Cash Back Offers
Over the recent 12 months or so, as interest rates began to increase, lending volumes started to slow. That was naturally going to be the case as borrowers and lenders alike were concerned about debt affordability. In order for lenders to support their ongoing loan pipeline , they instigated a marketing ploy with ‘cash back’ offers as an attractive inducement for existing mortgage holders to refinance their home loans . Whilst this was indeed a tempting ‘rosy red’ apple, with no expected recourse of these funds, in the big picture it creates some issues:-
A cash back offer in the short term may appear beneficial to the clients, but would the applicable interest rate they were moving to, mean they were better off in the long term?
In line with point one ‘brokers’ are bound to adhere to ‘Best Interest Duty’ legislation . So how can that be determined when these offers are thrown into the mix, in respect to calculating what is in the clients ‘best interest’? The loan term plays a big part in that calculation.
The major lenders . ‘The Big Four’, tended to be advantaged by these offers as they had an economic advantage through their size to allow them to take a hit in the short term in order to ‘buy business’ as it were. In saying that there is perhaps just as much business dropping through the bottom of their funnels as they are throwing in the top?
The churning of mortgages at a more rapid rate generally incurs exit and entry costs for clients . Let’s say in round terms $1000. These costs have to be also factored in when looking at whether the whole process is in the client’s best interest. If they were to look at refinancing again in a further 6-12 months, once again more entry an exit costs.
Welcome news in the press at the moment is both CBA & NAB have announced the end of their current ‘cash back’ offers for now. This will at least take away from of the cloudiness in being able to complete a proper analysis of whether a loan refinance is indeed in the clients’ best interest. That means better outcomes for client’s.
It’s a broker’s job to work on this for you as clients.
Call Michael on 02 6583 2211.