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Home loan terminology confusing borrowers

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Sydney, 19 October 2017: Australians’ understanding of their own home loans has worsened, compared to two years ago, according to new research from Gateway Credit Union.

Gateway’s Mortgage Holder Sentiment Report 2017 reveals Australians with a mortgage are confused when it comes to key features associated with their home loan.

 

2017

2015

Redraw facility

20% of Australians are unsure if their current home loan offers a redraw facility

17% of Australians are unsure if their current home loan offers a redraw facility

Offset account

28% of Australians are unsure if their current home loan offers an offset account

18% of Australians are unsure if their current home loan offers an offset account

Splits

47% of Australians are unsure if their current home loan offers splits

35% of Australians are unsure if their current home loan offers splits

 

According to Gateway Chief Customer Officer, Lexi Airey, with many experts predicting rates are set to rise over the next 12-months it’s more important than ever for borrowers to use additional features to make the most of their home loans.

“There is an opportunity cost for borrowers who don’t know what features they have available with their home loans,” said Airey. “A home loan is a significant financial commitment and it seems many people are entering into it blindly and under utilising their loan facilities, and potentially missing out on saving thousands in interest over the life of their loan.”

“For instance, the research revealed that 43% of borrowers have no idea how many offset accounts they can link to their home loan, compared to 36% back in 2015. Most lenders will offer more than one offset account on the standard home loan. At Gateway, we offer unlimited offset accounts which means our Members can make the most of their savings without having the hassle of shuffling money between accounts,” said Airey.

“If borrowers are unaware that they have these options available at their disposal they could have funds sitting idle instead of serving the dual purpose of a savings buffer and helping to reduce the life of a home loan.”

The research went on to reveal that borrowers also struggled when it came to understanding common home loan terms.

 

2017

2015

Redraw facility

14% of Australians do not understand the term ‘redraw facility’

10% of Australians do not understand the term ‘redraw facility’

Offset account

18% of Australians do not understand the term ‘offset account’

13% of Australians do not understand the term ‘offset account’

Splits

40% of Australians do not understand the term ‘split’ home loan

28% of Australians do not understand the term ‘split’ home loan

Interest rate vs. comparison rate

32% of Australians do not understand the difference between ‘interest rate’ and ‘comparison rate’

21% of Australians do not understand the difference between ‘interest rate’ and ‘comparison rate’

 

“In the current environment – when we hold high levels of household debt, have easy access to credit and property prices across the nation are elevated – it’s never been more important to have strong financial capability. Many Australians aspire to home ownership and invest significant amounts of time in making this dream a reality so it’s only fitting that we should be doing the most when it comes to educating ourselves on the financial aspect,” said Airey.

“There is a lot of jargon surrounding home loans which can cause confusion. However, there are easy ways that Australians can boost their understanding. Friends and family can offer tips and hints based off their own experience, while financial planners and advisers can provide professional in-depth advice and guidance.

“Not to mention in today’s digital world, online self-directed learning can also provide helpful solutions. At Gateway, we offer a fortnightly blog for those looking at gaining a high-level understanding of financial terms, trends and tips. In fact, it’s been so popular it’s led us to develop a dedicated home buying resource centre that will offer targeted content to help consumers through the home buying process. We’re really looking forward to launching this in December. Until then, anyone looking for more information on these terms can look at our handy home loan features definition guide,” concluded Airey.

Source: Gateway Credit Union Mortgage Holder Sentiment Report 2017

END

About the research

The Gateway Credit Union Mortgage Holder Sentiment Report is the collation of data gained through a quantitative survey conducted through an online panel. The survey was in field from 12th September to 18th September 2017, obtaining 1,030 completes. The survey sample was nationally representative of Australians over the age of 18 across age, gender and states in Australia.

This report compares the latest 2017 results with the previously commissioned 2015 Mortgage Holder Sentiment Report. The 2015 survey was in field between 9th October 2015 to 13th October 2015 and deployed to respondents who identified with the following criteria (n=355):

  • Home owner – currently paying off my home
  • Investor – currently paying off my investment property

Results from the 2017 omnibus study have been filtered by these criteria to provide accurate longitudinal comparisons across a comparable sample of mortgage holders. When this filter is applied, the 2017 sample size for mortgage holders is n=326.