Halifax launches £500 cashback offer on mortgages

But will you really save money on your mortgage?

Updated: 
Halifax launches £500 cashback offer on mortgages

Halifax is the latest mortgage provider to offer cashback on its mortgages.

First-time buyers and home-movers can get £500 cashback when they apply for a qualifying mortgage between now and 3rd May 2015. The cashback will be paid to borrowers through their conveyancer when the mortgage completes.

Not all mortgages are included though. The offer excludes shared equity (including Help to Buy: equity loan), shared ownership, equity support mortgages, buy-to-let mortgages and applications through Halifax intermediaries.

Getting cashback on my mortgage

A number of lenders offer cashback deals with certain mortgages. For example Platform and Accord pay £250 cashback on selected deals, while Leeds BS pays up to £1,000 cashback depending on which mortgage you go for.

Some lenders reserve cashback deals for those remortgaging, where you can either get free legals and valuation or straight cashback. Nationwide does this for example, with £250 cashback on offer if you don't go for the free legals and valuation.

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Pros and cons

The obvious benefit of a cashback mortgage is that you get some money back after you buy the house. Buying a property is always an expensive time, so having some money to buy new furniture or help with redecorating can seem pretty tempting.

The problem is that generally your mortgage will end up more expensive, even when the cashback is taken into account.

How cashback mortgages compare to cashback-free mortgages

So will you end up better off with a mortgage that comes with cashback? To get a better idea, I've compared a two-year and five-year fixed rate Halifax cashback mortgage deal with comparative cashback-free deals. All are based on a £150,000 mortgage on a £200,000 property (so 75% loan-to-value) over a 25-year term.

Halifax's cheapest two-year fixed rate comes with a rate of 1.99%, and a product fee of £1,995. In our example, you're looking at monthly repayments of £639.50. Over the two-year fixed rate term, that means a total of £16,843 when you include the mortgage fee, but take off the £500 cashback.

The cheapest two-year fixed rate around comes from Chelsea Building Society, which charges 1.44%, with a £1,675 fee. With the Chelsea mortgage, you're looking at monthly repayments of £598.94. Over the fixed rate period, including the fee, that will cost £16,049.56, the best part of £800 less even without any cashback to enjoy.

What about a five-year fixed rate mortgage? Halifax's lowest rate over this term is 3.34% with a £495 fee. Monthly repayments will be £745.31, so you'll shell out a total of £44,713.60 over five years, including the fee and cashback.

The best non-cashback rate on offer is 2.44%, again from Chelsea Building Society, with a £1,675 fee. Monthly repayments will be £673.80, so over five years and including the fee it will cost you £42,103. That's more than £2,600 cheaper.

As you can see, the non-cashback deals work out far cheaper. This shows how important it is to do your sums and not have your head turned by flashy gimmicks that will actually cost you far more in the long run.

Find a cheaper mortgage with the AOL Money mortgage centre

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