How to get 100,000 frequent flyer points - and whether you should

2 hours ago 4

Home owners looking for an interest rate cut this week have been left disappointed, but lenders still have perks on offer for existing borrowers prepared to move their loan.

While experts say mortgage refinancers can get an initial boost from switching deals, including cashbacks and even frequent flyer points, whether the borrower ends up ahead longer term depends on a range of factors including loan term and size, and fees.

Home borrowers can get offers to refinance, but they may not end up ahead.

“A cashback can potentially work in the short term, particularly if you can find a cashback with a competitive rate attached,” Canstar data insights director Sally Tindall said.

“But in the long term, what we often find is a low, competitive rate typically trumps a one-off perk, like a cashback, especially on larger loans.”

The Reserve Bank on Tuesday left the cash rate on hold at 3.6 per cent after inflation hit its highest level in a year. It follows three earlier cuts to the cash rate this year that eased some financial pressure on cash-strapped households.

Some borrowers looking for ways to get ahead have been keeping their repayments the same as before rates fell, and almost 100,000 mortgages were refinanced to a different lender in the June quarter, said Canstar, citing ABS data.

Banks are offering sweeteners as part of an effort to win customers as competition heats up, experts say.

One incentive, mortgage cashbacks, peaked in early 2023 when more than 30 lenders offered them. Some banks, including most of the big four, have pulled back from cash incentives but 12 lenders still offer them, comparison platform Canstar analysis shows.

Of the 12, more than half are offering cash back on at least one rate under 5.25 per cent for owner-occupiers. Cashback amounts range from $1500 to $10,000 and most of the offers are for refinancers.

Another sweetener is travel points.

Four lenders offered Qantas frequent flyer points with a home loan, said Canstar, ranging from 50,000 on sign-up, to 100,000 a year, to more for large loans. Australia’s biggest bank, Commonwealth Bank, is one, offering up to 300,000 points for new borrowers taking out its lowest variable rate home loan. The number of points depends on the loan size a borrower takes out and is available on CBA’s digital-only mortgage.

While mortgage refinancers might get an initial “financial sugar hit” from sign-up incentives, Tindall said, outcomes could vary over time, depending on the “value of the perk, what interest rate they’re paying, the fees, the loan term and the loan size″⁣.

Canstar found that for a borrower with a $600,000 mortgage, a 40 per cent deposit and 25 years remaining who chooses to refinance with a lender offering a cashback on their lowest variable rate instead of opting for one of the most competitive rate loans in the market could end up ahead in the first two years.

Seven out of eight eligible lenders offer cashback deals for a $600,000 loan size, for a refinancing owner-occupier.

“After the fifth year, however, just two of the cashback deals came out ahead, compared to if a borrower had opted for an ultra-low rate, with some potentially costing as much as $4000 more over the five-year period on a $600,000 mortgage,” said Tindall, based on Canstar’s analysis.

Four lenders offer Qantas frequent flyer points with a home loan, according to Canstar analysis.

The modelling found a borrower with a $600,000 mortgage and 25 years remaining refinancing with CBA’s frequent flyer loan would be $355 ahead after the first two years, but potentially behind by $3514 over five years, compared to if they had taken out the lowest variable rate.

This assumes borrowers have a 40 per cent deposit and no offset account, and the value of Qantas points is based on booking Sydney to Melbourne flights six months in advance.

A CBA spokesperson said: “Our Digi Home Loan gives customers access to CommBank’s lowest advertised variable interest rate. Eligible customers also benefit from exclusive rewards and monthly cashback through CommBank Yello, our customer recognition program.”

Would-be switchers should consider the impact of fees for exiting a fixed rate loan.

Jarden analyst Matthew Wilson said offering cashbacks or points reflected “intense” competition between lenders in the mortgage market.

“Around 70 per cent of new home loans originated from the broker channel. The banks are trying to reverse this trend,” he said.

Industry experts suggest that would-be switchers consider the impact of fees for exiting a fixed rate loan, and other costs, which can run as high as $1000.

Anthony Landahl, managing director at mortgage broker Equilibria Finance, said it was important to “unpack the costs associated with moving”, including the potential of any ongoing annual fees and to compare that to any interest savings.

“We’ll be looking at the interest rate, the costs, and then if a provider offers a cashback, then it’s got to be part of a broader …‘yes, this is in the best interest of the client to move to this provider’.”

Kate Browne, head of research at financial comparison site Compare Club, said people could be missing out on savings by not switching.

“You do need to make sure that it is worthwhile, that if you do switch you’re not giving up things that could actually have a whole lot more value,” she said.