Homeowners Refinance Mortgages, Cashing In Up to $20,000

Home loan borrowers are seizing opportunities to cash in on refinancing their mortgages, with some individuals receiving payments of up to $20,000. According to Kelvin Davidson, chief property economist at Cotality, a record number of existing mortgage holders switched lenders in June 2023. Over 3,500 borrowers changed banks during this month, representing nearly $2.5 billion in lending—the highest level recorded since 2017.

Davidson attributes this surge in refinancing to several factors. He noted that many borrowers had opted for short-term fixed rates, which allowed them to switch lenders without incurring large break fees. This trend indicates that mortgage holders are actively monitoring interest rates and loan terms. “With a high share of borrowers coming off fixed terms over the next six months or so, it’s possible this switching behaviour may remain elevated for a while yet,” Davidson explained.

The rise in refinancing activity has also been fueled by attractive cash-back incentives offered by banks. David Cunningham, chief executive of mortgage advice firm Squirrel, confirmed that borrowers are more motivated to switch lenders due to these financial perks. He emphasized that while interest rate discounts remain minimal—often around 0.05 percent—the cash-back offers have proven significantly beneficial.

For instance, borrowers can receive cash back that equals 0.8 percent of their loan’s value. In Auckland, where $1 million loans are common, this could mean an incentive of $8,000, which Cunningham noted could help families afford holiday expenses. “I know of a family that had a very good Christmas because they got a cash back from a bank. Everyone got treated,” he said.

Cunningham remarked that the dynamics of cash-back offers have shifted over the last 18 months. Previously, these incentives were vital for borrowers struggling with higher interest rates, but now they are more likely to be spent on discretionary items. He pointed out that cash-back offers are indirectly subsidized by borrowers who do not claim them, creating a competitive environment among banks. He estimated that cash backs and mortgage broker commissions could have cost banks around $30 million in June alone.

The trend of cash-back incentives continues to attract borrowers, with Glen McLeod, head of Link Advisory, stating that cash-back amounts range from $3,000 to $20,000. He noted that while these offers are appealing, they often come with clawback clauses, meaning borrowers may need to repay part or all of the cash back if they switch lenders again within three to four years.

Refinancing activity is being bolstered by changes in lending conditions that have emerged since 2020. During that year, historically low interest rates allowed many borrowers to consolidate their loans. This has now created an environment where switching lenders can be done without incurring break costs, eliminating a significant barrier to refinancing.

The decision to refinance, however, should not be taken lightly. McLeod emphasized the importance of evaluating whether refinancing aligns with one’s financial future. “In some cases, yes—especially if another lender offers products better aligned with your needs. In others, your current provider may already be the most suitable option,” he said. Consulting with a financial adviser can assist homeowners in determining if refinancing is the right choice for them.

As more borrowers take advantage of these refinancing opportunities, the landscape of mortgage lending continues to evolve, providing both challenges and benefits in a dynamic economic environment.