This year's Mortgage Holders’ Sentiment Report by Gateway Bank showed that Australian homeowners have low levels of awareness regarding key mortgage terms. In addition, the financial literacy of mortgage holders declined compared to 2017.
Gateway Bank found the lower financial literacy ‘disturbing’, especially at a time when the industry is surrounded with the sort of problems exposed by the Royal Banking Commission.
The poll showed that the largest drop in financial literacy among mortgage holders was observed in terms of understanding the difference between a comparison rate and an interest rate.
Out of all the respondents, 31% were ‘definitely aware’ of the term, down from 36% last year.
On the other hand, just over half of mortgage holders said they were ‘definitely aware’ of the terms redraw facility (56%, down from 60% in 2017). The trend was similar for the number of people who know about home loan insurance (55 %) and offset accounts (53%, down from 56% in 2017).
Awareness on other key mortgage terms did not look better. Less than half of the respondents were aware of concepts such as Lenders Mortgage Insurance (LMI) (40%), loan to value ratio (26%) and portability (20%). It was worth noting, though, that split home loan was better understood this year with 34% (+1%) of mortgage holders claiming awareness on the term.
“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.” Gateway Bank CEO Paul Thomas said.
What's more important now is for Aussies to know the basic features offered on their current mortgage. 40% 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.
As a final note, Thomas warned Australians about potentially missing out on deals available on the market due to lack of awareness.
“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,” he concluded.
