Right now, some banks are offering cash incentives to win your mortgage, and in certain situations that cash can actually cover the cost of switching lenders.
While a lump sum payment is always appealing, savvy borrowers aren’t just using cashback offers for new furniture or renovations. They’re using them strategically to break free from higher interest rates and potentially reduce their mortgage costs.
Here’s how the strategy works.
If you’re currently fixed at a higher interest rate but can see lower rates available elsewhere, it’s easy to feel stuck.
Breaking a fixed-term mortgage early often comes with a break fee, which can make switching lenders feel expensive.
But this is where cashback offers can become a powerful tool.
When you refinance to a new lender, they will often provide a cash contribution, typically somewhere between 0.7% and 1.0% of the loan amount (sometimes more when banks are competing aggressively for new lending).
That cash can often be used to offset the break fee charged by your current bank.
If the cashback covers the break fee - or even a significant portion of it - you may be able to move to a lower interest rate without a large upfront cost.
Over time, that could mean thousands of dollars saved in interest.
Even a standard cashback offer can be meaningful. For example, a 0.9% cashback might look something like this:
For many borrowers, that amount is enough to cover legal costs, valuations, and a typical break fee, which can make switching lenders financially worthwhile.
Of course, banks don’t give away money without conditions.
Most cashback offers come with what’s called a clawback clause, usually lasting three to four years.
This means if you sell the property or refinance again within that timeframe, the bank may require you to repay some (or all) of the cashback.
That’s why it’s important to look at your longer-term plans before accepting these offers. If you’re planning to move or restructure your lending in the near future, taking a large cashback today might create a cost later.
Cashback incentives can vary depending on the lender and the promotion running at the time. The most common types include:
Percentage-Based Offers
The most common structure, calculated as a percentage of your loan amount -
which means larger loans receive larger cash contributions.
Flat Cash Offers
A fixed dollar amount regardless of the loan size.
Tiered Offers
Different cashback amounts depending on how much you borrow.
This strategy can work well in the right situation, but it’s not something you want to guess your way through.
To know if switching lenders makes sense, you need to compare:
When the numbers stack up, you could potentially reduce your interest rate and lower your long-term mortgage costs, with the new bank helping fund the switch.
The key with this strategy is simple - the numbers have to stack up.
If you’d like to see whether switching lenders could reduce your mortgage costs, I’m always happy to run the calculations and show you exactly what it could look like.