Mortgage term literacy is dropping, says Gateway Bank
How did Stonehenge get there? What’s going on in Australian politics? Why does my printer always need magenta? These are some of the greatest mysteries of our time, and according to Gateway Bank research, home loan terminology is also on that list.
The research has revealed that Aussie mortgage holders are unfamiliar with common home loan terminology, even more so now than in 2017.
And after the big banks came under fire in this year’s Banking Royal Commission, it’s become more important than ever for Aussies to understand the terms of their mortgage to avoid being ripped off.
Gateway Bank CEO Paul Thomas emphasised the importance of understanding this terminology to help Australians navigate the banking world and get a great deal on their home loan.
“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.
When it comes to terms Aussies don’t understand, portability was the most confusing, with only 1 in 5 Aussie mortgage holders confident in their understanding.
The biggest drop in understanding was the difference between an interest rate and comparison rate, with only 31% of Aussies definitely aware of the term, 5% less than last year.
And when it came to money-saving features, only 56% understood what a redraw facility is, and 53% what an offset account is. These were down 4% and 3% respectively from the year before.
Do I really need to know these terms?
Whether you’re nearing the end of your home loan or are just starting your search, Thomas suggested that the key to getting a great deal on your mortgage is knowing the terminology well.
“As with any purchasing decision, meticulous research and awareness is required if you’re to nab the best deals for your particular circumstances,” he said.
“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.”
What are the terms I need to know?
To make things simple for you, here are some definitions of the words you might be unfamiliar with:
- Portability. The option to keep your existing loan if you decide to move homes down the track.
- Interest rate vs. comparison rate. An interest rate is the headline rate, and comparison rate is the 'true cost' combining the interest rate with the cost of fees so you can see the true cost of the loan.
- Redraw facility. The ability to access any extra cash that you've put into your loan by making additional repayments.
- Offset Account. Just like a bank account, but the balance in the account is offset against the home loan principal. So if you've got $10,000 in an offset account and $200,000 left on your loan, you'll only be paying interest on $190,000.
If you’re one of the many Aussies who don’t understand mortgage jargon, we have a handy guide to help you get started.
And once you’ve scrubbed up your general knowledge, it’s time to start scouting for a home loan. Check out our mortgage comparison tool for great rates and features to help you secure the home of your dreams!