Cashback refinance offers: the hidden costs
$2,000 cashback to refinance feels like free money. Sometimes it is. Usually it isn’t, and the fine print is where the value disappears.
How the cashback math works
The lender pays you $2,000-$4,000 at settlement. In return, they hope you stay on their loan long enough to recover the cashback through the rate differential and trail commission. Three years is the typical break-even window.
The three ways the offer quietly costs you money
First, the advertised rate during a cashback promotion is often 10-25 bps higher than the lender’s sharpest non-cashback rate. On a $600k loan, 20 bps is $1,200 a year. The cashback is repaid to the lender in 20-24 months. After that, you are subsidising them.
Second, the cashback is usually taxable if the property is an investment (classified as assessable income in most ATO rulings). On owner-occupied, it is usually not taxable but worth confirming with your accountant.
Third, many cashback offers are conditional on a minimum loan size ($250k+) and specific product (variable, principal-and-interest). If you refinance into a fixed loan, the cashback vanishes.
When cashback is worth taking
- You planned to refinance anyway into the lender’s sharpest-priced product
- The cashback product rate is within 10 bps of the best market rate
- Your settlement costs (discharge, title search, registration) are around $800, so cashback net of costs is genuinely positive
- You are confident you will not refinance again within 12 months (some cashbacks have clawback clauses if you leave within 2 years)
When it isn’t
- The advertised rate is visibly higher than non-cashback alternatives
- The product doesn’t have an offset, or has restricted redraw, which you value
- You have a pattern of refinancing every 18-24 months (common for rate-chasers) - clawback will bite
A broker can usually negotiate a discretionary discount of 15-25 bps on a cashback product, which is worth more than the cashback itself over a standard loan life. Ask before settling.