New research has found many Australian home owners don’t understand key terms used by loan providers, and their lack of comprehension could be costing them on their mortgage.
A survey conducted by Gateway Bank found that Australian mortgage holders have “concerningly low levels of awareness” of key terms used by the mortgage industry to describe various products and features.
Terms such as ‘offset account’, and ‘redraw facility’, were definitely understood by 53 per cent and 56 per cent of mortgage holders respectively, while ’lenders mortgage insurance’ and ‘loan-to-value ratio’ were understood by only 40 per cent and 26 per cent respectively.
Gateway Bank chief executive Paul Thomas said the survey’s findings weren’t unexpected.
“We’re humans. We’re overloaded with information and we can’t take it all in,” he said.
Erin Turner, the director of campaigns and communications with consumer advocacy body Choice, told The New Daily that the complexity adds to this challenge.
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Confusion hurting consumers
Mr Thomas said there’s a range of features and products the mortgage industry offers, and consumers are rarely fully aware of the full range of loan features which inhibits their ability to make an informed choice.
“It’s very hard for you to say ‘I do or don’t want a feature’ if you actually don’t understand what the feature does,” he said.
Further, Ms Turner said people who don’t understand these core terms are likely to have difficulty understanding what they’re paying for.
“Consumer understanding of products definitely affects what they’re paying for,” Ms Turner said.
According to Choice, there are more people paying for offset accounts than need to be, and the fact only 53 per cent of mortgage holders understand what this feature is likely plays a part in that.
First home buyers also struggle
The report from Gateway Bank comes only a few months after a similar study from ME Bank found first home buyers struggled to understand the ins and outs of buying their first home.
While Gateway Bank’s survey of mortgage holders found 53 per cent of people understood what an offset account is, ME Bank’s study revealed that 63 per cent of new home buyers don’t know what these features are.
Would-be home buyers can also check out The New Daily’s ‘How To Speak Real Estate’ video for a comprehensive break-down or property market jargon.