Nearly three quarters of mortgage holders are unaware of the financial implications of interest rate rises on their payments.
Nearly three quarters of British mortgage holders misunderstand the financial impact of rising interest rates on their mortgage payments, a new survey has revealed.
Research by Experian's CreditExpert suggests that 70% of Brits do not know what effect a 0.5% interest rate rise would have on a £100,000 interest only mortgage.
Almost a fifth (19%) of the 1,704 surveyed thought their payments would rise £80 or more, and 17% thought they would increase by no more than £10. The true figure is £40.
CreditExpert also revealed that 77% of mortgage holders do not know what the term annual percentage rate (APR) means. Nearly half (44%) thought it was only the interest rate of a loan and 15% described it as the amount of a loan paid back in a year.
The true definition of APR is the percentage rate which your loan will cost you each year, including all charges. (So for example, a credit card with an annual interest rate of 13.1% and an annual fee of £50 will have an APR of 20.3%). See our Foolish Glossary for help with other such jargon.
Lack of knowledge about the impact of rising interest rates may have helped boost confidence levels in CreditExpert's latest Personal Credit Index.
The Index measures the level of consumer confidence in credit matters, using the arbitrary number of 100 to represent Joe average. Consumer confidence this quarter was measured at 98, up three points from September last year when it was at a low of 95. This is despite the effects of sub-prime concerns and the credit crunch in the UK.
The rise in confidence could also be partly attributed to summer holiday bills having now been paid off, resulting in Brits feeling more secure about their finances.
However, with Christmas approaching and interest rate uncertainty, the index may be set for a drop in the next quarter.