Mortgage cashback in NZ: how it works and when you pay it back

What is a mortgage cashback?

Cash a bank pays into your account when a new home loan settles, as an incentive to borrow with it. It is calculated as a percentage of the loan or as a set amount, and it is usually offered to people buying a home or moving an existing loan from another bank.

It is a marketing cost for the bank, and it is competitive: offers come and go, change in size, and often depend on the loan amount and how much equity you have. Some offers are only available through a mortgage adviser, others only direct.

People use the money for legal fees, break costs at the old bank, moving costs, or simply paying it straight off the loan. Whatever you do with it, it is not free money in every scenario, because of the clawback.

What is a cashback clawback?

A condition that lets the bank recover some or all of the cashback if the loan is repaid or moved within a set period after it was paid. Selling the house, refinancing to another bank and repaying in full can all trigger it. The period and how the amount reduces are set out in the bank's own terms.

Some banks reduce the amount you would repay as time passes, so leaving near the end of the period costs less than leaving early. Others set fixed steps. Because each bank structures it differently, compare the clawback terms in writing, not just the headline amount.

Is a mortgage cashback worth it?

It is worth what it adds to the deal over the time you actually keep the loan. A larger cashback attached to a higher interest rate can cost more than it pays within a few years. The fair comparison is the total cost of each offer, cashback included, over the period you expect to stay.

• Compare the interest rates, not just the cash. A small rate difference on a large loan adds up quickly.
• Find the clawback period, and ask whether you might sell or refinance before it ends.
• Ask whether the cashback depends on keeping other products with the bank, such as an everyday account or insurance.
• If you are moving banks, net the cashback against the break fee and legal costs of moving. Our refinance calculator does that sum.

Does a cashback affect a break fee or refinancing?

They are separate. A break fee applies when you end a fixed rate early; a clawback applies when you leave the bank within the cashback period. Moving a loan early can trigger both at the old bank, while a new bank's cashback may help pay for them. That is the arithmetic the refinance calculator runs: interest saved, minus break fee, legal costs and any clawback, plus any new cashback.

Is a mortgage cashback taxed?

We do not state a tax rule here, because the treatment can depend on whether the property is your home or an investment, and on whether the loan is held personally, in a company or in a trust. Inland Revenue or an accountant is the place to confirm how it applies to you.