Question: My husband and I have separated and he is moving out. Should I keep the house? If I do, it will mean taking on a $850,000 mortgage by myself. (Pam)
I often get questions from readers about issues that are both personal – and financial. And I often address questions about financial/personal issues during my money chat financial coaching sessions and in my Six Weeks to Abundance course.
I combined with Brendan Higgins, a professional coach at The Vision Thing to answer this question from two different perspectives. While neither of us is qualified to offer financial advice and our views are for a general rather than specific purposes, my hope is that this might provide some useful information.
I think it is important, where possible, to avoid the word ‘should’. Should implies guilt or a moral obligation. Instead, think about where you WANT to live and the sort of life you want to create.
When thinking about separation and the family home, there are many factors to consider including what’s best for you and your children. How important is it to be close to their school, or for them to attend secondary education linked to where you live? How close is where you live to work and your community?
From a financial point of view, taking on a large mortgage as a single parent carries risks. It ties you into working full-time, and there is a risk you might not be able to make repayments if you are unable to work (or you no longer want to be in that job). Is working full-time in your sector something you are passionate about? How long do you plan to work? Can you conceive of yourself working another 20 or 30 years in the same job? How stable is your employment?
Assuming an interest rate of 3% (noting that may now are lower than this), you would expect to pay around $4,031 a month on mortgage payments. This equates to $1,860 per fortnight. How much do you earn each fortnight, and how much would be left over to fund other things such as looking after your kids? And could you continue to make repayments if interest rates rise. Aim to spend no more than one-third of your income on your housing costs as this can lead to housing stress.
If you do decide to stay in your family home but worry about the mortgage repayments, consider renting out a room to a student or perhaps having a housemate. Maybe you didn’t expect you would be having housemates at this stage of your life, but it will help provide a buffer and allow you to keep your home and move ahead financially.
As a coach, the first question I would ask is:
Are you thinking of keeping the house
- To live in? or
- Solely as an investment? (of course, living in the house doesn’t exclude it as an investment)
If the answer is “solely as an investment” then the decision is entirely financial. If the answer is “to live in” the decision is now financial, emotional and psychological. So now the challenge is: how do we weigh these competing issues to make a decision?
One of the most effective ways of reaching a decision is to use a “pros and cons matrix”. Two columns and two decisions:
“Keep the house” “Let the house go”
Start by listing all the pros for “keep the house”. Everything you can think of no matter how insignificant. When you are satisfied that the list is as complete as you can make it, give each of these items a value from 1 to 10 – 10 for extremely important, 1 for hardly important at all. Add all those numbers up.
Now list all the cons for “keep the house” – again everything you can think of no matter how insignificant, and go through the same process, adding up the numbers to come to a total. Subtract the cons from the pros for a Final Value
Cover up that side of the page and now go to the “let the house go” column and list and value the pros and cons as you did with the “keep the house” column. Subtract the cons from the pros for a final value.
Now you can compare the final values for both “keep the house” and “let the house go” and the higher value will belong to the decision you favour.
This process has a number of benefits
- It clarifies all the issues you face and allows you to compare them
- It allows you to go back and recalibrate some of those issues and give them different values – to ask “Is this really all that important?”
- It helps avoid being overwhelmed in strong and emotional situations.
Was this useful for you? What advice would you give?
If you have a question for Serina and/or Brendon, please comment on this post to let me know! If it’s confidential, send me an email at joyfulfrugalista[at]gmail.com