About the cheapest way to reduce your mortgage faster is the proper use of a 100% Offset Account, which is like any normal bank account, with one major benefit—any money that is in the Offset Account reduces the interest you pay on your home loan every day.

An Offset Account is a savings account linked with your loan that reduces the interest you pay. Your lender will consider the money in this account and deduct it from what you owe before calculating your interest.

Offset Account

All-in-one or 100% Offset Loans allow you to use your mortgage as your key financial product. This means you have one account into which you can pay all of your income and from which you can draw all your living expenses by using a credit card, EFTPOS, or a chequebook. You also make your mortgage repayments from this account.

Because all your pay goes into your mortgage account, you reduce the principal on which the interest is charged.

These types of accounts can make a huge difference in how fast you pay off your loan. Sure, you might take a couple of steps back when you pay for living expenses, but careful use of this sort of financial product can put you thousands of dollars ahead compared to pay-once-a-month home loan.

Your goal is to make your Offset Account the centrepiece of your finances. You want all your family income to go into it, and you want to keep the money in there as long as possible. Every day that money is in there, you pay less interest on your home loan — meaning your repayments pay off more of the principal so you pay less interest next month, and so on.