Home loan specials, the real cost of rewards

More than a dozen lenders are spruiking cash back deals, rewards points and even free electricity in a bid to attract new home loan customers. But RateCity has warned that these deals could leave borrowers up to $85,000 out of pocket. 

The Commonwealth Bank is the latest lender to launch a special offer with some of its home loans, kicking off a $2000 cash back deal from this week.

CBA joins the ranks with Westpac – including St. George, Bank of Melbourne and BankSA – as well as Bank of Sydney, Homestar Finance, Northern Inland Credit Union, P&N Bank, Police Bank, Reduce Home Loans, UBank and Virgin Money.

Sally Tindall, spokesperson for RateCity.com.au, urged borrowers to look beyond these incentives and crunch the numbers over 30 years.

“Don’t go choosing something as important as a home loan based on a short-term perk,” she said.

“Free overseas flights or a lump sum of cash might grab your interest, but most home loans have a 30-year term, by which time the holiday will be a distant memory.

“There are lots of specials on the table at the moment because the banks are eager for your business. Growth in home loans is slowing and that’s got the banks’ marketing departments working overdrive.

“If you’re looking for a home loan, first make sure it is a fit for your finances. Then look for a loan with a low rate and low fees. Any cash or points offered beyond that are a bonus, she said.

Current home loan specials and the extra you shell out to get them

ProviderProductPerkRateExtra cost*
Bank of MelbourneAdvantage Package$1500 cashback4.45%$67,941
Bank of SydneyExpect More packagePackage fee waived for life of loan3.58%$3,378
BankSAAdvantage package$1500 cashback4.41%$65,384
Homestar FinanceOwner occupied loan$900 cashback3.54%$690
Northern Inland CUIntroductory home loanUp to $1000 cashback3.69%$12,799
P&N Bank& home loan$1000 cashback3.99%$27,560
Police BankPremium home loan$1000 cashback4.74%$75,848
St GeorgeAdvantage package$1500 cashback4.42%$66,023
UbankDiscounted rate loan$1,000 cashback3.69%$9,069
Virgin MoneyReward Me variable loanMax 630,000 Velocity Rewards points over life of loan3.68%$7,039
WestpacPremier Advantage package200,000 Velocity Rewards points4.44%$66,842
CBAWealth Package Variable$2000 cash back4.72%$85,051

* This is the extra cost compared to the lowest-rate home loan over 30 years.

Notes: Based on an owner occupier loan of $300,000, paying principal and interest. The costs of each loan have been compared to the lowest rate comparable loan on the market, Reduce Home Loan High Lend loan. All loans are comparable in that they have a 100% offset account and unlimited extra repayments with the exception of Ubank. Value of frequent flier points has been calculated on Syd-Melb return flights, 6 months out, opting for the lowest points. Total costs do not include discharge fees.

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