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|
|Westpac||2.19% (2yr intro, then 2.69%)|
Bank of Melbourne
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|
|St George, Bank of Melbourne|
|Lowest||Typically none (lowest 3 year offers $750)|
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|
|ANZ (through broker)||Refinance|
|Bank of Melbourne||Refinance|
|Illawarra Credit Union||Refinance|
up to $4,000
2.50% or 1.99% 2 year intro rate
up to $4,000
up to $3,000
|Credit Union SA||New loans & refinance|
up to $3,000
|Virgin Money||New loans & refinance|
2.55% (for loans >$750K)
|Orange Credit Union||Refinance|
|BankVic||New loans & refinance|
|GMCU||New loans for FHB|
|People's Choice Credit Union||Refinance|
|RAMS||New loans & refinance|
|Reduce Home Loans||New loans & refinance|
up to $2,000
|Police Bank||New loans & refinance|
up to $2,000
|The Capricornian||New loans & refinance|
up to $1,500
|QBank||New loans & refinance|
Source: RateCity.com.au. Note: For home loans under $850,000. Other conditions may apply. Data accurate at the time of publishing.