An offset account can be a great way to reduce the interest charged on your home loan. An ASIC review has found that some borrowers may not be receiving the full benefit they expect.

ASIC reviewed how a number of major lenders manage mortgage offset accounts and found instances where accounts were not opened, linked or managed correctly. In some cases, this meant customers paid more interest than they should have.

What Is An Offset Account?

An offset account is a transaction account linked to your home loan. The money you keep in the account is used to reduce the amount of your loan on which interest is calculated.

For example, if you have a $500,000 home loan and $50,000 in a 100% offset account, you will generally only be charged interest on $450,000. You can still access the money in the offset account for everyday spending, just like a normal bank account. The more money you keep in the account, and the longer it stays there, the more interest you may save.

Why Does This Matter?

A properly linked offset account can make a meaningful difference to the interest you pay over the life of your loan and may also help you pay off your mortgage sooner.

But those savings rely on the account being correctly linked and the lender applying the offset as intended.

What Did ASIC Find?

ASIC identified a range of problems with offset accounts, including:

• accounts being opened but not linked to the home loan
• offset accounts not being opened at all
• payment and system errors
• poor record keeping
• difficulties confirming whether customers had originally requested an offset account

Among the cases reviewed, a significant number involved an offset account that had either not been linked correctly or had not been opened as intended.

A Few Things Worth Checking

If you have an offset account, it may be worth taking a few minutes to confirm that it is working as expected.

Check that:

• the offset account is linked to the correct home loan
• your loan statements reflect the benefit of the offset balance
• you are receiving the offset percentage set out in your loan terms
• there are no unusual changes in the interest being charged
• if you have refinanced or changed loan products, the offset account is still correctly linked

If something does not look right, ask your lender to confirm how your offset balance is being applied.

The Bottom Line

Offset accounts can save borrowers a substantial amount of interest over the life of a loan, but only if they are set up and operating correctly. ASIC’s review is a timely reminder that it is worth checking rather than simply assuming everything is working as intended.