An update from Managing Director Daryl Borden - as seen in the Dingley Dossier
Using dual income purchasing power to borrow more money is standard practice, and is part of the reason for the dramatic increase in house prices over the past 30 years. Most young couples purchase a home together, with joint incomes taken into account to be able to afford ongoing home loan repayments.
An important part of your home loan repayment budgeting needs to allow for expected changes in circumstances, including allowing for a planned (or unplanned?) new baby!
A new baby will involve loss of income into the household. Both parents may be eligible for parental leave, that will help, however in most cases that will be lower than previous earnings. It is important to determine exactly what you are entitled to ahead of time, as part of the planning process. Talk to your employer, and investigate current government benefits available.
Planned return to work times need to be carefully considered. This will vary dramatically between different couples, depending largely on personal preferences, family support, and employer flexibility. One partner may return to work part time, then ongoing and permanent changes to income may be applicable.
Increased expenses will also have an impact. Raising children is expensive, as any parent will attest! Actual costs will vary dramatically family to family, there are always pre-owned furniture and clothing options for those on tight budgets.
A new baby, raising a family, it should be one of the happiest times of life. For some the financial stress takes away the joy. Planning and budgeting is paramount to enjoying this time of your life. It is a time when you are at financial risk: the home loan repayments can slip behind, the credit card debt may be allowed to grow.
A mortgage is a financial commitment – and so is a baby. When you’re preparing to take on both at the same time, it’s a good idea to look at the whole picture.
A cash flow buffer saved can help cover the first six months. Talk to your mortgage broker about the best way to set that up.
The permanent ongoing expense of raising a family is another matter. You may find that you can cover that by reducing your discretionary costs – such as dinners and holidays. It may be that a change in lifestyle simply re-allocates existing expenses to the family.
Your bank is under obligation to not lend to you more than you can afford to repay. However future changes in your life including future family cannot be magically considered by your bank. It is imperative that individuals take into account their future ability to make loan repayments when applying for a loan.
For some, delaying purchasing their home, or delaying starting their family, may be required. Or perhaps compromising to buy a lower value home in order to afford the family. A detailed discussion of home loan options with your mortgage broker will assist you through these decisions.