Baby on board – are you financially prepared?

Thinking of starting a family? Now's the time to make plans for managing your finances once your baby comes on board.

Around 300,000 babies will be born in Australia this year, according to the Bureau of Statistics. That's a lot of newborns and plenty of challenges for new mums and dads.

Thankfully most of us rise to meet those challenges though it can be a case of fumbling your way through the early days. But with so much uncertainty surrounding your new role as parents, the last thing you need is worries over money – in particular your home loan. That's why early planning is essential.

Make plans early

Nicola Field, author of Baby or Bust, says "Parents should ideally give some thought to their mortgage at about the same time they discover a baby on its way".

She explains, "When a couple apply for a home loan their repayment capacity is based on their combined income. If one parent takes time off work to care for the baby, the reduction in household income can make it difficult to maintain mortgage repayments. It's critical to develop an action plan for your loan before the baby is born rather than simply hoping it will all work out."

Give your mortgage a medical

A useful starting point is to review your mortgage to check that it still meets your needs and offers a competitive rate. It may be worth refinancing if it means securing a lower rate, which will produce savings on repayments.

Get ahead with your loan

Next, use the pregnancy period to channel as much cash into your loan as possible. There are several benefits here. First, you're building a buffer of savings that can normally be redrawn at a later stage. You're also reducing the balance of your mortgage so you're saving on interest charges. And importantly, you're having a practice run at living on a lower disposable income ahead of baby's arrival.

Take advantage of parenting perks

Ask your lender if any perks are available for new parents. Some lenders, like Westpac for instance, offer 'parental leave' on selected home loans – typically variable rate mortgages. This option lets borrowers reduce loan repayments by up to 50 percent for a set period, though conditions apply. You will need to be ahead with your mortgage to take advantage of this feature.

Finally, once your baby arrives, check your eligibility for any government financial support including family tax benefit. Even modest sums of extra income make it easier to juggle a home loan with the financial demands of raising your new baby.

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