The corporate regulator has detailed how banks have paid tens of millions of dollars in compensation for mortgage offset failures. The Australian Securities and Investment Commission (Asic) found lenders repaid $55m to customers over two years after they unknowingly paid too much interest on their mortgages, and warned the number would climb higher.
What is a mortgage offset?
Mortgage offsets are savings accounts linked to your mortgage. Money in these accounts is subtracted from your outstanding home loan balance, reducing interest paid and helping you pay off the loan faster. They are hugely popular – more than half of the nearly 3.3m households with a mortgage have an offset account, according to Reserve Bank data.
Suzanne Haddan, managing director at BFG Financial Services, says offset accounts are a great way to budget. "I love them," Haddan says. But only if they work as advertised.
Asic's findings
Asic’s review of more than 200,000 home loans from eight banks found weaknesses in how all lenders set up, monitored and managed offset accounts. This resulted in some customers missing out on promised savings. In one case, a borrower was overcharged more than $3,500 in interest in a single month.
Haddan said she had not encountered a bank failing to properly link offset accounts requested by her clients, calling it "disgraceful".
How to check if you are affected
Start by checking your mortgage and account details online via internet banking or your lender's app. Look for a mortgage offset heading or a "manage my loan" link to see linked offset accounts. If you cannot find the information, call your lender.
Sally Tindall, director of data insights at Canstar, says calling may be the easiest solution. However, when you get through, the person may be less informed. As Tindall said, "it was alarming to see how banks didn’t even realise they had a problem until Asic came knocking."
Do the rough maths
Your online banking has the information needed for a quick check. Estimate your monthly interest payment based on your loan balance and interest rate (excluding offsets), then compare it with the actual interest charged. If the estimated payment is significantly higher, your offset is likely working. If not, you may have a problem.
Still not satisfied?
If you have done the maths, checked accounts, and called your lender but still think something is wrong, contact the Australian Financial Complaints Authority (Afca). Tindall says Afca "is a fantastic resource that’s free of charge for consumers" and helps mediate complaints with financial institutions.
