Refinancing

Are refinance cashback offers worth it?

A cashback can offset switching costs, but it cannot rescue an unsuitable or expensive home loan.

Short answer

A refinance cashback can be worthwhile when the underlying loan is already competitive and the incentive exceeds genuine switching costs. It is poor value when a higher rate, longer term or unsuitable features cost more than the payment. Compare the loan without cashback first, then treat the cashback as a separate one-off benefit.

Check every eligibility condition

Cashback offers can require a minimum loan amount, maximum LVR, eligible application channel, settlement date and period away from the lender. Payment may arrive weeks after settlement. Confirm whether each loan split qualifies and whether the offer can be combined with negotiated pricing.

Compare the interest rate and ongoing fees first.
Subtract discharge, registration and application costs.
Confirm payment timing and minimum loan size.
Keep the remaining term unchanged in the comparison.

Small rate differences can outweigh cashback

A $3,000 payment feels significant, but a higher rate on a large balance can consume it quickly. Calculate the dollar interest difference over the period you reasonably expect to keep the loan, then include fees and the incentive.

A simple comparison

Assume one suitable loan includes $3,000 cashback but costs $70 more each month than another suitable loan after rate and annual fees. The additional cost is $840 a year. After about three and a half years, it has used the entire cashback, even before future rate changes. If you plan to keep the loan longer, the lower ongoing cost may be stronger. Use conservative assumptions because variable rates and package fees can change.

Do not increase the loan just to qualify

Some offers require a minimum balance. Borrowing more than you need can increase interest, repayments and risk. Cash out must also have a genuine, acceptable purpose and may require evidence. Do not state a false purpose or leave unnecessary borrowed money sitting in an offset simply to collect an incentive. Compare the net position after the larger debt and any extra fees. A smaller, cleaner loan may create more value than a larger loan with cashback.

Frequent cashback chasing has limits

Repeated refinancing can generate multiple credit enquiries, discharge costs and administration. A lender may question a very short history with the current bank, and a broker agreement may disclose a fee if lender commission is clawed back after early repayment. None of these points makes cashback automatically bad. They mean each move needs a complete cost-benefit calculation and a suitable loan reason. Never assume the next cashback offer or approval will be available.

Questions to ask before you proceed

What is the net saving after every discharge, application, valuation and ongoing fee?
How long is the break-even period if the remaining loan term stays the same?
Which valuation, income or policy issue could still change the approval or pricing?

Key takeaway

Choose the loan on its long-term merits and count cashback only after the underlying comparison works.

Official guidance: Moneysmart: Switching home loans

This is general information, not personal financial, tax or legal advice. Lending criteria, fees and eligibility vary.

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