Hidden mortgage mistake draining Aussie savings revealed
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Photo by Kampus Production
In a revelation that could send shockwaves through the Australian property market, more than half of the nation’s homeowners are unknowingly haemorrhaging money due to a simple mortgage oversight. According to recent research conducted by Money.com.au, a staggering 57 per cent of mortgage holders have never checked if their offset account is correctly linked to their home loan, potentially costing them thousands in unnecessary interest payments.
Offset accounts are designed as a financial tool to help homeowners reduce the interest on their mortgage. By linking an offset account to a home loan, the money in the account effectively reduces the loan balance on which interest is calculated. However, when this link is not established, homeowners are essentially throwing money away, paying more interest than necessary.
Debbie Hays, a Mortgage Expert at Money.com.au, highlighted the gravity of the situation with a shocking real-life example. “Offset mislinking can happen for a range of reasons ranging from administrative errors to account changes during refinancing, but itâs ultimately the borrower who pays the price,” she explained. Hays recounted the story of a homeowner who deposited $340,000 from an inheritance into their offset account, believing they were saving on interest. A year later, they discovered the account wasnât linked to their variable home loan at all, nullifying any potential interest savings. “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,” she advised.
The financial impact of an unlinked offset account is indeed staggering. For instance, a borrower with a $600,000 mortgage at an interest rate of 5.50 per cent per annum and $30,000 in their offset account could end up paying an extra $111,620 in interest over 30 years if the account isnât linked. Worse still, they would remain in debt for nearly three additional years compared to a correctly linked offset account.
The survey also uncovered that one in ten borrowers mistakenly believe their lender will automatically link their offset account to their mortgage. Only 25 per cent of homeowners have confirmed their account is correctly linked, while 9 per cent discovered it wasnât and had to rectify the issue. The research further revealed a generational gap in awareness and action. Baby Boomers are the least likely to check their offset accounts, with 69 per cent admitting theyâve never confirmed whether their account is linked. This compares to 58 per cent of Gen Z, 50 per cent of Gen X, and 47 per cent of Millennials. “Older Australians have been paying their mortgages for decades, so if their offset hasnât been linked correctly that could mean years of lost interest savings. Thatâs money they may not be able to recover if the issue wasnât detected early,” Hays added.
In light of these findings, homeowners are urged to take immediate steps to confirm their offset account is linked to their home loan. This can be done by logging into online banking or checking a home loan statement for an offset adjustment or similar line item. If thereâs any uncertainty, contacting the lender directly is essential. If the account isnât linked, borrowers should request that the connection be backdated to the loan settlement date. In cases where the lender is at fault, homeowners may be entitled to a refund of the extra interest charged.
The Australian Financial Complaints Authority is currently investigating potential offset-account mislinking issues across eight major lendersâ mortgage books. If the issue isnât resolved, the matter can be escalated through the lenderâs dispute resolution process or taken to the Australian Financial Complaints Authority.
With the real estate market already under pressure from fluctuating interest rates and economic uncertainty, this revelation serves as a crucial reminder for homeowners to remain vigilant about their mortgage arrangements. As the financial landscape continues to evolve, ensuring that every financial tool is optimally utilised could mean the difference between financial strain and stability.