In Australia, a lot of home loans come with an offset account. It's an ordinary transaction or savings account linked to the mortgage, and each day the bank subtracts its balance from what you owe before it figures that day's interest. Owe $400,000 with $30,000 sitting in the offset account, and you're charged interest as if you owed $370,000. The money stays available, and while it sits there it cuts your interest. Britain has offset mortgages that work much the same way.
American banks rarely offer anything like it, which is where my short explainer on velocity banking starts. Dynamic Banking, which some people call velocity banking, is the workaround. I think of it as offset accounting: using your income to offset the interest on what you owe.
A regular mortgage can't do this because it's amortized, which means it's paid down with a fixed payment on a fixed schedule. Extra principal does lower what you owe, but you can't get it back. Say your payment is $1,100 and you send an extra $900 a month for a year. A year later, the payment is still $1,100, and the extra money is locked in the house. Getting it out takes a refinance or a new loan, and an emergency is a bad time to apply for either, because the emergency itself can keep you from qualifying.
A line of credit works more like the Australian account. You can put money in and take it back out, and interest is charged on the average daily balance, which means the average of what you owed at the end of each day in the billing cycle. So the whole paycheck goes onto the line of credit the day it arrives, and the bills get paid back out of it. Every day the paycheck sits there, it's offsetting interest. We call that paycheck parking, and the one number that decides your interest bill shows the math.
In the American version, the offset happens on the line of credit, at the line of credit's rate, which is usually higher than the mortgage rate and usually variable. You also move lump sums from the line of credit to the mortgage, which we call chunks, and let the paychecks pay the line of credit back down. A few U.S. lenders do sell an all-in-one loan that replaces the mortgage with a line of credit, which I covered in the first-lien HELOC. In both countries, interest you avoid isn't income, so unlike savings account interest, there's nothing to report on it.
None of this is a way to get rich quick. It only moves as fast as your extra cash flow does. I've shown examples where a 30-year mortgage gets paid off in five to seven years, and others that take much longer. The difference is how much is left after the bills each month.
Look up last month's average balance in your checking account. Parked on a line of credit charging 8.5%, an average of $6,000 would save about $510 a year in interest.