Half of America has no idea what a mortgage actually is

Half of America has no idea what a mortgage actually is, new research suggests.

That’s according to a recent survey that asked 2,000 Americans, 73% of them homeowners, to test their knowledge of both the housing market and financial lending industry.

Only 49% chose the correct definition of “mortgage” from a list of options, although homeowners got it right at a higher rate (54%) than renters (40%).

And almost one in five (18%) admitted they weren’t sure what kind of minimum down payment is needed to purchase a home.

Despite this, 80% of respondents felt they received a passing score on the knowledge test, with 12% believing they answered every question correctly.

Conducted by OnePoll on behalf of PrimeLending, the survey suggests that the average American homeowner remains cautious about borrowing money from financial institutions.

Only 42% of homeowners polled used a mortgage to finance their home; 48% used cash, and less than a tenth (7%) inherited their home from a family member.

Millennial homeowners aged 26-40 were far more likely to purchase their houses outright or with cash (55%), while baby boomers aged 57-75 more commonly preferred to take out a mortgage (37%).

Forty-two percent of respondents would rather qualify for a longer loan with a lower interest rate than a shorter loan with a longer interest rate, with little statistical variation between current homeowners (44%) and renters (42%).

“When it comes to getting the best mortgage, choosing an experienced, knowledgeable lender is critical,” said Tim Elkins, Chief Production Officer of PrimeLending, a PlainsCapital Company. “For instance, many homebuyers assume the lowest interest rate means the lowest cost, which may not be the case. Your mortgage lender should be able to run several scenarios and help you evaluate all your options.”

Overall, 55% felt “very informed” about the housing market before they began shopping for their home.

In fact, they were more likely to call themselves “very knowledgeable” about the housing market (64%) than about the U.S. economy (54%), the upcoming 2022 midterm elections (54%) or the Marvel Cinematic Universe (53%).

However, some misconceptions still persist – like, for example, how one in three (34%) believe it’s impossible to change the interest rate on a home loan, when in fact refinancing mortgages is a common practice among lenders.