The Australian Securities and Investment Commission (Asic) has revealed that banks paid $55 million in compensation to customers over two years after mortgage offset account failures caused them to pay too much interest. The regulator warns the total will rise as more errors are uncovered.
What is a mortgage offset account?
A mortgage offset account is a savings account linked to your home loan. The balance in this account is subtracted from your outstanding mortgage principal, reducing the interest you pay and helping you pay off the loan faster. According to Reserve Bank data, more than half of Australia's nearly 3.3 million mortgage holders use offset accounts.
Suzanne Haddan, managing director of BFG Financial Services, calls offset accounts a great budgeting tool but stresses they must work correctly. Asic's review of over 200,000 home loans from eight banks found weaknesses in how lenders set up, monitored, and managed these accounts, leading to overcharges. In one extreme case, a borrower was overcharged more than $3,500 in interest in a single month.
How to check if your offset account is working
Start by logging into your online banking or lender's app. Look for a mortgage account summary showing your interest rate and outstanding balance. Most platforms have a "mortgage offset" heading that displays your offset account number and eligibility. Sally Tindall, director of data insights at Canstar, suggests looking for a "manage my loan" link to find linked offset accounts.
If you cannot find the information online, call your lender directly. While it may take time to reach a representative, this is often the easiest solution. However, Tindall notes that some bank staff may not be fully informed, and it was "alarming to see how banks didn't even realise they had a problem until Asic came knocking."
Do a rough calculation
You can verify your offset account's performance with basic maths. First, calculate the interest you should pay monthly on your home loan balance (excluding offsets): multiply the loan balance at the start of the month by your interest rate, then divide by 12 (for monthly payments). Haddan emphasises this is only a guide, not an exact calculation. Compare this figure to your actual interest payment shown in your account. If the estimated interest is significantly higher, your offset is likely working.
If you are still unsure after checking online, calling your lender, and doing the maths, you can contact the Australian Financial Complaints Authority (Afca). Tindall describes Afca as "a fantastic resource that's free of charge for consumers" that mediates between you and your financial institution to resolve complaints.
