So it turns out some mortgage offset accounts haven’t been working as intended, according to a recent investigation. Here’s how to check if your home loan offset account has actually been helping you save.
Offset accounts are popular among Australian borrowers, with more than one-in-two (55%) home loans now having an offset.
If that sounds like you, chances are you may be concerned about a recent investigation by the Australian Securities and Investments Commission (ASIC) that identified problems with some offset accounts.
To help relieve any worries you may have, we reveal the banks ASIC reviewed, the main problem areas, and what you can do to be sure your offset account is helping you save on loan interest.
How home loan offsets work
An offset account is an everyday transaction account linked to your home loan.
The offset account typically works like a normal account, letting you make deposits and withdrawals any time.
But instead of earning interest on the offset account, the balance of the account is deducted from – or ‘offset’ against – your mortgage when loan interest is calculated.
For example, if you have $600,000 remaining on your mortgage, and $50,000 sitting in the offset account, loan interest charges will be calculated on $550,000 rather than $600,000.
As your loan repayments stay the same, more of each repayment goes towards paying down the loan, rather than paying interest.
In this way, an offset account can help you clear the home loan slate sooner, and reduce the total interest you pay.
What ASIC found
As a mark of how popular offset home loans are, homeowners currently have around $349.1 billion sitting in offset accounts – a figure that’s risen 28% in the past two years.
This growth prompted ASIC to look at how offset accounts are managed across eight lenders – AMP Bank, ANZ, Commonwealth Bank, Westpac, Macquarie Bank, ING Bank, HSBC and Credit Union Australia (now Great Southern Bank).
Together, these lenders make up about 70% of the mortgage market.
ASIC’s review picked up several issues, but the majority (55%) of issues identified related to unlinked offset accounts.
This is where an offset account was opened, but never linked to the borrower’s home loan.
This means affected borrowers paid more in loan interest than they should have.
Meanwhile, a further 22% of issues identified related to offset accounts not being opened when they should have been.
What are banks doing to fix the problem?
Lenders have already paid over $55 million in customer compensation for offset account failures.
ASIC expects more compensation to be paid following its review.
In addition, ASIC has put all lenders on notice to sharpen their systems, and has warned it will continue to monitor offset accounts.
What can you do?
The ASIC report didn’t say exactly how many home loans were affected by offset account failures, nor did it say which of the eight lenders had the poorest track record.
However, the Australian Banking Association says problems were identified in “just hundreds” of the loans reviewed.
Still, that may be cold comfort if you’re affected.
The good news is that there are simple steps you can – and should – take to check if your offset account is working as it should.
A quick check is especially important if your loan has recently changed.
ASIC found problems with offset accounts were most likely to occur when a homeowner refinanced their loan or came off a fixed rate.
At this point, the link to an offset account can be broken, and you may need to contact your bank to re-set the link.
How to check if your offset account is working
To check if your offset account is linked to your loan, login to your banking app or online banking portal.
Click on your home loan account.
Then look for a section named ‘Manage’, ‘Offset Accounts’, or ‘Account Details’. This should show the account number of your linked account/s.
Or, take a look at your latest home loan statement.
It may display the account number of your linked offset account/s alongside the loan details, or in the section showing how loan interest was calculated.
If you are unsure, contact us and we’ll help you confirm.
We’re here to help
An offset account can help you save on interest.
But it may not be right for everyone.
Call us to decide if an offset account could meet your needs, or if a standard loan may be a more suitable choice.
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