'Mortgage holders' understanding of loans leaves them vulnerable'
Large numbers of mortgage holders do not understand basic aspects of how their home loan works and are vulnerable to bad advice.
This is particularly the case with cash-back mortgage offers, a study by the Economic and Social Research Institute (ESRI) has found.
A behavioural research project run by the ESRI found people were drawn to high cash-back offers, even those which are ultimately more expensive.
This is because the examples people were asked to consider had higher interest rates than mortgages that were not offering cash back.
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The ESRI experiment found mortgage holders offered a choice opted for €2,200 in cash back to sign up for a mortgage. This was in preference to an interest rate that was 0.4pc lower than the one that was part of the cash back.
ESRI economist Shane Timmons said taking the cash upfront in this case amounted to taking out a loan for €2,200 at an interest rate of 24pc.
However, after reading some independent, official advice, consumers placed much more weight on the interest rate and the long-term savings they could make.
Dr Timmons said the experiment supports regulations introduced by the Central Bank last year, which require lenders to direct consumers to the advice offered by the Competition and Consumer Protection Commission.
The experiment also revealed a lot of misunderstandings by consumers. When asked what they would need to do to switch, just one-third of mortgage-holders realised they would need a solicitor.