Mortgage offset account errors mean some Australians are owed thousands of dollars. Are you among them?

Asic review finds banks repaid millions to borrowers who unknowingly paid too much interest on their home loans

The corporate regulator has detailed how banks have had to pay tens of millions of dollars in compensation to customers for mortgage offset failures.

In a new report, the Australian Securities and Investment Commission showed 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.

Here’s how to check whether you have fallen foul of what could be an expensive administrative error.

What is a mortgage offset, anyway?

Mortgage offsets are savings accounts that are linked to your mortgage.

As the name suggests, whatever money you have in these accounts is then subtracted from the total value of your outstanding home loan.

A lower outstanding balance means you pay less interest – and pay your loan off 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, the managing director at BFG Financial Services, says offset accounts are a great way to budget and pay off your loan sooner.

“I love them,” Haddan says.

But only if they are working as advertised.

Asic’s review of more than 200,000 home loans from eight banks found weaknesses in how all the lenders set up, monitored and managed offset accounts.

That resulted in some customers missing out on promised savings. In one case, it meant a borrower was overcharged more than $3,500 in interest in a single month.

Haddan said she had not come across an instance where a bank had not properly linked offset accounts requested by her clients, saying it would be “disgraceful”.

Check your mortgage accounts online

The first port of call could be checking your mortgage and account details online – either through internet banking, or your lender’s app.

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Your mortgage will typically have an account summary than you can click on, where you can find basic details like your interest rate and outstanding balance. Haddan says most bank sites and apps she has looked at will also have a “mortgage offset” heading. That will tell you if you are eligible for an offset and what your offset account number is.

Sally Tindall, the director of data insights at Canstar, says there may be a “manage my loan” link which should reveal any linked offset accounts.

Different banks will have different layouts. The information will be there. But if it’s not, or you can’t find it, it’s time to be more direct.

Call your lender and ask

Tindall says this may well be the easiest solution. Of course, it can take some time to actually get through to a human on the phone.

And when you do get through, you may find the person at the other end of the line is less well-informed than they could be.

Even then, you may not be convinced with the answer you get.

As Tindall says, “it was alarming to see how banks didn’t even realise they had a problem until Asic came knocking”.

If you’re still worried, it may be time to break out the calculator.

Do the (rough) maths

Your online banking or app has all the information you need to do a quick sense check on whether your offset account is working as promised.

Haddan says it involves two steps.

First, work out roughly how much interest you should be paying per month (or fortnight) based on the outstanding balance of your home loan, not including any offset accounts.

You’ll find the loan balance at the start of the month in the banking app or on the site. You multiply that by your interest rate and then divide by 12, assuming monthly repayments.

Haddan emphasises that the goal is not to do a perfect calculation – “you’re only looking for a guide”.

(And remember: we are only looking at the interest component. So your total mortgage repayment might be $3,900, but your interest payment would be less, for example, $1,500.)

If your estimated interest payment on your entire home loan before offsets is meaningfully higher than your actual monthly interest payments as shown in your account, then you can be pretty confident that your offset accounts are working as promised.

Still not satisfied?

If you’ve done the maths, checked your accounts, made the calls to your lender, asked for reviews, and you still reckon something is not right, then it could be time to contact the Afca, the Australian Financial Complaints Council.

Tindall says Afca “is a fantastic resource that’s free of charge for consumers”.

Afca doesn’t take sides, but will help mediate with your financial institution to help you resolve your complaint.