However, new UBank research shows the desire for financial education is increasing
27 May 2021, Sydney Australia – 84% of Aussies who are yet to buy a property say they need to know more about financial products such as home loans, rates and deposits, according to the bi- annual Know Your Numbers* survey by digital bank, UBank.
When it comes to financial terms, just over half of those surveyed admitted to having little to no knowledge about loan to value ratios (LVR) or knowing what the term means (40%), rising to 70% of Gen Z (under 24-year-olds).
UBank CEO, Philippa Watson said that while the knowledge gap is clear, encouragingly, the pandemic has spurred many Australians to improve their financial awareness.
“Many customers come to us in search of ways to simplify their finances, particularly after the events of the past year,” said Ms Watson.
“One of the ways we can help them is to debunk the very common misconception that finance has to be complicated, because we truly believe every Australian should have the ability to understand and manage their finances.”
Other financial terms a large proportion of Australians have little or no knowledge of include lenders mortgage insurance (LMI) (41%), offset accounts (38%) and negative gearing (37%).
Additionally, only 1 in 4 (24%) say they know a lot about comparison rates, with a mere 1 in 10 (10%) saying they have a perfect understanding. Only 3 in 10 (31%) Aussies know a lot about refinancing, with 12% saying they have a perfect understanding.
“We know the appetite for home ownership is continuing to grow, with 56% of Aussies excited about the prospect of owning a home, up 13% since July last year.
“But knowledge is key and entering the property market with little to no knowledge of some essential financial terms and concepts could see Australians falling into common traps or getting themselves into situations they cannot manage.
“UBank helps many Australians into new homes each year and have a huge focus on helping existing home owners access better value loans. If that means breaking down some of the less understood terms for our customers, then we’re here for it,” said Ms Watson.
Simplifying mortgage terms:
Loan to Value Ratio (LVR): A percentage showing the ratio of the borrowed amount to the value of the property. It’s commonly used by lenders to assess the risk of a home loan for the bank. So, if you have a 20% deposit, the LVR will be 80%.
Lenders Mortgage Insurance (LMI): A fee some banks and other finance lenders charge borrowers to protect the bank in case a customer is unable to repay a loan. LMI is usually charged when customers have a lower deposit than the bank would ideally like. Often LMI applies when a customer has less than a 20% deposit. UBank waives LMI for their 85% LVR home loans.
Offset Account: An offset account is just like an everyday bank account; except it’s linked to your home loan. The balance held in the account is counted as if it’s been paid off your home loan, which reduces the balance and in turn, the interest you need to pay. This can reduce the overall term of the loan.
Negative Gearing: The practice of investing borrowed money in such a way as to allow any loss resulting from that investment to be claimed as a tax deduction.
Comparison rates: Comparison rates assist in calculating the true cost of a home loan. It combines the interest rate/s on your loan, plus a number of the fees and charges you can expect to pay across the lifetime of your loan. This single number can be compared to other lenders to make it as easy as possible to work out the how much a loan will really cost you.
Refinancing: Essentially trading your old home loan for a new one, and possibly a new balance. When you refinance your mortgage, your bank or lender pays off your old home loan with the new one; this is the reason for the term refinancing.
For more financial terms explained, check out the team from Australia’s most popular finance podcast, She’s On The Money, in UBank’s Hot Dollar$ series.
*UBank Know Your Numbers Index data conducted and compiled by YouGov Galaxy with 1,031 Australians, 18 years and older over the period of 8-10 March 2021.
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