Banks back to their bad old ways with $4,000 cashback offers to get you to mortgage switch

Banks are attempting to lure new customers with cashback offers to refinance their mortgage. But the offers are not what they seem.

According to the Australian Bureau of Statistics, 113,000 people in the last four months to July have changed lenders through refinancing. When the pandemic first hit, there was an unprecedented spike in numbers of owner-occupiers refinancing as people clamped down on their budgets.

A slew of financial lenders are offering thousands of dollars through cashback incentives of up to $4,000. For instance, Suncorp is offering $2,000 cashback when you refinance between $250,000 and $749,999.99 with a loan to value ratio of 90 per cent or less, or $3,000 cashback when you refinance $750,000 or more with an LVR of 90 per cent or less.

The bank is also offering an additional $1,000 cashback if you’re a teacher, health worker or a police officer.

Steve Mickenbecker from Canstar said that people should be wary when looking to refinance, if they are only looking for cashback rewards.

He maintains that an ongoing low rate is a better deal in the long run than upfront cash incentives.

But he did point out that some banks were offerings a combination of cash deals with a competitive rate.

“Many of the banks are offering around $2,000 in cashback incentives, with one bank offering up to $4,000. But Australians have to look at it in the context of a 30-year loan, that $4,000 you get back in cash is what you would pay off in one month of your loan,” he said.

“Refinancing your loan for a better rate, say at 1.89 per cent with a 60 per cent LVR, will make refinancing beneficial. But the whole market at the moment with lenders, is looking for that refinancing market.”

The other thing Mr Mickenbecker pointed out is around 75 per cent of Australians are still with the big four banks, and generally, it will be hard to sway a big four to a lower rate than some of the smaller lenders.

“Customers might be able to negotiate a fixed rate at around 2.19 or 2.09 per cent with one of the big banks. But if you are looking for a variable rate, there are some great deals to be had,” he said.

“I suggest that people looking to refinance be ruthless and make sure they get the best deal. If a lender is offering 2.5 per cent, you’ll be able to find a better deal. Make sure you also have a clean record. If you have been making your repayments on time, then you are in an attractive position. It’s all about consumer hierarchy at the moment. It’s all about lenders looking for quality loans.”

Nicole Pedersen-McKinnon wrote in the Sydney Morning Herald that if you consider moving a $400,000 home loan from a typical discounted big-four bank interest rate of 3.6 per cent to a cheaper loan with an offset account of 2.32 per cent, then you would save over an identical remaining 25-year period, a whopping $79,677. But she said it’s crucial that you refinance a loan over an identical period otherwise you will end up paying a mountain of interest, no matter how low the rate is.

Here are some of the best current promotions and offers according to Canstar:

Compare Home Loans

Other sales and promotions – rewards points, reduced rates, and lower fees

The following home loan offers allow the customer to take advantage of various other bonuses, such as lower interest rates (fixed and variable), reduced or waived fees and bonus rewards points in some cases.