Getting a refund on your mortgage We're all looking for some extra money to help pay off our home loan - especially when the budget is tight. That's why a mortgage rebate can make a huge difference Getting the competitive edge in today's mortgage industry is high on the list of priorities of lenders, mortgage brokers and borrowers alike. Lenders and brokers want your business, and you want the edge that's going to save you on higher property costs. For the last four years or so, many mortgage brokers have offered what's commonly called a rebate. Depending on the size and circumstances of your mortgage, this rebate could be between $1,000 for loans above $250,000 and on a sliding scale of up to $3,000 for loans around the $1m mark. This is usually a once - off rebate. However, some brokers offer ongoing rebates. Michael Lee, founding director, Mates Rates Mortgages, says that getting regular money back on your mortgage is a great way to stay on top of, or get ahead with, your mortgage. "After the last couple of rate rises, people are looking for that edge and that extra bit of money. Mates Rates has responded by increasing its rebate to 100% of the ongoing commission, which is like getting a rate cut," says Lee. Despite the initial appeal of such offers, you must make sure you're getting the right loan for your individual needs. Finding the most appropriate loan for you should be the number one priority of your mortgage broker. A rebate should be viewed as the 'icing on the cake'. Nicholas Gruen, CEO for refund brokers Peach Home Loans, says a broker who offers rebates still has the responsibility of finding the best loan for their customer. "People still need to ask themselves whether they can afford the loan in the first place, and the $1,000 comes afterwards. We won't put them into a loan that's not good for them," he says. How it works Mortgage rebates are usually only offered by mortgage brokers. The best thing about using a mortgage broker to organise your loan is that it's a free service and they have a wide range of products from a panel of different lenders. They're paid via commissions from your lender for setting up and maintaining your loan. These commissions may be paid upfront and/or for the ongoing term of your mortgage, and provide the broker with their salary. Some brokers have set up their business model based around sharing these commissions with their customers. They offer these rebates whether you're applying for your first, second or third home loan or even when refinancing. If you're refinancing, it generally means you'll incur break costs from your old loan and entry costs into your new loan. As a borrower, you need to weigh up the benefits of going into the new loan against the cost of leaving the old loan. Brokers who offer rebates on mortgages can subsidise some of these costs, making the transition to your new lender easier and more beneficial. "Refinance costs can really eat into the value of switching. With Mates Rates, you receive a five - year satisfaction guarantee, so if the lender and loan we arrange for you isn't working out, we share the cost of changing. Our whole model is built around making mortgages cheaper, easier and fairer," says Lee. How to use your rebate wisely A rebate from your broker can go a long way when you take into consideration the many costs involved in buying a home. The obvious option is to put the rebate straight back into your mortgage. This can reduce your interest in the long term, help soften the blow of rising interest rates or provide the opportunity to take a mortgage holiday some time later in your term. "We tell them that it's useful if they put that rebate back into their mortgage straight away. Then if they continue to make the same repayments that they usually would each month, that's a good way to turn that $1,000 into $10,000 by the end of the mortgage term," explains Gruen. Loan establishment fees, legal costs, rates adjustments, removalists' costs, urgent repair work to the property, building and pest inspections and lenders mortgage insurance (LMI) can cost upwards of $10,000, depending on the property price and size of your mortgage. There's a temptation for many borrowers to spend their rebate on making life more enjoyable. However, paying as much as you can in the first few years of your mortgage may save you thousands of dollars in interest later on. "Of course, we'll pay your rebates into wherever you want us to. Some of our customers use these payments for school fees, petrol money or to save for a holiday," says Lee. However, he also agrees that paying rebates into your mortgage is the smart way to go. "We always recommend you pay any extra money, including our monthly rebates, directly into your mortgage or offset account, and then leave it there. Just parking our rebates in your home loan can earn you around $4,000 extra equity in just three years and you'll become debt - free faster" explains Lee. How can they afford to share? Many mortgage brokers no longer rely on shop fronts or stores to arrange their consultations with borrowers. This mobile service eliminates the need for costly shop - front rents and means they're getting more bang for their buck. Where to find rebate mortgages There is more advertising these days, so finding a mortgage broker who offers rebates should be an easy process. Rebates are often advertised as part of the business name or within the business logo or slogan. Companies such as Peach Home Loans and Mates Rates Mortgages are examples of mortgage brokers that offer rebates. The catch Watch out. If you decide to refinance within a period of between one and two years using a different mortgage broker (or directly with a lender) you may be required to pay back part of or all your rebate. This is because the broker may be subject to what's called a 'clawback' on the commission they were paid, meaning that the commission will need to be repaid by them to the lender should the borrower break from the loan within 12 months or longer, depending on the lender. This policy only applies to some brokers who offer rebates. "Mates Rates rebate payments are yours to keep and they're 100% of ongoing commission, no matter what … the rebate is a very valuable bonus," Lee says. Make sure you ask your broker about the conditions of the rebate in case you're planning to refinance within the first few years of your loan term.