It has become common practice in New Zealand for the major banks to offer cash backs with new mortgages, whether that is a refinance or a new purchase. It’s one of the advantages of using a mortgage broker to arrange your mortgage as they can make sure your cash back is maximised and also work out the overall financial benefit of cash backs and discounted rates versus other costs.
Cash backs are not constant and they vary from time to time. They’re also generally not advertised, so you don’t know what you’ll get until you have your mortgage application processed.
With Squirrel we process around $1 billion of lending every year, or roughly 20 home loans every working day. Our mortgage platform shows our advisers the pricing on every deal going through the system. This puts them in a uniquely strong position to understand what is happening across lenders depending on loan size, loan-to-value ratio (i.e. below 80% LVR) and type of property (rental versus owner-occupied).
Each lender is different in terms of how they approach it, and it should be looked at as a combination of rate and cash back.
Cash backs are just another acquisition tool, like any other promotional offer
Some banks will instead offer hot short term rates as an acquisition cost with no cash back. Others won’t be so aggressive on the rate but may offer a cash back as much as 0.70% of the loan on an owner-occupied property.
You’d be better-off getting a big cash back then getting an extra 0.20% off your rate for 12 months, noting that some lenders like HSBC only offer special rates to customers if they are borrowing new money / not fixed rate rollovers and therefore these specially really are a one-off and the hidden trade-off is basic loan and banking products without a lot of the features the NZ banks have.
Cash backs require that a client stay with the lender for up to 3 years otherwise it can be clawed-back. So if you intend to sell within that timeframe it’s not such a good offer. Equally if you only fix for a year, you might not find the next offer as compelling but now you’re stuck for at least another two years in a rate environment that is likely to be increasing.
Every client situation is different. We sometimes have clients say their friend down the road got a better deal. It’s hard to compare pricing and let’s face it, the deals we get are often below advertised offers.
One of the benefits of using a mortgage broker is we can negotiate with your existing bank from a position of power. Not only can we take you elsewhere, but we know exactly what pricing we can get from other banks. And the practical reality is that a lot of our clients don’t want the hassle of moving banks, they simply want the peace-of-mind knowing they aren’t getting ripped-off.