Extra mortgage payments save $200,000, but the rate hike makes them harder

The Reserve Bank's latest hike — a quarter of a percentage point, the fifth this year — landed Tuesday and immediately squeezed the one move that actually slashes a mortgage: paying extra. Canstar reckons the payoff is enormous for anyone who can still manage it. Borrow $810,000 in January last year and add $400 a month, and you wipe more than $200,000 off the interest bill and finish your 30-year loan five years and five months early.

Short-term rewards are already there. Someone who started kicking in the extra $400 back in January 2025 would have saved $578 in interest by now. The Canstar numbers assume the average NSW mortgage and that rate cuts forecast for next year get passed on in full.

The catch is structure. Sally Tindall, Canstar's director of data insights, says borrowers need to make sure extra payments shorten the life of the loan rather than quietly shrinking the minimum repayment on a 30-year term. Most banks get that right, she said, but if your minimum drops after you pay more, the bank isn't doing you a favour. Extra cash in the offset or redraw is also a buffer if rates climb so far that minimum payments get scary — the RBA noted in October that the average mortgage holder could cover a full year of repayments from their buffers, based on September rates.

Plenty of households are already stretched. Roy Morgan figures show almost a third of Australians are at risk of mortgage stress, spending between 25 and 45 per cent of income on the loan. S&P Global Ratings found 0.85 per cent of mortgage holders nationwide are at least 30 days behind, with Sydney at 0.91 per cent and Melbourne at 1 per cent.

Calum Howe, 35, isn't panicking. The property valuer bought an apartment in Sydney's Potts Point after assuming three extra rate rises would hit — two have arrived, so he's two-thirds of the way there. He's tightened the belt anyway: less driving, cheaper meals out, no more Uber Eats, and he'll shop the Black Friday and Christmas sales when he moves. Agent Renee Cross, of Ray White Touma Taylor Potts Point and Elizabeth Bay, says vendors need to get realistic because the inflated prices are gone.

In Melbourne, first-home buyers Cody Preston, 25, and Alicia Harris, 22, see a silver lining. Rate rises and falling prices let them buy in Hoppers Crossing in October for less than they otherwise could have, and they move in within weeks. Preston, a FIFO worker in the Northern Territory, puts the hike at an extra $30 or $40 a month and says they'd already budgeted for it — though he's blunt about anyone claiming they don't care what rates do. Ray White Hoppers Crossing's Shahid Khan says prices in the outer west, one of Melbourne's mortgage belts, have slid further since September, and buyers are firing off multiple offers, then lowballing the pricier place when the cheaper one lands.