When your mortgage springs a leak
- By Lesley Parker
- Finance
- Unrated
Lesley Parker
Lesley is a regular writer for Sydney Morning Herald
View all articles by Lesley ParkerWhen your mortgage springs a leak
Offset accounts linked to home loans are meant to save money by reducing your interest bill but borrowers are being overcharged hundreds sometimes thousands of dollars because of bank errors in setting them up. What's more, some borrowers will be none the wiser because they never check their lender's interest calculations.
Banks say such mistakes are unusual but experts point out it's largely up to borrowers to uncover the errors.
An offset account is a savings account linked to your home loan, the balance of which is offset against your outstanding mortgage. For example, if you have $300,000 outstanding on your home loan but $10,000 in an offset account, you should be charged interest on $290,000.
Former ANZ customer Mark Leeming contacted Money after being overcharged interest on his home loan for a second time. On both occasions, the fault was the result of problems with his offset account.
"When I first took out my mortgage in 2005, after a few months I suspected the interest accruing wasn't decreasing to reflect the amounts I had put in the offset account," Leeming says. "It turned out ANZ had overcharged interest of $3223.40 for the first four months of the mortgage."
When told of the problem, ANZ apologised promptly and refunded the overpaid interest.
"Then the same thing happened when I paid off the same mortgage a few weeks ago," he says. "ANZ provided a settlement amount and only after I saw the statement and checked it, did I see that, once again, ANZ had failed to allow for the amounts in the offset account. This time, it had overcharged me $554.60," he says.
Again, ANZ apologised and refunded the money.
While the bank had forgotten to credit his offset amounts, Leeming says it never forgot to charge the $340 annual fee for having a home-loan package with a full offset facility attached.
Nicholas Gruen, an economist and chief executive of mortgage broker Peach Financial, says the problem is there's no disincentive for banks to overcharge. "If they get caught, they simply refund the money they've made," he says.
"Ultimately, the way to solve the problem would be for banks to incur some additional liability to you if they overcharge you. The idea would be to balance the scales and make them just as keen to avoid overcharging as they are to avoid undercharging."
Leeming says he suspects the letter from the bank acknowledging his complaint is a "standard letter", as it says things that don't correlate with his circumstances. This suggests to him that miscalculations might be common.
Banks say such mistakes are unusual but experts point out it's largely up to borrowers to uncover the errors.
An offset account is a savings account linked to your home loan, the balance of which is offset against your outstanding mortgage. For example, if you have $300,000 outstanding on your home loan but $10,000 in an offset account, you should be charged interest on $290,000.
Former ANZ customer Mark Leeming contacted Money after being overcharged interest on his home loan for a second time. On both occasions, the fault was the result of problems with his offset account.
"When I first took out my mortgage in 2005, after a few months I suspected the interest accruing wasn't decreasing to reflect the amounts I had put in the offset account," Leeming says. "It turned out ANZ had overcharged interest of $3223.40 for the first four months of the mortgage."
When told of the problem, ANZ apologised promptly and refunded the overpaid interest.
"Then the same thing happened when I paid off the same mortgage a few weeks ago," he says. "ANZ provided a settlement amount and only after I saw the statement and checked it, did I see that, once again, ANZ had failed to allow for the amounts in the offset account. This time, it had overcharged me $554.60," he says.
Again, ANZ apologised and refunded the money.
While the bank had forgotten to credit his offset amounts, Leeming says it never forgot to charge the $340 annual fee for having a home-loan package with a full offset facility attached.
Nicholas Gruen, an economist and chief executive of mortgage broker Peach Financial, says the problem is there's no disincentive for banks to overcharge. "If they get caught, they simply refund the money they've made," he says.
"Ultimately, the way to solve the problem would be for banks to incur some additional liability to you if they overcharge you. The idea would be to balance the scales and make them just as keen to avoid overcharging as they are to avoid undercharging."
Leeming says he suspects the letter from the bank acknowledging his complaint is a "standard letter", as it says things that don't correlate with his circumstances. This suggests to him that miscalculations might be common.
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