What is a Mortgage Cash Back?
When you’re committing to a high-value loan like a mortgage, a cash back offer can be a powerful motivator. If two lenders are offering similar rates, but one has a lump sum bonus on the table, that offer suddenly seems a lot sweeter.
The catch is that if you’re not careful, these offers can make you overlook important details, locking you into a loan that isn’t the right fit long-term. And once you’ve signed and settled, unwinding a poor decision isn’t simple, or cheap. That’s why it’s worth understanding exactly how mortgage cash backs work before letting one tip the scales.
What is a Mortgage Cash Back?
A mortgage cash back is a one-off payment offered as an incentive by the lender when you take out a home loan. It’s usually paid at settlement once the loan is drawn down.
In New Zealand, these offers can either be a fixed amount (particularly for first home loan incentives) or a percentage of the loan amount. Depending on the size of the loan, that could equate to several thousand dollars, straight into your account.
What’s important to understand though, is that this money doesn’t come without strings attached. Cash back is part of the overall loan deal, and the conditions attached to it matter just as much as the dollar amount.
How Cash Back Offers Usually Work
Most cash backs are paid on settlement, but they’re tied to expectations about how you’ll run the loan afterwards. Lenders will usually require you to stay with them for a minimum period of three to five years and to keep the mortgage at or above a certain balance. That means if you refinance, sell, or restructure the loan within that period, you might have to repay some or all of the amount.
Why Mortgage Cash Backs Appeal to Buyers
There’s no denying the upside. Buying a home comes with a long list of upfront costs, and having a bonus cash injection at settlement can take the edge off.
Many buyers use their payment to cover legal fees, moving costs, or to get a head start on maintenance on their new home. For first-home buyers especially, that buffer gives some much-needed breathing room at a time when savings have already been stretched thin.
The key is making sure that while the cash back helps you now, it isn’t going to hurt you in the future.
What to Watch Before You Commit
All the restrictions that come with a cash back offer can be found in the fine print of the lender’s mortgage offer. Look out for the restrictions we mentioned earlier, such as fixed terms, break fees, and repayment restrictions, all of which limit your ability to adapt if your plans change.
Sometimes the downsides aren’t buried in the small print either. The cash back loan might have a higher interest rate than other options. You’ll want to run some calculations to work out whether, over the life of the loan, the cash you receive upfront outweighs the extra interest you’ll pay over the next few years.
How an Adviser Can Help
If everything we’ve discussed so far is starting to give you a headache, you’re in good company. The majority of New Zealanders don’t shop around for mortgages and just renew with their existing lender. But with so many options available, sticking with your own bank could mean you’re missing out on the best rates and incentives.
A mortgage adviser doesn’t work for the banks, they work for you. Their role is to take the hard work out of finding the right lender, comparing mortgage offers (including those with cash back deals) to find the best solutions for your situation.
At Vega Mortgages, we compare lenders, rates, and conditions side by side to help our clients see what each mortgage offer looks like once interest, fees, and flexibility are taken into account. By simplifying all the bank rates and fine print into something easy to understand, you can choose the best option for you.
Speak to Vega Before Choosing a Mortgage
If you’re considering a mortgage cash back, take the time to step back before committing. Look at the full loan structure, think about how long you plan to stay with the lender, and weigh short-term gains against long-term costs.
Better yet, give our mortgage brokers a call, and we’ll do the groundwork of exploring your options and give you clear advice you can use to make the right decision.
Vega Mortgages makes your home loan work for you.