Mortgage survival on one income
We can’t solve baby brain, but we can help restructure your mortgage finances. One of the things we see a lot of is the financial difficultly people find themselves in when they have to juggle family and the mortgage. The good news is that with falling interest rates there are an increasing number of opportunities where we can help lighten the load. The goal is to create more monthly cash flow.
Break my mortgage
For some people, breaking their fixed rate mortgage will be financially advantageous. (They will save more in interest than the penalty fee from breaking it). However for most people, the penalty will equal the interest saved. Either way, if you are struggling with your mortgage then breaking it makes sense. The break fee is added to your mortgage and you get the immediate benefit of lower rates. For someone with a $300,000 home loan and a rate of 9% that means an extra $600 to $850 per month. You are increasing your mortgage so we think it is important to reduce your monthly repayments (only as much as you need to) and still aim to pay off your mortgage as fast as possible.
Increase the term of my mortgage
Provided you have over 10% equity in your home, you can push your term all the way out to 30 years or make your mortgage interest-only for up to five years. In our $300,000 example above, going to interest-only frees up another $400 per month!
Top up my home loan
This is an option for that first year of having a family if the intention is to go back to work. Similar to breaking your mortgage we can set up a variable mortgage with an extra $10,000 limit available. We set your monthly repayments at a level you can cope with and have it topped up by the variable mortgage. What I like about this approach is that whilst your mortgage is slowly increasing you can manage to a budget and stay in control without stress.
This is a temporary option. Most banks will let you take a mortgage repayment holiday for up to three months. This can be a great option if you are suddenly hit with some unexpected costs. Cut up your credit card and do not do hire purchases Nothing in this world is free! Whilst it is easy to buy on HP you are throwing yourself into a financial commitment that must be repaid. Even if it is interest-free it significantly eats into your cash flow and creates financial risk should your circumstances change. The worst possible time to do HP is when cash-flow is tight. If you cannot save day-to-day then why on earth would you do hire purchases?
My advice is always – cut your discretionary costs as the FIRST option before looking to any form of consumer credit. Try to never use the credit card to cover day-to-day expenses, as this is a dangerous habit. A bit of short-term pain will make it far easier in the long-run. Personally I’m making my lunch and taking it to work, not buying coffees every day, and we have reduced takeaways to one a week. We’ve even got our own vege patch!
Working for Families
It surprises me how many people we see who are not collecting what they are entitled to under working for families. Visit the IRD calculator and see what you are entitled to.