With some lenders now offering cashback on their mortgages, it’s not surprising that customers, especially first-time buyers, are being tempted by these cash lump sums. The most important question to consider before jumping around the kitchen with excitement is; do these offers actually offer the best value over the mortgage term?
Are Mortgage cashback offers good value?
Now this is great question to ask yourself.
These cashback offerings whether you’re looking to buy your first home or switch mortgage, it’s essential to shop around and take advice to make sure you’re getting the best deal for your situation.
So, who’s offering what in terms of cashback?
AIB – €2,000 to switchers
AIB isn’t offering cashback to first-time buyers. It is, however, offering €2,000 back if you switch your mortgage to them.
The cash will be transferred directly into your current account within two months of drawing down your mortgage.
AIB currently has one of the lowest variable rates in the market and is mainly relying on its competitive rates, rather than cashback offers, to attract new customers.
Bank of Ireland – up to 3% cashback
Bank of Ireland increased its mortgage cashback offer from 2% to 3% in August 2016, and it’s available to all first-time buyers, movers and switchers who have a current account with the bank. You’ll receive 2% cashback after drawing down your mortgage and a further 1% in five years’ time. Obviously the 1% in 5 years’ time is based on you still having the mortgage with Bank of Ireland. The 2% deal is still available to those who don’t have a current account with the bank.
Example: Let’s look at a home worth €200,00. First-time buyers are permitted to borrow up to 90% of a property’s value or purchase price, whichever is lower, so in this instance they could get a mortgage worth €180,000.
With the 3% cashback offer, a first-time buyer getting a mortgage of €180,000 could get €5,400 back in cash, €3,600 on drawdown + €1,800 in 5 years time.
Figures like this look class, but it’s essential to consider the long-term cost of the loan before making a decision. See below for more on this…
EBS – 3% cashback
EBS, which is a subsidiary of AIB, in January 2019 increased its offer to 3% until 31st December 2019. Like Bank of Ireland, you’ll receive 2% cashback upfront and a further 1% in five years’ time. Provided the mortgage is still with EBS. This deal is available to first-time buyers, movers and switchers and, staying with our example above, a first-time buyer could get €3,600 cashback upfront on a €180,000 mortgage and a further €1,800 in 5 years. Unlike BOI’s offer, there’s no requirement to have a current account with the bank to avail of the deal.
KBC – €3,000 cashback to switchers
KBC isn’t offering any cashback to first-time buyers but they are offering €3,000 cashback to switchers until 30th June 2019. Like AIB, they’ve focussed more on reducing their interest rates for first-time buyers as opposed to introducing cashback offering.
Permanent TSB – 2% cashback
Permanent TSB is offering 2% cashback upfront to first-time buyers, movers and switchers who receive a mortgage offer until 31st December 2019. Customers who make their mortgage repayments from the bank’s Explore current account will also receive 2% cashback on their monthly mortgage repayments every month until 2027.
So, a €180,000 mortgage would get you €3,600 cashback upfront and then a further €17.26 per month (€207.12 per year) until 2027. (Monthly cashback based on a 3-year fixed rate of 3.10% over a 25-year term paid to 2027, monthly repayment €862.97). As of 31/01/19
Ulster Bank – €1,500 cashback
Ulster Bank has extended the deadline for its cashback offer until 30th June 2019. The bank is offering €1,500 cashback towards legal fees to first-time buyers, movers and switchers.
Approach cashback offers with caution
These cashback offers may look irresistible to prospective buyers who are working hard to save up the big deposit needed; however, what will provide a short-term financial gain may lead to long-term repayment pain.
Let’s go back to our example of a €200,000 house with loan to value (LTV) of 90% – so mortgage is €180,000. And let’s work with a 25-year term.
Let’s say a bank is offering 2% cashback and is charging an interest rate of 4.2% for this mortgage.
A first-time buyer will receive €3,600 cashback on drawdown of the mortgage and the cost of credit over the lifetime of the loan will be just over €111,028. Taking the €3,600 cashback away from the cost of credit gives us a sum of €107,428.
Another bank, which is not offering any cashback to first-time buyers, has a rate of 3.2% for borrowers with an LTV of 90%. At this rate, the cost of credit over 25 years will be just over €81,726.
Therefore, in this example, taking 2% cashback in the short-term may end up costing you an extra €25,702 in interest over the term of the mortgage.
There are of course other considerations to be taken into account, like whether a cheaper fixed rate option is being offered. Remember, even if a good fixed rate is available, the issue is, what rate will be offered when the fixed rate is up. If the lender is not offering a competitive variable now, will they when the fixed rate is up.
Always remember, your Mortgage term, in most cases, be a lot longer than the fixed rate offered, so when then?
The important message is always seek advice, and always consider overall cost of credit
While the above example may have you re-considering the idea of taking any cashback offer, there is still something to be said for getting a large lump sum when buying a new home, especially when you consider how expensive a time it can be.
The key is understanding, and to consider the interest rate and overall cost of credit over the term of the mortgage first.
We can easily help you work out what the lifetime cost of credit will be for your specific requirements.
Give us a call 074 910 3938
Quick View Comparison
Cash Back Offerings
|AIB||None available to first time buyers, €2,000 to switcher|
|Bank Of Ireland||2% cashback – first-time buyers, movers and switchers Extra 1% available to BOI current account holders only , after 5 years|
|Permanent TSB||2% cashback – first-time buyers, movers and switchers until 30th June 2019 & 2% cashback each month – on mortgage repayments from a PTSB Explore account until 2027|
|Ulster Bank||€1,500 cash towards legal fees – available to first-time buyers, movers and switchers until 30th June 2019|
|KBC||None available to first-time buyers, €3,000 available to switchers|
|EBS||3% cashback – first-time buyers, movers and switchers until 31st Dec 2019. 2% upfront, 1% in 5 years|
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The above if for information purposes only and does not constitute financial advice, we recommend that you speck with us before making any financial decisions. We recommend a holistic approach to financial planning and we can help you put your plans in place.