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Expecting a baby? Why making advance mortgage repayments will be your savings saviour

22 March 2021

Expecting a baby? Why making advance mortgage repayments will be your savings saviour

Owning your own home is the dream for many Australian families, and research shows that those with little ones on the way are especially keen to escape the rental market and put down permanent roots. But with one in five families struggling to repay their home loan during parental leave, the joys of home ownership can sadly give way to mounting financial stress – the very last thing new parents need.

But there’s hope in sight. If you can, consider making advance mortgage repayments before bub comes along to set your family up for success during those lean weeks or months of parental leave. The parents we surveyed said making advance mortgage repayments to cover the parental leave break or career pause was one of the easiest ways to remove financial stress during this special yet taxing time. Almost a quarter of Aussie parents were already making these extra repayments, freeing them up to concentrate on new parenthood without stressing needlessly about money.

The other key insight from our research? If you’re planning on purchasing a home to raise your new family, make sure you consider time away from work and the corresponding drop in monthly income in your ability to make repayments. Nearly 60% of parents said they wished they’d factored this in when calculating how much they could afford to borrow for a home loan – even though interest rates are at an all-time low. Concerningly, only 22% of people had allowed for this drop in income at the time of taking out their home loan.

So just how much do we recommend funnelling into advance mortgage repayments for home owners expecting a baby? Let’s assume your current home loan repayments are $3,000 a month. Start by calculating the total amount you’ll lose in income during your planned parental leave. As an example, let’s say your lost income will be $10,000. Then figure out how much you could realistically afford to add to your current mortgage repayments each month. If you made extra repayments of $833 a month, say – on top of the $3,000 you’re already paying – it would take you 12 months to make up for the $10,000 you’ll lose in income during parental leave.

Making additional mortgage deposits pays down the principal of your home loan, not the interest. Meaning? You’ll reduce the principal sum quicker, saving you money on interest.

If you can’t afford to keep up your current mortgage repayments while you’re on parental leave, then consider a mortgage that has a redraw facility. With a redraw facility, you can still make extra payments into your home loan account, paying down the principal and reducing your interest. Crucially, though, you can withdraw the money from these additional repayments when and if you need to, giving you the peace of mind of having a nest egg available if you need to access it.

With babies costing up to $10,000 in their first year of life, paying extra into your home loan to cover the cost of parental leave will ease your financial burden – making the rewards of new parenthood all the sweeter.

Want to find out what other costs are associated with having a baby? Click here to download our baby budget calculator.

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