Book a Call
How cashback home loans work
Cashback deals on home loans are ‘cash sweeteners’ some lenders and banks offer to attract new customers. Lenders generally target refinancers, so people looking to switch their home loan to a new lender.
Much less commonly, some lenders also offer cashback incentives for first-home buyers to win their business. Home loan cashbacks can vary from $1,000 to $3,000 or more, depending on the loan amount.
Cashbacks are typically paid as a lump sum into the transaction account linked to your new mortgage - usually within 30-60 days after settlement.
-If you have a fixed-rate loan, the cashback may be included in your extra repayment threshold (the maximum extra repayments you can make over the fixed period). For joint applications, the cashback will be paid to the primary applicant.
Is a home loan cashback offer worth it?
Home loan cashback offers are less likely to be worth it for borrowers now compared to a few years ago due to the small number of lenders offering this kind of promotion currently.
Up until fairly recently, most lenders had a home loan cashback offer. This gave borrowers the flexibility to find cashback offers, while also shopping around for rates from the large numbers of lenders. Now, however, the choice is much more limited and realistically it’s less likely (but not impossible) that borrowers will find a cashback offer from the most competitive lenders for rates.
Remember that cashback deals only provide a short-term boost to your savings or help offset some of your refinancing costs. Over time, the savings may well be offset by costs if you are paying a higher rate than you otherwise would.
Generally, a lower interest rate will save you more money than any refinance cashback offer. But if your cashback home loan also has a competitive rate, the cash injection would well be worth it.
How long would it take for a higher interest rate to cancel out a cashback offer?
Let’s consider the example of a $600,000 home loan, with. The table below shows how quickly a $2,000 cashback payment would be eaten away by interest if the loan had a higher rate than another equivalent loan without cashback.
| Interest rate | Time to cancel out $2,000 cashback |
|---|---|
6.00% | |
+0.10% p.a. | 4.5 years |
+0.20% p.a. | 2.3 years |
+0.30% p.a. | 18 months |
+0.40% p.a. | 13.5 months |
+0.50% p.a. | 11 months |
+0.60% p.a. | 9 months |
+0.70% p.a. | 7.6 months |
+0.80% p.a. | 6.7 months |
+0.90% p.a. | 5.5 months |
+1.00% p.a. | 5.3 months |
Are you eligible for a cashback home loan?
Cashback offers are exclusively available to new customers — commonly eligible refinancers — who meet the lender’s cashback requirements. This means you might not qualify for a bonus if you're refinancing a loan with the same lender or within the same network of lenders.
For instance, you might not be eligible if your existing mortgage is with Westpac and you want to refinance with St. George (a subsidiary of Westpac) to score a cashback. Additionally, first-home buyer cashbacks are available from select lenders in Australia.
What lenders consider assessing your eligibility for a cashback
The type of loan you apply for
Lenders only offer cashbacks on select mortgage products, namely owner-occupied and investment home loans. Some lenders may offer the option to refinance to a fixed rate or variable rate home loan, but not all.
Your mortgage amount
Cashback offers have a minimum loan amount of $200,000 - $250,000. This means you wouldn't qualify if you’re refinancing a smaller loan amount.
In addition, some lenders offer different cashback amounts based on the size of your mortgage. For instance, ME Bank offers up to $2,000 cashback for loans up to $400,000 and up to $3,000 for home loans over $700,000. Reduce Home Loans offers up to $10,000 cashback for home loans over $2 million.
Your LVR
Most lenders require you to have a loan-to-value ratio (LVR) of at least 80%. This is your loan amount shown as a percentage of your property's value. The formula for calculating your LVR is: loan amount ÷ property value x 100 = LVR.
If your LVR was above 80%, you’d likely have to pay LMI again when refinancing, which would offset any cashback benefits.
Your mortgage must settle within the lender’s specified time frame
Another condition lenders may apply is that your cashback home loan must be settled within a specific time frame — typically within 120-180 days from applying. This might include requirements like remaining with the lender for a specified period of time after receiving the cashback or having to open a linked transaction account to be eligible.
What to look out for if you’re applying for a cashback home loan
1
The interest on the cashback home loan
Is the interest rate on your cashback home loan more competitive than your existing loan? Or at least, is it in line with the rates other lenders in the market are advertising? As with all refinancing, are you actually saving money without the cashback?
2
Mortgage fees
Take into account the fees associated with discharging your current mortgage, and the set-up fees for your new home loan, including any annual package fees. Make sure those fees don’t eat away at most of the cashback.
3
Home loan features
Does the cashback home loan come with features to offset the interest on your mortgage? As a minimum, consider an offset account and redraw facility. The cashback should never be the only good feature your new home loan offers.
4
What your current lender may be able to offer
Can you haggle a lower interest with your current lender without switching? This could save you both interest and the trouble of refinancing, plus any fees associated with switching home loans.