A new financial literacy survey reveals alarmingly low home loan literacy levels amongst Australian consumers.
The survey, conducted by industry super fund-owned bank ME, found that only 41% of Australians are confident they know enough to have the right home loan for their situation. This worsens to a rate of just 15% for the next generation of home-buyers, aged 18-29 years old.
“We were particularly surprised that older generations of Australians – those who typically have more exposure to home loans – have low levels of home loan literacy. Only 43% of 30 to 49 year olds and 51% of those aged 50 and over were confident with their home loan choices, far lower than anticipated,” ME head of home loans, Patrick Nolan
“Financial literacy is valuable asset and one of the biggest money savers over time – it pays to be informed.”
Even the most fundamental piece of home loan knowledge – interest rates – has many Aussies baffled. Despite the survey being conducted just days after the last RBA
rate cut, 42% of those surveyed couldn’t correctly state the current RBA cash rate.
More than a third (37%) of respondents were unsure if the cash rate affected how much homeowners pay back on their mortgage, and one in ten thought it didn’t have any impact on their mortgage at all.
The over 50s were the most knowledgeable with just 28% unable to correctly state the cash rate, but almost half (42%) of those aged 30 to 49 and 70% of those aged 18-29 were in the dark about the cash rate.
When it came to knowledge about home loan features, more than half (55%) of respondents had no understanding of an offset facility and 40% had no understanding of a redraw facility. Almost four in ten (38%) had no understanding of interest only repayments.
Nolan says he is amazed that more Australian’s don’t understand common home loan features that could help them save them money.
“Take offset accounts, which are a savings or transaction account linked to your home loan. The value of the offset account is deducted from your home loan when loan interest is calculated, which can save you many thousands over the life of the loan,” he said.