You’re sitting on your couch, clutching a cup of lukewarm coffee, staring at your adorable newborn who’s finally asleep and bam, it hits you. “Are we going to struggle to manage our mortgage repayments while I’m on parental leave” or "Can we afford to upsize our home now that we're down to a single income?".
Sound familiar? Don’t worry, you’re not the first parent to grapple with these questions (and you won’t be the last). Adding to your family is magical, sure, but it’s also a whirlwind of emotions, logistics, and, yes, financial puzzles. One major part of this new landscape revolves around something you might not have considered before: how going on parental leave (or moving to a single income) can impact your borrowing power for securing a home loan.
Grab that coffee (cold or not), and let's break it down. Spoiler alert: You don’t have to tackle this maze alone, a Mortgage Choice broker could be your saving grace.
Parental Leave and Borrowing Power
First things first. When you’re on parental leave, your income typically dips. Whether it’s just your partner pulling in a full income or you’re relying on a combination of paid parental leave and savings, lenders see a lower household income. Why does this matter? Because when banks assess your borrowing capacity, their primary concern is your ability to repay the loan.
Think of it like this: lenders look at your current financial situation, and unless you show them a clear plan for the future, they’re going to be cautious. This means you could be approved for a smaller loan amount or be subjected to stricter borrowing conditions.
But here’s the good news: parental leave is temporary, and lenders know it. Many will consider your post-leave earning potential if you provide them with documents like a return-to-work plan or a letter from your employer confirming your income will spring back after leave.
Now, finding a lender who’ll work with you on this? That’s the tricky bit. But that’s also where a Mortgage Choice broker steps in, like your financial fairy godmother.
Refinancing for Relief
Already have a mortgage but worried about how you’ll keep up repayments while your household income is reduced? Refinancing could offer some solutions. For instance, some lenders may offer repayment holidays or reduced payments while you’re on parental leave. While these are lender-specific conversations that happen on a case-by-case basis (and you could end up paying more in interest in the long run), your Mortgage Choice broker will be by your side, asking the right questions and exploring options that align with your goals.
Planning Ahead for Parental Leave
We get it, planning ahead can feel impossible, whether you’re expecting your first baby or your second or third addition. However, a little early preparation can go a long way. If buying a home or refinancing is on your radar, here’s how to set yourself up for success:
1. Build Up Your Savings
Lenders love seeing a healthy savings account because it screams “financial responsibility”. It also acts as a buffer for those months when money might feel tighter.
2. Have Your Documents in Order
Get organised with your paperwork. Make sure you’ve got proof of income from both parental leave entitlements and your partner’s earnings and any letters verifying your return-to-work plan and post-leave salary.
3. Speak to a Mortgage Choice Broker
Most importantly, talk to someone who knows the mortgage landscape like the back of their hand. Timing matters when it comes to loan approvals, and your broker will guide you on when and how to apply to maximise your chances of success.
Use the Family Financial Checklist to help you prepare you for those big financial decisions ahead.
The Mortgage Choice Difference
Parenthood is a rollercoaster, but your finances don’t have to be. Mortgage Choice brokers are here to help you untangle the complexities of parental leave, borrowing power, and home loan options. Instead of second-guessing whether you’ve got it all covered, you can lean on their expertise to find lending solutions that work for your family’s needs.
The best part? Mortgage Choice brokers don’t charge to find the right loan for you*, as they are paid by the lender once your loan settles. That means no upfront charges for you, just straightforward, practical advice tailored to your unique situation.
So, whether you’re gearing up for your first home purchase or reassessing your finances to make space for your growing family, remember, you don’t have to go it alone. Reach out to a Mortgage Choice broker, and tackle your home loan goals with confidence, even if you’re tackling them in between nappy changes.
Your family’s next chapter deserves the right foundation, and a little expert guidance can make all the difference.
*In some limited circumstances, your broker may charge a fee for their services. Your broker will disclose any fees before you proceed with your application. See our Fee for Service policy for more information.
Mortgage Choice Pty Limited (ABN 57 009 161 979, Australian Credit Licence 382869) and Smartline Operations Pty Limited (ABN 86 086 467 727 Australian Credit Licence 385325) are owned by REA Group Limited.
