How a cashback deal may help cut the cost of refinancing

Refinancing a home loan may feel like a costly endeavour that’s not worth the trouble, but research from RateCity shows that a borrower taking advantage of cashback deals may break even before they’ve made their first new mortgage repayment.

One of the biggest perceived barriers to refinancing a home loan is the assumed upfront cost involved. However, with a range of lenders putting competitive cashback deals on the table, borrowers may be able to cut down this cost and get on top of their debt faster.

According to the RateCity database, the average refinancing fees a borrower may face are:

• Discharge fee: $320
• Ongoing fee: $260
• Upfront fee: $549

Source: RateCity.com.au. Data accurate as of 30.06.2023.

Keep in mind that a range of mortgage lenders not only charge $0 for these fees, but may be willing to pay for a borrower’s settlement and discharge fees and/or waive upfront costs to get new customers on to their books. Additional refinancing costs, such as lender's mortgage insurance, will depend on an individual's mortgage. 

While the larger of these costs may feel intimidating, the savings a borrower may earn by refinancing to a lower rate and/or lower fee mortgage may outweigh these costs after a few years.

The real cost of refinancing a mortgage

With a high number of cashback deals on offer for refinancers, the cost of refinancing your mortgage may be more affordable than expected.

Assuming you pay a discharge fee to your previous lender when you refinance, before paying both the new lender’s upfront and ongoing fee, refinancing could cost you around $1,129.

But when you consider that as of July 2023, the average cashback deal on the RateCity database is $3,529, a borrower with a cashback deal may be $2,400 better off than a borrower refinancing without a cashback.

Just keep in mind that there may be other fees and charges to cover in your state or territory, such as mortgage registration and a title search. You may also need to pay for stamp duty if you’re refinancing to purchase a different property, or LMI if you have less than 20% equity available. All of these costs could potentially eat up the value of your cashback deal.

What cashback deals are available?

RateCity research found that as of July 2023, just 15 lenders are currently offering cashback deals ranging between $2,000 and $10,000.

Most cashback deals are specifically for refinancers, indicating that banks are targeting borrowers hoping to get a better deal in the face of rising costs of living.

Source: RateCity.com.au. Data accurate as of 04/07/2023. Value of the cashback you may be offered will vary depending on the lender's eligibility criteria.

Keep in mind a borrower will still need to meet the eligibility criteria set by a new lender to be approved for a cashback deal on a refinancing loan, including a good credit score and meeting minimum income requirements.

There is more to a home loan than the cashback deal on offer. You will still want to consider the interest rate, fees, features and other factors of a mortgage before refinancing. Comparison tables and calculators may be helpful in allowing borrowers to compare apples with apples and view how different loan options and their repayments stack up, side by side. 

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