A few thousand dollars from a bank for moving your mortgage can be pretty tempting.
Mortgage cashback offers have become a common way for New Zealand banks to compete for new home loan customers. Depending on your loan size, deposit, and the lender involved, the cash contribution can be significant.
So if another bank is offering you cash to move, should you take it?
Sometimes the answer is yes. But the cashback should be one part of the calculation, rather than the reason for changing banks.
Before making the move, I would want to know what the new bank is offering on your interest rate, whether the loan structure suits you, what switching will cost, and what conditions are attached to that cash.
What Is A Mortgage Cashback?
A mortgage cashback, sometimes called a cash contribution, is money a lender pays when you take out qualifying new lending with them.
For homeowners, that commonly happens when you refinance your existing mortgage from one bank to another. First home buyers and people purchasing another property may also qualify when arranging new lending.
The amount is often calculated as a percentage of the home loan, although banks can also set minimum or maximum amounts alongside special offers. The market changes regularly, and lenders can be more generous with some applications than others.
That means it is worth finding out what is available rather than assuming the advertised offer is automatically the best one.
If you are considering changing lenders, a proper mortgage review, refix or refinance should compare the whole deal.
A Large Cashback Can Look Very Attractive
Let’s say you have a $700,000 mortgage and another lender makes you a strong cashback offer to move your lending across.
Receiving several thousand dollars into your account after settlement certainly feels like a win.
You could use it towards legal costs, put it back into the mortgage, keep it as emergency savings, or use it for something else entirely.
But there is an important question to ask:
What are you agreeing to in return?
Banks offer cashback because they want your mortgage business and usually want to keep it for several years. There will generally be conditions attached, including provisions allowing the lender to recover some of the contribution if you repay or refinance the loan too soon.
That does not make cashback bad. It simply means the headline number needs some context.
Check The Cashback Clawback
This is one of the first things I would look at.
Mortgage cashback agreements generally include a clawback period. If you sell, refinance, or repay the lending within that period, you may need to repay some of the cashback.
Current NZ arrangements commonly use a pro-rata approach, so the amount repayable reduces as you move through the agreed period.
That becomes important if your plans could change.
Perhaps you expect to sell within a year or two. Maybe there is a possibility of moving overseas, buying another property, or restructuring your lending again. A large cashback today may be less attractive if it limits your flexibility tomorrow.
Before accepting anything, understand exactly how long the commitment lasts and what happens if you leave early.
Do The Interest Rate Maths As Well
A cashback is paid once.
Your mortgage interest is charged every day.
That difference is important.
A bank offering the biggest cash contribution may not necessarily be giving you the best interest rate for your circumstances. Even a seemingly small rate difference can become substantial when applied to a large mortgage over several years.
For example, a 0.10% difference on a $700,000 loan is roughly $700 of interest in the first year before allowing for repayments. Over several years, that starts eating into the value of the cashback.
The calculation becomes even more important if the rate gap is larger.
This is one reason I keep coming back to the same principle. Mortgage advice should look beyond the headline number. Our recent article, Mortgage Advice Is Much More Than Chasing The Lowest Rate, covers the same idea from a wider lending perspective.
Cashback is no different.
Switching Banks Is Not Completely Free
There can also be costs involved in moving your mortgage.
Your solicitor will usually need to discharge the existing bank’s mortgage from the property title and register the new lender’s security. Depending on the application, there may also be valuation costs or other expenses.
If you are currently on a fixed mortgage rate, there could be an early repayment or break cost as well. That needs to be checked before making any decision.
Then there is the practical side.
Moving banks can mean setting up new accounts, cards, salary payments, automatic payments and direct debits. Some lenders may also require your salary or everyday banking to move as part of the cashback arrangement.
None of these issues necessarily make switching a bad idea. They simply need to be included when you work out the real benefit.
Your Existing Bank May Want To Keep You
Switching is not always the only option.
If another lender has made a competitive offer, your existing bank may have an incentive to retain your business. Depending on the bank, your loan and your previous cashback arrangements, there may be an opportunity to negotiate a retention contribution or better pricing without completing a full refinance.
The retention offer may be smaller than the cashback available from a new bank.
But staying also avoids some of the legal costs and administration involved with changing lenders.
That is why I would compare the net result, rather than comparing two cashback numbers.
For existing homeowners considering their next move, home loan advice for existing homeowners and rental investors can also help determine whether staying, refinancing or restructuring fits the longer-term plan.
Remember That Refinancing Means Applying Again
Changing lenders normally means going through a new home loan assessment.
The new bank will look at your current income, debts, expenses, account conduct and the property being offered as security.
That can matter if your circumstances have changed since the original mortgage was approved.
Perhaps you are now self-employed. Your household expenses may have increased. You may have taken on car finance, had children, or reduced your working hours.
A cashback offer does not override lending criteria.
For borrowers whose finances have become less straightforward, self-employed and specialist lending advice can help establish which lenders are likely to assess the application favourably before anything is submitted.
When Can Switching For Cashback Make Sense?
I would be particularly interested in switching if:
- the new lender is offering a competitive interest rate
- the cashback comfortably covers the costs of moving
- the new loan structure suits your current goals
- you are unlikely to need to move lenders again during the cash back clawback period
- there is another genuine benefit to refinancing, such as improving your loan structure or accessing better flexibility.
For someone taking out their first mortgage, cashback can also help with some of the costs that arrive around settlement, but the same rule applies. The bank and loan still need to be right for you. Good first home buyer mortgage advice should consider the incentive alongside the wider lending package.
Look At What You Have After The Cashback Is Gone
A mortgage could be with you for 20 or 30 years. The cashback might be in your account for 20 or 30 minutes before it gets allocated somewhere else.
That is why I would never choose a lender based on the cash contribution alone.
The better question is:
Once the cashback has been paid, would I still be happy with this bank, this interest rate and this mortgage structure?
If the answer is yes, a strong cashback can make a good refinancing decision even better.
If the answer is no, the money may simply be distracting you from a loan that does not suit you.
Before switching, run the numbers properly. Compare the rate, cashback, legal and break costs, clawback conditions and the structure of the new loan. Then you can see whether moving banks genuinely leaves you in a better financial position.