The Insiders Guide to Mortgage Cashbacks.

Cashback offers are financial incentives provided by banks to attract new mortgage customers.

Essentially, when you take out a new home loan, the bank rewards you with a lump-sum payment.

This payment can be used for various purposes, such as covering moving costs, subsidising your first few mortgage payments, or even offsetting legal fees associated with buying a property.

These offers are particularly appealing because they provide immediate financial relief during what can be an expensive and stressful time.

It's important to note that cashback offers are usually conditional, requiring you to stay with the lender for a specified period, often ranging from two to five years.

If you break this term, you may be required to repay the cashback amount, so understanding the terms and conditions is important to making the most of these offers.

Types of Cash Back Offers

Cashback offers can vary significantly depending on the lender and the specifics of the mortgage. Generally, there are three main types:

1.Flat Cashback Amount:

This is a fixed amount given to the borrower, regardless of the loan size. It’s straightforward and easy to understand.

2. Percentage Based Cashback:

Here, the cashback amount is calculated as a percentage of the total loan. For example, a 1% cashback offer on a $500,000 loan would yield $5,000. This type can be more lucrative for larger loans.

3. Tiered Offers:

Some banks offer tiered cash back amounts based on the size of the loan. For instance, loans between $300,000 and $500,000 might qualify for a different amount than loans over $500,000.

Working with a Mortgage Adviser will help you to understand the types of offers available and ultimately choose the one that best fits your financial situation and goals.

Common Pitfalls and How to Avoid Them

While cashback offers can be enticing, there are some common pitfalls to watch out for.

One major pitfall is focusing solely on the cashback amount and overlooking less favourable loan terms, such as higher interest rates.

To avoid this, a Mortgage Adviser can help you compare the overall cost of the mortgage, including interest and fees - not just the upfront cashback.

Another common mistake is underestimating the lock-in period.

Breaking the term early can result in hefty penalties, including repaying the cashback amount. We will work with you to make sure the lock-in period aligns with your long-term plans to help avoid this trap.

Utilising Your Cash Back Wisely

Making the most of your cashback offer means using the funds strategically.

One smart approach is to allocate the cashback towards immediate home-related expenses like moving costs, legal fees, or essential repairs. This can ease the financial burden during the transition to your new home.

Alternatively, consider using the cashback to reduce your loan principal. Making a lump sum payment on your mortgage can lower your interest costs over the life of the loan, ultimately saving you more money in the long run.

Another option is to create an emergency fund. Having a financial cushion can provide peace of mind and protect you against unexpected expenses.

Finally, you might invest the cashback in home improvements that increase your property's value, enhancing your long-term investment. By using your cashback wisely, you can maximise its benefits and improve your overall financial health.

When it comes to cashbacks each bank has its own terms and conditions, so it’s essential to read the fine print and understand the commitments required.

This is where using the services of a Mortgage Adviser can really come in handy. We can guide the way, ensuring you secure the best deal and maximise your cashback benefits. Feel free to reach out if you want to start your journey towards a financially savvy home purchase!

Cheers,

Steve ??021 743 494