The maths on cashback refinances.
A $3,000 cashback looks great on a billboard. It's also why some clients end up on a rate that costs them four times that in extra interest over the next five years.
When cashback is worth taking
Lenders offer cashback to win new business, usually as a one-off payment of $2,000 to $4,000 on refinance, sometimes more. The question to ask is what rate you're moving to, and whether it will stay competitive for the next five years or more.
On a $600,000 loan balance, a 0.15% higher rate costs about $900 a year in extra interest. Over five years that's roughly $4,500, which can be more than the cashback paid you upfront. On a $400,000 loan the same difference costs $600 a year, and there a $3,000 cashback does come out ahead. Balance and remaining term both matter. What the lender does to your rate six months after settlement matters most.
Cashback FAQs
How long is the cashback locked in?
Is the rate competitive?
Can I stack cashback offers by refinancing repeatedly?
Related pages
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