Understanding mortgage cashback

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When you secure a new mortgage, banks will often pop a chunk of cash into your account – usually between 0.1% and 0.7% of your loan’s value. This is known as mortgage cashback. 

You can do whatever you like with this cash but homeowners often spend it on purchase costs, renovations and other property expenses. 

How much cashback could I get?

The amount of cashback you receive depends on a number of factors, including:

  • The loan to value ratio (LVR) of your loan. 
  • Whether your mortgage is interest only or principal and interest. 
  • How much income you’re earning. 
  • Whether or not the lender perceives you as a risky borrower. 

The most important factor is the size of your loan. Usually, your cashback is calculated as a percentage of your total mortgage. 

As an example, let’s say that a) you’ve taken out a new home loan of the average amount for Kiwi first home buyers (around $400,000), b) that you’ve got a 20% deposit and c) that you’re not perceived as a risky borrower. Your cashback could be as much as $3,000 to $7,000 depending on the loan amount.

Why do banks offer cashback?

Banks aren’t in the business of giving out free money to help homeowners out – they’re here to make a profit. They offer mortgage cashback to sweeten the deal for you so that you’re more likely to stick around and take another loan out with them when it comes time to refinance. 

Sweet as your cashback may be, you should still assess all of your options (including other lenders) when it comes time to refinance

Does cashback have a catch?

When your lender offers you cashback, it comes with a range of conditions. Usually, this will include a clause in your contract that states you must repay your cashback if you discharge your loan, refinance or sell your property within a certain period of time – usually two to three years.

That’s why if you’re planning to sell or refinance in the near future, cashback isn’t always such a great deal. To avoid any misunderstandings, make sure you fully comprehend all the conditions of your cashback and have had a good readthrough of the agreement. 

The mortgage advisors here at Money Empire are uniquely capable of securing borrowers better cashbacks thanks to our strong relationships with banks. We’re also able to help our clients assess the cashback offered by each bank, then select the best option. If you’re about to refinance or buy property, get in touch with the team here at Money Empire to make sure you get a good deal. 

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