How home owners are beating the latest rate hike

November 4, 2026 — 5:00am

Home owners grappling with higher interest rates could be free of their mortgage sooner and save hundreds of thousands of dollars in interest by making extra payments, but the higher cost of living has made that almost impossible to afford.

An analysis by Canstar shows an owner who borrowed $810,000 in January last year and paid an extra $400 a month would save more than $200,000 in interest over the life of their loan. They could pay off their 30-year mortgage five years and five months earlier.

In the short term, someone who started paying $400 extra a month in January 2025 would have already saved $578 in interest.

The analysis assumes the average size mortgage in NSW and that interest rate cuts predicted for next year are passed on in full.

But after another 0.25 per cent cash rate hike by the Reserve Bank on Tuesday, the fifth this year, combined with higher petrol and grocery prices, home owners’ plans to make extra repayments are under pressure.

Canstar’s director of data insights Sally Tindall said owners hoping to pay off their loan sooner needed to structure their mortgages so extra payments would shorten the length of the loan, rather than being used to lower the monthly repayment amount on a 30-year term.

“Most banks do it the best practice way,” Tindall said. “But if your minimum repayment drops after you pay extra then the bank is not doing you a service.”

Tindall said having extra repayments in the bank not only help to pay off a loan sooner, allowing more savings for retirement, but they could also be used as a buffer if interest rates rise so high that borrowers struggle to meet minimum payments.

The RBA noted in October that the average mortgage holder could make a year of mortgage repayments from their extra payment buffers, with interest rates as they were in September.

However, some home owners are feeling the pinch and struggling to make even the minimum repayment.

Almost a third of Australians are at risk of mortgage stress, the latest Roy Morgan figures show, meaning they are spending between 25 per cent and 45 per cent of their income on a home loan.

Credit rating agency S&P Global Ratings revealed 0.85 per cent of mortgage holders across Australia were at least 30 days behind on their home loan payments.

That figure was higher in Sydney, where 0.91 per cent of people with a home loan were late, and Melbourne, where 1 per cent were behind.

Many borrowers have planned for higher rates.

Calum Howe, 35, who recently bought an apartment in Sydney’s Potts Point, assumed there would be three extra rate rises when he applied for a loan.

“I’m already two-thirds of the way there,” Howe said, as interest rates have risen twice since he got his mortgage.

After the rate rise announcement, Howe said he was confident he would still be able to meet his higher payments.

“It’s a bit daunting, especially when you’ve just bought something and it’s the highest debt ratio you’ll ever have,” he said.

Working as a property valuer in the Potts Point area, Howe has had to tighten the belt to make mortgage repayments on his new home and an investment property he owns.

“The social life has definitely taken a bit of a hit,” he said. “When I move I’m being a bit savvy and will be shopping in the Black Friday sales and Christmas sales.

“On a day-to-day basis I’m driving a little bit less and on the weekends I’m having cheaper meals out, and I’ve given up on Uber Eats and conveniences like that.”

Renee Cross, from Ray White Touma Taylor Potts Point and Elizabeth Bay, helped Howe purchase. She said both buyers and vendors were preparing for higher rates.

“Vendors need to adjust their expectations – there are buyers in the market, but they need to be realistic – there are no inflated prices now,” Cross said.

In Melbourne, Cody Preston, 25, and partner Alicia Harris, 22, are also facing higher mortgage repayments, having bought their first home in Hoppers Crossing in October.

But the rate rises, and subsequent house price falls, have been a silver lining, allowing them to buy for a better price than they would have otherwise been able to. The couple will move into their new house in just a few weeks.

On Tuesday, Preston said the couple weren’t too concerned about the interest rate hike, having already taken it into consideration.

“We’d already predicted that rates would go up and estimated what we’ll have to pay,” Preston said. “It’s only going to be an extra $30 or $40 which is OK for us, but for other couples it could be absolutely ball-breaking.”

He said he was blessed to have a job that pays well, being a FIFO worker in the Northern Territory, while Harris is a teacher.

Even though the couple have not had to cut back on much so far, they are nervous about any future interest rate rises.

“If anyone says to you that they don’t care about the interest rates, they’re lying to your face,” Preston said.

Ray White Hoppers Crossing’s Shahid Khan said properties in the outer west, known as one of Melbourne’s mortgage belts, had fallen further since the last rate rise in September.

“Buyers are making a couple of offers on different properties – on one that’s cheaper and one that’s more expensive – and if the cheaper one is accepted they’ll negotiate a lowball offer to get a better deal on the more expensive home,” Khan said.

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