Westpac to refund $11 million in home loans after a 23-year system glitch
But the system’s “longstanding error” could be just the tip of the iceberg for Westpac, as they are yet to reveal the compensation they will be also be required to pay investor customers with interest-only loans.
The system error is alleged to have occured between 1993 and August 2016, with interest-only loans failing to roll over to principal and interest at the end of the interest-only period.
“As a result, affected customers did not start paying any principal on their loans at the time agreed with the bank, and now have less time to repay the principal amount of their loans. These customers would also have paid more in interest,” said Westpac’s Chief Executive Consumer Bank, George Frazis.
Westpac will now refund the additional interest paid, as well as offer an interest-rate discount for the rest of the loan.
Frazis has since apologised on behalf of the bank and has confirmed that investor interest-only loans are also being investigated.
“We apologise unreservedly for the error and have now automated the switching process to ensure it does not happen again. Importantly, customers don’t need to do anything. We are contacting customers proactively and will provide compensation to anyone who we believe has been financially disadvantaged,” he said.
Acting Chair for ASIC, Peter Kell, has also issued a warning for all banks to immediately review their systems and that if an error is present, “remediation needs to be timely, transparent and effective”.
ASIC will continue their involvement in the situation.
If you’re like some of the many Aussies expecting their interest-only loan to roll over to principal and interest, here are a few things you can do to ensure you manage your repayments:
- Take out Mortgage Protection Insurance - this is a type of protection that will cover you should you fault on your repayments due to sickness, injury or unemployment.
- Repayment holiday - if your repayments are becoming overwhelming, you do have the option of taking a break with a repayment holiday - but keep in mind you will be charged interest over this period of time. Plus, to access this feature, your lender may require you to have made extra repayments beforehand.
- Offset account- when you can, try putting extra cash into the offset account attached to your mortgage. This will reduce the amount of interest you’ll pay but is also easily accessible if you need to make a redraw.
Thinking of refinancing before 2018? Check out home loan comparison tool to compare some of the current refinance offers.