What to Consider When Taking on a Mortgage

I won’t tell you everything to consider when taking on a mortgage, I don’t think it could all fit into one post. But here’s something big to consider when taking on a mortgage: What will your income be in the long haul?

Maybe you’re feeling fairly secure in your job or your ability to get another one. But there’s more to consider. What else could drastically alter your financial situation?

For example, I knew a young couple who decided to buy a house right after they got married. They could afford the mortgage and all seemed well. However, they were soon faced with a major hitch in their plans: they were expecting a baby.

They considered the possibility of the Mrs. staying home, but that would mean they could no longer afford the mortgage. Her salary had essentially paid for the mortgage, his for everything else.

The monthly payment had seemed reasonable at the time, but they hadn’t considered the possibility that she might want to stay home with their children or her need for time to recover after childbirth. It doesn’t seem to have occurred to them when they were making the whole decision.

Their lives were quite busy and as we weren’t close friends, we drifted apart a while ago so the rest is fuzzier.  I believe that she continued to work and her mother-in-law took care of the children. I recently heard that she had cancer and I hope that they have their finances in a situation where she can go through treatments without completely throwing off their finances.

Of course, having children isn’t the only thing that can throw off your otherwise-well-thought-out mortgage.

If one spouse had developed a disability (I wonder if my friend’s cancer counts) and could no longer work, that would have also thrown their financial life into disarray. Fortunately, unlike the decision to have kids, you can insure yourself against disability.

When taking on a mortgage, I think it would be wise for all working spouses get disability insurance which covers at least the monthly cost of the mortgage.

It’s probable that your employer offers some form of disability insurance. That may be all you need, or you may have to purchase additional insurance on the site. Your HR department should have the details.

The same goes for life insurance. Even if either partner’s salary can cover the mortgage and general living expenses, it’s probably a good decision to take out life insurance which will cover a significant portion of the cost of the house. How much life insurance do you need? Some experts suggest 50% for a DINK couple with similar incomes. I’d say that or more if you feel comfortable.

If one partner makes significantly more or earns all the money, they should look into life insurance which covers even more of the home’s cost.

But even if the second partner is not bringing in a salary, consider his or her effect on the family finances. Can you still afford the mortgage if you have to pay for child care, for instance?

My personal finance professor learned all this the painful way when his wife, a SAHM, died with no warning (“right after breakfast” he put it). He’d managed their money so that he could afford the ensuing expenses, but he realized how much money he had NOT spent over the years because his wife was taking care of the kids, cleaning the house, cooking, etc.

In retrospect, he said, he would have taken out a policy on her which would cover those costs. Then he could have used his salary the same way he had previously–certain % to the mortgage, % to gas, etc.

A mortgage isn’t just about the now, it’s a long-term commitment. Many couples, including those with SAHMs and single parents (widowed or never married), manage to afford their mortgages. It’s just important to take the possible blessings and burdens.

What else would you suggest people looking at mortgages take into account?

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