Mortgage guide

Are mortgage cashback offers good value?

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?

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 deal for your situation.

So who's offering what in terms of cashback and are these deals actually good value in the long term?   

AIB - €2,000 to switchers

AIB isn’t offering cashback to first-time buyers. It is, however, offering €2,000 back in cash 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 – up to 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 after drawing down your mortgage from the bank 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 – 3% cashback

EBS, which is a subsidiary of AIB, first announced a 2% cashback offer in June 2016 and in January 2019 increased its offer to 3% until 31st December 2019.

Like BOI, you’ll receive 2% cashback upfront and a further 1% in five years' time.

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 and a further €2,700 in 5 years.

Unlike BOI's offer, there's no requirement to have a current account with the bank to avail of the deal.

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 until 30th June 2019. 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 receive 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 30th June 2019. 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 in interest over the lifetime of the loan!

Always consider overall cost of credit  

While the above example may have you recoiling at the idea of taking any cashback offer, there's 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.

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

Cashback offer

AIB

None available to first-time buyers, €2,000 to switchers 

Bank of Ireland

2% cashback – first-time buyers, movers and switchers  

3% cashback – available to BOI current account holders only 

EBS

3% cashback – first-time buyers, movers and switchers until 31st Dec 2019. 2% upfront, 1% in 5 years

KBC

None available to first-time buyers, €3,000 to switchers until 30th June 2019

Permanent TSB

2% cashback – first-time buyers, movers and switchers until 30th June 2019

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

Ulster Bank

€1,500 cash towards legal fees - available to first-time buyers, movers and switchers until 30th June 2019

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