September 21, 2015
It is common for women to leave the workforce to care for their newborn, but does that mean they should be treated differently? Recent investigations suggest mothers who stay at home are having a harder time qualifying for home loans.
New mums seeking a home loan may be forced to make a tough choice: stay home with their baby and forget the loan, or return to work before the market prices them out.
Will maternity leave affect your mortgage application?
Lending policies are based on the customers' known or expected circumstances at the time the loan is taken out. If the loan can be afforded on your partner's income alone, then it should be granted. However, it gets tricky when your income is taken into account.
So, for example, if you have repayments of $500 a week and can't afford it because one of you is on maternity leave, then the loan can't be granted.
There are, however, other options. Based on the certainty that a woman is returning to work, some banks will allow you to pay interest only while on maternity leave. But lenders aren't always flexible, and they're under no obligation to restructure loans to suit your circumstances.
Is it legal? And is it fair?
The National Consumer Credit Protection Act states that mortgage lenders are required to assess whether the consumer can make repayments without significant hardship – so it's possible that your application could be rejected.
It is best to wait until you go back to work to apply for a home loan; this also gives you flexibility with your baby. Don't over-commit yourself when you want to stay home with the baby.
What about maternity leave payments?
Women in the workforce are legally entitled to benefits while they take time off to stay home and care for their baby, (as are their partners, if they choose to be the primary carer). These include parental leave, paid parental leave, and government parental leave. However, you can't be forced to take maternity leave.
Parental leave: As a new mum, you're entitled to a total of 52 weeks of unpaid leave to care for your newborn or adopted child if you've worked with your employer for at least 12 months. When returning to work, you're also entitled to the same position you held prior to leaving.
Paid parental leave: You can receive paid parental leave from your employer if you've worked with them for more than twelve months before the expected date of birth. You're allowed at least eight weeks of paid parental leave.
Government parental leave: If you earn less than $150,000 before tax, you're entitled to the national minimum wage of $641.05 per week for up to 18 weeks.
Below are some things to consider before you apply for a loan:
- Interest rates are currently at an all-time low, but you should be mindfull that it could change. When looking at applying for a loan, you should always think in the long term. Could you keep up with the repayments if they were to rise by 3%, for example?
- A low fixed rate is appealing, but if the market changes borrowers might find at the end of the fixed period that rates have soared, blowing their budget. You should always consider the prospect of interest rate changes.
- It is possible to reduce repayments while you're on maternity leave. Banks will allow you to reduce your home loan repayments – or in some cases, pause them completely – for a period of time. However, there are certain requirements that you must fulfil as well as specific documentation that you will have to provide. Some banks charge fees and need you to have had your home loan for at least 12 months.
- Keep in mind that in most cases, the loan still has to be repaid within its original term, so it's a good idea to plan ahead and make extra loan payments as a buffer.
- Set up a high interest savings account and transfer your expected mortgage payment each week. This will accelerate your deposit savings and also show if you can afford a mortgage.
Contact either Owun, Suzanne, Costa or Anthony on 02 9517 1818 or firstname.lastname@example.org to discuss your options. Or, if you feel like dropping in at our office, we are located at Suite 106, Flourmill Studios, 3 Gladstone Street, Newtown 2042. Be sure to share our blog on Facebook and Twitter and let others join the conversation!