Aussie mortgage literacy declining

New research commissioned by Gateway Bank and conducted by YouGov Galaxy involving a survey of 1,001 mortgage holders has reported a decline in home loan literacy from the previous year.

According to the survey, the largest drop in financial literacy among Australian mortgage holders was understanding the difference between a comparison rate and an interest rate. Of those surveyed, 31 per cent were “definitely aware” of the term, down from 36 per cent the year prior.

Gateway also reported that over half of mortgage holders said that they were “definitely aware” of the terms redraw facility (56 per cent, down from 60 per cent in 2017), home loan insurance (55 per cent) and offset account (53 per cent, down from 56 per cent). 

Additionally, the number of respondents that were “definitely aware” of other key mortgage terms such as lenders mortgage insurance (LMI) also declined, with LMI awareness dropping to 40 per cent, loan-to-value ratio to 26 per cent and portability to 20 per cent.

Gateway noted that the only measure that improved from the previous year was understanding of split home loans, with 34 per cent of mortgage holders claiming to be “definitely aware”, up from 33 per cent in 2017.

Reflecting on the results, Paul Thomas, CEO of Gateway Bank, said that the mortgage industry needs to place greater emphasis on financial literacy and education throughout the home loan process.

“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,” Mr Thomas said.

Moreover, the survey found that 40 per cent of people surveyed did not know if their home loan offered splits, 17 per cent did not know if they had access to a redraw facility, and 19 per cent did not know if their current home loan offered an offset account.

“As with any purchasing decision, meticulous research and awareness is required if you’re to nab the best deals for your particular circumstances,” Mr Thomas continued.

“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 that, when looking at the results by gender, men were more likely to claim some level of understanding than women for all key financial terms:

• Split home loan – men, 74 per cent; women, 59 per cent
• Offset account – men, 87 per cent; women 83 per cent
• Difference between interest rate and comparison rate – men, 76 per cent; women, 64 per cent
• Redraw facility – men, 88 per cent; women, 84 per cent
• LMI – men, 79 per cent; women, 71 per cent
• Home loan insurance – men, 92 per cent; women, 91 per cent
• LVR – men, 69 per cent; women, 48 per cent
• Portability – men, 62 per cent; women, 37 per cent

 [Related: Aussies struggling to grasp mortgage jargon]