The popularity of mortgage offset accounts has soared in recent years. The Reserve Bank says money held in offset accounts is growing by about 30 per cent per year.
But banks and lenders have made a series of significant mistakes with the complicated product and some have been forced to repay borrowers for overcharging them too much interest. Other lenders have been warned they may be misleading consumers about their mortgage offset accounts.
Bankwest is repaying almost $5 million in total to 10,800 customers because it did not link their offset account to their mortgage properly. That led to those borrowers being charged too much interest on their home loan between 2007 and June 2016.
Since this problem was identified, Bankwest has updated its systems to automatically link of new offset accounts to the customer’s mortgage. Bankwest has contacted its affected customers to explain the mistake and has arranged refunds.
Bankwest found the problem in its system after a similar issue hit Bank of Queensland customers. Bank of Queensland repaid a total of $12 million to 6000 customers and agreed to have its systems independently audited after not linking offset accounts to mortgages.
After that audit was complete, Bank of Queensland was forced to repay an additional $34.5 million to its customers. All up 46,000 BoQ borrowers were affected by home loan interest calculation errors dating back to 2004.
ASIC warns borrowers: Not all offset accounts are equal
The government’s corporate regulator, the Australian Securities and Investment Commission has warned some non-bank lenders that their marketing of mortgage offset accounts could mislead borrowers. ASIC is concerned that borrowers understand that money held in offset account is not always covered by the government’s deposit guarantee.
Only deposits held in accounts offered by “authorised deposit-taking institutions” are covered by the government guarantee. That means all banks, credit unions and building societies. However some home loan providers are not authorised deposit taking institutions, they are private companies known as non-bank lenders.
What is a mortgage offset account?
A mortgage offset account is a savings or transaction account that is linked to your home loan. The balance in the account is “offset” against the principal amount outstanding on your loan. The loan amount that is attracting interest is reduced so your interest bill goes down.
Mortgage offset can save you thousands of dollars over the life of your loan. Some lenders offer 100 per cent offset accounts (which offset the entire balance against the while others offer lower percentage offsets, like 50 per cent.
How to find a home loan with a good offset account
You can search for, compare and research home loans from all of Australia’s major lenders here.
You can find out if they offer an offset account with their home loans and compare these accounts by clicking on the features tab near the top left hand corner of the InfoChoice home loans comparison table.
For example, the InfoChoice features tab will tell you that Homestar’s Owner Occupied Loan offers mortgage offset but Mortgage House’s Simple Summer Special does not.