Mortgage deals with $2000 cashback leave customers worse off
They sound enticing but new figures reveal the big four banks’ mortgage cashback deals could be costly for borrowers.
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Borrowers are being warned of the dangers of mortgages with cashback offers attached because they could end up doing them more harm than good.
The big four banks — the ANZ, Commonwealth Bank, National Australia Bank and Westpac — are all offering at least $2000 cashback to customers who in most instances are refinancing their loans.
But analysis from financial comparison website Mozo found it is a case of buyer beware —
customers are instead better off chasing mortgages with much lower interest rates.
On a $300,000, 30-year loan the benefit of $2000 cashback vanishes within the first 18 months of the loan term had the customer instead opted for a mortgage with the cheapest variable rate at just 2.89 per cent.
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This equated to an extra $39,300 in interest costs loan repayments over the life of the loan.
Mozo analysis found the average big four banks’ variable rate is 4.1 per cent compared to online lenders at 3.46 per cent.
This is a 0.64 percentage point difference.
The site’s spokeswoman Kirsty Lamont said the $2000 cashback sounded enticing but it could be costly.
“It can end up costing you big time if you are lumped with a less than competitive home loan rate for the life of your loan,” she said.
“Check the home loan interest rates, the fees and the features and compare them to what’s on offer from other lenders.”
The Reserve Bank of Australia has cut the cash rate twice in 2019 — in June and July — and it now sits at 1 per cent.
There’s strong predictions governor Philip Lowe could cut it again on Melbourne Cup Day on November 5.
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Home Loan Experts’ managing director Otto Dargan said borrowers should be wary of cashback loans because they might not always be eligible for these bonus offers.
“Read the terms and conditions carefully before applying for a home loan with a cash back because if you don’t meet all of the criteria then you won’t receive it,” he said.
“These offers are usually only available if you are a new customer of the bank or taking out a large amount of additional debt and so they effectively penalise customers for being loyal to their bank.”
Ms Lamont said banks were using cashback deals because “they are under pressure by challenger lenders who have successful in tempting borrowers with ultra low rates”.
$2000 CASHBACK OFFERS
• Commonwealth Bank, available on refinances above $250,000 made by January 10, 2020.
• National Australia Bank, on new customer or refinance applications. Available until December 31.
• Westpac, on refinance applications with settlement before November 30.
• ANZ on refinance applications up to $3500.
Originally published as Mortgage deals with $2000 cashback leave customers worse off