An example of how a cashback offer can work
To explain better, let’s look at a real example of what one of the leading lenders in the market is currently offering as a cashback offer.
A 3 year fixed rate mortgage of €250,000 on a property valued at €300,000 provides a loan to value ratio of 83%. (You can download our glossary guide of mortgage terms
for more information). The lender is offering a mortgage rate of 2.8%.
If this mortgage is taken out over 25 years, the monthly payment would be €1,160. Over the 3 year fixed rate period, the customer’s payments would amount to €41,760.
This lender is offering a 2% cashback sum on drawdown of the mortgage. Furthermore, the lender is also offering 2% on each monthly payment over the 3 year period if you move your current account to the lender.
This adds up to €5,835.
Therefore, the customer pays €41,760 - €5,835 = €35,925.
To understand if this cashback offer is a worthwhile one, the customer would need a mortgage deal of 1.48% to pay an equivalent €35,925 in the same time period.
Currently, there are no mortgage deals on the market offering 1.48%.
Therefore, the cashback offer in our example is a good deal for the customer.
Questions to ask around cashback offers
There are more than 250 mortgage products on the market in Ireland. Not all of these come with cashback deals, but many do. Therefore it’s important to ask a few questions about the cashback deal you have on the table in front of you. A list of these questions include:
● What does the cashback offer consist of?
● Is the cashback offer made up of drawdown, percentage of the drawn down loan and your monthly payments?
● What is the overall interest rate of the mortgage offer? Your analysis needs to take into account the overall cashflow amount involving the headline interest rate, your monthly payments and the cashback sum.
● For how long a term are you going to fix your mortgage?