The mother of all discounts

If money's tight, there are ways to cut the mortgage bill during and after pregnancy.
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BECOMING a parent for the first time is a bewildering experience. Worrying about your finances usually comes low on your list of priorities when you are juggling nappies and being deprived of sleep.

But the costs involved in having a baby can put a serious strain on the household. Parents can easily spend more than pounds 1,000 before the baby is even born on nursery equipment, clothes, pushchair and safety equipment. Add to that the cost of nappies, baby food, higher gas and electricity bills and the loss of the mother's earnings while she is on maternity leave, and you could be looking at a bill of up to pounds 10,000.

If money becomes tight, new parents can usually temporarily suspend regular payments into a mortgage repayment vehicle, such as premiums for a pension, endowment or personal equity plan. But rearranging the mortgage is considerably more complicated.

Tony Wells, at Abbey National, says: "We'd like them to go down to their local branch and talk to the manager. We want to know that our borrowers are taking the situation seriously."

Options open to someone in this situation include:

q Extending the term to reduce the monthly payments. A pounds 50,000 repayment loan to be repaid over 25 years would cost pounds 347 a month at today's interest rates. But if the term was extended to 35 years, the monthly cost would fall to pounds 313 a month.

q Converting a repayment loan to an interest-only loan. The same pounds 50,000 repayment loan costing pounds 346.83 a month would be reduced to pounds 285.89 a month on an interest-only basis.

q Suspending payments altogether for a short period. This is a last resort, which can only be done if the borrowers have some equity in their property. The missed payments are added on to the loan, increasing the amount the borrowers will have to repay when they resume payments.

Mr Wells stresses that any of these solutions are entirely at the discretion of the lender, and whether they are offered will depend entirely on the couple's circumstances and how they have conducted their financial affairs up to that point.

Some lenders have designed mortgages specifically for borrowers who want to reduce or suspend monthly payments for a certain period. This makes them ideal for couples planning to start a family.

Bradford & Bingley's Reserved Discount Mortgage allows borrowers to take a 4 per cent discount from the normal variable interest rate for one year, or a 2 per cent discount for two years, at any time from 12 months after completion of the mortgage. Borrowers need only give one month's notice to start the discount period.

The loan is available for new borrowers or people who are remortgaging their existing home. If the discount is not taken up, 3 per cent of the original loan is returned to the customer as a cashback, provided the borrowers are subsequently taking out a new mortgage with Bradford & Bingley.

National & Provincial's BabyCare mortgage provides a nine-month 3 per cent discount that can be taken during pregnancy and a three-month interest payment holiday to help relieve financial stress in the first few months after the baby's birth.

Elizabeth Burns and her husband Phillip took out a BabyCare mortgage when they moved to their second home last May. Mrs Burns was already five months' pregnant, and the couple took the 3 per cent discount straight away.

The couple's baby, Emily, was born in August, but the Burns decided not to take their three-month interest payment holiday until March.

Mrs Burns says: "We'll use the savings towards our summer holiday this year. It was a bit of a struggle while I was on maternity leave, because my husband is a self-employed builder, and it was quite a slow time in the run-up to Christmas. But I'm glad we did it now."

Bank of Ireland Mortgages allow parents to use the maternity option on its Lifestyle mortgage more than once. The Lifestyle Loan, which is available through independent financial adviser DeHavilland, allows borrowers to reduce their monthly repayment by up to half its normal cost for nine months. The unpaid interest - up to a maximum of pounds 3,000 - is added on to the mortgage.

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