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Think twice before you go for the cashback

Think, lightbulb

Incentives like rewards points or cashback offers sound appealing, but can leave borrowers up to $85,000 worse off over the life of the loan, new analysis has suggested.

According to financial comparison provider RateCity, weaker lending figures are driving banks to offer incentives, but these incentives can be little more than red herrings over the life of a 30-year loan.

“Don’t go choosing something as important as a home loan based on a short-term perk,” RateCity spokeswoman Sally Tindall said.

“Free overseas flights or a lump sum of cash might grab your interest, but most home loans have a 30-year term, by which time the holiday will be a distant memory.

“There are lots of specials on the table at the moment because the banks are eager for your business. Growth in home loans is slowing and that’s got the banks’ marketing departments working overdrive.”

The Commonwealth Bank is the most recent lender to launch an incentive, offering borrowers a $2,000 cashback deal on some of its loans. It follows Westpac, the Bank of Sydney, Homestar Finance, Virgin Money, UBank and Reduce Home Loans in using the tactic.

However, based on an owner-occupier principal and interest loan of $300,000, borrowers could end up paying between $690 and $85,051 more over a 30-year loan.

RateCity broke it down:

Provider Product Perk Rate Extra cost compared with lowest rate loan over 30 yrs

Wealth Package Variable  


$2,000 cash back 4.72% $85,051
Police Bank

Premium home loan


$1,000 cashback 4.74% $75,848
Bank of Melbourne

Advantage Package


$1,500 cashback 4.45% $67,941

Premier Advantage package


200,000 Velocity Reards points

4.44% $66,842
St George

Advantage package


$1,500 cashback 4.42% $66,023

Advantage package


$1,500 cashback
P&N Bank

& home loan


$1,000 cashback 3.99% $27,560
Northern Inland CU

Introductory homeloan


Up to $1,000 cashback 3.69% $12,799

Discounted rate loan


$1,000 cashback 3.69% $9,069
Virgin Money

Reward me variable loan


Max 630,000 Velocity Rewards points over life of loan 3.68% $7,039
Bank of Sydney

Expect more package


Package fee waived for life of loan 3.58% $3,378
Homestar Finance

Homestar Finance


$900 cashback 3.54% $690

“If you’re looking for a home loan, first make sure it is a fit for your finances. Then look for a loan with a low rate and low fees. Any cash or points offered beyond that are a bonus,” Ms Tindall told borrowers.

Think twice before you go for the cashback
Think, lightbulb
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