Big bank cashback trap costs Aussie home buyers nearly $40,000

By Katherine O'Chee · · 5 min read
Fact Checked
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If you’re planning to take out a mortgage with a big bank for the sake of their $2,000 cashback, it might be time to rethink your options. New research from Mozo has found Aussie home loan borrowers hopping onto the cashback bandwagon could be ripped off $37,294 over the life of their loan by not shopping around for a more competitive deal.* 

Mozo’s findings reveal that even if you spent the entire $2,000 cashback on making monthly repayments, the savings would disappear in the first 18 months on a $300,000 loan and in just 6 months on a $1,000,000 loan.** 

Among major banks including Westpac, St George, Commbank and NAB, a total of 7 of these cashbacks were offered to home loan customers. 

RELATED ARTICLE: New way to borrow takes Australia by storm 

Mozo Director Kirsty Lamont said while these cashback offers seem like a good catch short term, they end up imprisoning borrowers inside bad rates that you could be stuck with for decades. 

“Home loans are a long term commitment and if you set and forget your loan after banking a cashback offer you could be trapping yourself with a poor interest rate and higher monthly repayments,” Lamont said. 

“Don’t believe the hype when it comes to home loan cash back offers. Your best option is always to compare what’s on offer and go with the most competitive rate.” 

The big banks vs online lenders: what’s the difference in their rates?  

Mozo data shows that the big banks definitely aren’t your best bet if you’re looking for an affordable home loan. Online lenders have risen as true movers and shakers in the mortgage market, offering customers much lower interest rates and fees. 

In terms of average numbers, the Big 4’s variable interest rate now sits at 4.10%^, having dropped 139 basis points from 5.44% since 1 January 2015. Meanwhile, over the same period, the average variable rate for online lenders has fallen further, going down 150 basis points from 4.96% to 3.46%.

“On average, the big four banks’ variable interest rates are still 64 basis points above the average of the online lenders. So if you’re looking to cut your repayments, online lenders offer you a ticket out of the big banks’ high interest rate cashback trap,” Lamont said. 

Even when you place the big banks’ cheapest rates side-by-side with those of leading online lenders, there continues to be a 31 basis point difference between the two.

In fact, two thirds of lenders in Mozo’s comparison database now offer variable rates below 3.50%, which beat the big bank average. And the lowest rates in our database - drumroll, please - start from as low as 2.89% with Reduce Home Loans! 

Thinking of buying a house soon? Head over to our comparison table to get started on finding a great home loan for you. 

Mozo may receive payment if you click the products below. We don’t compare the entire market, but you can compare more home loans here.
Last updated 20 September 2024 Important disclosures and comparison rate warning*

Home loan comparisons on Mozo

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  • Unloan Variable

    • Owner Occupier
    • LVR <80%
    Interest rate
    5.99 % p.a.
    Variable
    Comparison rate
    5.90 % p.a.
    Initial monthly repayment
    $2,995
    Go to site

    Built by CommBank, the Unloan is the first home loan with an increasing discount (conditions apply) for borrowers. No application or banking fees. No monthly account keeping or early exit fees. Apply online in minutes.

  • Fixed Express Home Loan

    • Owner Occupier
    • Principal & Interest
    Interest rate
    5.54 % p.a.
    Fixed 2 years
    Comparison rate
    6.11 % p.a.
    Initial monthly repayment
    $2,852
    Go to site

    Lock in a low 2 year fixed rate with the Mozo award winning Home Lender of the Year. Available for live-in borrowers with just a 10% deposit required. Free extra repayments (up to 20% in fixed period), free redraw and partial offset available. $10 monthly service fee. Aussie support centre. Fast approvals. Up to 6 free offset accounts (T&Cs apply).

  • 3 Year Special Fixed Home Loan

    • Owner Occupier
    • Principal & Interest
    Interest rate
    5.69 % p.a.
    Fixed 3 years
    Comparison rate
    6.16 % p.a.
    Initial monthly repayment
    $2,899
    Go to site

    This home loan is available for purchase or refinance, complete with 1, 2 or 3 year fixed rate options. Minimum 10% deposit required.

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* Cost saving based on the difference between Big 4 and online lenders' average owner occupier, principal & interest, $300,000 home loan at 80% LVR over 30 years, minus a $2,000 cash back offer. 

** Saving calculated by comparing the average variable rate of the big banks with the average variable rate of the online lenders as of 10 September 2019.

^ Average variable rate as of 16 September 2019.

* WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.

** Initial monthly repayment figures are estimates only, based on the advertised rate. You can change the loan amount and term in the input boxes at the top of this table. Rates, fees and charges and therefore the total cost of the loan may vary depending on your loan amount, loan term, and credit history. Actual repayments will depend on your individual circumstances and interest rate changes.

^See information about the Mozo Experts Choice Home Loan Awards

Mozo provides general product information. We don't consider your personal objectives, financial situation or needs and we aren't recommending any specific product to you. You should make your own decision after reading the PDS or offer documentation, or seeking independent advice.

While we pride ourselves on covering a wide range of products, we don't cover every product in the market. If you decide to apply for a product through our website, you will be dealing directly with the provider of that product and not with Mozo.

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