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Hi Wylie When you pay into a loan you are paying the principle of the loan. The lender then adds the interest once per month (in most loans out there). If you don't pay this monthly interest it is capitalising. So if you pay 2 lots of 'interest' in advance you are paying down the principle...

This would be capitalising interest. Depending on the lender/product you could be breaching the loan agreement if you do not pay the monthly interest payment. Nothing serious but some banks are more fussy than others e.g. ANZ from memory.

You can't pay interest in advance unless the loan is fixed. What you could do is to put aside x months worth of interest in the offset account and let the loan direct debit it from there. If you paid into the loan it would be a reduction in principle