People 'don't understand impact of interest rates'
Published On 24 October 2007
The majority of people with mortgages in the UK are unaware how rising interest rates will impact on their finances, a new study has warned.According to the latest Personal Credit Index survey from CreditExpert.co.uk, the online credit report monitoring service from Experian, 70 per cent of mortgage holders had either miscalculated or misunderstood the true financial impact of rising interest rates.
When asked what effect a 0.5 per cent rise in interest rates would have on a £100,000 interest-only mortgage, just 30 per cent were able to answer correctly.
Of those who got the answer wrong, 19 per cent thought repayments would increase by double what they actually would and 17 per cent thought the impact would be only negligible.
Worryingly, the study also showed that 77 per cent of mortgage holders did not know what annual percentage rate (APR) meant.
"The lack of understanding of key terms and the effect of interest rate changes is worrying," commented Jim Hodgkins, managing director of CreditExpert.co.uk.
"It's important for people to be familiar with standard financial terms and stay on top of changes that affect their personal finances so they can make the best possible decisions and choices."
Recently, Alliance & Leicester found that families with mortgages are cutting down on other borrowing and saving to afford their monthly repayments.
