Understanding cashback offers on home loans
If you’re applying for a home loan, you may come across lenders who are promoting cashback offers. These deals can sound appealing, because who doesn’t love a little extra money landing in their account? But before you factor it into your decision, it’s important to understand how cashbacks work and what they might mean for your mortgage in the long run.
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What is a home loan cashback?
A cashback is an incentive offered by some banks or lenders when you take out a mortgage with them. Essentially, the lender gives you a lump sum of money once your loan settles.
Not every lender offers this type of incentive, and even those that do may only run these offers at certain times. There are usually specific eligibility criteria, such as a minimum loan amount. The money is paid directly into your account and can usually be used however you like. Many borrowers use it to help cover the extra costs that come with buying a home, such as:
- Moving expenses
- Legal or conveyancing fees
- New furniture or appliances
- Initial home maintenance or improvements
It can feel like you are spending lots when buying a property, so a cashback can provide a helpful bit of breathing room.
That said, it’s often smart to think strategically about how you use it. Some homeowners choose to put the money straight back onto their mortgage as a lump sum payment, while others prefer to add it to their savings or emergency fund.
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Types of cashback offers
Cashback deals are typically structured in one of two ways.
- Fixed lump sum
This is a set amount paid to you once your mortgage settles, regardless of the loan size, provided you meet the lender's criteria.
2. Percentage of the loan
Some lenders offer a percentage-based cashback. For example, a 1% cashback on a $400,000 mortgage would result in $4,000 being paid to you.
The actual amount available can vary depending on the lender, the size of the loan, and your individual financial situation.
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What to think about before accepting a cashback
While a cashback might look attractive at first glance, it’s important to look beyond it to the details of the actual loan.
Sometimes a lender offering a larger cashback may have slightly higher interest rates or less flexible loan features. Over time, this could mean you end up paying more in interest than the value of the incentive you received. It is important to calculate the total cost of the loan over the time you plan to hold it.
Another key factor to be aware of is the lock-in or "clawback" period. Most lenders require you to stay with them for a set amount of time, often around two to four years, if you accept their cashback offer.
If you decide to refinance or move to another lender before that period ends, you may be required to repay some or all of the cashback. That’s why it’s important to ensure the loan structure still aligns with your longer-term financial plans.
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How Loan Market Dunedin can help
When comparing lenders, incentives like cashbacks are just one piece of the puzzle. Interest rates, loan flexibility, repayment options, and future plans all play a role in choosing the right mortgage.
Working with a local Dunedin mortgage adviser, like the team at Loan Market Dunedin, can help you understand the full picture. We can compare lending options across multiple banks and lenders and help you determine whether a cashback offer actually benefits your situation in the long term.
If you’re planning to buy a home, refinance, or simply want to explore your options, our Dunedin mortgage advisers can help guide you through the process.
Get in touch today to book a free, no obligation chat and start exploring your home loan options.