Balancing a loan and a family

AS RATES and house prices rise, having both a mortgage and a family can be a financial struggle - but with planning a balance can be found.

Family dinner /File

Balancing a loan and a family

IN an environment of rising interest rates and rising house prices, having a mortgage and a family can be a financial struggle. However, lenders say that with some careful planning and open communication, an agreeable life balance can be comfortably achieved.

Head of consumer advocacy with non-bank lender RESI Mortgage Corporation, Lisa Montgomery, said the mistake many young couples make when buying a home was to borrow the maximum amount available based on their combined wages.

As a result, when it comes to starting a family, some planning and preparation is necessary.

"It's one of the reasons many people delay having children," Ms Montgomery said.

National Australia Bank's state general manager retail banking, Ann-Marie Chamberlain, said people should be careful not to over-commit themselves when taking out a home loan and consider making voluntary repayments before the family grows.

"The more voluntary repayments you can make while you're still on two incomes, the further ahead you will be when it's time to take maternity leave," she said.

"If you're far enough in front, this may give you the flexibility to lower your repayments for a period of time while you're living on one income. However, you'll need to ensure you have chosen a home loan that allows you to make voluntary repayments.''

Ms Chamberlain said another strategy to lower loan repayments while on maternity leave was to extend the term of the loan back out to 30 years, or even choose an interest-only loan.

"This means you will only be required to repay the interest owing on your loan, which will lower your repayments. However, home owners do need to be aware that if they are only making interest repayments, they will not be reducing the loan principal.''

Ms Chamberlain said consolidating other debts into your home loan could also save people money.

Ms Montgomery said many lenders offered a "baby break" or similar, where borrowers could take a break from mortgage repayments for a period, or repay interest only.

But she said it was vital that once the double income started up again, people reverted to their normal repayment process.

"If you don't, you will end up paying a lot more," she warned.

Ms Montgomery said talking to your bank was the key to managing your home loan on reduced income.

"As soon as you feel you're struggling to meet repayments you need to talk to your lender - the earlier the better," she said.

She said embarrassment and a fear they might lose their home often stopped people from approaching their lender.

"They'll do everything in their power to see you survive and help you relieve that pressure," she said.