’s going to set you ahead or leave you short changed,” Ms Tindall advised.

“Work out what you’re looking for in your loan, whether that’s to restructure your loan, have access to features such as an offset account or refinance to a better rate, and then shop around to see what’s on offer.”

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

Big Four bank Type Cashback Lowest advertised variable rate
CBA Refinance

$2,000

2.79%

Westpac Refinance

$3,000

2.19%

NAB Refinance

$2,000

2.69%

ANZ (through broker) Refinance

$3,000

2.72%

Other lenders  

 

 

St George Refinance

$4,000

2.59%

Bank of Melbourne Refinance

$4,000

2.59%

BankSA Refinance

$4,000

2.64%

Illawarra Credit Union Refinance

up to $4,000

2.50% or 1.99% 2 year intro rate

Suncorp Refinance

up to $4,000

2.68%

Bank First Refinance

up to $3,000

2.84%

Credit Union SA New loans & refinance

up to $3,000

2.59%

BOQ Refinance

$2,500

2.59%

Virgin Money New loans & refinance

$2,500

2.60%

2.55% (for loans >$750K)

Orange Credit Union Refinance

$2,020

2.89%

86 400 Refinance

$2,000

2.59%

BankVic New loans & refinance

$2,000

2.74%

CUA Refinance

$2,000

2.73%

GMCU New loans for FHB

$2,000

2.97%

MyState Bank Refinance

$2,000

2.69%

Newcastle Permanent Refinance

$2,000

2.59%

People's Choice Credit Union Refinance

$2,000

2.49%

RAMS New loans & refinance

$2,000

2.59%

Reduce Home Loans New loans & refinance

up to $2,000

2.39%

Police Bank New loans & refinance

up to $2,000

2.79%

The Capricornian New loans & refinance

$2,000

2.99%

Homestar Finance Refinance

up to $1,500

2.29%

QBank New loans & refinance

$1,500

2.74%

Source: RateCity.com.au. Note: For home loans under $850,000. Other conditions may apply. Data accurate at the time of publishing.

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Learn more about home loans

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 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.

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.

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's wrong with traditional ratings systems?

They’re impersonal 

Most comparison sites give you information about rates, fees and features, but expect you’ll pay more with a low advertised rate and $400 ongoing fee or a slightly higher rate and no ongoing fee. The answer is different for each borrower and depends on a number of variables, in particular how big your loan is. Comparisons are either done based on just today or projected over a full 25 or 30 year loan. That’s not how people borrow these days. While you may take a 30 year loan, most borrowers will either upgrade their house or switch their home loan within the first five years. 

You’re also expected to know exactly which features you want. This is fine for the experienced borrower, but most people know some flexibility is a good thing, but don’t know exactly which features offer more flexibility than others. 

What is the flexibility score?

Today’s home loans often try to lure borrowers with a range of flexible features, including offset accounts, redraw facilities, repayment frequency options, repayment holidays, split loan options and portability. Real Time Ratings™ weights each of these features based on popularity and gives loans a ‘flexibility score’ based on how much they cater to borrowers’ needs over time. The aim is to give a higher score to loans which give borrowers more features and options.

They’re not always timely

In today’s competitive home loan market, lenders are releasing new offers almost daily. These offers are often some of the most attractive deals in the market, but won’t get rated by traditional ratings systems for up to a year. 

The assumptions are out of date 

The comparison rate is based on a loan size of $150,000 and a loan term of 25 years. However, the typical loan size is much higher than that. Million dollar loans are becoming increasingly common, especially if you live in metropolitan parts of Australia, like Sydney and Melbourne. It’s also uncommon for borrowers to hold a loan for 25 years. The typical shelf life for a home loan is a few years. 

The other problem is because it’s a percentage, the difference between 3.9 or 3.7 per cent on a $500,000 doesn’t sound like much, but equals around $683 a year. Real Time Ratings™ not only looks at the difference in the monthly repayments, but it will work out the actual cost difference once fees are taken into consideration. 

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 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 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.

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.

Will I have to pay lenders' mortgage insurance twice if I refinance?

If your deposit was less than 20 per cent of your property’s value when you took out your original loan, you may have paid lenders’ mortgage insurance (LMI) to cover the lender against the risk that you may default on your repayments. 

If you refinance to a new home loan, but still don’t have enough deposit and/or equity to provide 20 per cent security, you’ll need to pay for the lender’s LMI a second time. This could potentially add thousands or tens of thousands of dollars in upfront costs to your mortgage, so it’s important to consider whether the financial benefits of refinancing may be worth these costs.

Do mortgage brokers need a consumer credit license?

In Australia, mortgage brokers are defined by law as being credit service or assistance providers, meaning that they help borrowers connect with lenders. Mortgage brokers may not always need a consumer credit license however if they’re operating solo they will need an Australian Credit License (ACL). Further, they may also need to comply with requirements asking them to mention their license number in full.

Some mortgage brokers can be “credit representatives”, or franchisees of a mortgage aggregator. In this case, if the aggregator has a license, the mortgage broker need not have one. The reasoning for this is that the franchise agreement usually requires mortgage brokers to comply with the laws applicable to the aggregator. If you’re speaking to a mortgage broker, you can ask them if they receive commissions from lenders, which is a good indicator that they need to be licensed. Consider requesting their license details if they don’t give you the details beforehand. 

You should remember that such a license protects you if you’re given incorrect or misleading advice that results in a home loan application rejection or any financial loss. Brokers are regulated by the Australian Securities & Investment Commission (ASIC), as per the National Consumer Credit Protection (NCCP) Act. 

What are the responsibilities of a mortgage broker?

Mortgage brokers act as the go-between for borrowers looking for a home loan and the lenders offering the loan. They offer personalised advice to help borrowers choose the right home loan for their needs.

In Australia, mortgage brokers are required by law to carry an Australian Credit License (ACL) if they offer credit assistance services. Which is the legal term for guidance regarding the different kinds of credit offered by lenders, including home loan mortgages. They may not need this license if they are working for an aggregator, for instance, as a franchisee. In both these situations, they need to comply with the regulations laid down by the Australian Securities and Investments Commission (ASIC).

These regulations, which are stipulated by Australian legislation, require mortgage brokers to comply with what are called “responsible lending” and “best interest” obligations. Responsible lending obligations mean brokers have to suggest “suitable” home loans. This means loans that you can easily qualify for,  actually meet your needs, and don’t prove unnecessarily challenging for you.

Starting 1 January 2021, mortgage brokers must comply with best interest obligations in addition to responsible lending obligations. These require mortgage brokers to act in the best interest of their customers and also requires them to prioritise their customers’ interests over their own. For instance, a mortgage broker may not recommend a lender who gives them a commission if that lender’s home loan offer does not benefit that particular customer.

How to break up with your mortgage broker

If you find a mortgage broker giving you generic advice or trying to sell you a competitive offer from an unsuitable lender, you might be better off  breaking up with the mortgage broker and consulting someone else. Breaking up with a mortgage broker can be done over the phone, or via email. You can also raise a complaint, either with the broker’s aggregator or with the Australian Financial Complaints Authority as necessary.

As licensed industry professionals, mortgage brokers have the responsibility of giving you accurate advice so that you know what to expect when you apply for a home loan. You may have approached the mortgage broker, for instance, because you have questions about the terms of a home loan a lender offered you. 

You should remember that mortgage brokers are obliged by law to act in your best interests and as part of complying with The Australian Securities and Investments Commission’s (ASIC) regulations. If you feel you didn’t get the right advice from the mortgage broker, or that you lost money as a result of accepting the broker’s suggestions regarding a lender or home loan offer, you can file a complaint with the ASIC and seek compensation. 

When you first speak to a mortgage broker, consider asking them about their Lender Panel, which is the list of lenders they usually recommend and who may pay them a commission. This information can help you decide if the advice they give you has anything to do with the remuneration they may receive from one or more lenders.

How do I take out a low-deposit home loan?

If you want to take out a low-deposit home loan, it might be a good idea to consult a mortgage broker who can give you professional financial advice and organise the mortgage for you.

Another way to take out a low-deposit home loan is to do your own research with a comparison website like RateCity. Once you’ve identified your preferred mortgage, you can apply through RateCity or go direct to the lender.