Home loan refinancers can collect a cash bonus

WITH Michelle BALTAZAR Editor-in-Chief • Money magazine

Rather than raising the white flag in the face of the relentless tide of interest rate rises, plenty of homeowners are pushing back by refinancing their loans.

In November alone, the Australian Bureau of Statistics revealed that a record $19.4 billion worth of loans were switched from one lender to another.

The prospect of securing a lower rate isn’t the only alluring part of refinancing, though: cashback offers are well and truly in vogue.

A cashback is exactly as it sounds: a cash sweetener, often in the thousands of dollars, for those willing to make the switch.

Sounds great, but here are four things to consider before taking up that cash.

1. Are you eligible?

Unfortunately, the reality is that not everyone will be in a position to refinance in the first place. Typically, borrowers will need to have a loan-to-value ratio below 80% and a loan size greater than $250,000 to be eligible for one of the cashback offers on the market. either in the form of exit fees to discharge your existing loan or upfront fees from a new lender. illustrate the benefits of the two options. years the $83 difference in monthly repayments would put Loan B ahead.

As well, most deals require the new loan to be settled within three months.

2. The size of the deal Shopping around is a must: a recent check showed 30 lenders in the database of financial comparison website Mozo were offering cashbacks ranging from $1500 to $10,000.

The most generous deals tend to be for mortgages over $1 million, though borrowers refinancing lower amounts will have plenty of options in the $3000-$4000 range from a variety of lenders, including the major banks, customerowned institutions and nonbank lenders.

The equation becomes even more complicated for anyone who is considering refinancing a fixed rate, who will likely be charged a separate break-cost fee that could eclipse the value of refinancing.

4. Cash or lower rate?

Say you have 20 years left on an outstanding loan of $500,000 and you’re tossing up between refinancing to Loan A or Loan B – both of which have lower rates than your existing loan.

Of course, this example doesn’t include how that cashback amount is used in the meantime, nor does it factor in the possibility of refinancing again during that period.

When you dispose of shares, assuming you are an investor, not a trader, you will normally have to pay capital gains tax (CGT) on any profits.

Typically, CGT arises when you sell shares but can also happen if you give them away or you stop being an Australian resident.

CGT taxes any increase in value from the time the share was

3. The cost of switching Chances are refinancing will come with a few extra costs, acquired. (Any shares acquired before September 20, 1985 are not subject to CGT.)

One of the most common questions of all is whether it’s worth punting for a cashback deal or a lower interest rate.

Here’s one example to

Loan A comes with a rate of 5.30% and a $3000 cashback offer, while Loan B has a rate of 5% and no cashback.

Crunching the numbers, the cashback deal could make Loan A the more appealing option initially, but after three

At the end of the day, the answer will depend on your own situation, but the aim of the game should always be securing a better deal.

Review your loan regularly While Loan B – the lower