If you have a mortgage offset account, you probably opened it with one main goal: to reduce the amount of interest you pay on your home loan.
But what happens if your offset account isn’t correctly linked to your mortgage?
A recent ASIC review suggests it’s worth checking.
ASIC finds problems with mortgage offset accounts
ASIC reviewed how eight major banks manage mortgage offset accounts. Together, these lenders represent more than 70% of Australia’s home loan market.
The review found weaknesses across all eight lenders in areas such as opening, linking, monitoring and managing offset accounts.
In some cases, customers weren’t receiving the interest savings they expected because their offset account wasn’t operating as intended.
Of the 204,000 loans reviewed, ASIC found that:
- 55% of identified issues involved an offset account that had been opened but wasn’t linked to the home loan.
- 22% involved an offset account that hadn’t actually been opened.
- Other problems were linked to system errors, gaps in processes and inadequate record keeping.
- In some cases, lenders couldn’t confirm whether the customer had originally requested an offset account.
These issues could potentially leave borrowers paying more interest than they expected.
Why does an offset account matter?
An offset account is generally a transaction account linked to your home loan. The balance in the account is taken into account when calculating the interest charged on your mortgage.
For example, if you have a $600,000 home loan and $50,000 sitting in an eligible offset account, you may only be charged interest on $550,000, depending on the terms of your loan.
Over time, reducing the amount of your loan on which interest is calculated can potentially save you a significant amount of money.
That’s why it’s important to make sure your offset account is actually doing what you expect it to do.
What should you check?
If you have an offset account, take a few minutes to check that everything is set up correctly.
1. Check that the account is linked
Log into your bank’s online banking or mobile app and confirm that your offset account is actually linked to the correct home loan.
2. Check which loan it is offsetting
If you have more than one loan or multiple loan splits, make sure your offset balance is being applied to the loan you expect.
Also check whether the account provides the full offset percentage specified in your loan agreement.
3. Review your statements
Look through your recent home loan statements and check whether the interest being charged appears consistent with your offset balance.
If something doesn’t look right, contact your lender and ask them to explain how the offset is being applied.
4. Check if you’ve refinanced
If you’ve recently refinanced your mortgage, changed loan products or moved your loan to another lender, don’t assume your existing offset arrangement has automatically carried across.
Ask your lender to confirm that the offset account is correctly linked to your current home loan.
What if you can’t confirm your offset is working?
If you can’t find the information in your online banking or statements, contact your lender.
Ask them to confirm:
- Whether your offset account is active
- Which loan it is linked to
- The percentage of your loan that is offset
- Whether the balance has been correctly taken into account when calculating interest
It’s worth keeping a record of your conversations and any supporting documentation provided by your lender.
A few minutes now could save you money later
An offset account can be a valuable tool for reducing the interest you pay on your mortgage, but it needs to be correctly set up and operating as intended.
ASIC’s findings are a useful reminder that it’s worth checking rather than assuming.
If you’re reviewing your home loan, refinancing, considering your overall financial position or simply want to understand how your mortgage fits into your broader financial strategy, Dymond Foulds & Vaughan can help.
Contact Dymond Foulds & Vaughan today to discuss your financial and tax position and make sure your arrangements continue to work towards your goals.