What traps are associated with bank cashback offers?
A study by Mozo reveals that Aussie home loan borrowers are being trapped into taking out loans with high-interest rates because they believe they will receive significant cash back incentives.
The report found that most of the cashback deals offered by Australian lenders are very small compared to what the borrower could save by switching to a cheaper loan.
Mozo analyzed data from over 20,000 home loan applications across five states – NSW, Victoria, Queensland, Western Australia, and South Australia – to determine how much money borrowers could save by switching to a better deal.
In NSW, for example, the average cashback incentive was $2,500 per year. However, Mozo discovered that if you applied for a $300,000 fixed-rate loan and paid the entire cashback amount every month, the lender would still charge you almost $15,000 in interest throughout the loan.
This equated to a total savings of $37,294 over ten years.
However, if you took out a $1 million loan, the savings would be even more significant. In this case, the lender would charge you $30,000 in interest over ten years, which meant the savings over the same period would be $61,294.
Even though some cashback offers look attractive, Mozo warns that many borrowers and their brokers need to realize they could be locked into paying too much interest.
If you want to switch your loan, contact us at Mortgage house and talk with one of our experienced mortgage lending specialists to see how you can avoid a high-interest rate trap.