Your long-awaited bundle of joy is due very soon, and you’ve bought the bassinet, the buggy and the baby batman onesie. Perhaps you’ve re-examined your budget and found that a new house is achievable. Or you’ve realised your little nest just isn’t big enough for your future family: you’re planning to have another baby (or more) and maybe create a home office or workshop. It’s time to buy a new house, but what effect will your new circumstances have on your chances of getting a home loan? Check out BNZ’s Baby Budget Calculator, which will give you an idea of the extra costs and expenses you may face.
Here are three common mortgage scenarios new families face, and the options available.
Let’s say you’ve saved enough money for a deposit, and after sizing up numerous open homes, you’ve fallen in love with one. Because you’re on maternity leave, there’ll be just one income going towards paying off a mortgage. How will that work? Claire and Enrico went through this challenge, check out their story and helpful tips.
When you rock up to your meeting with the bank to discuss taking out a loan, they’ll first want to know if, and when, you’re planning to return to work. They’ll need confirmation from your employer on the proposed dates, so it pays to have a chat with your boss about your maternity leave as soon as possible.
Another thing to let your bank know, is what your salary will be when you do go back to work. Even if you haven’t started your maternity leave yet, you may already be considering going back part-time, which means your income would be lower.
One repayment option is an offset mortgage where you can offset the interest from your other (eg savings) accounts with the same bank. This means that instead of receiving interest on your savings account, the interest payment due on the loan is calculated only on the net balance of the loan, less the savings account. Ideally, the more you have in your savings account to start with, the less interest you’ll have to pay on your loan.
This time, you have an existing loan, you’re on maternity leave with your first child and are paying off your existing mortgage (and some of that nursery decor), again with just one income. What are your repayment options?
Perhaps you could reduce your current mortgage repayments. Banks usually suggest you pay a little extra on your mortgage early on, because then you have some wiggle room to reduce payments should the need arise. By paying more early on, you’re also saving the amount of interest you’ll have to pay. It’s best to calculate your repayments based on paying as much as you can afford.
If you’re already paying the minimum amount on your mortgage, an option is to pay the interest only. It’s best to do this just for the period of your maternity leave, because while this is a useful stop-gap repayment method, your loan won’t actually be getting any smaller.
You could also relieve the pressure by taking a mortgage holiday. Speak to your bank about whether this is an option for you and what length is available, but remember that you’ll still have to pay whatever interest you accrue over your mortgage holiday. That also means your repayments will increase, since you’ll be paying interest earned on interest.
Lastly, let’s say that you and your partner are both back working. You’d like to sell your current nest and buy a bigger home, perhaps in a better school zone, or maybe to accommodate that home office or workshop you’re dreaming of. The obvious solution here is to use the existing equity in your current home as a deposit for the new one.
Shop around for a home loan that gives something back! Some banks offer great rewards with certain types of home loan. BNZ’s Standard/Fly Buys home loan is ideal for those who want flexibility, with a side of rewards. You can make extra or lump sum repayments if you’re on a floating rate, and if you’re on a fixed rate, you may also be able to make some additional repayments each year.
If you have enough money, another option is to keep your existing house and rent it out, using the rental income to pay off a new house. You’d have three incomes – two salaries and the rent - but you’d still have to pay rates and maintenance on your rental property so do check that the figures stack up.
As well as being a major cause of stress, not being able to pay your mortgage on time – or at all – can put your home at risk. By letting your bank know what your situation is, they’ll be able to hep you find a new arrangement that works better for your current circumstances.