Australia’s second largest lender has increased its cashback offer for refinancers in a bid to attract new business.
Westpac upped its incentive from $2,000 to $3,500 in a move designed to secure a bigger slice of the refinancing pie. This as the latest refinancing statistics from ABS showed a record $19.5 billion worth of loans were refinanced in November.
“Australia is going through a refinancing boom and Westpac wants a bigger slice of the action,” said Sally Tindall, RateCity.com.au research director. “With just under $20 billion up for grabs each month it’s no wonder Australia’s second largest lender is upping the stakes to bring in new business.”
Westpac’s lowest variable rate now sits at a relatively competitive 4.64%. That rate, however, jumps by 0.4 percentage points after two years.
According to RateCity.com.au analysis, a refinancer with a $500,000 loan who switches to Westpac’s lowest variable rate, with the cashback, instead of opting for one of the lowest rate loans in the market, would come out ahead in the first two years.
Beyond this time, however, the lower rate option comes up trumps.
See the table below for the true cost of a cashback deal based on a $500,000 owner-occupier loan with at least 30% equity.
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|
|
Cost (interest + fees + cashback) |
||
|
|
Current rate |
After 1 yr |
After 2 yrs |
After 3 yrs |
|
Westpac Flexi First |
4.64% |
$23,324 |
$46,855 |
$69,542 |
|
One of the lowest variable rates |
4.36% |
$25,528 |
$47,663 |
$67,066 |
|
Savings compared to lowest |
|
$2,204 |
$808 |
-$2,477 |
Notes: based on an owner-occupier paying principal and interest with 25 years remaining. Assumes borrower has a loan-to-value ratio of 70% or less. Lowest rate is the average of the five lowest ongoing variable rates on RateCity.com.au.
Westpac’s cashback offer sours sooner on larger loans, however. On a $1 million loan, the lower rate option comes out ahead by the second year.
It’s not just Westpac that’s offering cash to potential financers. Thirty-three lenders are currently offering cashback deals, with the highest cashback for a $500,000 mortgage currently at $4,000, a deal offered by 12 lenders, according to the RateCity.com.au database.
“While these types of offers encourage people to switch, borrowers should do the maths and read the fine print before taking up a cashback offer,” Tindall said. “An offer of cold hard cash at a time when your budget is buckling under pressure can be hugely tempting, but remember, these deals are marketing plays so make sure you’re coming out on top…
“A competitive interest rate typically trumps a one-off perk, particularly on larger loans and almost certainly in the longer term. That said, savvy refinancers who drive a hard bargain on rate and commit to switching lenders regularly can potentially come out ahead using these deals…”
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