Mortgage cash-backs: Is it really free money?
We've all seen the ads from banks doing their best to get you in the door with the promise of free money for taking out a loan with them. But, is it too good to be true?
Well, the answer is no! But there are some really important bits and pieces you should know before getting too excited and booking that next dream holiday.
Mortgage cash-backs are incentives offered by lenders to reward and thank customers for taking out a loan with them. Amounts vary by bank, and can differ based on the size of your deposit and the type of property you're buying, amongst other things.
Some of the key things that can make borrowers ineligible for cash-back offers are:
The amount you're borrowing - most banks will have a minimum amount of new lending required before they'll offer a cash contribution. In most cases this is around $200,000.
Accepting special lending deals - if you're already getting a discounted home loan rate or receiving other perks under a 'special' lending product, the bank may not offer cash contributions with that product - so it pays to check and do the math.
Assuming you're eligible, what are the key things you need to know?
First things first, don't assume that all banks will offer the same level of cash. Amounts do vary, although typically cash contributions in general will be higher when interest rates are at the upper end of the scale, and reduce as interest rates drop. Most of the time cash contributions sit at around 0.50%-0.70% of the loan, but it pays to make sure you're getting the best offer possible.
Second, you need to know the terms of your cash contribution offer. They will always have a pay-back period, which means the bank may require you to repay the cash contribution if you repay your loan early. Whilst these are typically between two and three years, they do vary, so if you're planning to sell your home or clear your loan in the near future it may be best not to accept the cash contribution. Your lender will provide details of the terms when they make their offer, but people often forget about these terms which can make for a nasty surprise when they go to clear their loan.
So, when you're comfortable with the terms, how much should you expect to receive right now?
There are great offers on the cards across the board at the moment, with many banks offering 1% back, up to $10,000. If you have a home loan coming up for refix, it could be a great time to think about refinancing - rates will likely be the same as what your current lender can offer, and the cash contribution could make a real difference to offsetting the increased repayments with higher interest rates for the next wee while... or you could head straight out to see the travel agent and dust off the passport, the choice is yours!
This information is intended to be general informative guide only, and should not be acted upon or interpreted as personalised financial advice. Always seek independent advice tailored to your personal position before making financial decisions.
