Cashback boom but should you bank one?
Analysis by Mozo.com.au has found a boom in cashback offers during the pandemic as lenders try to appeal to home loan customers who are spoilt for choice when it comes to incredibly low variable and fixed home loan rates.
“There’s no doubt lenders are splashing the cash in a bid to attract quality borrowers and build their loan books with interest rates wallowing at historic lows,” says Mozo spokesperson Tom Godfrey.
Mozo’s database shows 19 cashback offers ranging from $1,000 to $5,000, with the number of offers up from just seven at the same time in 2019. It found 20 with the average cashback amount increasing 52% from $1,671 to $2,541 in the past two years. Of these, the highest cashback is up to $5,000 on BCU’s 2.44% variable rate home loan.
“While it might appear tempting to refinance your home loan to bank a cashback offer, it’s important to compare interest rates and make sure the numbers stack up. Lenders offer cashback incentives for various reasons and it’s not always to get you into their best value loan,” Godfrey says.
Cashback offers can apply to both variable and fixed loans but they can also come with various conditions such as the need for a lower loan to value ratio (LVR). For example, one of the lending offers of $3,288 through HSBC requires you to have an LVR of 70%, while Reduce Home Loans $3,000 offer at 2.19% only requires an 80% LVR. The cashback offer with the leading fixed interest rate in Mozo’s database is $3,000 through ING with a rate of 1.84% fixed for 2 years with an 80% LVR.
“If you’re just keen to get some ‘quick cash’ and then switch again to a better interest rate with another lender, you need to ensure you factor in any fees such as establishment and discharge fees which could reduce the potential benefit you might receive,” says Godfrey.
“It’s also worth remembering that one of the best ways to improve your cash position is tapping into the best rate you can find and avoiding higher monthly repayments.”
Since 1 January 2015, the average interest rate of the Big Four has fallen 191 basis points from 5.44% to 3.53% today. Over the same time period the average variable interest rate in Mozo’s database for online lenders has dropped 259 basis points from 4.96% to 2.37%. The leading variable interest rate in Mozo’s database is 1.88% through Reduce Home Loans.
For further information on cashback offers and home loan interest rates, visit: Mozo.com.au.