Cashback on mortgage deals - should we do it?
Updated: Jul 29, 2021
Cashback deals - how do they work?
Some are quoted in money terms. Others are quoted in percentage terms. For example, EBS offers 3% back with 2% upfront. So what does that mean? Well, let's say a customer takes a €250,000 mortgage with EBS. Two months after the mortgage is drawn down, the customer will receive 2% (=€5,000) into their current account. The extra 1% comes after five years subject to fulfilling certain conditions. The EBS deal applies to first time buyers, movers and to those switching their mortgages.
Does every lender offer cashback on mortgages ?
No ! The banks tend to offer cashback. The non-bank lenders tend not to do so. Here is a quick summary at the time of writing.
EBS: 2% cashback, 1% further in 5 years to first time buyers & switchers
Bank of Ireland: 2% cashback, 1% further in 5 years if current account with bank
Permanent TSB: 2% cashback, 2% back on monthly payments if account with bank
Haven: €5,000 cashback on fixed rate mortgages greater than €300,000
KBC: €1,500 cashback, €3,000 to switchers
Ulster Bank €1,500 cashback
AIB: No cashback to buyers but €2,000 cash to switchers
Finance Ireland: No
Avant Mortgage: No.
And the banks cannot claw back the monies paid to you even if you subsequently move your mortgage again.
Ok - why don't I just keep switching mortgages from bank to bank and make out like a bandit !
Move the mortgage to Permanent, then to EBS, then to Bank of Ireland and finishing with the lender you wanted to end up with. Picking up cashback cheques as you go. From certain angles, this may look possible. As I said, the lender can't claw the money back. Maybe you could find a solicitor who would be willing to repeat the legal work at reduced fees. Maybe you could do it five times a year. Maybe you could give up the day job...
But it is more likely that somewhere in the chain, an underwriter will look at your "old" mortgage statement and see that you have been with your current lender for about two months. At that point your dastardly plot will be revealed and the bank will not be mailing you that cheque! We would not recommend attempting such aggressive switching.
Ok, maybe I'll stick to the day job. But these deals look good anyway. Surely it's better to go for a lender offering cashback that one who isn't ?
We need to look at the bigger picture. By far the biggest factor that we should consider when looking at how expensive a mortgage will be is the rate on the mortgage. The lenders offering cashback do not generally have the best rates. They rely on the cashback to induce the customer and then they rely on the customer's reluctance to subsequently switch their mortgage to a cheaper rate.
Ok, give me an example.
Right, so let's take variable rates for the three lenders with the most generous cashback deals. We went for rates for a loan of €250,000 at an 80% LTV for 30 years. Our three cash bonanza lenders had rates of EBS (3.50%), Permanent (3.85%) and Bank of Ireland (4.20%). This compared to the cheapest lender at 2.95%.
Does not seem a huge difference
If we take the cheapest lender at 2.95% versus the cheapest "cashback lender" at 3.50%, we find that our yearly payment difference is €900 or €27,000 over the life of the mortgage. So as time goes on our €5,000 cash upfront looks less and less like a good deal.
Right, I know what you are saying. These cashback deals are more expensive for me in the long term but I need the money for legal fees and furniture NOW.
We hear this response very frequently from clients. First time buyers are often stretched to the limit to afford the place they want. The Central Bank rules limiting borrowing means that buyers cannot simply borrow as much as they wanted - as in the Celtic tiger years. Some clients need the upfront money and there is no getting around that.
So, what do you advise?
In the example we gave above, our cashback lender gave us €5,000 upfront but it costs us about €900 per year to stay with that lender - instead of going to the cheapest lender. However, there is nothing to stop us after two or three years to move our mortgage to the cheapest lender. In fact, this is good practice to do anyway.
If you have not switched your mortgage yet, you can likely save quite a bit of money from doing your first switch. Even subsequent to that though, further opportunities to switch and save more money will be possible. Particularly when a new entrant comes to the market.
Speak to AM Financial.
We are connected to all the major lenders in the Irish market. The bank lenders and the non-bank lenders. We will advise you on cashback deals, buying your new home, moving or saving money by switching your mortgage.
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