Covid-19 lockdowns gave people less opportunity to spend and travel, and more time to reassess their finances; evidently many refinanced to obtain a better deal.
Recognising this, several lenders have been offering some pretty compelling incentives: these often take the form of ‘cash back’ deals, as well as honeymoon rates. (This has been largely facilitated by the RBA’s Term Funding Facility –essentially flooding the market with notionally ‘cheap money’ from March 2020 by the Federal Government to the big banks).
Many banks then weaponised this funding in the form of cashback offers and cheap fixed rates and honeymoon rates to entice new customers. Many banks offered anywhere from $3000 to $5000 plus – as an instant ‘cashback’ deposited straight into your bank account at settlement. Money for nothing! It seemed irresistible.
Being rewarded feels good, but the buzz soon wears off
Humans are conditioned to respond positively to quickly-gained reward. We’re all susceptible to instant gratification, which Positive Psychology.com defines as “ the temptation, and resulting tendency, to forego a future benefit in order to obtain a less rewarding but more immediate benefit.”
The article explains that instant gratification provided an evolutionary advantage for humans and their ancestors, as life for pre-modern humans hinged on decisions made and actions taken now, far more than those intended for long-term gain.
Furthermore, a famous study at Stanford University in the 1960s, known as ‘The Marshmallow Challenge’, asked a group of children to wait for 15 minutes for their preferred treat of either a marshmallow or pretzel, with the aim of getting another one should they succeed. However, if the treat was in plain sight, the study found it was harder for them to resist.
In other words, that ‘free’ $3000 has a pretty powerful pull, and banks use this as a way to attract new customers. But of course, there’s a catch.
When all that glitters is not gold – seeing Cashback deals for what they actually are
While human nature does dictate to an extent the appeal these home loan cashback offers may hold, it’s worth remembering that often there a reason behind it – if it seems too good to be true, it probably is.
Banks will find a way over time to recoup that money from you, through the fees and charges you’ll incur along the way. At the end of the day, it’s business.
These marketing tactics are typical of traditional banks. At Nano, we don’t believe in these gimmicks – we believe in fair and transparent pricing so you always know where you really stand.
The unfair and unwelcome ‘loyalty tax’ – are you paying it?
There’s another way thatyou may be disadvantaged. A ‘loyalty tax’ is industry-speak for the higher home loan interest rates paid by existing customers of lenders compared to those paid by their new customers. Unfortunately, it’s far more common than people realise. Read more about loyalty tax and what to look out for.
How to ensure you’re always getting the best deal
When you’re deciding on a home loan, don’t get taken in by short term incentives – rather, assess the whole picture while working out what’s really important to you.
Naturally, the advertised or offered rate comes into this. But that’s only part of the equation. Here are the things you should consider when looking for a new loan:
- Remember, it’s not a sprint – it’s a marathon
In the context of your fee liability over a 25-year home loan, that quick dollar might seem nice, but it will cost you in the end. $3000 or $4000 incentive is a drop in the ocean. And you can be sure that the lender will find a way to get that money back from you over that long term. Nothing ever really comes for free.
- Understand exactly what fees you are paying
More than likely, there’ll be a few different ones; for example application or establishment fees, ongoing account-keeping fees and so on, so make sure you read the fine print and look for clarity and transparency around these. Remember, Nano has no fees (government charges, like stamp duty, may apply)
- Look at the true cost of the loan: the comparison rate.
The comparison rate takes into account the cost of overall up-front and ongoing fees. Make sure you look at the comparison rate (not just the headline rate) and check it is competitive. At Nano, because we don’t charge any fees, you’ll find the comparison rate is always the same or lower than our interest rates.
- Check the actual features of the loan.
Do these suit the way you want to live? For example, is there a linked offset sub account that allows you to easily facilitate your daily transactions? Newer digital lenders like Nano can also provide you with a mobile app that makes paying down your mortgage simpler than ever, putting you back in control.
All of these things should be given consideration. Once you’ve done the legwork and found the perfect loan, you can usually ‘set and forget’ – if you’re with a transparent lender like Nano.
So, try to retain sight of the bigger picture. Consider a lender like Nano who has no pricing gimmicks, NO ongoing fees, and importantly offers the one fair and transparent rate to new and old customers alike.