Cashback mortgages are a type of mortgage that give borrowers a cash payment once their mortgage is secured and signed off. The lender, typically a bank, will pay an agreed amount of money into the borrower’s bank account.
The amount of money given to the borrower is usually a percentage of the initial mortgage, typically ranging from 0.10% to 1.00%. The average cashback is around 0.70%. They can also offer fixed dollar amounts, known as a cash incentive, ranging from $3,000 to $7,500 or higher depending on the size of the mortgage.
It’s important to remember that cashbacks are only available on new loans. So, if you are buying a new home or looking to refinance with a new lender, you may be eligible for a cashback.
How are Cashbacks Determined?
There is a standard set of criteria that banks take into consideration for cashback sums.
- Size of your deposit: A lower Loan Value Ratio (LVR) can help you get a higher cashback.
- Size of loan: Cashbacks can be an incentive for lenders to draw in borrowers.
- What you can afford: If you pose a lower risk to the lender, you will have a better chance of a higher cashback sum.
- Your repayment plan: Interest and principal loans tend to have higher cashback offers.
What can I use the Cashback For?
You can use your cashback for whatever you like, really. Perhaps renovations, or to pay for your annual home insurance premium that’s just come up.
But if you wanted to be smart about it, it might be worth holding onto that money for when your fixed term loan reaches maturity. You could use it to pay off a lump sum. You can also take advantage of cashback opportunities on a regular basis, by refinancing your loan with a new lender every three to four years. Put the cashback funds towards paying a lump sum off your mortgage each time, and you could reduce the loan term by about two years.
Cashback Considerations
Cashbacks can be a great way to essentially score yourself some ‘free money.’ But it’s important to understand the conditions and limitations. Have a chat with your mortgage advisor to learn more about the lender-specific conditions. But generally, you’ll need to keep your mortgage for a set amount of time, usually two to three years. Lenders will typically want the cashback repaid in full or a portion of it if you sell the home or refinance with a new lender.
To avoid any nasty surprises down the track, be sure you understand the terms and conditions of a cashback loan. Read the fine print carefully and several times, and make sure you have a detailed talk with your mortgage advisor before committing to any contract.
Need Help? Speak to a Mortgage Advisor for Free
If you are interested in learning more about a cashback mortgage, and whether it is the right choice for you, we can help get you in touch with a qualified mortgage advisor. Here at Money Compare, we have partnered with a team of mortgage professionals who can help answer any mortgage and home loan questions. Simply click the button below and we will pair you with a fully qualified mortgage advisor for free.
