As the refinancing market heats up, lenders are naturally trying to gain an edge. In recent months, this has seen the increase in cash back home loan offerings, where customers can get an upfront fee for choosing a lender.
Brokers have long complained about such transactions: Many see them as slowing down processes at lenders while offering short-term transactions to clients, making it more difficult for brokers to meet their obligation requirements. best interest.
Sarah Eifermann, longtime broker and financial coach at SFE Loans, explained to Australian Broker the problems that many members of the broker network have seen in cashback deals.
â€œCash Back Rewards are seen as obstructing lenders’ service levels,â€ she said. â€œThey direct business to a particular lender for one measure, which is cash back. They can be considered to be in conflict with BID.
â€œThere are also concerns about clawbacks: if a customer comes to you, you might have refinanced them or paid off their loan just 12 months ago, and now they’re looking for cash back. “
â€œYou receive a recovery to rewrite the transaction, the client gets paid but the broker is not paid for their time. “
â€œIf you’ve been in the business long enough, all banks go through a cycle where they’re amazing and everyone loves them and when they’re not amazing and for some reason they’re not popular. “
Are cash back home loans a good thing?
“Banks that run cashback promotions do so with enough market share that it seems like a conflict of interest as to why they’re doing it in the first place.”
â€œIt’s extra work, not necessarily for the benefit of the customer. What is not measurable is the added stress that is placed on the broker and the client when looking for the only measure of a cashback.
â€œIf you go with a lender that has cash back but it takes you six months to get the loan approved, it’s so much extra work and stress to save, say, $ 5,000 down the road. ‘advance. How much is it worth over the life of the loan?
Julian Fadini, broker and founder of Prpty360, was more receptive to cash back home loan offers, but saw them as a problem with BID.
â€œMy point of view is that any win for the customer is good,â€ he said. â€œIf there is money on the table and savings to be made, we always want our customers to have a front row seat to get them. “
â€œHowever, if you advise your clients thoroughly and correctly, that shouldn’t be the only thing you advise your client about whether or not a loan is appropriate. “
â€œWe have to look at the timing for them because they can be under pressure there, and the turnaround times for the lender also have to be at the forefront of the broker’s mind. “
“Overall, the best interests of the client should be the only thing that should be taken into consideration.”
Brokers are often not big fans of cash back home loans
In an increasingly competitive refinancing environment, many lenders have turned to cash back mortgage offers to gain the edge.
One such lender is P&N Bank owned by clients in Western Australia and this week announced an eye-catching bonus of $ 3,000 to clients who choose to refinance with them.
Kaine Adamson, acting managing director of P&N Bank, told Australian Broker that while cashback was in the headlines, it was vital that brokers and clients look beyond it.
â€œIt’s really important that customers don’t just look at the cashback they might receive, but also look at the interest rate they will be paying and the associated fees and charges,â€ he said.
â€œI know some lenders in some markets charge a monthly or annual flat fee that can erode the benefits pretty quickly. It is a big role that brokers pay to educate clients so that they are able to see through the complexity.
â€œWith P&N Bank, our cheapest variable rate is 1.99% and we don’t charge any monthly or annual plan fees, so we think it’s a win-win solution for clients and brokers.
Lender defends home loans with cash back
Refinancing had made the market competitive and provided opportunities for clients, brokers and lenders.
â€œIf you look at refinancing across the market, it’s probably at a 12-month high as people are looking to get the most out of competitive interest rates,â€ Adamson said.
â€œIt’s almost 60% of the market and, from what we’re seeing, a greater proportion of those clients choose to go through a broker because they drive competition in the market.â€
â€œThere are costs associated with refinancing. Whether it’s mortgage registration and discharge fees, people who want to break a fixed rate sooner, cashback removes this barrier for a consumer. “
â€œThis makes it easier to refinance and the choice of coming directly or going to a broker. For us, there are none of these hidden costs and they can be beneficial.
According to Adamson, cash back home loan offers were just one tool lenders should use in business, and they gave the customer the power to choose.
â€œIt removes that cost to refinance the barrier,â€ he said. â€œThe $ 3,000 is used to cover those costs, or it can be used for the first reimbursement, or to cover household expenses, or just to buy a new television. How they choose to use it is up to them.
“We’ve also made this one applicable to those looking to buy a home as well as refinance, so while it can remove that hurdle, we hope it can also help cover the costs of the movers, duties. stamps and that sort of thing. “
â€œA broker will always look out for the best interests of the client, and that’s the beauty of the channel. They make sure to deconstruct a lender’s offer to make sure the cashback builds up in the long run, and that’s what we hope the broker does.
â€œThat’s why we have the cash back, but with our best rate and no annual plan fee and all of those things, from a P&N perspective, put us at the top of the mix. We don’t want to hide behind fees and charges that make the customer pay more in the long run, because no one wins. “
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