There’s a saying that I’m sure most of you are familiar with: If it sounds too good to be true, it probably is.
This saying was brought home to me the other day when one of my clients rang me in a bit of a bind. They had been in the middle of a combined three-year fixed and floating mortgage, which we had fixed up for them. With interest rates starting to come down, they thought they’d take advantage of a (very slightly) lower interest mortgage offer from a different bank, with – what seemed to be – a no-strings-attached $5,000 cashback offer. Why not? They thought.
All went smoothly at first. The other bank – of course! – accepted their application, but the trouble started when their current bank told them they would have to pay a substantial break-fee, plus legal fees, for ending their mortgage early. This amount was substantially more than the $5,000 cashback and the insignificant savings they would have made from the lower interest rate, so in the end they would have lost more money than they gained.
Lucky, then, that they called me! I pulled them back from the brink of signing with the new bank and was able to smooth out the issue with their current mortgage lender. Phew!
This happens more often than you’d think. Don’t chase cashback offers blindly.
I can’t make the point enough: It’s essential that you weigh the short-term cash gain against the long-term strategic value of your mortgage structure, plus all the hidden costs you might not see coming.
The two high costs nobody mentions upfront
As happened with my client, when you leave your bank, two major costs can ambush you. The first is legal fees – they’re unavoidable and usually between one and two thousand dollars. The second is break fees.
Here’s the thing, if you’ve split your loan as I’ve always recommended, then leaving your bank might trigger a break fee. Whilst one loan might expire and roll to floating, the other is probably still fixed. Moving means you have to break that one, and that’s expensive.
It’s worth remembering that break fees generally apply when the rate on offer is lower than your current rate. The good news? If we’re at the bottom of the interest rate cycle – which I think we are – breaking a fixed rate should be less costly going forward because rates are more likely to rise than fall. They’ll probably stay flat for the next wee while but the direction of travel is definitely looking up.
The cashback clawback trap
And there’s one other thing you need to think of. If you’ve already gone under contract with another lender, there’s a three-year commitment you agree to as the customer. If you decide to move your mortgage or pay it off significantly within that period, you’ll have to pay some, or all, of that cashback back.
If the new cashback you receive isn’t enough to cover both the old clawback and any break fees, you should probably stay put.
Do the maths properly. Add up the clawback, the break fess, and the legal fees. Then see if that shiny new cashback offer still looks so appealing.
Wait, there’s more
Beyond the obvious costs, think about the features you’re losing. For example, the ability to overpay on your mortgage instalments is huge with Westpac, not so with lots of other banks. Obviously, that’s important for people who want to pay off their mortgage faster. You’ve got used to certain features and assume everyone has them, but they don’t.
Then don’t forget there’s the hassle aspect. It’s not just signing papers and collecting a cheque. Your banking will need to be set up again, so you’ll need to reapply and go through that entire process. They all add up and add to the annoying bureaucracy that most people hate.
The strategic approach
For more than twenty years, I’ve recommended that people split their mortgage to reduce risk against future interest rate changes. Now that we’re at the bottom of the cycle, it’s more likely that rates will rise rather than fall, so the splitting strategy is about to come into its own again.
But, I’ll say it again, cashback creates a dilemma. A good splitting strategy protects you against rising rates but makes it harder to move banks. Chasing cashback requires flexibility to move.
Here’s the solution. If cashback matters to you, refix so that all your expiry dates align. This puts you in a good position to negotiate because you can leave without break fees. Then you’re in a far better position to negotiate with your current bank because it’s obvious you can leave without much cost.
Things change
I’ve been in the business long enough to know that cashback payments have been part of bank offers for a long time. But common sense tells me that doesn’t mean they’ll still be there in future. In December 2025, banks were offering 1.5% cashback – almost double the normal rate. That was a one-month special. If you decide to ignore the splitting strategy in favour of cash, do so knowing the bank may not offer cashback when your time comes.
The bottom line
So remember, it’s not just about getting a few extra thousand dollars in your pocket. It’s the long-term stuff you might lose as well. If a bank’s offering you $5,000 to move, it’s hard to ignore, but you’ve got to think rationally and do your sums.
Only then will you understand what you’re leaving behind, as much as what you’re getting at the new place.
Contact me to have a chat about your situation, and I’ll give you an honest appraisal of what you can borrow and how to make the most of this opportunity.