Everything Involved In A Cash Back Refinance

If you’ve been repaying your home loan for some time and your current mortgage is no longer best serving you, you may be considering refinancing to a better offer. And you may be able to have your cake and eat it too with a cash back refinance offer.

A home loan refinance simply refers to the process of switching home loans, whether from one lender to another, to a new home loan with the same lender. For example, if you were an owner-occupier that decided to rent out your home as an investment property, you would need to refinance to an investment loan.

But did you know other lenders and financial institutions may be willing to give you cash-in-hand to refinance with them? This is called a cash back refinance, and you may find that lenders are willing to offer you thousands of dollars for coming on to their books.

Let’s explore everything you need to know about a refinancing for a cash back deal, including the benefits and risks, and how to know if it’s the right decision for you.

 

When should you refinance your home loan?

 

The choice to refinance your home loan is highly individual and based on your personal financial situation and needs. The best time to refinance your home loan is when you’ve done your research and determined it’s the right move for your household.

But there are still some telltale signs that are worth keeping in mind, including:

 

  • Your interest rate is too high and you’re struggling to meet your mortgage repayments;
  • Your fees are too high, such as annual fees;
  • You want more flexibility, such as an offset account or the ability to make extra repayments;
  • You want to access equity in the home, such as for a renovation or as a deposit for an additional property; and
  • You want to pay your loan off faster, so you’re switching to reduce your loan term.

 

Arguably the most popular reason that homeowners refinance their mortgage is because they want a more competitive home loan rate and want to lower their home loan repayments. And lenders are willing to sweeten the deal to encourage you to join with them through competitive offers like cash back deals.

 

What are cash back deals on home loans?

 

As mentioned earlier, cash back deals are when a lender offers you a lump sum, either in the form of cash-in-hand, a reduction on your mortgage or as a gift card, when you successfully gain approval for a home loan with them.

Cash back deals can range from $2,000 – $10,000, depending on the lender and the size of your home loan. They may be available for new purchases, but are most popular with refinancers and offered to encourage new borrowers to join with a lender.

Reduce Home Loans offers cash back deals on a number of its home loan products for both investors and owner-occupiers. It’s worth comparing interest rates, comparison rates and fees, as well as features on offer, for these home loans to see which one may best suit your financial situation.

 

The benefits of a cash back refinance

 

There are several advantages in refinancing to a home loan offering a cash back deal, including:

1. Cash back can pay your switching costs

The cost of switching can be a barrier for some borrowers to refinance, with new application fees, valuation fees, and break fees if you’re ending a fixed rate period early, all adding up. If a lender offers you a cash back deal on approval, you may be able to put these funds towards your switching fees, meaning the refinance pays for itself.

2. Can be put towards upgrades like a new appliance

Another benefit of gaining cash back when you refinance is that it can be spent on your home, or put towards anything your heart desires, such as a weekend away with the family. However, if you do spend it on home upgrades or even a new appliance, you may help to boost the value of the property in the process of refinancing.

3. More than just cash-in-hand

As mentioned above cash back deals do not always come in the form of a lump sum deposited into your bank account. A lender may be willing to offer you a cash back in the form of a gift card with an affiliated retailer or brand.

Some lenders may even be willing to shave this cash back amount off of the loan balance. Depending on the cash back deal, this could amount to a months’ worth of mortgage repayments, which can help reduce the interest you pay over the life of the loan too.

4. Helps with cost-of-living pressures

In the most practical sense, getting a lump sum payment from a lender when you refinance with them can help with cost-of-living pressures, such as covering your groceries for a month or repaying your utilities bills. And if you’re in a season where the cost-of-living is higher, such as experiencing a job loss or higher inflation levels, a cash back deal could make a serious difference for your household budget.

 

The disadvantages of a cash back refinance

 

While there are a number of benefits to refinancing with a cash back home loan, it’s important you weigh up the risks as well, including:

1. There’s more to a home loan than the cash back offer

While cash-in-hand can be a competitive offer, it’s crucial you remember that there is more to a home loan than a cash back deal. You need to ensure all factors of the loan suit your home loan goals and budget, including the interest rate, fees, features, repayment type (variable rate or fixed rate home loan) and more. Don’t let a cash back deal draw you into a home loan that doesn’t suit your needs, make sure you do your research before signing on the dotted line.

2. Switching costs typically pay for themselves

You may break even from refinancing faster than you think, which could make the need to put your cash back towards these costs redundant. For example, if your switching costs sit at around $1,500, but the money you save in interest each year is $3,120 per year (average Reduce Home Loans customer), you’ll have paid off these refinancing costs in less than 6 months.

And if you chose a cash back refinance just to cover the switching costs, you may have missed out on a more competitive offer, like a low rate from another home loan.

3. You will need to have paid off your mortgage for a while

Refinancing in general does not suit every single homeowner. If you’ve only been paying off your mortgage for a few years, you may not have built up enough equity or reduced your loan-to-value (LVR) ratio to qualify for a more competitive home loan.

In fact, your financial situation may have changed entirely, such as being in the probation period of a new job, taking out a personal loan or having large credit card debt, which may reduce your chances of loan approval. Be sure to go over your personal finance with a fine-tooth comb before you consider refinancing.

4. Not always ideal if you’ve almost paid off the loan

It’s also worth keeping in mind that if you only have a few years left on your home loan, you may be better off sticking with your current lender and working off your debt. When you refinance, some lenders may extend your loan term to another 25-30 year mortgage. If you only have, say, five years left on your home loan, you may want to consider focusing on reducing your principal and owning your home outright instead of refinancing for a cash back deal.

 

The process of a cash back refinance

Once you’ve found a cash back deal that best suits your financial needs and situation, you may have decided to take the plunge and apply. The refinancing process does not happen overnight, sometimes taking up to two weeks to finish.

Here is the general process involved when refinancing:

Stage About Time taken
Research There’s more home loans out there than the ones offered by your childhood bank. Research the home loan market for cash back deals that suit your refinancing goals. 1 hour – 1 day
Qualification Check on your financial health, including your credit score, any outstanding debts, any savings so you’re in the best position to gain approval when refinancing. 2-3 hours if healthy, if not, however long it takes to boost your financial situation.
Documentation Gather your personal information and documentation to make the

application process easier, including details about about your existing loan, current council rates notice, bank statements etc.

1-3 hours
Application Now you’re ready to submit your application. This may occur online or in a branch. You may need to pay an application fee at this stage. 15 minutes – 1 hour
Valuation The new lender may assess the property value before approving your new home loan. 2-3 business days
Approval Full approval may take anywhere from a few business days up to 2 weeks, depending on the lender. 2 business days – 2 weeks
Settlement The current home loan lender will transfer the property title and debt to your new lender. This is when you pay any discharge fees to the old lener and upfront fees to the new lender. Standard is 2 weeks. Can take up to 21 business days.

Source: Reduce Home Loans Refinancer’s Guide

What is a ‘cash-out’ refinance?

Cash-out refinancing is the process of switching home loans to access the equity in your property. Typically, this is used to pay for things like a home renovation, a wedding or a family holiday. If you’ve been repaying your mortgage for some time and have built up some equity, you could consider refinancing and increasing your loan amount, so that you can withdraw a portion of your home’s equity as a lump sum.

 

Cash back deals on offer from Reduce Home Loans

 

Standard cash back deals generally range from $2,000 – $4,000, but Reduce offers one of the largest cash back deals in Australia, with $10,000 up for grabs. These cash back deals are available to both owner-occupiers and investors, and for new purchases and refinancers.

 

Cash back deals on offer

Loan Amount Cash Back Deal
$250,000 – $499,999.99 $2,000
$500,000 – $749,999.99 $3,000
$750,000 – $1,999,999.99 $5,000
$2,000,000 + $10,000

Note: For the nitty gritty, see Reduce Home Loans cash back Terms and Conditions here

 

It’s worth keeping in mind that the interest rates and fees charged on a cash back home loan may be higher than if you opted for a no-frills, basic home loan. It’s always important you look at the interest rates and fees charged on a cash back home loan before singing on the dotted line.

Refinancing your home loan does take some time and money, including gathering paperwork and researching your best home loan option. But if you weigh up the pros and cons and determine it is the ideal move to make for your household, it may be worth exploring if you can get a sweetener in the form of cash back for your effort.

 

Any statements are general in nature and do not take into account your financial personal situation, objectives or needs. You should consider whether any statement/s is suitable for you and your personal circumstances. Before making any financial decision, consider your circumstances and the product disclosure statement.

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(29)    For the Rate Cutter Variable where the borrower pays $1170 upfront fees then a corresponding loyalty discount of 0.10% p.a. off the Rate Cutter Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(27)    For the Investor Rate Slasher Cash Back Variable where the borrower pays $0 upfront fees then a corresponding loyalty discount of 0.06% p.a. off the Investor Rate Slasher Cash Back Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(26)    For the Low Rider Cash Back Variable where the borrower pays $0 upfront fees then a corresponding loyalty discount of 0.06% p.a. off the Low Rider Cash Back Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(25)    For the Economizer Cash Back Variable where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.08% p.a. off the Economizer Cash Back Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(24)    For the Super Saver Cash Back Variable where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.10% p.a. off the Super Saver Cash Back Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(23)    For the Super Saver Variable where the borrower pays an upfront fee of $1170 then a corresponding loyalty discount of 0.15% p.a. off the Super Saver Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(22)    For the Economizer Variable where the borrower pays an upfront fee of $1,170 then a corresponding loyalty discount of 0.11% p.a. off the Economizer Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(21)    For the Investor Cash Back Hero Variable where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.08% p.a. off the Cash Back Hero Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(18)    For the Home Owners Dream 1 year fixed where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.20% p.a. off the Home Owners Dream reverted variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(20)    For the Cash Back Hero Variable where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.08% p.a. off the Cash Back Hero Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(14)   For the Investor Rate Slasher where the borrower pays an upfront fee of $1,170 then a corresponding loyalty discount of 0.09% p.a. off the Investor Rate Slasher rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(12)   For the Investor Rate Lovers Interest Only where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.07% p.a. off the Investor Rate Lovers Interest Only rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(11)   For the Wealth Maximizer 3 year fixed Principal & Interest where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.20% p.a. off the Wealth Maximizer reverted variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(10)    For the Wealth Maximizer 2 year fixed where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.20% p.a. off the Wealth Maximizer reverted variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(9)    For the Home Owners Dream 3 year fixed where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.20% p.a. off the Home Owners Dream reverted variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(8)    For the Home Owners Dream 2 year fixed where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.20% p.a. off the Home Owners Dream reverted variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(7)    For the Investor Rate Slasher where the borrower pays an upfront fee of $1,170 then a corresponding loyalty discount of 0.09% p.a. off the Investor Rate Slasher rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(6)    For the Investor Rate Buster Variable where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.08% p.a. off the Investor Rate Buster Variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(5)    For the Rate Buster Variable where the borrower pays an upfront fee of $150 then a corresponding loyalty discount of 0.05% p.a. off the Rate Buster Variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(4)For the Rate Slasher Variable where the borrower pays an upfront fee of $1,170 then a corresponding loyalty discount of 0.08% p.a. off the Rate Slasher Variable rate (at that time) will automatically apply after the 5th anniversary of the loan. These fees and loyalty discount are factored into the comparison rate. The loan setup fees are not refundable.

(3) For the Investor Rate Lovers Variable where the borrower pays $0 upfront fees then a corresponding loyalty discount of 0.06% p.a. off the Investor Rate Lovers Variable rate (at that time) will automatically apply after the 5th anniversary of the loan. These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(2)For the Rate Lovers Variable where the borrower pays $0 upfront fees then a corresponding loyalty discount of 0.06% p.a. off the Rate Lovers Variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(1) For the Low Rider Variable where the borrower pays $0 upfront fees then a corresponding loyalty discount of 0.06% p.a. off the Low Rider Variable rate (at that time) will automatically apply after the 5th anniversary of the loan. These fees and loyalty discount are factored into the comparison rate. The loan setup fees are not refundable.

(28) For the Rate Crusher 1 Year Fixed where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.05% p.a. off the Rate Crusher reverted variable rate (at that time) will automatically apply after the 5th anniversary of the loan. These fees and loyalty discount are factored into the comparison rate. The loan setup fees are not refundable.

(19) For the 1 Year Fixed Wealth Maximizer where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.20% p.a. off the 1 Year Fixed Wealth Maximizer reverted variable rate (at that time) will automatically apply after the 5th anniversary of the loan. These fees and loyalty discount are factored into the comparison rate. The loan setup fees are not refundable.