Show me the money
Cash Contributions (or cash backs as most people call them) are essentially money that the lender gives to the borrower as a way to say thanks for doing business with them. It is a little carrot at the end of the process of getting a loan sorted. They can range anywhere from 0.5% to 1% of the value of your lending and sometimes as high as $20,000 depending on the loan , the loan product and the lender.
What lenders give cash backs?
We find that all main banks and most minor banks give cash contributions to borrowers whenever there is new security being brought to them. This could be a new purchase or new build or a refinance from one bank to another.
Second tier lenders don't give cash backs as a rule.
What can I use my cash back for?
Anything you like. It is money put into your bank account just after settlement of the loan and so you are free to use it for whatever you like. Most people choose to use it for things like solicitors fees, moving costs or tidying up a few things around the new house potentially. The banks don't mind unless they are running a promotion around adding it to your KiwiSaver or paying for your first year of insurance etc.
Don't some banks give holidays or TV's instead?
Banks in the past have run promotions for holidays to Fiji or TV's and DVD players (what are they!) but this seems to be a thing of the past and even if this is something they offer, they will usually offer the money to the same value if you would prefer. We'd aways recommend taking the cash rather than something of the same value. If you want to spend that money on a holiday or a TV, great, do it! But by taking the money, you can choose where you go on holiday or what TV you want, rather than taking the location they chose or the model of TV they got for a discount.
What's the catch?
As they say, there is no such thing as a free lunch so what's the catch. The main one is that you need to stay with that bank and keep the lending in place for at least 3 years, otherwise you are liable to pay the cash contribution back. Wehn you sign your loan documents with your solicitor, you sign a cash contribution form committing to the bank for the amount of time noted. It is a way the banks win clients and so they budget on you paying a certain amount of interest to be able to make that cash contribution back off you.
The cash contribution will need to be repaid if you sell your house, refinance to a new bank or repay your entire loan within the 3 years. Occasionally you may only need to repay part of the cash contribution, for example, if you are in year 2, you may only need to repay 1/3 or the cash contribution. The bank will be able to tell you at any stage what your break fee and repayment of cash contribution would need to be at any given date.
Can I get a cash contribution when refixing my interest rates?
As a rule, no. There are rumours of people having success with this but it isn't something we've seen and not something the banks offer. However, the risk of refinancing to a new bank after 3 years may get them offering cash contributions depending on how tight the market is.
If the cash is there, go for it. Use it for whatever you need after buying or building but be sure to understand the terms of it so that you don't find yourself with a bill from the bank down the track.