Finance Your Budget Home loan customers warned against falling for enticing promotions

Home loan customers warned against falling for enticing promotions

Borrowers are being warned to think twice about massive cash incentives. Photo: Getty
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Banks are offering massive cash bonuses to win over customers looking to refinance, but analysts say some deals aren’t as good as they look.

Suncorp, Reduce Home Loans, and 86 400 are the latest lenders to offer cash incentives to lure new home loan customers.

All three are offering a minimum cash incentive of $2000 to customers who sign on the dotted line, with Suncorp handing over an extra $1000 to essential workers such as teachers and nurses.

Comparison site said a total of 13 banks are now offering a sweetener on their home loans, with ANZ handing out the biggest ($4000).

Although cash incentives are nothing new, RateCity research director Sally Tindall said this was the first time banks were attaching them to home loans with competitive rates.

However, she warned prospective borrowers to look past the enticing incentives when assessing the value of a home loan product, as the cost of higher interest payments is usually greater than the one-off cash bonus.

“Someone who refinances every couple of years to a competitively priced loan could potentially come out on top by taking up a cash-back special,” Ms Tindall said.

“However, over the long term it’s a completely different story.

A low rate is almost certainly going to trump a one-off perk over 10 or 20 years – often by tens of thousands of dollars.”

The table below explains how much more borrowers will pay over the life of a loan if they opt for a cash-back offer, instead of signing up for the lowest available interest rate.

For a more complete version of the above table, click here.

RateCity’s home loan checklist

Before signing up for a cash-back deal, RateCity suggests checking the following:

  • The interest rate – is it competitive? The lowest variable rate is now 2.29 per cent and the lowest fixed rate is 2.09 per cent
  • Cash-back eligibility – read the terms and conditions carefully to make sure you qualify
  • Bank fees – Some banks charge no upfront or ongoing fees, so make sure to ask your new lender to waive them
  • Loan features – Ask about offset and redraw facilities to find out if you can make extra repayments. Variable loans normally have more flexibility than fixed loans
  • Personal finances – Ask yourself whether now’s a good time to refinance. Do you have a steady job and a reasonable amount of equity in your home?