Home loan cashbacks are surging. Are they worth it? – The New Daily

As competition for home loan customers peaks among major banks, a near-record number of lenders are trying to attract customers by attaching cash sweeteners to their refinancing deals.

More than 30 lenders across Australia are now offering customers between $800 and $5000 for signing a new loan agreement, up from just 12 lenders before COVID, according to RateCity analysis.

That means something else to think about when deciding whether to refinance a loan, particularly as interest rates rise and many home borrowers come off pandemic-era fixed rates.

“Cashbacks are here, and they’re here to stay for the foreseeable future,” RateCity research director Sally Tindall said.

“Years ago we used to see cashback deals pop up on more expensive products, but these days the vast majority [of lenders] are offering cashback deals on their lowest-rate offering.”

So, how do cashback deals work, and what should you consider before diving into one?

Are cashbacks worth it?

Cashbacks themselves are quite simple – lenders pay customers cash sweeteners for refinancing their loan with them.

But it is more complex to work out if the upfront incentive is worth it.

First, consider the rate you would be paying, the availability of perks like mortgage offset accounts and additional refinancing fees that could eat into the benefits of any cashback deal.

Being eligible for a cashback deal might not be straightforward either; it is harder for borrowers to pass mortgage serviceability tests as interest rates rise.

Ms Tindall said the answer to these questions will be different for everyone, but that one critical thing to consider is whether you plan to refinance your home loan regularly or set and forget.

Regular refinancers can enjoy cash sweeteners without needing to get stuck paying higher rates than the lowest in the market for an extended period – making cashbacks more attractive.

But  those who set and forget are probably better off trying to find the lowest rate they can, even if it comes without a cashback component.

“It all comes down to you as a borrower,” Ms Tindall said.

“If you’re someone that’s going to refinance once a year and you can drive a hard bargain on rates then cashbacks could end up being worth it.

“But if you’re someone who knows in their heart they aren’t going to be refinancing regularly – you’re going to set and forget – then a lower variable rate might be a better option.”

Competitive cashback offerings

One major change in the market has been that many lenders are now offering cashbacks on their lowest available interest rate.

That includes the big four banks, which are offering cash sweeteners between $2000 and $4000 to eligible refinancers.

However, that doesn’t mean a cashback is automatically worth it when compared to the lowest variable rates on the market.

In the case of the big four, they are all offering rates higher than market leading rates, which are still below 4 per cent at some smaller lenders.

This means that despite major banks offering cashbacks, borrowers could end up paying much more over two years than if they switched to the lowest variable interest rate available.

“Work out whether you’re better off going on a lower rate rather than getting upfront cash,” Ms Tindall said.

“You should be looking at the lowest rates on the market, regardless of the lender.”

There are additional factors to take into account too, including any fees that your old or new lender might charge in the course of switching.

And you also need to be wary of whether you’re eligible to refinance in the first place.

Interest rates are rising, which is making it more difficult for many households to qualify for mortgages.

However, if you have been paying your mortgage bills on time throughout the pandemic and have built up equity in your property, it is likely you will be able to pass the tougher serviceability tests.

Lenders offering cashback deals

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