How to pay off your home loan sooner and cut household spending as interest rates rise

Australian households are considering ways to tackle bigger mortgage repayments as interest rate rises become the norm.

Justin McIlveen, director at Scarlett Financial, said home owners "absolutely should" pay off their loan sooner if they can.

"Loans are for 30 years, generally, that's to maximise someone's borrowing [capacity]," he said.

"But if you've been in it for 30 years, then the bank has won."

Mr McIlveen said additional repayments are "critical to get ahead" on a loan and even more so at the moment with the cash rate forecast to continue rising this year.

"Rates are going up and they're going to continue going up," he said.

"Interest rates absolutely make a difference in what you pay on the loan, but your ability to get ahead and lower your overall interest bill is dependent on either how much extra you can pay or how much you can store in an offset or a redraw facility."

ACM, the owner of this masthead, spoke to three households about how they're cutting back spending in anticipation of bigger mortgage bills.

Isaac Priddis and his fiancé Lucy Beaton recently settled on their first home, a townhouse in Canberra's inner north.

Mr Priddis said while the speed of the RBA's rate increases is "a little bit alarming", the pair have borrowed within their means to ensure they can service higher repayments.

Their upcoming wedding has stalled any plans to pay off their loan sooner, however the pair are putting savings into an offset account to reduce the interest they pay.

"At the moment we're finding the cost of petrol is the biggest deterrent on what we do," Mr Priddis said.

"That weekend trip down to the coast or ... a snow trip here and there - now the $100 tank has turned into a $180 tank which makes you second guess what you're going to do.

"So when I do get some time off ... we're tending to stay a little bit closer so that we're using maybe one tank of fuel not two tanks of fuel."

Coby Haskins bought her first house around the age of 19 and has owned a few properties since.

In 2020, the 32-year-old single mother of two purchased her current property in Canberra, which she recently refinanced in order to complete renovations.

Ms Haskins said being proactive and making additional repayments has helped to ensure she can live comfortably with higher interest rates.

"For me it's probably entertainment, so ensuring that we're eating in and just planning out what we're actually buying from the grocery shops," she said.

"I have quite a strict running budget ... and I just keep that up to date and just adjust wherever we need."

Richard Stanton and his wife Tara have owned their Canberra home for about five years.

With their fixed rate due to expire next year, Mr Stanton said the end of school fees for their two children comes at a good time.

"If rates get to a particular level, then that will constrain us," Mr Stanton said.

We've been looking at getting an electric vehicle to try and insulate ourselves against petrol prices."

Buyers can take proactive steps ahead of more rate rises by repaying their mortgage now as if their interest rate was at least 4.5 per cent, Mr McIlveen said.

He said the strategy has two advantages. Firstly, home owners will be ahead in their loan repayments and secondly, they'll be well-adjusted to the higher amount as rates move upwards.

Switching to fortnightly repayments means home owners will make one additional repayment each year, as each year has 26 fortnights.

However Mr McIlveen said that works best for people repaying the minimum amount; setting up an extra repayment plan is more important.

If home owners are serious about paying down their loan, any lump sums of money they receive should go directly to their loan, Mr McIlveen said.

This includes commission or overtime income, a tax return or money gifted at Christmas time.

"It will create a buffer and comfort moving forward," he said.