Due to the COVID-19 pandemic, Australian banks are trying to get as much business as they can, even going so far as to offer cashback when you apply for a mortgage. While this may sound like an attractive offer, experts suggest that taking the cashback instead of shopping around for a cheaper loan could end up costing you money. But how?
Distracting You From High-Interest Rates
Over the last year, banks have offered as much as $5000 cashback to those willing to refinance their home loan, who have at least 20% equity in their property. Most of the time, banks offer cashback on their loans with higher interest rates. Not only does the cashback act as an incentive to accept such a loan, it almost distracts from the fact that you now are stuck with a higher interest rate.
Not Being as Valuable as You Think
Let’s say you take out a mortgage for $300,000. Then let’s suppose you receive $2,000 cash back, and you use this money only to make your monthly repayments. After factoring in the average interest rate and your monthly repayment amount, this money will only last about 18 months, maybe less. While this may not seem like a big deal if you factor in the fact that most banks offer cashback on their higher interest rate loans, if you take the cashback offer and don’t shop around for competitive rates, you could end up losing over $40,000 over your loan term.
At Mortgage House, we don’t offer cashback on our home loans. Instead, we offer low interest rates, which could save you thousands of dollars over your loan term.
