Cash Rules: The Cash Rate, Cash Backs, and the Allure of Cash
We are all familiar with the term ‘The Cash Rate,’ but what does it really mean? It is not the interest rate we see on our mortgage statements. So, why is there so much talk about the ‘Cash Rate’?
The Cash Rate is a number set by the reserve bank. This cash rate will ultimately influence the interest rate we see reflected in our mortgage loan interest rate. When the cash rate is low, borrowing becomes cheaper, encouraging spending and investment. Conversely, when it’s high, saving becomes more attractive.
What does this mean for you and your property dreams? A lower cash rate can mean lower mortgage rates, making it more affordable to jump into the property market or refinance your existing loan.
Here at Go Mortgage, we prioritise transparency by discussing your actual interest rate. This serves as a more accurate guide for managing your mortgage loan, ensuring that you stay within your repayment limits while keeping your finances in check. The interest rate is where it is at! We will also keep on top of your interest rates with periodic reviews to ensure your mortgage loan is giving you the best bang for your buck!
So, while we are on the topic of cash, let’s dive into Cash Back offers. You’ve probably come across Bank XYZ offering up to $3,000 cash back for refinancing with them, or maybe Bank ABC tempting you with a $2,000 cash back deal for switching. The cash back market can be a fickle one, with times when they flood the market and other times when they are scarce.
Deciding between a cash back offer and a better interest rate can be a challenging decision. Let’s break down the factors you should consider, helping you make an informed choice:
- Upfront Cash vs. Long-Term Savings
Cash Back
Opting for a cash back offer provides you with immediate financial assistance, which can be beneficial for covering expenses associated with refinancing a home loan However, keep in mind that this upfront cash amount may come with trade-offs such as higher interest rates or fees over the life of the loan.
Better Rate
Choosing a mortgage with a lower interest rate can result in substantial savings over the duration of your loan. While you won’t receive a cash bonus upfront, the lower interest rate can translate to lower monthly payments and significant long-term savings. This option may help you better overall.
- Financial Goals and Priorities
Immediate Needs
If you have immediate financial needs or anticipate significant expenses upon purchasing your home, a cash back offer may provide the necessary funds to address these needs without accessing your savings.
Long-Term Financial Stability
If your primary goal is to minimise the overall cost of your mortgage and maximise your long-term savings, prioritising a better interest rate may align more closely with your financial objectives.
- Affordability and Budget
Monthly Payments
Consider how a cash back offer or a better interest rate will impact your monthly mortgage payments. While a cash back offer may provide upfront relief, higher interest rates could result in larger monthly payments over the life of the loan which may not be the ideal situation for you.
Budget Constraints
Evaluate your current financial situation and assess whether you can comfortably afford higher monthly payments associated with a lower interest rate or if the immediate cash from a cash back offer better fits your budget.
- Total Cost of the Loan
Comparing Offers
Calculate the total cost of each option over the entire loan term, including interest payments, fees, and any associated costs. This comprehensive assessment will help you determine which option offers the best value for your specific financial circumstances. Speak to us and we can help you with this.
- Future Plans
Selling or Refinancing
If you plan to sell your home or refinance your mortgage in the near future, the impact of a cash back offer versus a better interest rate may vary. Consider how long you intend to stay in the property and how different mortgage options align with your future plans.
Maximising the cash flowing into your pocket, while aligning your financial strategy with your lifestyle choices, is paramount. As the saying goes, ‘Cash is King,’ and is essential for keeping the world turning. Ultimately, choosing between a cash back offer and a better interest rate hinges on your individual financial situation, priorities, and objectives. Therefore, meticulous evaluation of each mortgage option and consideration of long-term implications are imperative.
Reach out to us and we can help you navigate your options.