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
|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.|
|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.
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.
|Did you know?|
|If you took out a mortgage since March 2016 and got a cashback payment from the lender you don’t have to repay this money if you switch to another lender.|