Westpac to refund around 40,000 home loan customers after major glitch

Westpac is set to pay back tens of millions of dollars to around 40,000 home loan customers after a manual processing system glitch.

The mortgage holders were left on interest-only loans after the term expired, instead of being converted to a principal and interest rate, News Ltd papers have reported.

It is believed Westpac will be paying back under $100 million.

The glitch, which affected Westpac, St George, Bank of Melbourne and Bank SA, meant mortgage holders of the named banks were not paying down the principal as planned.

So when interest rates rose, unaware customers would have found themselves out of pocket. 

Westpac identified the issue in 2017, but the details are only just coming to light.

It has been reported that each customer who has been affected will have been contacted, with around 70 percent of customers having received their reimbursement.

That means around 12,000 customers remain out of pocket.

The error predominantly impacts loans with an interest-only period that expired between 2009 and 2016.

An automated switching process has been introduced to prevent a repeat of the costly error.