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Should I pay down my mortgage or use an offset account?

Once every six months or so, my husband brings up paying off a chunk of our mortgage in a lump sum and I argue in favour of the offset account. The discussion that ensues is a well-rehearsed dance:

Me: “But if we pay off a lump sum, if we need that cash we’ll have to redraw, and maybe the bank won’t let us.”

Hubby: “But if we pay it down, we can drop our mortgage repayments.”

Me: “What’s the point in that? You’ll be charged the same amount of interest either way.”

Hubby: “How can that be? Surely I’ll be charged less interest if I pay it off?”

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Should you make more than the minimum repayment on your debts?

Short answer: yes.
 
This raises a few questions:
  • Which debts should you pay first?
  • How much more should you pay?
  • What if you are having trouble finding any extra cash?
Let’s examine some possibilities.