Australia’s lowest 2-year fixed rate now comes with $3K+ cashback

Home loan cashback deals are heating up again, with international bank, HSBC, today offering a $3,288 cashback to refinancers on its fixed and variable rate loans.

Although this isn’t the largest cash incentive on the market, the deal is available on the bank’s 1.88 per cent two-year fixed home loan, which is currently the equal lowest two-year rate in Australia for owner-occupiers paying principal and interest.

Out of the 25 lenders offering cashback, this is the lowest rate loan.

Crunching the numbers – are cashbacks worth it?

RateCity.com.au has compared the 2-year fixed rate cashback deals from the big four banks and HSBC against the lowest variable rate on the market. The calculations consider interest, fees and cashback.

After two years, the average refinancer would be $2,715 better off on HSBC’s 2-year fixed rate than if they had opted for the lowest variable rate loan in the market of 1.79 per cent.

Westpac and ANZ’s 2-year fixed rate cashback deals also leave the average refinancer ahead after two years.

However, after the fixed rate term expires, these customers could find themselves behind, if they don’t refix or refinance their loan.

Cashback deals on a 2-year fixed rate vs lowest variable rate

Based on an owner-occupier with a $400K loan balance.

Analysis of cashback loans on the RateCity.com.au database:

• 25 lenders offering cashback deals.
• In February 2020, there were just 12 lenders offering cashback.
• Most cashbacks range between $1,500 and $4,000 (see list below). Note: Reduce is offering $5,000 cashback for home loans of $1+ million.
• All big four banks are offering cashback deals (ANZ through a broker).
• Most cashbacks are for refinancers only.

RateCity.com.au research director, Sally Tindall, said HSBC is in hot pursuit of refinancers who are also looking for a cash perk.

“This is the lowest rate loan in our database that also offers a cashback,” she said.

“While the average refinancer is likely to come out ahead in the first two years when compared to the lowest variable loan, anyone who forgets to refix or refinance at the end of the fixed term will end up on a revert rate of 2.54 per cent.

“Cashbacks are booming. There are 25 lenders offering up to $5,000 to help bring in new customers.

“Previously, the upfront sugar hit of cold hard cash was usually a dud deal because the loans often had non-competitive rates. These days banks are increasingly offering both low rates and cash – making them a far more attractive proposition in the short-term.

“People who refinance regularly and know how to drive a hard bargain on rates and fees could end up ahead on a cashback deal. However, anyone who sets and forgets their loan might be better off on a low ongoing variable rate.

“Don’t get lured down a cashback rabbit hole without thinking it through properly. Take a step back and make sure the loan suits your finances, otherwise you could be shooting yourself in the foot,” she said.

Highest refinance cashback home loan offers on RateCity.com.au

Source: RateCity.com.au. For home loans under $850,000. Rates are for owner-occupiers paying principal and interest. LVR and loan size restrictions may apply. Reduce Home Loans offers $5K cashback on $1M loans however for the average loans, $3K cashback applies.

Before refinancing for a cashback deal – check:

• Is the interest rate competitive? Look for a rate starting with a ‘2’ or even better a ‘1’.
• Pick a loan that suits that your finances.
• Are the fees high? Ask the new lender to waive them if there are.
• Can you refinance? You’re likely to need a steady job and at least a 20% deposit or equity.
• Can you put the cashback bonus into your mortgage? Extra repayments help reduce your interest charges in the long run.

Notes: Calculations are based on an owner occupier paying principal and interest, with a balance of $400K switching 5 years in to a 30-year loan. Costs include interest charged plus fees minus any cashback offered. Lowest variable rate is from Homestar Finance. Rates are the lowest available from each lender in each category and some rates require a low LVR to qualify (Westpac 70% LVR, Homestar Finance, 60% LVR). ANZ's cashback is only available to new customers applying via a broker. Assumes variable rates remain the same.

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