Free money in your lunch break: The banks now paying you thousands to switch to a cheaper home loan

A bidding frenzy has begun in earnest as lenders trip over themselves to secure new business from home owners. In the past few weeks, some of the nation’s biggest lenders have announced they will fork out up to $4000 cash in exchange for your business.

More than 20 different banks and lenders are putting cash on the table if you refinance, which is an enticing offer in anyone’s books.

Westpac, St George, HSBC, Commonwealth Bank, Bankwest and AMP are among lenders literally throwing money at home owners willing to refinance.

The slew of cashback deals coincides with cost of living pressures reaching fever pitch in the lead-up to Christmas, with switching no doubt already top of mind for stretched home owners hoping to shave thousands a year off their mortgage repayments.

It’s a tough time for over-stretched home owners. Just this week, the Reserve Bank of Australia Governor Philip Lowe apologised to the thousands of Australians who took out mortgages with the expectation that interest rates would stay unchanged until 2024.

His comments related to the RBA failing to make it clear that its commentary about steady interest rates was heavily conditional on the state of the economy.

Sign-up incentives for new customers are rolled out from time to time by lenders. The current official cash rate is 2.85 per cent, but we are days away from the next Reserve Bank Board meeting, where monetary policy decisions are on the agenda.

In reality, the cashback deals are a sign that lenders are starting to concede that the new year could start with a recession due to a further slowing of the economy and a spike in unemployment.

Refinancing your home loan

BankWest is offering $2000 cash back to eligible customers who refinance with the lender between now and February 28.

Bank of Melbourne has settled on $4000 refinance cash back, while Ubank is offering $5000 for your business.

St George Bank has put in place a $4000 cashback offer, while the CommBank is offering $2000. HSBC is offering a cashback of $3288, while Westpac will fork out $2000.

While you’ll, of course, need to read the fine print to see which deal works best for your circumstances, it’s another sign that being loyal to your bank – often called the “loyalty tax” – doesn’t pay off these days, Natalie Abel of Domain Home Loans says.

“The bank wants to see you make your first loan repayment, forking out the refinance cash bank amount around six weeks after settlement,” Natalie Abel says.

“The minimum amount to be eligible to refinance with most banks now is $250,000, and the Loan To Value (LVR) mustn’t exceed 80 per cent. The security also needs to be a residential property that is used as an investment or is owner-occupied.

“Just remember that anyone that has to go back into LMI territory with their mortgage will not get a refinance rebate,” Abel says. “They need to be 80 per cent and under to obtain this offer in all cases.”

But read the fine print. There are a number of hidden costs involved in refinancing, from mortgage discount fees, mortgage registration fees, new application fees and even Lender’s Mortgage Insurance, Abel warns.

In most cases, the refinancing process could take a few weeks to complete, depending on the complexity of the loan. “If you do decide to refinance, be quick, with most of these deals off the table by April 2023,” Abel says.