What is Mortgage Cashback?
A cashback is a sum of cash the bank will give back to you as an incentive for becoming a new customer. No, it is not typically delivered in a suitcase, but yes it is money that is deposited straight into your account.
This is a specific article about mortgage cashback, to learn everything you need to know about mortgages please read our overview. Cashback offers change all the time. In the past offers have been as high as 1% of funding and so low it is barely worth mentioning. For example, if you had an $800,000 mortgage and received 0.8% cashback that would be $6,400 deposited into your bank account. We do hear of people saying ‘my manager said they don’t do cashback any more…’ well, that is not our experience. Cashback is alive and some banks are still offering big incentives for new customers.
To see a snapshot of cashback over the last few years, take a look at these NZ Herald links.
When negotiating a new lending offer (either a new purchase or by taking your unpaid mortgage lending and refinancing to a new bank), you may get discounted interest rates and a cash-back offer. Sometimes known as a cash incentive, cash offer, cash-back, cash-money. Whatever you’d like to call it, it’s an essential part of a competitive offer. Banks are most willing to provide these offers for lending over your primary place of residence, or over-investment properties when you’re also able to give them your primary residence as security.
The amount of cash a bank will be willing to give you depends on your profile and a variety of factors. Some of the factors are; what the Loan to Value ratio (LVR) of your deal is, if you are trying to get an interest-only mortgage, how much income you are earning, and how large the loan is. Kiwibank (at the time of writing) will often take it a step further by not only paying cashback but also paying for legal fees and matching other bank offers. iRefi.co.nz is one of a select few mortgage broker companies able to work with Kiwibank.
Understanding your cash back agreement and break fees
When banks give you a cash incentive, it’s generally to reward you for coming on-board as a new client, and it’s usually used to incentivise you to stay as a customer of the bank for a few years MINIMUM. Each bank will lock you in for a different amount of time, and these cash incentive agreements are bank-wide and completely non-negotiable.
- BNZ has a 4-year agreement, with a reducing commitment each year
- Westpac, ANZ, ASB & Kiwibank all have a 3-year agreement
- Other NZ banks range
Updated December 2018, please check your loan documents carefully – the cash back period will be spelled out and we can’t guarantee up to date information on the website. Of course, if we are advising you this is one of the strategies your mortgage adviser will workshop with you to ensure you get maximum value.
While the BNZ’s cash back agreement ties you in for the longest period of time, each year they will reclaim 25% less than the year before if you leave. For example, if you were to switch banks or repay your lending with the BNZ after 2 years, they would reclaim 50% of the money you were originally gifted, while the other banks would reclaim the full 100% all the way through until the end of the agreed period. Each has its pros and cons, which should be considered when discussing the right option for you with your iRefi mortgage adviser.
If you refinance within your cash back period, the bank will definitely reclaim this gift to you. If you repay all of your debt because you’ve sold your house, they are likely to make you repay your cash incentive. If, however, you only repay a portion and retain some of your lending with the bank, it’s unlikely they will ask you to repay the offer.
The repayment of cash back is a different factor to early termination fees/break fees – which are based on the remaining term of your fixed interest rate term.
Take the mortgage snapshot which automatically calculates the amount of cashback you are likely to receive if you took out new lending.