Mortgage Cashback 101: Everything You Need To Know

All about mortgage cashbacks, a hot topic in New Zealand at the moment as the housing market is on fire. Low interest rates, high prices, and a heap of interested parties. Do you want to learn more about mortgage cashbacks? Then read on. 

What is a mortgage cashback?

Mortgage cashbacks are well known throughout banks in New Zealand and are helpful when you’re a home buyer. They are an incentive from a bank to a consumer to switch from another provider or obtain a new mortgage. This incentive can help to facilitate or cover expenses that could be incurred on a property purchase. 

Mortgage cashbacks are nothing new, often used as a marketing tool to grab a customer’s attention by the banks. This doesn’t mean they’re not super competitive though!

How does mortgage cashback work?

A mortgage cashback will depend on a few different factors: the size of the loan, the LVR (loan-to-value ratio) of your loan, and the credit profile of the individual. The information you provide to the bank will be how the lender decides the amount the client is due. 

Banks are currently offering 0.7% of the loan amount with T&Cs that apply on top of this i.e. LVR. Bear in mind, this changes regularly! If you have $1,000,000 of lending at 80% or less LVR you currently would be offered $7,000 cash. This can be used for whatever you want, and is issued to you on settlement day when drawdown has occurred. 

Why do I get a mortgage cashback?

Banks try to make their offering different and better, as a lot of their primary income streams from home lending and mortgages. Not only do they want customers, banks also understand that purchasing a property is an expensive experience. Helping a potential customer cover some of the due diligence costs is an attractive hook. 

The market has an almost ‘lawless’ quality. First home buyers or investors will choose the bank with the best rate for them. The cost of living is growing, so saving a couple thousand is desirable when it comes to financial planning. The big banks are aggressively chasing after customers in this volatile market, offering low rates with powerful switching incentives like cash contributions to sweeten the deal. 

Is a mortgage cashback worth it?

Mortgage cashbacks often depend on the situation. In the short-term, an immediate cash injection as an option could help an individual out. From a long-term position, low-rate loans will ultimately save the customer the most money. It’s the difference between a once-off perk saving a few thousand dollars, or a long-term commitment saving tens or hundreds of thousands of dollars. 

Cash is an engaging offering for people struggling to meet financial deadlines and budgets, which is why it is an attractive marketing tool used by the banks. Home buying is one of the most expensive life decisions to be made in an average person’s lifetime, if they’re lucky enough to get on the property ladder. Sometimes this first step costs them a lot of money upfront, which can cause some people to tear their hair out. While cold hard cash in the bank is an offering few can refuse, putting the money back into your mortgage will result in even bigger savings. Reduction of interest charges is the ultimate goal if you want to pay your way out of debt. 

Mortgage cashback checklist

If you’re in the market to buy or refinance your home, and you’re bombarded with the lucrative deals of both money in the bank (immediate gratification) or saving thousands long term (future you), why not check out our handy checklist below.

Before you do anything:

• Is this interest rate competitive in the market? What’s the difference between fix and floating home loans? 
• Would you want to put the cashback into your mortgage to save on interest?
• Are you eligible for the cashback in the first place? Check the terms and conditions!
• What are the fees? Will the bank charge you fees at all?
• Is this new loan flexible enough to cover your needs? Do you want to make extra repayments? 

Mortgage cashbacks are an excellent way to get immediate cash in your back pocket, and could also be a strategic way to lower the costs of your mortgage. However, they’re still an incentive by a bank to get you in the door by using quick-cash marketing ploys, and it could simply not work for your long-term financial goals. 

If you are interested in a mortgage cashback, restructuring your home loan, or simply not sure what to do next, why not send us a message? Let’s talk you through your next steps to save you time and, hopefully, money!