Saturday 10 December 2016

The 60-second guide to... getting a mortgage cashback deal

Published 02/10/2016 | 02:30

'You could pay tens of thousands more in mortgage interest with BoI over the lifetime of your mortgage than you would with a cheaper lender - even after taking into account the value of its cashback deal'. Stock image
'You could pay tens of thousands more in mortgage interest with BoI over the lifetime of your mortgage than you would with a cheaper lender - even after taking into account the value of its cashback deal'. Stock image

Mortgage cashback deals put a cash lump sum of a few grand back in your pocket, so they can be tempting when you're scrimping and saving to buy your first home. They shouldn't be the only reason you take out a mortgage with a lender, however.

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Three lenders offer mortgage cashback deals - Bank of Ireland (BoI), EBS Building Society and Permanent TSB (PTSB). With each of these lenders, you get 2pc of the value of your mortgage back in cash if you take out a home loan with the bank. That means you'll get €2,000 in cash for every €100,000 borrowed, so if you borrow €300,000, you'll get a cash lump sum of €6,000. BoI will also pay an additional 1pc cashback after five years - so as long as you don't move your mortgage elsewhere before then, you'll get the extra bonus. Under BoI's cashback deal, a house buyer borrowing €300,000 would get a cash lump sum of €6,000 when they first draw down their mortgage and an additional lump sum of €3,000 five years later - bringing the total value of the cashback deal to €9,000.

Should you be a first-time buyer getting a variable mortgage to borrow about 90pc of the value of your home, BoI is, however, one of the most expensive lenders. You could pay tens of thousands more in mortgage interest with BoI over the lifetime of your mortgage than you would with a cheaper lender - even after taking into account the value of its cashback deal.

EBS is the cheapest of the three lenders offering cashback deals, so choose EBS if you want to go with a lender that offers cashback. A first-time buyer borrowing more than 80 pc of the value of his home will get a variable interest rate of 3.7pc from EBS. BoI, on the other hand, charges 4.5pc interest while PTSB charges 4.2pc. The EBS cashback deal is available until the end of March. EBS says it will pay you your cash lump sum within two months of you drawing down the mortgage.

AIB, which has the lowest variable rate on the market, does not offer a cashback deal. You will still save about €4,000 in interest on a 25-year variable mortgage of €300,000 by going with AIB instead of EBS - even after taking EBS's cashback deal into account. (This assumes you are borrowing more than 80pc of the value of your home.)

Cashback deals are typically open to first-time buyers, people moving to a new home or those switching their mortgage to the lender. However, you will struggle to get a cashback deal if you are in negative equity or a buy-to-let customer.

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