Are special offers worth it?
Many mortgage lenders offer incentives to take out a mortgage with them but you need to consider if these short-term incentives are worthwhile when compared to the long-term costs of the mortgage.
These incentives and offers can include:
- Getting a percentage of the mortgage value back in cash either when you take out the mortgage or after a number of years, or both
- A set amount of cash
- Money towards legal or valuation fees
- A discounted rate for having another product with them i.e. a current account
Top Tip
Cashback offers can seem like a great deal, especially if you are moving house and have additional expenses, but they need to be weighed up against the long-term cost. The interest rate should be your main consideration as this is what will determine the overall cost of credit.
If you get a cashback payment when taking out your mortgage your lender is not entitled to claw back any of the funds you received if you switch to another lender.
Example
John has an outstanding mortgage of €300,000 on his home in Cork which is currently valued at €360,000. John wants to switch his mortgage and decides to go with a variable rate. John’s current loan-to-value ratio is 83% and he has 25 years remaining on his mortgage.
John is doing research and finds a bank that is offering cashback to the value of 2% of the amount borrowed. John is delighted that he will get €6,000 cash back to move to Lender A. But there is another lender in the market with a lower APRC and no special offer – the table below shows the true cost of both options.
| Lender | Amount borrowed | APRC | Monthly repayments | Total cost of credit | Total cost of credit minus cashback |
| A | €300,000 | 4.6% | €1,667 | €200,249 | €194,249 |
| B | €300,000 | 3.6% | €1,502 | €150,561 | €150,561 |
This will prove quite a costly decision for John. The temptation to take the 2% cashback offer will cost him €43,688 over the term of the mortgage. His mortgage repayments with Lender A are also €165 more expensive a month than they would be with Lender B.
Last updated on 14 April 2023
