Banks fight for borrowers with surprise cashback deals revealed

RBA Governor Michele Bullock announced interest rates would be kept on hold this week. Picture: Nikki Short

Homeowners were left high and dry earlier this week when the Reserve Bank announced it would keep the cash rate on hold but mortgage holders have been served a chance to get free money.

Finder.com.au analysis of mortgage deals has revealed banks are in a full blown cash war – and homeowners are the winners.

A dozen lenders are currently offering generous cashbacks of up to $5000 – or up to 300,000 in Qantas points – for those who switch lenders. And it’s usually at the same loan terms and rates.

Finder head of consumer research Graham Cooke said banks were throwing money at borrowers because of rising competition in the loan sector.

It meant lenders were pulling out the stops to grab a bigger slice of the mortgage market.

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Finder’s head of consumer research Graham Cooke said banks were reacting to a competitive mortgage market.

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Finder home loans expert Richard Whitten added that the cashback strategy was an attempt by banks to stand out from the crowd.

“Home loans are fairly standardised products, and at the more competitive end of the market many loans have similar interest rates and fees. Cashbacks are one way lenders can appeal to refinancers and new borrowers in a crowded field,” he said.

Among the most generous cashbacks on offer is from BankVic, which has a $4000-$5000 cashback for refinancers, with an interest rate of 5.35 per cent, according to the Finder analysis.

IMB has a cashback of $2000-$4000, with a rate of 5.29 per cent, while ME Bank is offering $3000, at a rate of 5.38 per cent.

Other lenders offering cashbacks ranging from $2000-$3000 included AMP, Greater Bank, Summerland Bank, Bank of Queensland, Credit Union SA and Newcastle Permanent, according to Finder.

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It typically costs about $1000 in processing fees to switch lenders, although costs can depend on the size of the loan and the bank.

Commonwealth Bank is offering Qantas and CBA points for refinancers, which vary depending on the loan size. Those with loans over $1m can get up to 300,000 points under certain conditions.

Those with loans under $500,000 can get 100,000 Qantas points from CBA, with the interest rate on these deals at 5.39 per cent, according to the comparison data.

Mr Whitten said these deals may not last long.

“It’s also important to note that many lenders are offering cashbacks to borrowers who fix their interest rate,” he said.

“This is a calculation on the lender’s part that rates could fall further, so they want to lock a borrower in at a rate today that might end up being slightly higher tomorrow as variable rates come down.

Most refinancers in recent months have been those pulling out equity, not people switching lenders to save.

“The RBA’s decision to hold the cash rate in November changes this slightly. While I expect we’ll still see many lenders use cashbacks as a way to attract new business, we may see fewer lenders offering cashbacks if there’s no rate cuts on the horizon. Which seems to be the case for now.”

A Finder poll of 35 economists showed about two thirds expected another rate cut to occur between February and May next year – largely because of weakness in the labour market.

Owl Home Loans director and broker Aidan Hartley said bank cashbacks may be an attempt by lenders to reverse what has generally been slow refinancing activity.

Most lenders had passed on this year’s three rounds of interest rate cuts in full and there was little incentive for most homeowners to switch lenders, he said.

“We find most people who are refinancing are doing so because they want to take out equity,” he said.

“It’s rare for someone to switch lenders to save at the moment because often it’s easier to just renegotiate a new rate with the existing lender.”

Mr Hartley added that those tempted to take up cashback offers needed to keep in mind that features of a loan were often much more important than the rate or short-term cashbacks.

“The most important thing is to make sure you have a loan where there is scope to make extra repayments, like through an offset,” he said. “The next most important thing is your rate. After that, a cashback would be the cherry on top.”