Home Loans with frequent flyer points – are they too good to be true?
Nine News takes a look at whether the value of up front bonuses are worth it
After decades of rising house prices in many Australian cities, the housing market is slowing down. So it’s no wonder that many financial institutions are offering compelling incentives to take out home loans.
One such incentive is frequent flyer points. Chiefly known as a bonus for signing up to, or spending on, credit cards — some banks are now adding them on as a bonus for taking out a home loan.
But while 200,000 frequent flyer points might be an attractive inducement to take out a new home loan, there is plenty to be cautious about. Primarily that the value of those points can be minuscule compared with what you may be giving up on the flip side.
“Banks are desperate for customers’ business so they’re throwing offers of cash-back and frequent flyer points on the tab,” Rate City’s Sally Tindall said.
It’s easy to become cynical and to think that the more you get in fringe benefits, the more you end up paying.
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However, in the case of a home loan, though the frills might be worth several thousand dollars, it could end up costing you tens of thousands of dollars in interest over the course of the life of a 30-year $300,000 loan.
One example: Westpac offers 200,000 Velocity points with its Premier Advantage Package Rocket Repay home loan. The value: $1959.
However, with the loan rate at 4.44% compared with the cheapest variable rate of 3.49%, over 30 years the difference on a loan of $300,000 would cost $66,842.
“It’s not just points. St George offers $1,500 cash upfront for its Advantage Package Home Loan. The rate is 4.42%. Over the life of that loan, again $66,000,” Tindall said of a repayment on a 30-year loan.
Even the strongest incentives can cost in the long run.
Virgin Money’s Reward Me gives 630,000 Velocity points — worth $6,170. The rate of 3.68% looks great, but it’s not the cheapest. Over 30 years, that deal costs you more than $7,000.
One who has been tempted is homeowner Nik Panchal from St Marys. He borrowed to build a new home at Riverstone for his growing family.
“It was about 350,000 rewards points. And with that I could buy anything from the store,” he says.
His rate was under 4%, but Panchal sees it differently, instead considering the points received as equivalent to the dollar figure value his loan fees would be.
“It paid the loan fees for the next 2-3 years,” Panchal said.