When you’re approved for a home loan, some lenders will give you mortgage cashback – usually in the form of a lump sum deposited into your account. The amount varies, but it can be anything from $500 to several thousand dollars.
This may sound like a great deal, but remember, banks aren’t in the business of giving out free money for no reason.
WHAT’S THE CATCH?
A recent study by Mozo found that borrowers were often blinded by cashback offers from the big four banks, most of whom are currently offering $2,000 back on new loans. These borrowers failed to realise that their cashback loans came with a higher interest rate, costing them around $40,000 extra by the end of their loan term.
Lenders offer cashbacks to entice new customers and engender loyalty, but since these loans are often accompanied by higher interest rates you should always think twice before signing on the dotted line.
HOW TO MAKE SURE YOU’RE GETTING A GOOD DEAL
The secret to securing a simple, low cost home loan is to research the market and compare several home loans. Start by looking at loan comparison sites like Finder and Canstar and considering several suitable mortgage products. Always look at the comparison rate rather than the interest rate, as this number includes all the fees the lender charges as well, indicating the total cost of the loan.
If you’re a little lost it’s usually best to speak to a mortgage broker that you trust for advice. They’re experts when it comes to home loans and can walk you through how your mortgage will work and how much it will cost over the life of the loan. They can also help you find and secure a mortgage that’s most suitable for you and your situation (and also assist in avoiding any cashback traps).
Plus, their relationships with banks and other lenders may make it easier to secure a lower rate and even waive certain fees.
IS CASHBACK WORTH IT?
Mortgage cashback can be extremely useful. The money you get can be used to cover costs associated with your property purchase, like a conveyancer, building inspections, or even to buy furniture for your new place.
With that said, mortgage cashback is often bundled with loans that cost far more in the long term. To make sure you’re making the right decision, always weigh the long-term costs against the short term benefits before committing to anything with lenders.