A new survey, commissioned by State Custodians Home Loans, indicates that many Australians don’t fully understand the various commonly used home loan terms.
The survey, conducted by Galaxy Research from October 12-15, 2017, was administered online amongst a nationally representative sample of 1,006 Aussies aged 18 years and older.
One in five people (21%) admitted they did not fully understand any of the 11 key property terms put to them, and only 6% of respondents said they confidently knew what all the terms meant.
“Understanding financial terms can sometimes feel intimidating,” said Joanna Pretty, general manager at State Custodians. “However even if you’re not entirely clued up about financial terms, a trusted adviser should always be able to patiently explain things to you in simple and easy-to-understand language and guide you through the process.
“If you honestly don’t quite understand what an offset account is, or what an interest rate entails, then don’t be afraid to ask. Lenders shouldn’t expect you to be an expert.”
The most commonly understood terms were interest (68%), principal (48%), refinancing (48%), line of credit (44%), and redraw facility (43%).
Fewer understood some of the most widely used property terms, such as offset account (36%), comparison rate (36%), lender’s mortgage insurance (33%), and bridging loan (32%).
The least familiar terms for respondents were split loan (20%) and portability (14%).
Thanks to the internet, more people now have access to basic home loan knowledge. “The more you make time to research some of the terms, the more confident you will be going through the process of acquiring or renewing your home loan,” Pretty said.
Women are less knowledgeable about financial terms, scoring lower than men in every one of the 11 categories. A worrying 25% of women admitted they understood none of the terms compared to 17% of men.
Pretty said the big danger of not fully comprehending money terminology was that it can leave people under the mistaken belief that they’re in a better financial situation than they really are.
“The best advice would be to read up a bit before you contact a lender and seek out a lender who speaks in honest and simple terms,” she said.