Planning for a baby and a home loan may seem like a daunting combination, but it’s possible to balance both. Here’s how you can ensure the only bump in your journey is your baby bump.
When the news of your pregnancy comes through, you might already be on a home loan or only just applying for one. Either way, you’ll want to know how a baby will affect your capacity to pay off your loan. You might even wonder if your lender will block your mortgage application now that you’re pregnant.
The reality is that different lenders have different rules about how to treat pregnancy and parental leave. A professional mortgage broker will work with you to navigate your way through these varying lending policies.
At Yellow Brick Road, we’ve helped many Australians plan ahead to accommodate the financial changes a baby will bring. Mortgage stress is the last thing any parent needs when coping with the demands of a newborn.
Be upfront with your news
Is there anything in your application that may affect your capacity to service the debt?
There’s a common misconception that lenders will block home loan applications made by expectant couples.
In truth, pregnancy is only one of many elements lenders consider when assessing your eligibility for a loan. Your financial history, savings, employment stability and parental leave duration are all assessed as part of the decision-making process.
When organising your loan application, your mortgage broker is required to ask you “is there anything in your application that may affect your capacity to service the debt?”. If you’re expecting to start a family, share this with your broker. Non-disclosure can see your loan declined on the spot – and recorded for every new lender to see.
By communicating openly with your broker, you can take advantage of their expert guidance. Advice from a professional broker will help you work out budgeting strategies for balancing home loan repayments, bills and discretionary expenses while on parental leave.
Ask for concessions
If you don’t think you can afford to pay off your home loan during parental leave, ask your lender if you can take a repayment holiday or switch to interest-only repayments.
Many lenders will allow you to put payments on hold for a few months or revert to interest-only repayments for 12 months. Keep in mind that your loan will be recalculated to ensure it is paid out within its prescribed term. So, at the end of the concession period, your loan repayments may end up more than they were before.
Work out your supplementary income
Worried about how a reduction in salary while on parental leave might look to your lender? Some lenders will take supplementary income into account when assessing your ability to service the loan – this includes parental leave entitlements, government benefits and child support.
Lenders will ask you to document these income sources, so you’ll need a letter from your employer stating your intended return to work date and whether you’ll be returning full-time or part-time.
Child support payments are typically required to be court-ordered and you’ll need to provide bank statements showing the history of these payments.
Evidence of your entitlements under Family Tax Benefits Part A and B will also be required. The Department of Human Services can advise whether your new child will be eligible for any government benefits.
Use redraw and offset
Just as you plan for baby’s arrival by sorting out the nursery, why not plan to make your loan baby-ready. In the lead up to parental leave, make additional repayments that can sit in your home loan redraw or offset account. This buffer can be called upon to help meet monthly repayments after the baby is born.
Talk to a Yellow Brick Road representative about what else can be done to baby-proof your home loan.