New research uncovers a common mistake costing borrowers thousands
More than half of Australian mortgage holders have never checked whether their offset account is properly linked to their home loan, exposing themselves to potentially significant extra interest costs, according to new research by Money.com.au.
The study found that 57% of borrowers had not verified their offset account status, while 10% assumed the link would be made automatically by their lender. Only 25% of those surveyed confirmed they had checked and ensured their offset account was linked, while 9% discovered a mislink and rectified the issue.
The findings come as the Australian Securities and Investments Commission (ASIC) conducts an inquiry into possible offset account mislinking within the banking sector. The investigation will review the mortgage portfolios of eight lenders to determine if customers are receiving the offset benefits to which they are entitled.
Offset accounts are designed to reduce the amount of interest payable on a mortgage by offsetting the loan balance with funds held in the account. If the account is not correctly linked, borrowers may pay more interest than necessary.
“Offset mislinking can happen for a range of reasons ranging from administrative errors to account changes during refinancing, but it’s ultimately the borrower who pays the price,” said Debbie Hays (pictured right), mortgage expert at Money.com.au.
“Lenders need to ensure their systems are set up properly, but borrowers also have a responsibility to double-check. A quick look at your loan statement or internet banking could save you a lot of money.”
The research highlighted the potential financial impact of an unlinked offset account. For example, a borrower with a $600,000 loan at an interest rate of 5.5% per annum and $30,000 in their offset account could incur an extra $111,620 in interest over 30 years if the account is not linked. This scenario would also extend the loan term by two years and eight months compared to a correctly linked offset.
Older borrowers were found to be the least likely to check their offset account status. Among Baby Boomers, 69% had never confirmed whether their offset was linked, compared to 58% of Gen Z, 50% of Gen X, and 47% of Millennials.
“Older Australians have been paying their mortgages for decades, so if their offset hasn’t been linked correctly that could mean years of lost interest savings. That’s money they may not be able to recover if the issue wasn’t detected early,” Hays said.
To verify if an offset account is linked, borrowers are advised to log in to their online banking or app and look for sections labelled ‘Mortgage Offset’ or ‘Linked Accounts’. The presence of the offset account number in this section indicates it is linked. Alternatively, home loan statements should show an offset adjustment or similar entry, reflecting the interest reduction.
If an offset account is found to be unlinked, borrowers should contact their lender to confirm the account’s status and request that the link be backdated to the home loan settlement date if necessary.
“If they don’t, you can escalate the matter by lodging a complaint with your lender’s internal dispute resolution team and if it remains unresolved, it will proceed through to AFCA for review,” Hays said.
Borrowers who discover their offset account was not linked may be eligible for a refund of excess interest, depending on the lender’s policies and the duration of the error.
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