’Strategic’ reason banks are giving people $4000

Ordinary Aussies are being offered up to 175,000 in frequent flyer points and thousands in cash but there is a “strategic” reason behind the bank handout.

Banks are going to extremes to encourage new loan applications ahead of an expected interest rate cut this month, offering thousands in cashbacks, frequent flyer points and other rewards.

Lenders are also offering fixed rates at up to 0.5 per cent less than variable rate charges.

It comes as financial markets now expect a more than 90 per cent chance of the Reserve Bank announcing a cash rate cut at its next board meeting in mid-February.

“Lenders are being strategic here, looking to lock in borrowers before any anticipated rate cuts,” said Rachel Wastell, money expert at mortgage comparison group Mozo.

Ms Wastell noted that seven lenders were currently offering cashbacks for new borrowers and refinancers, ranging from $2000 to $4000.

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RBA Governor, Michele Bullock is expected to announce a cash rate cut this month.

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Lenders offering cashbacks included ANZ, BankVic, Greater Bank, ME, IMB Bank, Regional Australia Bank and Newcastle Permanent.

IMB Bank had among the most generous cashbacks for refinancers and buyers at $4000 for loans above $750,000.

Other lenders were moving toward the integration of discounts and incentives via rewards programs.

Qantas Money, an online brand backed by Bendido and Adelaide Bank, was offering 175,000 Qantas points upfront.

Part of that Qantas deal was an offer of 100,000 additional points in subsequent years for new customers refinancing to the lender. That’s enough for a return ticket from Sydney to London.

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Mozo money expert Rachel Wastell said fixed rates were a battleground for lenders.

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Ms Wastell said fixed rate deals offered bigger savings, with rates around five and a half percent. The cheapest variable loans were around 5.9 per cent but often had special conditions.

“The real battleground right now is fixed rates,” Ms Wastell said. “Lenders don’t seem to be aggressively slashing variable rates, but we’re seeing competitive fixed-rate offers.”

Australian Mutual Bank, BankVic and RACQ Bank had some of the lowest fixed rates, offering 5.49 per cent over two years for owner occupiers.

Finder.com.au mortgage expert Richard Whitten said drops in fixed rates often preceded a fall in the cash rate.

“When the cash rate falls, variable rates adjust quite quickly. Fixed rate loans are funded differently and are something of a bet on which way interest rates are moving,” Mr Whitten said.

Banks are offering cashbacks as high as $4000.

“Banks are expecting a rate cut pretty soon. And more than one this year. They’ve said as much in their economic forecasts, and it’s reflected in their fixed home loan rates.

“Many economists are predicting at least three rate cuts this year, which could wipe 75 basis points off variable rate home loans.

“That would see a competitive 6.00 per cent rate today drop to 5.25 per cent, if the lender passed on the cuts in full.

“(But) lenders don’t always pass on rate cuts in full. Some lenders even offer lower rates to new customers while leaving existing customers high and dry.”

Ms Wastell suggested borrowers check the finer details on special offers to make sure the incentives covered the fees.

“The real savings come from a competitive rate over the life of the loan – short-term incentives won’t make up for a higher interest rate in the long run.”

Originally published as ’Strategic’ reason banks are giving people $4000