Recent falls in the cash rate have encouraged lenders to compete more aggressively for customers, especially refinancers.
One tried-and-tested tactic that lenders are using is cashback offers, which are designed to entice borrowers to switch lenders by offering a lump sum of cash upon settlement of the new loan.
For homeowners, the idea of receiving thousands of dollars upfront can be very appealing. This windfall can help cover the costs of refinancing or be used for other expenses. However, cashback offers are not always as straightforward as they seem. Borrowers need to weigh up the short-term gain against the long-term cost.
If you’re thinking about refinancing, it’s important to understand how these offers work and what to look out for.
How does a cashback offer work?
When a lender offers a cashback deal, they agree to pay you a set amount of money after your new loan settles. The cashback is typically paid into your nominated bank account within a few weeks of settlement. However, these offers usually come with conditions. For example, you may need to borrow a minimum amount, stay with the lender for a set period or choose a specific loan product. Some lenders also require that you have a certain credit score or meet other eligibility criteria.
How much is a typical cashback offer?
Cashback amounts vary, but they typically range from $1,500 to $4,000. Some lenders may offer higher amounts for larger loan sizes, while others provide a flat cashback regardless of the loan amount. Occasionally, lenders run short-term promotions with even bigger incentives. However, as appealing as these figures sound, it’s crucial not to focus on the upfront cash alone.
What are the benefits of a cashback offer?
The most obvious benefit is the immediate injection of cash. This can help cover refinancing costs such as discharge fees, application fees or legal costs. Some borrowers use the cashback to make home improvements, reduce other debts or boost their savings. In the right circumstances, a cashback offer can make refinancing more affordable and worthwhile.
What should you look out for when looking at cashback offers?
While cashback deals offer an attractive upfront incentive, they can come with trade-offs. In some cases, the interest rate on the new loan may be higher than comparable loans that don’t offer cashback. Over the life of the loan, this could cost you far more than the initial cash payment. It’s also worth checking for additional fees, restrictive loan features or ongoing account costs that could erode the value of the cashback. Finally, some lenders include clawback clauses, which may require you to repay the cashback if you refinance again or close the loan within a certain period.
Talk to your broker before making a decision to understand the costs involved and whether the loan is right for you.
