A new study by one of Australia’s credit unions has revealed some alarming figures about the financial literacy of mortgage holders.
The joint survey by Gateway Credit union and market research group McCrindle Pty Ltd found that only 35 per cent of borrowers understand the difference between an interest rate and a comparison rate, while just 39 per cent of borrowers understand what a split home loan is.
“This research shows more than a third of mortgage holders do not understand basic mortgage terms such as split home loans, redraw facilities and offset accounts,” Mark McCrindle, principal of McCrindle Pty Ltd, said.
“While every mortgage advertisement will display a comparison rate, only one in three mortgage holders know what this is.”
However, Mr McCrindle noted it was encouraging to see that the understanding of Gen Y borrowers was greater than that of the older generations, highlighting an increase in financial literacy amongst the emerging generation.
The misunderstandings around some of the most commonly used lending terms spurred Gateway to consider how they could provide assistance to consumers, as well as brokers who play a large role in the education process.
“As a mutual, it is our goal to build consumer knowledge, so that buyers are confident when it comes to choosing the right home loan product,” Gateway CEO Paul Thomas said.
The credit union has released an infographic that provides borrowers with easy-to-understand explanations of the most commonly misunderstood banking terms.
“This is just the first step among many for Gateway that aims to create greater financial literacy among the Australian population,” the credit union said in a statement.
[Related: What is financial literacy really about?]