From two incomes to one: how to cover your mortgage repayments

Home loans can be expensive, but have you ever thought how you’d manage if you suddenly had to rely on one income, rather than two, to pay it down? 

According to new research released this week by credit reporting agency, illion, over 60% of home loans in Australia are taken out by couples. 

“Despite the widespread belief that first-home buyers in their 20s with small deposits are the most indebted group in the country, it is actually Generation X aged between 30-50, which is enduring ‘peak debt burden’,” illion CEO, Simon Bligh said. 

“This is the age when owners typically ‘trade up’ from units to homes to accommodate growing families, and is also likely to be the time when household spending with dependents peaks.”

For many Aussies, this means that while having the source of two incomes has enabled them to enter the property market, as their family grows and property value increases, there is significant threat to their financial position if their partner or spouse becomes out of work. 

So what should you do if the safety blanket of a second income disappears? Here are four things to consider before that happens: 

1. Set up a rainy day fund and have a backup budget 

Whether it’s the decision to start a family or your partner unexpectedly loses their job, you are going to need to have a budget ready to go to adjust to being on one income so you can continue to pay off your mortgage. 

The first step is to set up a rainy day fund in case the unforeseeable happens. This could be in the form of a savings account or term deposit, or even an offset account attached to your mortgage. Whichever you choose, ensure you compare products to find the right option for you. 

Then, create a backup budget. This may mean dipping into your rainy day fund straight off the bat if you suddenly find yourselves on only one income, but it is also crucial to set up a long term plan in case you need to rely on a single income over a long period of time. 

Review your earning and spending, cut down where you can - whether that’s by doing smarter grocery shops or finding cheaper activities to do on the weekend - and ensure that you can realistically stick to the new plan. And if you need a little extra help, there are a bunch of budgeting apps that can help you every step of the way.  

2. Check out your insurance options 

If you or your partner find yourself without income for a period of time, due to serious illness or circumstances that were out of control, like involuntary redundancy, you may be protected under life insurance or mortgage protection insurance. 

Depending on your policy, life insurance can include things like disability benefits, terminal illness or death cover and income protection. This means that in the case that you find yourself without income for any of the above reasons, your insurer could cover you up to a certain amount or for a specific amount of time. The benefit of life insurance is that it can cover other costs as well, not only your home loan repayments.

Alternatively, mortgage protection insurance is another form of insurance that covers your home loan repayments if you ever default on your loan due to losing a job, illness, injury or death. You can take out a single or a joint policy, but just bear in mind there are different levels of cover dependent on each person’s income. Also remember, this is different to lenders mortgage insurance (LMI) which is set to protect the lender not the borrower. 

3. Review your current home loan 

Mortgages are a massive cost in many Aussie households, so making sure you have a loan that you could potentially pay down on one income is important. This could be through a low interest rate, minimal fees or even features like an offset account where you reduce the amount of interest you pay on the loan. 

According to recent research done by the Commonwealth Bank, one third of Aussies would only be able to cover their mortgage repayments for up to six months if they were to lose their partner or a dependent. Meanwhile, one in ten could only cover these costs for a month or less. 

In response to these findings, CommBank launched a new home loan initiative, “Home Loan Compassionate Care” which covers the mortgage repayments of new and existing owner-occupier customers for 12 months in the event that they, their partner or a dependant is diagnosed with a terminal illness or passes away.  

While this is an industry first, it could be an indicator of things to come - so it may be worth having a chat to your current lender and seeing what protections are in place in case the unexpected happens. 

4. Don’t wait to refinance your mortgage

While you can’t plan for an unexpected loss of income due to illness or injury, if you are planning to start a family and one person will have to take off work for a while, don’t delay refinancing your loan until after your child arrives. 

Mozo data shows that borrowers with a $400,000 mortgage could save $3,390 a year, by switching from the average big bank variable rate of 3.97% to the lowest rate in our database, 2.69%. That’s a total saving of $101,689 over the life of a 30-year-long loan. 

Shopping around for a better deal on your mortgage could be a good idea, but this is difficult to do if you’ve dropped down from two incomes to one. So, make sure you plan ahead and refinance your home loan when you still have two sources of income, that way you’ll have already secured a lower rate before your combined income drops. 

RELATED ARTICLE: Meet the lenders taking on the bigs banks in 2020

Need to make the switch? Check out our refinance loan comparison table below or jump across to our home loan comparison tool for more options.

Refinance Home Loans 2020 - last updated 29 May 2024

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    Owner Occupier, LVR<70%

    interest rate
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    Initial monthly repayment
    5.99% p.a. variable
    6.01% p.a.

    A low rate home loan for owner-occupiers packed with great features including unlimited extra repayments, free online redraw, no application or monthly admin fees. Rate will vary depending on LVR. Winner of a Mozo Experts Choice 2024 Low Cost Home Loan Award^

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    Owner Occupier, LVR<60%, Principal & Interest

    interest rate
    comparison rate
    Initial monthly repayment
    6.14% p.a. variable
    6.16% p.a.

    Enjoy a low rate home loan with $0 application fee and $0 ongoing fees. Flexibility to split your loan and set different repayment types. Fee free redraw from your loan using online banking. Flexible ways to repay. 40% Deposit required.

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    Owner Occupier, Principal & Interest, <80% LVR

    interest rate
    comparison rate
    Initial monthly repayment
    6.54% p.a.
    fixed 2 years
    7.10% p.a.

    Enjoy up to $3000 cashback for eligible first home buyers and $2000 cashback for refinancers on eligible home loans with the ANZ Fixed Rate Home Loan. Get the security of repayment certainty with a competitive locked in rate. No ongoing fees to pay. Offset account on 1-year fixed loans ($10/month fee applies). Interest-only payments allowed.

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    Owner Occupier, Principal & Interest, <80% LVR

    interest rate
    comparison rate
    Initial monthly repayment
    6.09% p.a. variable
    6.20% p.a.

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* WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.

** Initial monthly repayment figures are estimates only, based on the advertised rate. You can change the loan amount and term in the input boxes at the top of this table. Rates, fees and charges and therefore the total cost of the loan may vary depending on your loan amount, loan term, and credit history. Actual repayments will depend on your individual circumstances and interest rate changes.

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