Now there’s a big ask. How can anyone afford both a big mortgage and a family? While lower interest rates have temporarily eased home loan affordability, there’s no question that juggling a mortgage and a family can be tough. Many first home buyers in particular find they’ve just got on top of making regular mortgage payments so how do you set yourself up in advance to reduce the stress?
1) Budgeting (don’t groan-weall hate it)
is going to be critical. There are really two parts to this – saving prior to having a family and understand all the assistance you’ll be entitled to government benefits, holiday, maternity and long-service leave and any other cash you can get your hands on. How effectively will this plug the gap while you’re living on a reduced income?
On thebright side you probably won’t be spending a lot on entertainment in the early stages of parenthood, though you will have to meet other expenses such as medical care and items for the baby. Understanding how much money you’ll need -and how much you’ll have will help you decide whether you can afford your current mortgage repayments and how long you can afford to be off work for.
2) Building abuffer bybuilding upyour offset account
so that you can cope when you drop down to one income for a period of time. One strategy used by some couples is to live off one income prior to actually dropping down to one income and ensure your offset account is going up by the other.
What’s better, a loan with redraw or an offset account? The offset account offers more flexibility and options in the long run for you and your family if your situation should change. But key is to ensure that your offset account is 100% offset!
Some people switch to a fixed-rate loan when they start a family to guard against interest rate rises and to have certainty of repayments during the one income period. If you are considering this you may want to look at a combination option – i.e. part variable and part fixed. Plus if interest rates don’t go the way you thought you need to be very aware of any charges (such as break fees) to adjust the structure. Just remember why you made the decision in the first place and forget that interest rates are moving :).