Show me the money: Westpac ups its cashback to tempt refinancers

Australia’s second largest lender, Westpac, has increased its cashback offer for refinancers, upping the incentive from $2,000 to $3,500 in a bid to attract new business.

The latest refinancing statistics from the ABS shows a record $19.5 billion worth of loans were refinanced in November. This cash boost from Westpac is designed to secure a bigger slice of this refinancing pie.

Westpac’s lowest variable rate is currently a relatively competitive 4.64 per cent, however, the rate increases by 0.40 percentage points after 2 years.

RateCity.com.au analysis shows if a refinancer with a $500,000 loan switched to Westpac’s lowest variable rate, with the cashback, instead of opting for one of the lowest rate loans in the market, they would come out ahead in the first 2 years.

However, beyond this time, the lower rate option comes up trumps.

These calculations are based on an owner-occupier with 25 years remaining on their loan and includes forecasted rate changes, factoring in interest charges, fees and cashback.

The true cost of a cashback deal

Based on a $500,000 owner-occupier loan with at least 30% equity

Source: RateCity.com.au. Notes: based on an owner-occupier paying principal and interest with 25 years remaining. Assumes borrower has a loan-to-value ratio of 70% or less. Lowest rate is the average of the 5 lowest ongoing variable rates on RateCity.com.au.

On larger loans, however, Westpac’s cashback deal sours sooner. On a $1 million loan, the lower rate option comes out ahead by the second year.

Capitalising on the refinancing boom

Westpac isn’t alone in offering cash to potential refinancers. The RateCity.com.au database shows:

• 33 lenders are currently offering cashback deals, with the majority for refinancers only.
• The highest cashback for a $500,000 mortgage is currently $4,000. This is offered by 12 lenders. (Note: some lenders have higher cashback amounts for larger loan sizes).
• All four big banks are offering cashback deals for refinancers. CBA - $2,000, Westpac - $3,500, NAB - $2,000, ANZ – up to $4,000.
• ANZ also offers $3,000 cashback to first home buyers.

RateCity.com.au research director, Sally Tindall, said: “Australia is going through a refinancing boom and Westpac wants a bigger slice of the action.”

“With just under $20 billion up for grabs each month it’s no wonder Australia’s second largest lender is upping the stakes to bring in new business,” she said.

“While these types of offers encourage people to switch, borrowers should do the maths and read the fine print before taking up a cashback offer.

“An offer of cold hard cash at a time when your budget is buckling under pressure can be hugely tempting, but remember, these deals are marketing plays so make sure you’re coming out on top.

“The last thing you want to do is cut off your nose to spite your face.

“A competitive interest rate typically trumps a one-off perk, particularly on larger loans and almost certainly in the longer term.

“That said, savvy refinancers who drive a hard bargain on rate and commit to switching lenders regularly can potentially come out ahead using these deals.

“If you know in your heart you’re likely to set and forget your home loan, turn your back on the one-off perks and look for something that’s going to work in the longer term,” she said.

Before refinancing for a cashback deal – check:

• Is the interest rate competitive?
  
  
• Read the terms and conditions carefully. Make sure you’re eligible for the cashback.
  
  
• Are the fees high? Ask the new lender to waive them if they are.
  
  
• Does the loan offer the flexibility you need? This may include an offset account, ability to make extra repayments.
  
  
• Are you in position to refinance? This typically includes having a steady job, owning at least 20 per cent of your home.
  
  
• Can you put the cashback bonus into your mortgage?Extra repayments help reduce your interest charges over the years to come. 
  
  
• Refinance regularly: Don’t set and forget your loan, especially if you are on a fixed loan, as potentially high revert rates may quickly eat away at any savings you’ve made.

Refinancing at a record high: ABS

The latest ABS lending indicators shows refinancing is at a record high. A total of $19.5 billion worth of loans were refinanced in the month of November.

Source: ABS Lending Indicators Nov 2022, released 13 Jan 2023, seasonally adjusted data.

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