When you apply for a new home loan with a bank, they may offer you a cash contribution as an incentive to choose their loan product. A cash contribution is a sum of money that the bank will give you if you take out a loan with them, and this amount can vary depending on the bank and the loan type you choose.
The cash contribution is usually a lump sum payment that is paid directly to you, and it can be used for a variety of purposes. You may choose to use the money to pay for expenses associated with buying a new home, such as legal fees or moving costs. Alternatively, you could put the money towards paying off your mortgage, reducing your overall debt.
It's important to note that a cash contribution is not the same as a discount on your interest rate. While some banks may offer both incentives, a cash contribution is a separate amount that is paid to you upfront, while a discount on your interest rate will lower your ongoing repayments over the life of the loan.
So why do banks offer them?
There are several reasons why banks offer cash contributions to customers who take out a new home loan.
Firstly, it can help to attract new customers and encourage them to choose the bank's loan product over their competitors. This is especially important in a competitive market where there are many banks vying for customers' business.
Secondly, offering a cash contribution can be a way for banks to offset the costs of switching lenders. Moving your home loan from one bank to another can involve fees and charges, and a cash contribution can help to make up for these costs.
Lastly, banks may offer cash contributions as part of a marketing campaign or promotion. For example, they may offer a limited time cash contribution as a way to attract new customers during a specific period.
What's the catch?
If you're considering taking out a new home loan with a bank that offers a cash contribution, it's important to read the terms and conditions carefully. Some banks may require you to meet certain criteria, such as a minimum loan amount or a specific loan term, in order to be eligible for the cash contribution.
Also, they will usually have a clause in them that if you refinance or repay your loan within a certain period of time (2 - 3 years) you will need to repay some or all of your cash contribution.
It's also important to remember that a cash contribution is just one factor to consider when choosing a home loan. You should also consider the interest rate, fees and charges, and any other features of the loan before making a decision.
If you are wanting to know more about cash contributions, the team at My Mortgage would be happy to explain and make sure you are getting the best option for you. Also, if you aren't sure if you are within any repayment period for a cash contribution you already received, we can help find that out for you too and make sure you are making the best choice moving forward.