The problem with those $4000 mortgage cash give aways
THE lure of cashback offers by banks is being used to attract new customers but experts say you should crunch the numbers before rushing in to sign up..
Figures from RateCity show there are 11 banks offering cashback deals of up to $4000 and nine of these are on refinancing deals.
RateCity spokeswoman Sally Tindall said it was "hugely competitive" for banks to attract new business and that's why many were still offering a bag of cash as an incentive.
"At the moment banks are struggling with all these applications for hardship and their call centres are jammed," she said.
"A low interest rate typically trumps a cashback special most of the time, especially in the long run. However, the tide is shifting because we are seeing bigger amounts of $4000 in cashback being put on the table by banks.
"Don't get sucked in by a cashback deal. Sit down and do the maths; work out whether you would be better off with a lower rate loan or taking the cashback offer."
Project manager Courtney Shaw, 34, and her husband David, 35, who works as a scaffolder, recently refinanced their home loan to save money.
They switched from ANZ to the Bank of Melbourne and are waiting to receive $4000 cashback, which they will put straight on their loan.
The bank's cashback offer has since dropped to $2000.
"We've tried to smash off as much as we could on the mortgage," Ms Shaw said.
"We pay at least double the repayments each week and are trying to get it paid down as quickly as we can."
Ms Shaw said their previous bank "wouldn't budge" on the interest rate - they were previously paying a rate of 3.18 per cent and now are paying a variable rate of 2.74 per cent.
A refinancing cashback deal through Westpac on a $300,000 25-year loan with a variable rate of 2.92 per cent would give a borrower $2000 cashback and monthly repayments of $1412.
Compared with refinancing on one of the lowest variable rates on the market at 2.43 per cent with no cashback offer, the Westpac customer would end up paying an additional $4484 in charges within five years if they did not put the cashback payment straight into their loan.
Home Loan Experts managing director Otto Dargan said cashback deals could be a good option but other loans costs must be considered.
"Refinance rebates are sometimes a good deal and sometimes not," he said.
"It all depends on the cost of the loan including the rate, fees and deducting any rebate over the term that a borrower will keep it for, which is usually four years.
"Borrowers should be careful with the fine print."
Originally published as Cashback deals on offer for mortgage customers