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Research from the non-major bank has found almost 70 per cent of borrowers don’t know their variable rates after their fixed term expires.
National research released by AMP Bank has found the 69 per cent (seven in 10) home owners on a fixed-term home loan are unaware of what their variable rate would be once their term rolls off.
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The research also found that 20 per cent of home owners do not know their home loan’s current interest rate, while 26 per cent of home owners don’t know when their fixed rates are due to expire.
AMP released these findings in the lead-up to the peak of the “fixed-rate cliff”, as the majority of fixed-rate loans taken out during the COVID-19 pandemic are set to terminate.
The Reserve Bank of Australia (RBA) estimated around 880,000 loans in total are due to roll off in 2023, with a further 450,000 loans by the end of 2024.
Further findings from AMP’s research revealed that 80 per cent of those with a fixed component are unaware what a “revert” rate is and 21 per cent do not know what a redraw facility is.
AMP Bank suggested that home owners lack understanding of crucial aspects of their home loan and what options are available to them.
The non-major bank further revealed that 54 per cent of respondents said they didn’t know how to use an offset account, which could potentially save home owners thousands over the life of a loan if used efficiently.
According to AMP Bank’s modelling, an offset account balance of $40,000 could save home owners over $170,000 in interest payments and reduce the life of a loan by three years.
AMP Bank group executive Sean O’Malley said this research has shown that many Australian home owners could be more engaged with their mortgages.
“Not knowing about key aspects of their home loan or how it works, could be costing them in the long run,” Mr O’Malley said.
“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.
“It’s a reminder of the importance of checking in on your finances and making sure your home loan is fit for purpose.”
Mr O’Malley has encouraged home owners to take the time to understand aspects such as terminology and key aspects of their home loan and to turn to their brokers or lenders for assistance.
[RELATED: Fixed-rate cliff passes peak: CoreLogic]
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