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Mortgage guide

Are mortgage cashback offers good value?

Available languages Are mortgage cashback offers good value?

With so many banks now offering cashback on their mortgages, it's no surprise that customers and especially first-time buyers, are being tempted by these often sizeable lump sums of cash. The question to consider before diving in is; do these offers represent the best value over the long term?

Are mortgage cashback offers good value?

Are popular cashback deals actually good value and how do they compare to other cashback offers?

The mortgage cashback craze was kicked off by Bank of Ireland back in June 2015 and now all the major lenders in Ireland are offering some form of cashback deal.

Whether you’re looking to buy your first home or switch mortgage, it’s essential to shop around to make sure you’re getting the best offer – and repayment rate – for your situation.

AIB - €2,000 to switchers

AIB isn’t offering cashback to first-time buyers. It is, however, offering €2,000 back in cash until 31st December 2018 if you switch your mortgage to the bank.

The cash will be transferred directly into your current account within two months of drawing down your loan and it's suggested that it's used to help pay for the legal fees associated with switching.

AIB currently has one of the lowest variable rates in the market and is mainly relying on its competitive rates, rather than cashback offers, to attract new customers.

Bank of Ireland – 3% cashback

Bank of Ireland increased its mortgage cashback offer from 2% to 3% in August 2016, and it’s available to all first-time buyers, movers and switchers who have a current account with the bank. You’ll receive 2% cashback upfront if you receive a mortgage offer from the bank before 31st December 2018 and a further 1% in five years' time.

The 2% deal is still available to those who don’t have a current account with the bank.

Let's take a home worth €300,00. First-time buyers are permitted to borrow up to 90% of a property’s value, so in this instance they could get a mortgage worth €270,000.

With Bank of Ireland’s 3% cashback offer, a first-time buyer drawing down a loan of this size could get €8,100 back in cash.

Figures like this can look extremely appealing, but it’s essential to consider the lifetime cost of the loan before making a decision. More on that later.

EBS – 2% cashback

EBS, which is a subsidiary of AIB, first announced a 2% cashback offer in June 2016 and recently extended its deadline until 31st Decemebr 2018.

The deal is available to first-time buyers, movers and switchers and, staying with our example above, a first-time buyer could get €5,400 cashback upfront on a €270,000 mortgage.

KBC - €3,000 cashback to switchers

KBC isn’t offering any cashback to first-time buyers but they are offering €3,000 cashback to switchers. Like AIB, they've focussed more on reducing their interest rates for first-time buyers as opposed to introducing cashback incentives.  

Permanent TSB - 2% cashback

Permanent TSB is offering 2% cashback upfront to first-time buyers, movers and switchers who recevie a mortgage offer until 31st December 2018.

Customers who make their mortgage repayments from the bank's Explore current account will also receive 2% cashback on their monthly mortgage repayments every month until 2027.

So a €270,000 mortgage would get you €5,400 cashback upfront and then a further €26.04 per month (€312.37 per year) until 2027. (Monthly cashback based on a 3-year fixed rate of 3.15% over a 25-year term paid to 2027).

Ulster Bank - €1,500 cashback towards legal fees

Ulster Bank has extended the deadline for its cashback offer until 31st December 2018. The bank is offering €1,500 cashback towards legal fees to first-time buyers, movers and switchers. 

Approach cashback offers with caution

Some cashback offers may look simply irresistible to prospective buyers who are busy saving up for a big deposit; however, what may provide short-term financial relief may lead to long-term repayment pain.

Let’s return to our example of a €300,000 house with an LTV of 90% - so the total loan size is €270,000. And let's assume a 30-year repayment term.

Let's say a bank is offering 2% cashback and is charging an interest rate of 4.2% for this type of mortgage.

A first-time buyer will receive €5,400 cashback upon drawdown and the cost of credit over the lifetime of the loan will be just over €205,324. Taking the €5,400 cashback away from the cost of credit gives a sum of €199,924.

Another bank, which isn’t offering any cashback to first-time buyers, has a rate of 3.50% for borrowers with an LTV of 90%. At this rate, the cost of credit over 30 years will be just over €166,471.

Therefore, in this example, taking 2% cashback in the short-term may end up costing you an extra €33,453 over the lifetime of the loan!

Consider interest rates first, cashback offers second

While the above example may have you recoiling at the idea of taking any cashback offer, there is still something to be said for getting a large lump sum when buying a new home, especially when you consider how expensive a time it can be.

The key is to consider the interest rate and overall cost of credit over the lifetime of the mortgage first. This way, you can weed out some of the higher rates before getting distracted by eye-catching cashback offers.

Once you have found the best two or three rates for your situation, only then should you consider the cash that's on offer.

You can easily see what the lifetime cost of credit will be for your specific requirements with our Mortgage Calculator tool.

Quick View Comparison:

Bank

Sign up cash offer

AIB

None available to first-time buyers, €2,000 to switchers until 31st Dec 2018

Bank of Ireland

2% cashback – first-time buyers, movers and switchers, until 31st Dec 2018

3% cashback – available to BOI current account holders only until 31st Dec 2018

EBS

2% cashback – first-time buyers, movers and switchers, until 31st Dec 2018

KBC

None available to first-time buyers, €3,000 to switchers, until 31st Dec 2018

Permanent TSB

2% cashback – first-time buyers, movers and switchers, until 31st Dec 2018

2% cashback each month – on mortgage repayments from Explore account until 2027 

Ulster Bank

€1,500 cash towards legal fees - available to first-time buyers, movers and switchers, until 31st Dec 2018

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