Cashback refinancing offers — lenders paying $2,000 to $4,000 to borrowers who refinance to them — have become a common feature of the Australian mortgage market. They are typically effective as a marketing tool. They are often not effective as financial decisions. The reason is straightforward: a one-time payment of $3,000 is easy to see and feel good about, while an ongoing rate that is 15–20 basis points higher than the market's best is easy to underweight because it accumulates invisibly, month by month.
A 0.20% rate difference on a $600,000 loan costs approximately $1,200 per year. A cashback of $3,000 is recovered in 2.5 years of higher rate payments. Over a typical three-year period before the next review, the cashback borrower is behind by approximately $600. Over five years, they are behind by $3,000.
| Scenario | Rate | Cashback received | Extra interest cost at year 3 | Net position at year 3 |
|---|---|---|---|---|
| Best rate, no cashback | 5.89% | $0 | $0 | $0 (baseline) |
| Cashback lender, 0.20% higher | 6.09% | $3,000 | $3,600 | -$600 worse off |
| Cashback lender, 0.30% higher | 6.19% | $3,000 | $5,400 | -$2,400 worse off |
This analysis assumes you stay with the lender for three years. Many borrowers attracted by cashback do not — they refinance again within 18–24 months for another cashback, incurring new settlement costs each time. Serial cashback refinancing has real costs: legal fees, discharge fees, and LMI if your LVR has not improved.
The correct question to ask about any cashback offer is not "how big is the cashback?" but "how does this lender's rate compare to the three cheapest comparable loans in the market, and at what point does the rate difference exceed the cashback?" A broker or Centza's mortgage comparison can answer this in minutes. If the breakeven is less than 18 months, the cashback is almost certainly not worth it unless you plan to refinance again anyway.
Cashbacks are an acquisition cost. A lender offering a $3,000 cashback to win your $600,000 loan is spending that $3,000 to acquire a customer who will (in their model) generate significantly more than $3,000 in net interest income over the life of the loan. The cashback is financed by the lender's margin — which is partly why cashback lenders often carry slightly higher rates. The customer acquisition cost is passed back through the rate.
Cashback offers also function as a loyalty mechanism. After accepting a cashback and settling a loan, the psychological effort of refinancing again (and the implicit admission that you made a suboptimal choice) is higher. Inertia keeps more borrowers in place post-cashback than post-rate-only refinances.
Most cashback offers include a clawback clause requiring you to repay some or all of the cashback if you refinance away from the lender within a set period — typically 12 to 24 months. Read the clawback terms before accepting. If you are already planning to move again in 18 months (for example, because you are building equity and want to reassess once you reach 80% LVR), a cashback with a 24-month clawback is not actually available to you.
A cashback offer is financially rational in a narrow set of circumstances: the cashback lender's rate is genuinely competitive (within 0.05–0.10% of the market's best for your profile), your refinancing costs are material (covering legal fees, discharge, valuation), and the clawback period is short or you are confident you will stay. In this scenario the cashback is genuinely additive — you are getting an equivalent rate plus a payment rather than trading rate for cash.
In practice, this is uncommon. Lenders offering the most competitive ongoing rates rarely also offer the largest cashbacks, because they do not need to. The pattern is typically: best-rate lenders compete on rate; second-tier lenders compete on cashback. Know which type you are dealing with before deciding.
See how your current mortgage rate compares to the market — before any cashback distorts the comparison.
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