Cash Back Offers – Do You Home Work…..
It’s the time of the year when many lenders start to go into new business drive mode and put out some seemingly great offers for home loan borrowers to entice them to switch to a more cost effective product, in many cases there are some good savings to be had, but there is always a flip side, often what shines brightly is not always gold…..
These borrowers had been with their current lender for around 2 ½ years, interest rate was in the mid 3’s with no ongoing annual fees. They were lured to switch to another lender after having walked into a bank branch for a totally non related matter - the teller staff did a great job of highlighting their cash back offer and the lower interest rate potentially saving them thousands.
Now, the home loan balance was about $289k in total, with $79k variable portion and $210k fixed with another 8 months remaining until the fixed portion reverted to variable. The home loan was split across two properties, this was to avoid mortgage insurance when originally set up. The new arrangement would release their parent’s investment property (even though they were happy to let it ride a few more years) and keep everything secured over the one property. The new overall rate offered was going to save them around $77 per month plus the cash back!
What the new lender didn’t tell them, was that there would be a small amount of break costs for the remaining fixed portion (8 months worth) and discharge costs for the two properties to be released. All in all, when the new loan went through, the borrowers did get their cash back, but the fees and exit costs amounted to approx. $2400 just to save $77pm…and they were now locked in for a new 3 year period at slightly less than the loan they had just broken.
Then a few weeks later, the lender they were with originally, announced a significant interest rate reduction for their fixed rate products, so in hindsight, they would have most likely been better off staying where they were for the few extra months and then refixing and renegotiate the variable rates. So in all, not a bad move, but certainly not the best one!
This is where an experienced broker can help you crunch the numbers and make an informed decision for your benefit based on your individual circumstances.
Please feel free to call me on 0438 041 111 to arrange a confidential discussion about your current home loan to see how we may be able to help save you some money, and maybe even get some cash back if the numbers are right!.
As always, enjoy life, work hard, play safe and remember that we are always here to help you
‘Take the Confusion Out of Lending’
All the Best
Peter Vinci - 0438 041 111