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How to manage your home loan with a young family

By Emma Smith

If you have young children, you’ll know that right now is an expensive time in your life. That means staying on top of the mortgage probably isn’t always as straightforward as it once was. That’s why we’ve developed this guide to keeping afloat – and even getting ahead – with a young family. 

An expensive time in life

Before the children came along, staying on top of your money and your home loan probably didn’t seem insurmountable. After all, if you’re like most Australians, you had two incomes coming in to cover your expenses, and far fewer expenses to pay.

Now that’s all changed.

There are new costs of keeping another human fed, clothed and sheltered. There are the extra costs you never had to worry about such as prams, toys, doctor’s bills and nappies. And there will be the added costs of daycare, education, extracurricular activities and more.

You may even need to upgrade your car and eventually even your home. And, to top it off, you’re likely to be down to one income for a while.

Little wonder that this can often be a time of financial stress for many.

But it doesn’t necessarily have to be.

Putting your mortgage to work

If you’ve just started a family, one of the most important things you can do right now is to make your mortgage work for you, says realestate.com.au Home Loans’ Gus Mendez.

“The trick is to manage your cash flow with the mortgage being the main tool,” he says. “This is where an offset account  or a redraw facility can come in handy.”

Mendez recommends keeping your money for day-to-day expenses in one of these accounts, and paying bills such as credit cards and other major expenses, only on their due date. That way you will have your money offsetting your principal for as long as possible so that you pay less interest and give yourself the opportunity to make a dent in your home loan, even when you have a higher cost of living than you once did.

Moving to a fixed rate

If you’re on a strict budget for a while and you have a variable home loan, another option may be to switch to a fixed interest rate. This will give you some degree of certainty in your monthly repayments so that you know you won’t be caught out by any interest rate rises.

The downside of this may be that most fixed rate loans don’t offer you the chance to link to an offset account, nor to contribute too much extra money to your home loan. However, Mendez says that a compromise may be to switch to a “split facility” loan.

“These usually allow you the peace of mind of having part of your repayment locked in for a number of years while still having the flexibility and features of a variable loan, such as offset accounts and redraw facilities.”

The perfect time to refinance

If you’re concerned about the size of your monthly repayments, now may also be a good time to refinance. This will mean shopping around and looking for a better rate on your home loan. After all, there are a number of home loan providers who may be willing to offer you a better deal than you currently receive, especially if your LVR is lower than 80%.

That said, if you do go down this path and you extend the term of your loan, you may end up paying more interest in the long run, even if your repayments are lower today. You should also be aware that, if your combined salary is reduced, any lender will take this into account – as well as your increased expenses – when assessing whether or not to grant you the loan.

The power of a good budget

Finally, it’s always worth remembering that things won’t always stay this way. There will probably come a time when you’re both back at work and the expenses aren’t mounting up quite so quickly.

In the meantime, it’s important that you account for your current situation in the family budget so that you don’t end up in financial difficulty.

“It really comes back to being disciplined,” Mendez says. “This doesn’t mean you can’t go on a spending spree from time-to-time but it’s important you keep meeting your minimum principal and interest repayments.”

“And, if you do get a little carried away with your spending, you may want to add something extra to your regular repayments to get back on track.” 

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