Kathy Bowler
New research has found one in four Australian homebuyers do not know the interest rate they are paying when taking out a loan, and are also under the misconception that additional features of their loan do not incur extra fees.
Commissioned by the CPA, the study found that borrowers placed more importance on the relationship they have with the lender over the fees and rates they’re charged, with 43 per cent of respondents claiming that existing or past relationships with lenders to be the main reason for their choice.
CPA financial policy adviser Kath Bowler said these results showed many homebuyers were disturbingly uninformed, which is surprising considering public anxiety about a predicted rate rise.
“It is almost as if people are turning a blind eye to the cost when choosing a home loan. Over half the respondents indicated they aren’t exactly sure what current interest they are paying on their home loan. Even small changes to the rate can have a significant impact to their repayments,” Bowler said.
The study also found that 86 per cent of respondents used mortgage features such as redraw, offset or all-in-one accounts in the hope of paying off their mortgages earlier, with more than half believing they’re not being charged for these services.
However, research data taken from the six major banks conducted by financial services research group CANNEX found that these services do cost more.
The research showed that borrowers pay 0.67 per cent more for an offset facility and 0.68 per cent more for a line of credit, which is the equivalent of $34,000 extra paid on a $250,000 loan over 25 years.
“Redraws aren’t always a fast track to financial freedom. In fact, 64 per cent of those interviewed admitted they have used their redraw, offset or all-in-one account for personal reasons,” Bowler said.
“There’s a risk that these facilities can turn into a residential ATM, with mortgagees constantly withdrawing the excess money to fund personal expenses, rather than to pay off their loan faster.”
