According to UBank, nearly four-fifths of Australians who have not yet entered the housing market lack knowledge about financial products and terminologies like home loans, interest rate, and deposits.
Nearly half of respondents said they don’t know much about loan-to value ratios.
A third of respondents said that they are not familiar with offset accounts or negative gearing. One in four also said they don’t know much about comparison rates.
UBank CEO Philippa Watson said that there is an obvious knowledge gap among younger generations. It is vital to address this as the desire to own a home continues to grow.
She said that knowledge is the key to success in the property market. However, if you don’t have a basic understanding of financial terms and concepts, it could lead to Australians falling for common traps and getting into difficult situations.
“One way we can help them, is to dispel the common misconception that finances have to be complicated. We truly believe that every Australian should be able to understand and manage his or her finances.”
UBank has compiled a list of mortgage terms that every buyer and borrower needs to know.
- LVR: Loan to Value Ratio This percentage shows the ratio of the amount borrowed to the property’s worth. This is often used by banks to determine the risk of a loan. If you have a 20% deposit, your LVR will be 80%.
- Lenders Mortgage Insurance:Some banks and other finance lenders may charge borrowers an LMI fee to cover the bank in the event that a borrower is unable or unwilling to repay a loan. LMI is typically charged to customers with a lower deposit that the bank would prefer. LMI is often applied to customers with less than twenty percent deposit. UBank waives LMI when a customer has less than a twenty per cent deposit for its 85% LVR Home loans.
- Bank offset account:An offset account works just like a regular bank account, but it is linked with your home loan. The account’s balance is counted just like a home loan. This means that the balance will be less and you will have to pay less interest. This can lower the term of the loan.
- Negative GearingThis is the practice of using borrowed money to invest in a way that allows any loss to be claimed as a tax deduction.
- Comparable rates The comparison rates are helpful in determining the true cost for a home loan. This sums up the interest rate and fees you will pay over the life of the loan. To make it easier to calculate how much a loan costs, you can compare this number to other lenders.
- Refinancing: Refinance your home loan to get a new one. Refinance means that your lender or bank pays off the old mortgage and the new one.