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Findings from a new study show Australian homeowners have a low level of awareness when it comes to key mortgage terms.
Research by Gateway Bank demonstrates financial literacy has dropped from the year before and the bank CEO said both banks and brokers need to ensure clients have the right level of understanding.
The largest drop in financial literacy amongst Australian mortgage holders was understanding the difference between a comparison rate and an interest rate.
Of those surveyed, 31% were definitely aware of the term, down from 36% in 2017.
Just over half of mortgage holders said they were definitely aware of the terms redraw facility (56%), home loan insurance (55%) and offset account (53%).
The only measure that improved from the year prior was split home loan which 34% of mortgage holders claimed to definitely understand, up from 33% in 2017.
Only 40% of home owners understood the term Lenders Mortgage Insurance (LMI). Even further down on the awareness scale was loan to value ratio with 26% and portability with 20%.
Paul Thomas, CEO of Gateway Bank, believes the home loan lending sector needs to place an increased focus on financial literacy and education throughout the home loan process.
He said, “Banks and brokers alike need to make it a priority to ensure that clients and members are given the resources and support needed to ensure they have a high level of understanding of the inclusions, exclusions and terms associated with their mortgages.”
Aside from lacking understanding of key financial terms, the survey also found mortgage holders did not know the basic features offered on their current mortgage.
Forty percent of people surveyed did not know if their home loan offered Splits, 17% did not know if they had access to a redraw facility and 19% did not know if their current home loan offered an offset account.
Without the appropriate level of awareness or knowledge, Thomas warns Aussies are missing out on the best deals and packages that may be available for individuals across the market.
He said, “As with any purchasing decision, meticulous research and awareness is required if you’re to nab the best deals for your particular circumstances.
“People will invest hours or days of research into purchasing a television or a computer, and the same amount of interest and time investment needs to be implemented when making one of the largest purchasing decisions of any one’s lives.”
The survey also found significant inequality in awareness when looking at the results by gender. Men were more likely to claim some level of understanding than women for all key financial terms.
