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A national survey of 1,006 Australians, commissioned by home loan provider State Custodians, has revealed that one in five Aussies (21 per cent) admitted they did not understand 11 key mortgage terms.
Respondents were asked to define the terms “principal”, “interest”, “refinancing”, “line of credit”, “redraw facility”, “offset account”, “comparison rate”, “lenders mortgage insurance”, “bridging loan”, “split loan” and “portability”.
Of the respondents, only 6 per cent said they understood all 11 terms, with the most commonly understood terms being interest (68 per cent), principal (48 per cent), refinancing (48 per cent), line of credit (44 per cent) and redraw facility (43 per cent).
Fewer respondents could define the terms offset account (36 per cent), comparison rate (36 per cent), lenders mortgage insurance (33 per cent) and bridging loan (32 per cent). Only 20 per cent understood the term split loan.
Moreover, women were less likely to understand the terms, with 25 per cent admitting they were not familiar with any of the terms, compared to 17 per cent of men.
Younger respondents, aged 35 and under, were also more likely to struggle, with only 29 per cent stating they understood the meaning of the term principal, compared to 54 per cent of Australians aged over 35.
“Understanding financial terms can sometimes feel intimidating,” State Custodians general manager Joanna Pretty said.
“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.
“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.”
[Related: ASIC highlights financial literacy progress]
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