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The latest research from State Custodians reveals that Aussies don’t fully understand many commonly used home loan terms.

How much do you really understand about home loan terminology? Even if you think you’re pretty clued up, could you confidently and correctly define 11 different terms if you were put to the test?

Recently State Custodians quizzed 1,006 people as to how much they know about mortgage phrasing. The results were somewhat surprising. One in five people (21 per cent) admitted they did not completely understand any of the 11 key property terms put to them. Only 6 per cent of respondents said they confidently knew what all the terms meant.

State Custodians general manager Joanna Pretty says the big danger of not fully comprehending money terminology is that it can leave people under the mistaken belief that they are in a better financial position than they really are. She adds that whilst understanding financial language can be intimidating for many, that’s where a good expert can really help.

If you’re not entirely across financial terms, our team can patiently explain things to you in simple and easy to understand language and guide you through the process.

If you honestly don’t quite understand what an offset account is, or what an interest rate entails, then don’t be afraid to ask. We don’t expect you to be an expert.

Joanna Pretty, General Manager, State Custodians

Key findings

  • The most commonly understood term was interest.

  • Half of all respondents knew what principal and refinancing meant.

  • The least commonly understood term was portability.

  • Surpisingly, some of the most common terms such as offset account and comparison rate, also were not widely understood, with only one in three people confident about the meanings.

Here are the terms in descending order from most commonly understood to least commonly understood:

  • interest (68 per cent)
  • principal (48 per cent)
  • refinancing (48 per cent)
  • line of credit (44 per cent)
  • redraw facility (43 per cent)
  • offset account (36 per cent)
  • comparison rate (36 per cent)
  • lender's mortgage insurance (33 per cent)
  • bridging loan (32 per cent)
  • split loan (20 per cent)
  • portability (14 per cent)

Women had significantly lesser knowledge about financial terms, scoring lower than men in every one of the 11 categories. Some 25% of women admitted then understood none of the terms compared to 17% for men.

Younger people also didn’t fare well in general. For instance, only 29 per cent of those aged under 35 understood exactly what the key term of principal meant compared to 54 per cent of those aged 35 plus.

Take the test below

  • Cover the left hand side of the page and see how many terms you can correctly identify before checking the answers.

    Term Definition
    Principal The original sum of money borrowed.
    Interest Charge for borrowing money using an interest rate.
    Refinancing To replace or extend an existing loan with the same or new lender.
    Line of credit A loan arrangement with a limit that can be used by the customer.
    Redraw facility Additional repayments you have made on your loan available to be withdrawn from the loan account.
    Offset account Helps reduce interest costs on a loan by linking the loan to a deposit account. The balance in the transaction account ‘offsets’ the loan balance.
    Comparison rate A rate that includes the interest rate as well as all the fees and charges associated with the loan.
    Lenders’ mortgage insurance (LMI) One-off insurance premium payable by the borrower that protects the lender against the potential loss if the loan cannot be repaid.
    Bridging loan A short-term loan that covers the time gap between the purchase of a new property and the sale of an old property.
    Split loan When a borrower fixes a portion of the loan and leaves some variable.
    Portability Allows you to ‘port’ your home loan product from one property to another.
 
  • Use a calculator to get an estimate of how much you can borrow.
    Try one here.

  • See if you qualify. To get a more accurate idea of how much you can borrow with State Custodians,
    click here.

  • Call our Lending Specialists and they can do the calculation for you over the phone plus answer any questions you have at the time. Talk to us on 13 72 62.