What is a cash back offer? When you go to a new lender to refinance your existing home loan, the new lender will give you hard cash deposited in your bank account when the loan settles. The intention was to assist refinancers to cover switching costs.
While cash back is not a new strategy it has been attracting more borrowers lately.
Why do people get attracted to this? Such offers are hugely attractive to those who are looking for short term gains. Cash back offers are marketed as a limited time offer which creates a FOMO in borrowers. This is where lenders capitalise on your fear.
Borrowers at times refinance their home loan to a package deal which could cost around $395 a year. So if you are getting a cash back on $2000, that is eaten away by the package fee in 5 years leaving you with another 25 years on a typical 30 year loan.
Refinancing purely to get a cash back means you are resetting your loan term to 30 years. Yes surely you will pay less every month but now for longer.
In most circumstances a lower rate will save you more over the loan life than the cash back offer. Cash back offers are not a bad friend altogether. You want to ask yourself a question: is this loan product still a right one for me if cash back was not offered? If the answer is yes, then this cash back can give you a little boost.
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