Lenders have offered up to $ 5,000 in cash back on mortgage rates below 2%, but Australians should read the fine print before signing up.
A new analysis from Rate City has indicated that there are 25 lenders offering cash back offers, with 21 of these lenders also offering at least a rate below 2% for homeowner refinancing.
With refinancing hitting an all-time high in June, cash back rewards have been a popular benefit offered by lenders to attract new customers.
The latest figures from the ABS loan indicator show that $ 151 billion in home loans have been refinanced in the past 12 months.
Rate City Research Director Sally Tindall noted that while an ongoing low rate was previously viewed more favorably by consumers, banks have started to ramp up low rate and cash back offers.
“Cashback offers can potentially work in a person’s favor if they are committed to finding the best deals and refinancing regularly. However, anyone who doesn’t look past the allure of instant cash could potentially shoot themselves in the foot if they’re not careful, ”she said.
“It all depends on your personal circumstances, including the type and amount of your loan, the rate you are spending, any charges, and whether you are likely to refinance regularly.
“If you’re considering signing up for a cash back offer, do the math to make sure you’ll end up ahead for the lowest rates available,” she said.
The lowest two-year fixed rate in the market is typically 1.79%, according to the website.
However, on the average mortgage of $ 500,000, 17 lenders offer cheaper offers two years over the term of the fixed rate when cash back, interest charges and fees are included.
For example, if the average variable rate customer refinances to the lowest two-year fixed rate on the market, they could potentially save up to $ 12,505 in the first two years.
But if they took the lowest two-year fixed-rate loan with cash back (1.84%), they could save $ 14,200, or $ 1,695 more.
Rate City warned that a fixed rate loan could apply to the bank’s rate of return, which can be considerably higher.
It was recommended to set a reminder a few months before the end of the fixed rate to look for a new offer, in order to avoid going to a high variable rate of return.
Rate City also noted that the cash back offers were dramatically different on variable loans.
After only two years, only two cash back trades (another lender) win against the lowest floating rate in the market. After three years, none of them trumps the current lowest rate (assuming those rates stay the same).
Before refinancing a cash back offer, Rate City recommended that consumers check:
- Is the interest rate competitive? The lowest variable is 1.77 percent and the lowest two-year fixed value is 1.79 percent.
- Read the general conditions carefully. Make sure you are eligible for cash back.
- Are the fees high?Ask the new lender to waive it if they are.
- Does the loan offer the flexibility you need? This may include a clearing account, the ability to make additional repayments.
- Are you able to refinance? This usually includes having a stable job, owning at least 20% of your home, and not currently receiving a fixed rate, as break fees may apply.
- Can you put the cash back bonus in your mortgage? Additional repayments help lower your interest costs for years to come.
- Refinance regularly: Don’t fix and forget about your loan, especially if you have a fixed loan, as the potentially high repayment rates can quickly eat into your savings.