Most homeowners don’t know what their variable rate will be

Almost 70% of homeowners with a fixed-rate loan do not know what their variable rate will be, according to national research from AMP Bank.

The survey found that Australian homeowners lacked an understanding of key aspects of their home loan and the options available to them, with more than half (54%) of those surveyed indicating they did not know how to use an offset account which can potentially save homeowners thousands over the life of a loan if used effectively.

AMP Bank’s modelling showed an offset account balance of $40,000 could save homeowners more than $170,000 in interest payments and reduce the life of a loan by three years.

On top of this, the Reserve Bank of Australia (RBA) figures show that 880,000 loans in total were set to expire this year with a further 450,000 expected to expire at the end of 2024, which means the market will approach the peak of the fixed rate roll-off transition period, with most fixed-rate loans taken out during the Covid pandemic.

Other findings from the research show:

– 1 in 5 (20%) Australian homeowners don’t know their home loan’s current interest rate

– A quarter (26%) of homeowners don’t know when their fixed rate is due to expire

– 80% of those with a fixed component don’t know what a ‘revert’ rate is, and 21% don’t know what a redraw facility is

– Most homeowners keep savings in a separate savings account (54%), with less than half using an offset account (46%). 11% report using term deposits.

Sean O’Malley, group executive AMP Bank, stressed that the fact that many Aussie homeowners were not sufficiently engaged with their mortgages could cost them a lot in the long run.

“Your home loan is probably the biggest financial commitment you’ll make in your lifetime. Making some simple changes, for example maximising the benefits of an offset account can help you pay off your home loan sooner,” he noted.

“It’s a reminder of the importance of checking in on your finances and making sure your home loan is fit for purpose. I encourage all homeowners take the time to understand key features and terminology of their loan, and to ask your broker or lender if you’re not sure.”

AMP Bank also announced it will expand its digital mortgage offer to include an offset account and eligibility of AMP Bank’s digital mortgage will soon be broadened with self-employed income to be eligible, further to the currently accepted PAYG salary or rental income.

“We continue to focus on strategic investment in digital technology to simplify and enhance customer and broker experience. The digital application experience makes the process of getting a home loan or refinancing simpler, and in most cases, a lot faster,” O’Malley added.