Home loans customers could get stung by perks including flights and cashback

BORROWERS could end up paying tens of thousands of dollars more on their home loan just to get an incentive, new analysis shows.

HOME loan customers should not be seduced by lenders offering incentives including frequent flyer points and cash back deals just to sign up, experts warn.

Among those using incentives are big banks such as National Australia Bank and Westpac.

But buyer beware — these loans with bonus offers could end up costing the customer tens of thousands of dollars more than signing up to a cheaper deal without an incentive.

Lender Virgin Money this week rolled out double Velocity frequent flyer points on new home loans settled in autumn.

Virgin’s general manager of lending, cards and deposits, Johnny Lockwood, said the “best deals aren’t always found just by walking into a bank.”

“Our Virgin Money home loans offer competitive interest rates as well as Velocity Points allowing customers to turn their home loan into a holiday,’’ he said.

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Banks are giving customers incentives such as frequent flyer points if they sign up to a home loan.

If the customer borrows $500,000 this would give them 100,000 points after settlement or the equivalent which the lender spruiked as “a return economy flight from Sydney to Los Angeles.”

The Reserve Bank of Australia board kept the cash rate on hold yesterday (TUES) at 1.5 per cent but financial institutions are desperately trying to stimulate short-term decision making by offering inducements to win over new customers.
Calculations by financial comparison website RateCity shows on the Virgin Money deal on a $300,000 30-year variable principal and interest rate loan this would cost a borrower $498,000 compared to the cheapest loan on the market — Reduce Home Loans’ rate lovers deal totally $486,000.

Borrowers should do the maths before signing up to home loan deals with an incentive.

But in a worse-case scenario NAB’s Choice Package allows customers to get 350,000 NAB points but the total loan cost would equate to $550,000 over a 30-year term.

Westpac gives customers a $1250 money rebate if they refinance with them on their Premier Advantage Package.

Their subsidiary banks including St George, Bank of Melbourne and BankSA all offer $1500 cashback on their loans but in all cases on a $300,000 loan this costs customers more than $550,000 over a 30-year term.

RateCity spokeswoman Sally Tindall said customers should not be sucked in by these deals.

“Look at the bottom line, does it have a good interest rate or fees and charges attached and is it the right loan for you,’’ she said.

RateCity spokeswoman Sally Tindall urges borrowers to check all the fees and charges on any home loan before signing up.

“The problem is when you start choosing a home loan based on sign up bonuses.”

Consumer finance expert Lisa Montgomery said “perks need to be relevant to your lifestyle” otherwise they are probably a waste of time and money.

“Sometimes we can just be enticed by things that can sound glamorous by a holiday or lots of points,’’ he said.

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@sophieelsworth