The Perils of Cashbacks, Free TV's & other Home Loan Enticements

Being a mortgage provider is no longer exclusive to big banks. The number of relatively new and accredited lenders has grown to meet the bulging housing demands, and with this expanded territory comes fierce competition.

Everyone loves freebies, especially when they are used as sweeteners for big purchases. We’ve all seen the adverts, we’ve all been tempted by them, and for some of us the temptation has been too strong. We’ve purchased that new Smart TV – which in a few months will just be referred to as a TV – and received our free 8” tablet, or we’ve replaced our oven with a 12 function stainless steel upgrade and received our free matching toaster and kettle.

If a provider has to dangle carrots to entice you to borrow through them, you might want to take a step back and ask yourself why. The right mortgage package should sell itself to you for all the right reasons.

Here are a few points to consider:

Cashbacks have to come from somewhere

Lenders make their living by lending, not giving. That cashback or store credit they offer up to you is coming straight out of your back pocket, but clever marketing means you kind of miss the fact that you’ve just paid for it yourself. It’s like buying yourself a voucher for your birthday but still feeling spoilt when you spend it.

There may be conditions that may not help you in the long run

We cannot stress enough how important it is to keep your finances healthy for the term of your home loan. You need to be aware that there may be conditions like signing up for a new credit card, or having your wages paid directly into a new account that may not be beneficial for you. Always check the fine print!

You know it’s not actually free, right?

When they say free, they should actually say “let’s pretend it’s ‘free’”. There may not be a visible charge for the TV, but it’s incorporated in there somewhere. Trust us. Somewhere hidden amongst the fees and the interest, you will be covering the cost of that ‘free’ TV. If you have to buy something to get something else for free, it’s not free. Again, it’s just clever marketing.

The best incentive should be bang for buck

Look past any offers that don’t have a direct positive impact on your home loan. Over the course of your home loan you might be paying anything from $100,000+ in interest alone. Let that figure sink in for a minute. The value of a TV or a $2,000 cashback probably won’t have much of an impact – positive or negative – on your finances across the life of your mortgage.

Is it really value for money?

Would one free Pineapple Lump convince you to purchase 28,000kgs of chocolate covered goodness? That’s about the same value ratio being offered in most instances. Real value offers like competitive interest rates, lump sum repayments with no or low fees, and transparent negotiations should spark the right conversations.

By not buying into the hype of ‘free’ stuff, and by focusing on what’s really important when it comes to choosing your mortgage provider, you may find there is a much more economical way to get that new appliance or store credit.

Need help with a home loan? Brokering the best deal could be as simple as engaging an independent authorised financial adviser. We know the right questions to ask, the loopholes to look out for, and the clauses you’re best to steer clear of to provide you with safety and stability.

Talk to us today about how we can help you find the right mortgage solution.