BANKS are using cashback deals and bonus Frequent Flyer points to lure in new mortgage customers but it could leave them worse off.
Lenders are using incentives including cashbacks, doubling the value of Frequent Flyer points earned on settlement, waiving application fees and dishing out gifts cards to snare new business, analysis by financial comparison website RateCity has revealed.
The Reserve Bank of Australia met again yesterday (TUES) and unsurprisingly kept the cash rate on hold at 1.5 per cent but customers continue to be hit by increasing interest rate deals and are being forced to have fatter deposits before signing up to a new deal.
RateCity spokeswoman Sally Tindall has urged borrowers to look beyond the bonuses attached to home loan offers because often it will mean they end up paying for a loan that is more expensive.
“With any introductory deal or special on your home loan crunch the numbers and make sure that you are going to be ahead by taking out that particular product,’’ she said.
“There’s no point looking short term when it comes to home loans, you need to look long term to work out the best product for your financial needs and the one that will see you financially better off.”
RateCity analysis shows on a $300,000 30-year home loan if the customer was paying the average variable rate at 4.51 per cent their total loan cost would be about $548,000 over the loan term.
Instead if they signed up to a loan with the lowest variable rate at 3.44 per cent their total loan cost about $481,000 or about $65,500 less if they took the deal with a $1500 cashback offer.
Home Loan Experts’ managing director Otto Dargan said most of the time incentives are a waste of time and money.
“Banks use all sorts of deals to attract customers and most of the time they’re just gimmicks,’’ he said.
“Occasionally there are some that have an incredible rate and a large cash back which turns out to be market leading.
“Borrowers should focus on the cost of the loan over four years as that is how long most people keep a loan before refinancing.”