Banks in New Zealand often offer thousands of dollars in cashback payments to win your mortgage business. The marketing hook is obvious: instant money in your account, just for taking out a home loan. With the right approach, refinancing and securing a mortgage cashback can be a genuine financial boost, helping you reduce your loan principal, manage costs and even get ahead on repayments.
Cashbacks are incentives offered to new customers to switch lenders, while cash retention payments are offered by your current bank to keep you from moving.
Cashbacks provide an incentive for customers to refinance and switch banks by helping to cover costs such as solicitors’ fees or moving costs, or even just a bonus amount to put onto your mortgage or towards something else off your wish list…
The offer is either a fixed sum (which is typically what the banks advertise), or a percentage of your loan amount. Recently we’ve helped clients secure cashbacks of $5,400 on a $600,000 mortgage, and $9,000 on a million-dollar loan.
The most powerful way to use a cashback is not a holiday or a new couch (though tempting!), but to reinvest it straight back onto your mortgage. For example, if you are able to make a $5,000 lump-sum repayment on a $600,000 loan with a 4.75% rate, you could save more than $10,000 in interest over the life of the mortgage and cut months off your repayment terms.
Some homeowners deliberately refinance every three to four years, waiting until the ‘clawback’ (see explanation below) period has passed, then securing another incentive.
Understanding and leveraging cashbacks can help savvy borrowers accelerate debt repayment. Yes, there is admin that comes with changing lenders but if used strategically alongside smart structuring, you can cut thousands of dollars and years off your mortgage.
A less talked about cousin to the cashback is the cash retention payment, which is where your current bank pays you to sticking with them as a client when they refinance or take out a new loan. Rather than letting you move to another bank, they make it worth your while to stick with them. Although typically the amounts aren’t quite as much as you’d get for switching banks, the amounts can still be significant.
The key thing to note about cash retention payments is that they are highly unlikely to be offered to you automatically by your bank when it comes time to refix your loan. In all likelihood, you will just receive a letter, text or prompt via your app that your fixed rate is expiring and that it is time to fix a new interest rate. Makes sense though, why would your bank offer you money to stick with them if they don’t have to! Instead, your adviser will need to request and negotiate a payment on your behalf.
Most cashbacks and cash retention payments do come with a clawback clause, usually two to four years. If you sell or refinance before then, you may have to repay some or all of the cash. Depending on the timeframe, the clawback is likely to be scaled.
While this may sound like a catch, for borrowers who are planning to stay in their property or maintain their lending with the same bank for at least three-years, it’s not an issue.
When it comes to securing a cashback, benefits include:
However, refinancing isn’t only about securing a cashback or retention payment, it can also be an opportunity to reset and optimise your entire lending strategy. For some, this might mean extending loan terms or shifting to interest-only repayments on investment properties, freeing up cashflow to focus on reducing non-deductible home loan debt. For others, refinancing provides a chance to tidy up or simplify loan structures, making them easier to manage day-to-day.
Refinancing can also provide the perfect opportunity to tailor your repayments to your current needs, whether that’s locking in the flexibility to make extra payments or restructuring for stability. Importantly, moving to a new bank can also open the door to products your current lender may not offer, such as offset mortgages, which allow you to use your savings to directly reduce the interest charged on your loan. Taken together, these benefits mean that refinancing can be about much more than just the cash incentive as they also provide a valuable opportunity to make your mortgage work effectively and bring you closer to your financial goals.
Mortgage cashbacks aren’t just marketing spin. Used wisely, they can provide a meaningful financial advantage, helping you reduce your loan balance, offset cost and manage the financial commitments that come with home ownership.
Like any financial decision, it pays to speak to speak to your adviser and consider your short, mid and long-term plans. Your adviser is well placed to negotiate an incentive on your behalf, as they are aware of what each bank is offering and the terms and conditions associated with each offer. They will also be able to support you throughout the application process and ensure that your loan structure is optimised based on your financial circumstances and goals.
For borrowers who understand how to leverage them, cashbacks and cash retention payments are a great tool to have up your sleeve. Used effectively, they can help turn the dream of financial freedom into a faster reality (or alternatively – bring that holiday you’d been planning to Bali one step closer!).
If you’re interested in finding out whether refinancing your lending will get your one step closer to your financial goals along with whether you qualify for a cashback or cash retention payment, book a free chat with one of our advisers.
Plus, if you complete a free mortgage, insurance or KiwiSaver review this month, you’ll also go in the draw to win a month’s free mortgage repayments on us, up to $5,000.
To book your free review, click here.
The content of this article should not be taken as financial advice, or a recommendation of any financial product. These insights are based on current economic commentary, market pricing for interest rates, and our personal opinion. Threefold is not liable or responsible for any information, omissions, or errors present.