Pay an extra $30 a week more on your mortgage and you wipe two and a half years off your debt.
A $4000 cashback to switch your mortgage to another bank sounds like a tempting offer but a mortgage broker says it is not as simple as just grabbing the money.
TSB is offering to match the rates of the big four banks and pay 0.7 per cent of a loan'svalue up to $4k in a cashback.
The offer only applies to those who purchase a property or refinance from another bank and have 20 per cent deposit or equity for owner-occupiers or 30 per cent for residential investors.
Karen Tatterson, a mortgage broker with Loan Market, says cashbacks are nothing new and most banks are offering them at the moment.
Most banks are offering cashbacks but there are catches. Photo / Michael Craig
"I think it is a matter of sitting down and doing the exercise but when you add in a break fee and $4k cashback and the fact that interest rates are so low at the moment you would have to have a fairly hefty mortgage and have to be on a really high rate for it to be worthwhile.
"If you are going from 2.99 to 2.49, nah. But if you are going from 4.59 to 2.59 or 2.49 it might be worthwhile. You do have to sit down and do the sums and work out whether it is financially viable."
Banks charge a break fee based on how long you have left on the term of your mortgage and the interest rate.
It covers the cost of the interest they will miss out on if you end your contract with the bank early.
Cashbacks also come with a catch.
If you sign up for one, you will have to sign a deed of debt which means you are required to keep your loan with the bank for a certain amount of time or you will have to pay the cash back.
Tatterson says depending on the bank that could lock you into staying with that bank for three or four years.
Karen Tatterson is a mortgage broker at Loan Market. Photo / Doug Sherring
TSB's deal states that if the loan is refinanced with another bank within the first 24 months then all of the cashback will have to be paid back.
For refinancing to another bank within 25 to 48 months 50 per cent of the cashback will have to be repaid to the bank.
Tatterson said most people were aware of the catch but she had seen a few borrowers having to pay the money back in recent years.
"I have seen a couple of clients over the years that have to pay it back because they have chosen to change banks."
Lower rates
The other dilemma borrowers face at the moment is how long to fix for given some are predicting mortgage rates will fall below 2 per cent next year if the Reserve Bank cuts the official cash rate below zero.
Tatterson said most people were only fixing for one year at the maximum at the moment.
She said it was those that had their fixed term end around December, January or February that would have to consider whether to sit and wait on a floating rate for the April announcement or fix again and have to wait longer to get the lower rate.
"Do I pay 2.5 for a year and then pick it up as I come off or do I pay 4 per cent now on floating which is a per cent and a half higher knowing I am going to get a half-per-cent benefit in six months as opposed to 12 months? You have to look at it quite logically."
Tatterson said at the moment she was recommending people fix.
"I think I will have to re-look at it probably in December and I think we will have a better indication in November/December."
She said the Reserve Bank's decision and the election were both factors.
"Obviously there is an OCR review today - which will likely stay on hold - and economists are saying the jury is still out whether we are going to see a reduction in April or not.
"I think also depending on what happens in November and who gets in we may also see an impact and change in rates so I think - I wouldn't make a decision until late October, November or December."
