Can Parents on Parental Leave Still Apply for a Home Loan?
Background
A couple, already homeowners with an existing mortgage, faced financial strain due to rising interest rates. The wife, pregnant in April last year, commenced parental leave in November and planned to return to work in early July. With their fixed-rate mortgage set to expire simultaneously, they needed to refinance to secure a lower interest rate and reduce their monthly repayments.
Challenges
- Lack of Recent Payslips: Since the wife had been on parental leave for several months, she did not have recent income statements to support their refinancing application.
- Single-Income Constraint: Since only the husband’s income was available during this period, the couple’s financial profile appeared weaker under the bank’s assessment criteria.
- Loan Approval Concerns: Most lenders require proof of stable income, and the temporary loss of the wife’s salary raised concerns about their repayment capacity.
Key Considerations for Loan Approval
To successfully refinance, the couple needed to demonstrate to the bank that they had sufficient financial resources to meet their mortgage obligations. The bank was willing to consider the wife’s income under specific conditions:
- Proof of Savings: The wife needed to show that she had enough savings or assets to cover living expenses during her parental leave.
- Return to Work Confirmation: A formal letter from her employer confirming her job status and salary upon returning to work.
What a Return to Work Letter Should Include
A valid Return to Work Letter must contain the following details:
- Confirmed return-to-work date
- Employment conditions (full-time/part-time status, working hours, hourly wage, etc.)
- Employee’s full name (matching the loan applicant)
- Salary details upon return
- Employer’s official letterhead
- Employer’s ABN (Australian Business Number)
- Employer’s signature and date
Solution & Outcome
We guided the couple through the refinancing process by ensuring they met all bank requirements:
- The wife provided a bank statement proving she had sufficient savings for her leave period.
- She obtained a properly structured Return to Work Letter from her employer.
With these documents, we submitted their refinancing application. As a result, the couple successfully secured one of the lowest available home loan interest rates at the time. Additionally, they received a $4,000 refinance cashback, significantly easing their financial burden and reducing their monthly repayments.
Key Takeaways for Parents on Parental Leave Seeking a Home Loan
- ✓ Check lender policies – Some banks may be more flexible with parental leave cases than others.
- ✓ Prepare savings proof – Demonstrate financial stability with bank statements showing sufficient funds.
- ✓ Obtain a Return to Work Letter – Ensure it meets all lender requirements to strengthen your loan application.
- ✓ Work with a mortgage broker – Professional guidance can improve your chances of loan approval and help secure the best rates.
If you're on parental leave and considering refinancing or applying for a home loan, consult with a mortgage expert to explore your options!
Visit our website for more details: openmortgage.au