When you go to refinance your home loan, you probably have heard of the refinance cashback offers. It is a reward that lenders provide to clients for selecting their services. But are they really worth it? And when is the right time to refinance your home loan? How much is the actual cost of refinancing?
What Are Refinance Cashback Offers?
Refinance cashback offers are basically cash incentives that banks and lenders give to their clients to attract more business. They are usually given in the form of cash, but sometimes you can also get gift cards.
And generally, they are offered when you refinance your existing home loan, but some banks even offer them when you take out a new home loan. In the highly competitive market, banks mainly use them to stay ahead.
In fact, cashback offers aren’t a whole new concept, but they began to grow after COVID-19 when interest rates went down to their lowest level. As per the Australian Bureau of Statistics, during that time, more than 200,000 Australians refinanced their home loans with a new lender. This eventually resulted in increased competition, which accelerated the trend of refinance cashback offers.
How Much Can You Really Get?
It depends on your bank and loan size, but mostly it can range somewhere from $2,000 to $4,000. It comes as a direct deposit into your bank account and ensures that you remain their permanent client in the long run.
For example, ANZ is offering a $3,000 cashback, ME Bank up to $2,000 cashback, and Reduce Home Loans up to $4,000. First-home buyers can qualify too, but most offers require at least a 20% deposit or guarantor support to meet eligibility.
How Do Refinance Cashback Offers Work?
This process begins when you refinance your home loan, which essentially means switching from your current lender to a new one. Therefore, you need to follow the steps outlined below to receive the refinancing cashback offer:
1. Research And Compare Lenders
- Identify lenders: Initially, you start by researching lenders who offer refinancing cashback offers.
- Compare offers: Then, you use comparison tables or consult a mortgage broker to compare cashback amounts, interest rates, fees, and other loan terms.
- Consider the overall scenario: It’s good to have the biggest dollar offer, but that doesn’t always mean the best value. So, you need to consider the total loan cost over time.
2. Choosing The Lender
In this step, you select a lender by evaluating all relevant factors, and then you proceed to apply for the refinance.
- First, evaluate the complete scenario in terms of the terms and conditions of lenders, flexibility, and features like offset account and redraw.
- Then, understand that some cashback offers are only valid for owner-occupier loans or specific products. While others require you to apply through a broker or settle by a deadline.
- Lastly, if the terms and conditions seem confusing or contain hidden details, you should consult the broker for clarification.
3. Eligibility Criteria
Then, they assess your eligibility based on the following criteria:
- You must be a new client with the lender
- Your LVR (Loan to Value Ratio) must be less than 80%. This means that a minimum deposit of 20% is required for new buyers, and 20% equity is needed for refinancing.
- The loan amount must be at least $250k.
- Your previous loan must be settled by a certain date for the offer to be valid.
Along with these, some lenders also have specific eligibility requirements, such as being employed in a certain industry or having a particular type of bank account. So, each lender has different terms and conditions for their cashback offers.
4. Wait For Approval
After submitting all the documents, you will wait for approval, and if your application is approved, you will then receive a formal loan offer. Also, you’ll need to request a mortgage discharge form from your current lender to ensure a smooth settlement process.
You will then receive a cashback in your bank account within a few weeks of your loan being settled.
Benefits Of Refinance Cashback Offers
Since it’s a short-term financial incentive, it holds several benefits, like
1. Instant Cash In Your Account
A cashback offer can give a bit of extra cash when you probably need it the most. You can use those funds to pay your moving costs, pay legal fees, and even make arrangements for your new home.
2. Help You Cover Upfront Costs
A home loan comes with expenses like stamp duty, lender fees, and legal charges. In such a scenario, cashback can help ease that pressure and keep your money to cover these upfront costs.
3. Eases the Cost of Switching Lenders
If you’re refinancing, then cashback can make switching lenders a lot less difficult. It can help you offset exit fees, discharge fees, and other costs that come with moving your loan to a better offer.
4. Debt Consolidation Benefit
You can also use this cashback to pay down your other debts or improve your savings. That’s because it helps you clear your high-interest debt soon while benefiting from a better home loan offer.
Drawbacks Of Refinance Cashback Offers
Although there are several benefits of refinance cashback offers but nothing comes without drawbacks. So, this also contains certain drawbacks, like
1. Higher Interest Rates
Many lenders offer cashback but charge a slightly higher interest rate on your loan. So, while you receive $2,000 to $4,000 upfront, you could pay more interest over time. That’s why it’s important to compare the comparison rate and not just the advertised rate.
2. Ongoing/Hidden Fees
Some cashback loans come with extra costs, too, like higher annual fees, account-keeping charges, or even one-time setup costs. They might seem like small costs, but they will add up and gradually impact your finances, regardless of the cashback you receive.
3. One-Time Offer
A cashback might solve a short-term cash issue, but it doesn’t reduce your loan size or repayments permanently. It’s a one-off incentive. This means that if the loan itself is not competitive, you could end up paying more even if the first year looks good.
4. Not All Cashback Offers Are Equal
Some offers only apply to specific loan products, often with few features, less flexibility or limitations, like no offset account or redraw. Thus, it’s necessary to check beforehand whether it’s a short-term perk for a long-term compromise or not.
5. Qualification Limitations
These offers are often limited to certain borrowers. For example, if your loan amount is under $250k, your LVR is too high, or you’re not a new customer, you might not be eligible. Moreover, in some cases, eligibility depends on your employment type or even which broker you use.
6. Costs Involved In Refinancing
Even with cashback offers, refinancing comes with a few costs that cannot be neglected, such as
7. Discharge Fees
Your current lender will often charge you around $150–$500 to close your existing loan. This is the administrative cost of ending the mortgage contract. Also, some lenders may even charge up to $1,000 depending on their policy.
8. Break Fees/Exit Fees
If you’re currently on a fixed-rate home loan and refinance before the fixed term ends, you’ll likely incur a break cost/exit fee. It is something you give to your bank as compensation for any loss of profit because of that.
9. Application/Establishment Fees
You incur these fees when making a new home loan application, and they usually range between $150 and $1000. It is often waived by lenders during special promotions or limited-time offers.
10. Property Valuation Fees
Most lenders require a fresh property valuation, which can cost $100-$600, depending on how it’s performed. Also, this fee is often included in lenders’ application packages, which they waive for certain loans.
11. Government & Title Fees
If you refinance with a different lender, you’ll need to pay government charges for both removing your current loan and registering the new one. The specific fees vary by state, typically ranging from $120 to $300 each.
12. Settlement/Legal Fees
Some lenders also charge settlement or document processing fees ranging from $100 to $500. And this mainly covers costs associated with legal and administrative tasks at the settlement.
13. Ongoing or Feature Fees
In addition to the above cost, cashback loans also come with some ongoing costs like
- Annual package fees ($300-$600)
- Monthly service charges ($8-$15)
- Offset or redraw facilities fees ($0-$20 each), depending on the features included.
That means overall, you can expect to pay a total cost between $900 and $3500 as refinancing expenses. But it depends on one core decision of whether you are switching to some other lender or staying with the same one.
Other Considerations When Refinancing Your Home Loan
While cashback offers can be beneficial, refinancing your home loan is a significant decision. So, here are some other things you should consider before going further:
Your Long-Term Plans
If you’re likely to sell or move within the next couple of years, refinancing may not be the most cost-effective choice. That’s because the upfront cashback might not outweigh the total expenses of refinancing unless you remain in the loan long enough to benefit from the savings.
Impact on Credit Score
Refinancing involves a full credit assessment by your new lender. This can lead to a small drop in your credit score due to a new credit enquiry. Over time, however, maintaining regular repayments on your new loan may help improve your credit profile.
Reset Of Loan-Term
Switching to a new lender often means restarting your loan term. Say, if you’ve already paid off five years of a 30-year loan, refinancing could reset your loan term back to 30 years. As a result, this may increase your total interest payable over the life of the loan.
Changes To Borrowing Capacity And Equity
Your loan-to-value ratio (LVR) influences your borrowing power. For instance, a lower LVR can open access to better offers. But a higher LVR could mean additional costs, such as Lender’s Mortgage Insurance (LMI).
Refinancing is also an opportunity to access built-up equity, which some homeowners use for renovations or other financial goals.
Features and Services from the New Lender
Cashback offers may seem effective enough to give you financial support. However, some lenders may not provide the same loan features or service quality. Consider features such as offset accounts, redraw facilities, or flexible repayment options while evaluating the overall value of the loan.
Interest Rate Trends and Timing
Refinancing during a time of rising rates might limit your future savings. Conversely, locking into a fixed rate when rates are still relatively low could provide repayment certainty.
This is because market conditions often play a role in whether refinancing is financially beneficial in the long term.
Are Refinance Cashback Offers Really Worth It?
Considering all factors, refinance cashback offers can serve as a helpful financial incentive, particularly when you are facing upfront costs. They are helpful in clearing out your other debts, too. But they shouldn’t be the only reason you refinance.
That’s because they come with other costs to deal with, like higher interest rates, annual fees, and loan settlement costs. Also, it is just a one-time offer that can drain your savings over time. So, if you are really going for a cashback refinance, consider all the factors and take legal mortgage advice.
For more guidance, give us a call at 1300 GET LOAN, 0456 456 267 or schedule a meeting time at Nfinity Financials.
FAQs
The following are the answers to the most common questions you might be curious about:
Q1. Does refinancing affect credit score in Australia?
Yes, refinancing can cause a small, temporary drop in your credit score due to lender credit checks and applications.
Q2. How often should you refinance your home in Australia?
Consider refinancing every two to four years, or when rates drop, but only if it saves you money overall. Avoid frequent unnecessary switches.
Q3. Does cash-out refinancing hurt your credit?
Cash-out refinancing may slightly lower your credit score short term, but consistent repayments help your score recover over time.
Q4. Do you lose your interest rate with a cash-out refinance?
Yes, you get a new loan and interest rate, so your previous rate is replaced with the new lender’s current rate.
Q5. What is the limit on a cash-out refinance?
Most lenders allow you to borrow up to 80% of your property’s value, depending on equity, income, and lender policy.
