Gateway Bank, in its 2018 Mortgage Holders’ Sentiment Report, revealed that the financial literacy of mortgage holders had dropped compared to 2017.
The customer-owned bank found the result ‘disturbing’ given the industry problems exposed by the Royal Banking Commission.
The survey showed that the largest drop in financial literacy was seen in understanding the difference between a comparison rate and an interest rate.
Out of those who were polled, 31% were ‘definitely aware’ of the term, a 5% drop from 2017. Only over half of mortgage holders said they were ‘definitely aware’ of the terms redraw facility (56%, down from 60% in 2017). In addition, fewer number of people know about home loan insurance (55 %) and offset accounts (53%, down from 56% in 2017).
Another indicator of a declining financial literacy was the low levels of awareness when it comes to key mortgage terms. The figures were discouraging, with less than half of the respondents aware of concepts such as Lenders Mortgage Insurance (LMI) (40%), loan to value ratio (26%) and portability (20%).
The term split home loan, however, was better fathomed this year with 34% (+1%) of mortgage holders claiming to have grasped the term.
Acknowledging the findings, Gateway Bank CEO Paul Thomas, underscored the importance of an increased focus on financial literacy and education. “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.” he said.
Aussies are also not informed about the basic features offered on their current mortgage. 40% of people surveyed did not know if their home loan offered Splits, while 17% did not know if they had access to a redraw facility and 19% did not know if their current home loan offered an offset account.
Thomas then warned Australians about missing out on deals available on the market due to lack of proper knowledge.
“As with any purchasing decision, meticulous research and awareness is required if you’re to nab the best deals for your particular circumstances. 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,” he concluded.