Lenders regularly offer cashback payments — typically $2,000 to $4,000 — to borrowers who refinance to their home loans. They are a genuine financial incentive but can also mask a worse overall outcome. Here is how to evaluate them properly.
When you refinance your existing home loan to the offering lender, they deposit the cashback amount into your account — usually within 30–60 days of the new loan settling. There are typically conditions: a minimum loan amount (commonly $250,000–$500,000), a minimum loan term (often 12–36 months before you can refinance again without repaying the cashback), and sometimes a minimum LVR.
The most important condition to understand is the clawback period. If you refinance away from the cashback lender within the clawback period (typically 12–36 months), you must repay the cashback in full (or a pro-rated portion). This means the cashback is effectively a retention mechanism — you are trading flexibility for the upfront cash.
Read the clawback conditions carefully. Some lenders claw back the full cashback even at month 23 of a 24-month clawback period. If you might need to sell or refinance again within 2 years (due to divorce, job change, or a better rate appearing), the cashback may create an expensive exit.
A cashback is worth accepting when the new lender's rate is at least as competitive as alternatives and you are confident you will hold the loan for the full clawback period. In this scenario, the cashback is a genuine bonus that reduces the effective cost of the loan.
A cashback is not worth accepting if the offering lender's rate is higher than a no-cashback alternative over your expected holding period. Example:
On a $600,000 loan, the 0.30% rate difference costs $1,800/year. Over 24 months, Lender B is $3,600 more expensive in interest — $600 more expensive net of the $3,000 cashback. Take Lender A.
For owner-occupiers, mortgage cashback payments are generally not assessable income — they are treated as a reduction in the cost of the loan, not ordinary income. For investment properties, the position is more nuanced — the ATO may treat the cashback as assessable income or as a reduction in your deductible interest. If your refinanced property is an investment, check with your accountant about the correct treatment in your tax return.