Mortgage "Backup Plan"

[lillo9546]

Buying a house is exciting, but let’s be honest, the idea of taking on a mortgage can be terrifying, especially if you're someone like me who thinks What if I lose my job? What if I can’t make the payments?

Even with a stable income, I constantly worry about waking up every month with that heavy feeling of debt. So, instead of spiraling, I decided to change my mindset and create a mortgage "backup plan":

Plan A: Pay mortgage with ROI from your investments like Bonds, Stocks, Etc.
Plan B: If above is not possible, Pay the mortgage with your main job (The default. If this is working, great, but I needed to be ready in case it stops)
Plan C: If above is not possible, Rent out a room in your home (If you have the space, rent it, even short-term on Airbnb or monthly to a student/remote worker. It’s passive(ish) income that can help cover part or all of your mortgage)
Plan D: If above is not possible, Use income from a side hustle (Freelance work, online gigs, a weekend job, even a small extra income stream can act as a cushion if your main job disappears)
Plan E: If above is not possible, Tap into unemployment benefits (Where I live, government unemployment plan can cover up to 70% of your previous income for up to 12 months)
Plan F: Contact your bank to pause/renegotiate the mortgage (Many banks offer temporary hardship programs, they may allow you to reduce or pause payments for a set period)
Plan G: If above is not possible, Use emergency savings (Having a six month COL emergency fund as a safety net to keep you afloat temporarily)
Plan H: If above is not possible, Sell high-value non-essentials (Car, Jewlery, etc)
Plan I (Last Resort): Sell the house (Not ideal, but it's better than going into foreclosure.)

I am sure that some of you have even clearer ideas and would like to add/modify something, and talk about your experience regarding your thoughts on this.

Others could also tell us about their experience. This is dedicated to all those who do not own a "first" home. Owning a "first" home is already a good excellent result since it exempts you from having to pay mortgages and respect contracts with banks, so you can just consider "second", "third", etc, homes like an investment.

[DutchGirl]

I want to point out that there's nothing stopping you from trying multiples of these at the same time, and also in a preventative way. So hustle and consider renting out a room even when you still have enough income from a main job to pay your mortgage. As long as you have that main job, use any extra money to build your portfolio and perhaps also to build up some savings that can help you to continue to pay your mortgage while you pivot and consider your options when you lose your main income stream.

For some people, a plan similar to plan I could be to sell the current house and to buy another place that is cheaper (because it's smaller or because it's in a slightly less desirable place).

[delay]

Even with a stable income, I constantly worry about waking up every month with that heavy feeling of debt.
...
Others could also tell us about their experience.

As a renter, I don't worry about a mortgage, and if my rent becomes unaffordable I can downsize within a few months. Renting is not financially optimal, tax rules here really favor house ownership, but I value my time and my sleep more than the money.

Why not rent?

[Mousse]

Agreed with @DutchGirl that these all sound like good ideas, and many can be executed in parallel and early on. Trying some of these early would let you see which ones are easiest for you. You might be surprised. For example, I thought I would hate everything to do with renting out a room after finally getting my own space, but hosting students, especially language students, turned out to be really fun. The school keeps them busy with activities during the week and sometimes weekend, and they're interested in your city if they chose it to come learn. You can show them around, then they go back home and you get your full space back.

Making additional mortgage payments early can be really beneficial since that's usually when you pay the most interest. The rules might be different in your country, but in mine making additional payments lowers your monthly payment going forward (so your mortgage still ends on the planned date). Even if you stop the additional payments after a couple of years, you've still bought yourself breathing room thanks to the lower monthly mortgage payment. Countries all have their own rules, though.

[jacob]

I don't understand Plan A. Typically, mortgages rates are higher than standard LT bond rates and if you're taking on a mortgage in order to leave more money for stocks, you're essentially leveraging (taking a margin loan with security in your home). It's a risky idea that might pay off but this is how people lose their houses.

Everything else is fine. Most people pay the mortgage with their main job. If they get laid off they use either their emergency fund, unemployment benefits, credit cards, or sell their stuff to carry them over until they find a new job. Rinse, repeat.

FI-people would have the option to pay for their house in cash. It's a very nice feeling not to have to write a monthly rent or mortgage check.

[lillo9546]

FI-people would have the option to pay for their house in cash. It's a very nice feeling not to have to write a monthly rent or mortgage check.

I'd like to add It's a very nice feeling not to have to write a monthly rent or mortgage check in your first house.

Definetly!

Because if you plan to start a mortgage because that house is your investment, it's another weight in your mind.
But if you live inside of it.. Wow, that hurt!

[eagle5]

You forgot "Move in with family/friends/trailer and rent out house to cover mortgage". I've even considered becoming an OTR trucker and living out of the truck while renting out the house as an additional backup plan. Suppose this could work with any kind of employment that provides housing.

[Jean]

At first, I was renting out a room that was paying for way more than the mortgage payment, then renting out the whole house and living somewhere else (cheap room, car, garage).

Renting out a room really makes sense if the house is too big for you, which it is if you don't have kids.