A recent survey has revealed that the vast majority of homebuyers could be missing out on the best loans due to low levels of financial literacy.
The National Mortgage Survey, commissioned by member-owned financial services provider CUA, found that fewer than one in three Australians (29 per cent) understood what was meant by a home loan “comparison rate”.
Lenders are required to disclose the comparison rate in order for home owners to compare lenders on an even playing field by seeing what the actual cost of their loan will be, including fees, rather than just the annual percentage rate.
CUA chief operating officer member services Andy Rigg explained that comparison rates help homebuyers choose the most suitable rate for by looking behind the headline interest rate to also factor in fees and charges.
More than 1,000 Australians aged from 25-49 were surveyed, with half of the respondents currently holding a mortgage.
It found that 43 per cent of people misunderstood what was meant by a comparison rate and a further 28 per cent admitted they didn’t know what was meant by a comparison rate.
“Property buyers need to be careful that what looks like a very low rate doesn’t actually have lots of nasty hidden fees and charges,” Mr Rigg said.
CUA said this finding comes at a time when more Australian home owners are looking to refinance their mortgage to lock in some of the lowest rates on record.
47 per cent of mortgage holders surveyed were planning to switch to a fixed rate at some stage in the future, an increase of 37 per cent since the start of 2016.
“The current low-interest rate environment is clearly encouraging some home owners to consider locking in these lower mortgage repayments for the next few years,” Mr Rigg commented.
However, despite historically low interest rates, the survey also found that the majority of Australians without a mortgage do not expect to ever be able to own their own home and fear they will be locked out of the housing market if prices keep rising.
According to the survey, 33 per cent of non-mortgage holders did not think they could ever afford to buy a property, and a further 39 per cent of respondents feared they would be priced out of the market unless property prices stay the same or decease.
Mr Rigg said that responsible lenders have an increasingly important role to play in educating customers on budgeting and saving.
“We have a duty to make sure borrowers understand the tools they have at their disposal to find a home loan that best suits their situation,” he said.
[Related: Rethinking financial literacy]