The usage and understanding of Australian household mortgages

Abstract

Purpose : Establish the profile of mortgage-holding households in terms of their demographic, socioeconomic, and financial characteristics and assay the current state of knowledge concerning mortgage products in Australia. Design/methodology/approach - Logit models predict owner-occupied, investor mortgages, and mortgage understanding. Factors include financial literacy, gender, age, ethnicity, occupation, education, family structure, household income, savings, and debt. Understanding is knowledge of mortgage rates, fees and charges and familiarity with mortgage terms. Findings - Middle-aged and couples with children have an increased likelihood of an owner-occupied mortgage, while being from a non-English speaking background, a small business owner, or a skilled tradesman increases the likelihood of an investor mortgage. Understanding is generally poorer for females, rural/regional households and the young, and better for professionals, the university educated, and small business owners and skilled tradesmen.Research limitations/implications : The cross-section of households is from a period when mortgage rates were stable and housing prices strong. Practical implications - No more than 40 percent of mortgage-holding households have an understanding of any key mortgage terms, only 35 percent understand the main disadvantage of fixed over variable rates during falls in interest rates, and just 15 percent understand the fees and charges on their own mortgage. There is a need for financial literacy programs to continue and expand.Originality/value : This is the first Australian study to model the demand and understanding of mortgage products using household level data.