Cash back home loan offers

A cash back home loan is a mortgage that offers you a lump sum of cash, deposited into your bank when the loan settles. These home loan offers can be very tempting: it's free cash, deposited in your account, so it almost feels like you've won money.

Many of these deals are great value for home loan borrowers that give you access to low-rate mortgages with useful features, with a bonus cash injection. But make sure you look carefully at the offer details and the home loan itself, to make sure it's suitable for your borrowing needs before you sign on the dotted line.

A cheaper interest rate and minimal fees will save you more money than a one-off $1,000 cash back payment in the long run, so here's how to work out if a cash back offer is right for you.

What kind of special offers do lenders offer?

Here's a quick run down of the most common types of home loan offers from Australian lenders.

Cash back

Many lenders will deposit your cashback payment into your account once you settle your home loan. This is becoming an increasingly common offer for refinance customers, as lenders fight hard to get existing borrowers to switch to a new lender.

Cash back offers tend to be worth between $1,000 to $3,000 and often come with a few conditions. These can include:

• Loan amount. Most cash back offers specify a minimum loan amount. If you're refinancing a small loan amount, say $100,000, you might not qualify.
• Time limit. Cash back is usually offered for a limited time, specifying that you have to apply by a certain date and have the loan settled by a certain date.
• Loan purpose. Some cash back offers are limited to refinancers, or are specific to home buyers only (and not investors).
• Account. You usually need to open a transaction or savings account with the lender in order to receive the cash back.

Always check the cash back offer's fine print to see if you actually qualify. These offers can be very confusing to navigate.

Cash back offers are enticing offers because it feels like free money. But you always need to check that loan itself is a good deal regardless of the cash back. Don't let the thought of "free" money distract you from doing the hard work of home loan comparison.

Fee reduction or waived fees

Many lenders will waive or reduce fees for a limited time. Given that application fees can cost $600 or more, this is a decent saving. As with home loan cash backs, fee waivers usually have exclusions and eligibility criteria, such as time limits and minimum loan amounts.

Discounted interest rates

Discounted rates can save you a decent amount of money in the early stages of your loan. Be sure to compare the discount rate to other offers and watch out for the end of the offer period, when the rate will rise.

Compare introductory variable rate loans

Package deals

Some lenders allow you to package things like credit cards, savings accounts and offset accounts with your home loan account. You can save by paying a combined annual fee for all products you've chosen to package, as well as enjoy the convenience of having all of your finances in one location.

Read our guide on package home loans for more information.

Frequent flyer points

Some lenders have partnerships with frequent flyer rewards programs. The points you can gain from these loans can equal enough to cover an international flight. You can learn more about frequent flyer loans in our guide.

Is a home loan cash back offer worth it?

Signup bonuses and cashback are attractive side benefits of a loan, but don't get too distracted by them. If the loan itself isn't a good product for you then the bonus just isn't worth it.

A lower interest rate will save you more money than a cash back offer in most circumstances. A mortgage with features like an offset account and flexible repayment options can also help you save money.

Always look at the following when examining home loan special offers:

• Interest rate. Does this loan have a competitive interest rate? Will it save you money even without the signup bonus?
• Period of offer. How long does the signup offer last for? For instance, if the loan offers a special rate for the first year, you need to think about what happens after that first year. Will the loan revert to a higher rate?
• Loan features. The signup offer should not be the only reason you are choosing a certain home loan. You need to take into account all the features offered by the loan and whether they suit your needs and situation.

When a special offer doesn't make sense

Here's a hypothetical example of a refinance cash back offer that looks enticing but doesn't really benefit the borrower.

• Your current loan. You're currently on a 2.95% interest rate with $300,000 left on your loan.
• The offer. You see a package home loan with a $2,000 cash back and a lower 2.50% interest rate.
• The comparison. You look around and see a few loans with a similar 2.50% rate but no cash back, so you go for the one that gives you $2,000. Makes sense, right?

But then you realise it's a package loan, so you get a credit card and an offset account with the loan, plus a home insurance policy. This all comes with an extra $400 annual package fee.

But you don't want the offset account or the credit card, and you're currently getting a better deal on your insurance elsewhere. And that annual package fee? Well, in just 5 years it's eaten up the full $2,000 cash back.

It may not worth it. If you switch to a slightly lower rate loan of 2.4% elsewhere that offers what you need and doesn't have the $400 annual package fee you'll be better off. Of course, if you made use of all the products in the package then the fee might be a small price to pay for the convenience of having all your products with one institution.

It all depends on your borrowing needs.

Compare a wider range of mortgages here