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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

BankRateCashbackAfter 2 yrs - diff to lowestAfter 3 yrs - diff to lowestAfter 5 yrs - diff to lowest
CBA2.79%

$2,000

$4,282

$7,225

$12,896

Westpac2.19% (2yr intro, then 2.69%)

$3,000

-$2,804

-$388

$4,266

NAB2.69%

$2,000

$3,099

$5,566

$10,315

ANZ2.72%

$3,000

$2,544

$5,154

$10,179

St George,

Bank of Melbourne

2.64%

$4,000

$872

$3,101

$7,390

Lowest rate2.17%

$0

$0

$0

$0

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

LenderCashback2 year fixedDifference to lowest3 year fixedDifference to lowest5 year fixedDifference 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

LowestTypically 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 bankTypeCashbackLowest advertised variable rate
CBARefinance

$2,000

2.79%

WestpacRefinance

$3,000

2.19%

NABRefinance

$2,000

2.69%

ANZ (through broker)Refinance

$3,000

2.72%

Other lenders

St GeorgeRefinance

$4,000

2.59%

Bank of MelbourneRefinance

$4,000

2.59%

BankSARefinance

$4,000

2.64%

Illawarra Credit UnionRefinance

up to $4,000

2.50% or 1.99% 2 year intro rate

SuncorpRefinance

up to $4,000

2.68%

Bank FirstRefinance

up to $3,000

2.84%

Credit Union SANew loans & refinance

up to $3,000

2.59%

BOQRefinance

$2,500

2.59%

Virgin MoneyNew loans & refinance

$2,500

2.60%

2.55% (for loans >$750K)

Orange Credit UnionRefinance

$2,020

2.89%

86 400Refinance

$2,000

2.59%

BankVicNew loans & refinance

$2,000

2.74%

CUARefinance

$2,000

2.73%

GMCUNew loans for FHB

$2,000

2.97%

MyState BankRefinance

$2,000

2.69%

Newcastle PermanentRefinance

$2,000

2.59%

People's Choice Credit UnionRefinance

$2,000

2.49%

RAMSNew loans & refinance

$2,000

2.59%

Reduce Home LoansNew loans & refinance

up to $2,000

2.39%

Police BankNew loans & refinance

up to $2,000

2.79%

The CapricornianNew loans & refinance

$2,000

2.99%

Homestar FinanceRefinance

up to $1,500

2.29%

QBankNew 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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Fact Checked -

This article was reviewed by Senior Journalist Tony Ibrahim before it was published as part of RateCity's Fact Check process.

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Learn more about home loans

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.

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.

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.

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.

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.

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. 

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.

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 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.

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.

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. 

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 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.

What is equity and home equity?

The percentage of a property effectively ‘owned’ by the borrower, equity is calculated by subtracting the amount currently owing on a mortgage from the property’s current value. As you pay back your mortgage’s principal, your home equity increases. Equity can be affected by changes in market value or improvements to your property.