Cash back deals for new loans is not new. Much has been written (including here) about the looming mortgage cliff. RateCity report around 100 billion dollars of fixed rate loans at historically low interest rates, expire during the second half of 2023.
With many loans already expiring, it is creating a highly competitive mortgage market, all chasing market share. While lenders can only sharpen their pencil so far, for the last 12 months they have been offering cash payments as a hook.
Canstar and Mozo list dozens of lenders offering cashback deals of between $1,000 to $6,000 depending on the size and details of the loan.
While a cash payment for taking out a loan feels incongruous, it is interesting to think what could (or more importantly, should) be done with that cash. How would you spend it?
- Loan repayment
- Holiday
- Daily spending
- Works on the property
- Share investment
Some investors have found themselves in a cash squeeze post covid. The drop in apartment rents that took place through covid and the rise in interest rates have impacted many owners. This makes certain decisions that require a short cash injection a bit challenging. Upgrading your apartment or selling it both need cash.
All investment property needs a refresh every 5 to 7 years to maintain its earning capacity. $5,000 should get you a fresh coat of paint and maybe even some new carpets.
You may not think selling an investment property costs money, but there are short-term cost prior to sale. While marketing can be funded from proceeds, we recommend owners vacate the tenant prior to sale. This improves its presentation and enables the buyer to move in at settlement. However, this means there are about 3 months of no rental income. All the while, loan payments keep going out. The cashback finance deal from re-financing the loan might be just the answer.
Refinancing your investment property with a cashback deal could help meet the payments for a few months while the property is being sold.
The sceptic in me says there is no such thing as a free lunch. “Just give me a competitive net loan deal without the frills such as a cashback payment.” Then again, what is not to like about tax free cash?
Banks amortise the cost over many years which is often shorter than the loan term. It is difficult to know how it is costed so maybe they wont be around for ever. From a borrowers perspective the lending market is hot and it is a great time to shop your loan.
The cashback deals have end dates between now and about March 23 and get reviewed in line with market changes.
How do you think the cash should be used?
Let me know if you would like me to connect you to a broker to get you the best deal.
(These comments are general and do not consitute financial advice. They have not taken into account your objectives, financial situation, or needs. It is not personal advice. Consider which advice is right for you, having regard to your own objectives, financial situation and needs. You may need financial advice from a suitably qualified adviser.)
