Banks Compete for Borrowers with Generous Cashback Offers
The Reserve Bank of Australia (RBA) Governor, Michele Bullock, announced that interest rates would remain on hold this week, leaving homeowners with a unique opportunity. According to Finder.com.au's analysis, banks are engaging in a fierce cash war, and homeowners are the beneficiaries.
A dozen lenders are currently offering substantial cashback deals, ranging from $2,000 to $5,000, or up to 300,000 Qantas points, to those who switch lenders. These offers come with the same loan terms and rates, providing an attractive incentive for homeowners to make a change.
Graham Cooke, Finder's head of consumer research, attributed this cash war to the rising competition in the loan sector. Banks are intensively vying for a larger share of the mortgage market, and cashback deals are their strategy to attract borrowers.
Richard Whitten, Finder's home loans expert, explained that cashback strategies are a way for banks to differentiate themselves in a crowded market. Home loans, he noted, are often standardized products, and many loans at the competitive end have similar interest rates and fees. Cashbacks provide lenders with an opportunity to appeal to refinancers and new borrowers.
Among the most generous cashback offers is from BankVic, providing $4,000 to $5,000 cashback for refinancers with an interest rate of 5.35%. IMB offers a cashback of $2,000 to $4,000 at a rate of 5.29%, while ME Bank provides $3,000 at a rate of 5.38%. Other lenders, including AMP, Greater Bank, Summerland Bank, Bank of Queensland, Credit Union SA, and Newcastle Permanent, also offer cashbacks ranging from $2,000 to $3,000.
It's important to note that switching lenders typically incurs processing fees of around $1,000, depending on the loan size and bank. Commonwealth Bank offers Qantas points for refinancers, with varying rewards depending on the loan size. Those with loans over $1 million can earn up to 300,000 points under certain conditions, while those with loans under $500,000 can receive 100,000 Qantas points from CBA at an interest rate of 5.39%.
However, these deals may not be long-lasting, according to Mr. Whitten. Many lenders are offering cashbacks to borrowers who fix their interest rates, anticipating potential rate decreases. This strategy allows lenders to secure borrowers at rates that might become lower in the future as variable rates adjust.
The RBA's decision to hold the cash rate in November has slightly altered the landscape. While cashback offers will continue to attract new business, the frequency of these offers may decrease if no rate cuts are expected. A Finder poll of 35 economists suggests that about two-thirds anticipate another rate cut between February and May next year, primarily due to labor market weaknesses.
Aidan Hartley, Owl Home Loans director and broker, believes that bank cashbacks are an attempt to stimulate refinancing activity, which has generally been slow. Most lenders have passed on this year's interest rate cuts, and homeowners have little incentive to switch lenders. Mr. Hartley emphasizes that most refinancers are motivated by equity extraction rather than cost savings.
He advises those considering cashback offers to prioritize loan features over short-term cashback amounts. Ensuring a loan allows for extra repayments, such as through an offset, is crucial. The interest rate and cashback are secondary considerations, with the former being the most important and the latter a desirable bonus.
