That Home Loan Hub
Welcome to That Home Loan Hub, your ultimate guide to mastering the world of home loans and property. I'm Zebunisso Alimova, here to simplify the complexities of real estate and provide you with expert insights and the latest trends.
Whether you're a first-time homebuyer, an experienced investor, or simply curious about the property market, this podcast is for you. Join me each week as we unlock the secrets to property success and help you make informed decisions. Let's dive into the world of property together!
That Home Loan Hub
The Truth About Bank Cashbacks: What $20,000 Really Means
The highly publicized "cashback wars" between banks have many Kiwi homeowners wondering how to claim their share of advertised $20,000 incentives. But what's the real story behind these attention-grabbing headlines?
We break down exactly how mortgage cashbacks work, revealing the often-overlooked mathematics behind these offers. While $20,000 sounds incredible, this would require borrowing over $2 million, as cashbacks typically represent just 0.8-0.9% of your total loan amount. For the average New Zealand mortgage of around $500,000, a more realistic expectation would be approximately $4,500.
Beyond the dollar figures, we explore the crucial fine print that accompanies these offers. Most banks require you to remain with them for three years after receiving a cashback, with pro-rata clawback conditions if you leave early. We also discuss the lesser-known concept of cash retention, where your existing bank might offer financial incentives to prevent you from refinancing elsewhere.
Making the right decision requires careful consideration of multiple factors: potential cashbacks, legal costs, break fees for existing fixed loans, and possible retention offers from your current lender. Rather than being swayed by headline figures, it's worth consulting with a mortgage advisor who can calculate whether staying or moving makes more financial sense for your specific situation.
Have questions about whether a cashback offer might benefit your mortgage situation? Reach out to discuss your options and determine if the timing is right to take advantage of the current competitive banking environment.
Hello and welcome back to the episode of Conch Cares. Hey, conch, kia, ora everyone, how are we all? Good, good, good, conch. What are we talking about today? What do you care about today?
Speaker 2:I think we should be talking about cashbacks, because we've seen a few news articles saying that banks are in a little bit of a cashback war.
Speaker 1:Wait wait, wait, wait, wait, wait, wait, wait, wait. What is a cashback?
Speaker 2:So a cashback is a cash incentive that banks are paying clients to either refinance their home loan or take out a home loan, and at the moment there was a big article that came out on Stuff, I think it was. I saw that banks are giving $20,000 up to $20,000 yes, keyword up to but I've seen a lot of questions going how do I get 20k?
Speaker 1:yeah, how do I get $20,000? So how does a seller get up to $20,000 cash back?
Speaker 2:well, it sounds cool getting $20,000 cash back. Wow, it sounds cool getting $20,000, but it's actually based on your loan balance, so you'd have to be borrowing over $2 million to be able to get $20,000. So I think that's where the mixed messages are coming through for people who are like oh, I, you know, anyone, could do with $20,000. I could do with $20,000.
Speaker 1:Yeah, so what are?
Speaker 2:the T's and C's. Yeah, so the T's and C's are basically cash incentives on your loan balance or your loan volume. So it would have to be like I said it's got to be over $2 million to get $20,000, but also, $2 million is a 1%, so it's 1% of 20.
Speaker 1:Some of the banks we know they do about up to 0.9, so one of the major players, and so if your average loan is $500,000, then 90.9% cash back will be $4,500.
Speaker 2:Yeah, and that was another thing I wanted to mention was that banks are actually only doing about 0.8 to 0.9. So it's actually, like I said, it has to actually be 1% of $2 million to get 20K. Yeah, like I said, it has to actually be, 1% of $2 million to get 20K? Yeah, so just to demystify that, how do we get $20,000?
Speaker 1:Well, you can get four and a half, or you know, 10,000 if your mortgage is hitting at around a million. But yeah, in order to get 20,000, you have to be borrowing over $2 million. And look, there are a lot of clients that have, you know, big property portfolio, et cetera, and that could be a good time for them to be moving from bank to bank.
Speaker 1:So you can get that while refinancing, and even though some of it may go to your lawyers because, remember, when you are refinancing you do need to engage a lawyer that will be registering mortgage against the bank. So you have to account for that cost. And this is essentially what cashback was supposed to cover. Back in the day it used to be called solicitor contribution, yeah yeah, and then over time it changed into cash contribution, correct. Now the other hooks are with the deal. Usually you have to be with the bank for Three years or more, otherwise they claw that back as well.
Speaker 1:So if you win lotto and repay your mortgage, or if you do refinance your mortgage to another bank, the current bank that has given you that cash contribution can take back some of that cash back. Correct, and usually it works on pro rata. So if you know, 100% equivalent to three years. If you left them after two years, you'll have to pay back 33% back of that cash back. So always a good one to look out for. And while we're on the cash back topic, let's talk about quickly cash retention, because that's slightly different as well, but similar.
Speaker 2:Yes, exactly yes. So cash retention is. Your existing bank can potentially offer you cash retention to stay with them. So they work it out on again a percentage of your loan. So it depends on how much what your balance is and things like that. But there are opportunities out there for banks to offer that retention to retain their customers. So it's always a good idea to have a chat with your mortgage advisor to see whether there is a retention offer available for you.
Speaker 1:Yeah, so what we usually do is we sit down with you and we look at your numbers. If you move, you will get X amount and you will have to spend on lawyers, or you may have to pay back some of the existing cash back that you've been given two years ago. Or, if you stay, you will have to spend on lawyers, or you may have to pay back some of the existing cash back that you've been given, you know, two years ago. Or, if you stay, you will potentially get XYZ, you know. So then we do a comparison between is it worth staying or is it worth going. Yes, yeah, cool. So today we've covered off cash back and cash retention. Koenji, is there anything else you want to throw in?
Speaker 2:Well, I thought break fees, because when we're talking about refinances, sometimes it's possibly a break fee when we're refinancing.
Speaker 1:Yeah, so if you're currently fixed and, let's say, your loan is made up of two parts one is coming up to be refixed and one is still refixed and you've got another six months to go it's important, vitally important, to double check water, your break fees. Yes, absolutely Awesome. Well, thank you so much. So that was an episode of Kunj Kiss. See you later. Thanks everyone. Bye.