Are refinance rebates worth it?

What’s the deal with home loan rebates?

There’s intense competition within the home loan lending space – especially among the Big 4 lenders. Not only are they offering competitive interest rates but they’re also offering cash rebates to new clients to refinance their mortgage over.

What’s the criteria?

The rebates are often for loans above $250k and with a Loan to Value Ratio (LVR) of 80% or less (meaning you’d need to have at least 20% equity in your property to qualify).

The rebates are generally available for owner occupied and investment properties.

Some lenders will require you to open up a bank account (usually an offset account) and have your loan repayments taken from the account.

There are cut off dates to apply and settle the new loan.

How much are the rebates?

They vary from bank to bank – at the moment, there are lenders that will provide multiple rebates for multiple properties. For instance – they will provide a $4k rebate for the first property you refinance over and $2k for each subsequent property.

Other lenders will provide one rebate of anywhere between $2k to $3k per client irrespective of the numbers of properties/loans being refinanced over.

How much does it cost to refinance?

There’s usually three costs involved.

Your current banks discharge fee (anywhere between $100 to $400), state government fees (around $300) and the new lenders application fee (anywhere from $0 to $600). All in all – as a rough guide it’s usually going to cost around $800 in fees/charges to refinance a loan. These fees can be added onto your new loan.

The refinance costs will be higher if your current loan is fixed (due to high break costs associated with fixed loans) or if you have less than 20% equity in your property (because you’d have to pay lenders mortgage insurance). In these instances – we would generally advise against refinancing because the costs usually outweigh the benefits.

When will the rebate be paid?

Anywhere between a couple of days to a couple of months after settlement. It’s different between lenders.

Is it worth refinancing?

Possibly. If you’re wanting to refinance to get a better rate, change your loan structure or borrow additional funds – then there’s no right or wrong time to refinance. However – these rebates can be an incentive when it comes to working out which lender to go with.

For instance – we recently approached a clients existing lender for a rate discount on their existing loan and it was rejected.

We then refinanced them over to a lender who provided a 0.51% variable rate decrease (saving them $3k+ p.a on interest repayments on their loan) as well as a $4k cashback. The end result is that they ended up with the same loan structure they already had albeit with a different lender who provided a much lower interest rate and a $4k cashback.

Another client with three investment properties qualified for $8k in rebates as well as an annual interest savings of $4.5k+ across his three investment loans. Keep in mind – there are costs involved in refinancing three properties (around $2.4k in this example) but that’s easily covered with the $8k cashback.

When is it NOT worth refinancing?

If your current lender is competitive and you’re happy with the product, service offering and loan structure – then there’s no need to refinance.

If your current loan is higher than 80% of your properties value or if it is fixed – then the refinance costs are likely to be too expensive to justify a refinance.

If you’ve recently missed a loan repayment, paused your repayments or your account conduct isn’t great with your current lender – then it’s best to wait until you have 6 months of good account conduct before applying for a refinance.

All in all – refinance rebates can be a great incentive to refinance your mortgage but shouldn’t be the primary reason behind a refinance. It’s important that you also obtain a lower rate and/or a more optimal loan structure to suit your needs.

If you’re wondering whether you’d benefit from a refinance and qualify for a rebate – get in touch and we’ll have a look into it for you.

Jamie

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If you’d like to have Jamie provide advice on your finance structure, investment strategy, first home purchase, upgrade or refinance simply complete and return this FORM and he will be in touch – this is a FREE, no obligation service.

 

The information herein is not intended as investment, financial, legal, taxation, building, development or any other advice and must not be relied upon as such. You should obtain independent professional advice and make further independent enquiries before making financial, legal, taxation, building, development or investment decisions.