Banks are intensifying competition in the home loan market with cash incentives. These are not limited to new customers; even existing customers who choose to stay with their current bank are benefitting. Glen McLeod, head of Link Advisory, noted that more lenders are providing cashback incentives for new home loans, whether for purchasing a property or switching from another bank.
According to McLeod, these offers can amount to up to 0.9% of the loan value, capped at $20,000.
Meanwhile, David Cunningham, chief executive of financial services company Squirrel, confirmed that a cashback rate of 0.9% is considered standard in the industry.
He explained that refinancing a fixed-rate loan upon its expiration often makes sense, likening the process to a game of “pass the parcel,” where banks exchange customers by offering incentives like $10,000 cashbacks.
Cunningham also said banks prefer cashback offers because they typically only apply to new customers, which helps keep costs down for the bank.
In December, the Reserve Bank saw a record amount of bank switching, with over $2 billion in loans being transferred between lenders, including non-bank institutions. This activity is partly driven by the popularity of cashback offers.
Link Advisory’s McLeod said borrowers could sometimes qualify for a retention cashback when re-fixing their home loan, provided they agreed to remain with their current bank instead of switching to another lender. “However, if the loan is in its infancy, typically within the first three to four years, it may not be eligible due to the initial cashback offer period.”
McLeod emphasised the importance of understanding the conditions tied to cashback offers on home loans, saying, “If a client chooses to switch lenders within a certain timeframe, they might be required to repay the cashback amount in full or proportionally, depending on how long they have been with their current lender.”
Although the immediate financial advantages of these incentives are undeniably appealing, McLeod advises borrowers to carefully evaluate the long-term financial consequences, assess whether the loan structure aligns with their current situation and financial objectives, and scrutinize the details of the offer, especially the eligibility criteria.