Managing your mortgage on parental leave

There’s no avoiding it, having children means a major reorganisation of your life. Some things you can’t prepare for – nobody can predict if your baby will sleep through the night or wake every hour on the hour. But you can make a plan for your money and managing your mortgage.

Your financial life is going to change. It’s likely your family will need to adjust to a reduced income and to increased spending. Kids are expensive!

The good news is, if you plan and prepare, you’ll be well placed to survive and thrive. Play your cards right, and this could be an opportunity to take control of your finances and set you and your whole family up for a smart financial future.

Make a plan

Who will be the primary carer for your baby?

The days of assuming mum will be the primary carer are over. Take a look at your work circumstances and entitlements, including whose employer has the best parental leave conditions, flexibility, a family friendly workplace, and proximity to (available) childcare.

Remember, whoever becomes the primary carer will earn less and have less superannuation for retirement.

How will you manage your mortgage?

Before the baby is born or your adoption process is finalised, put every extra dollar you can into your mortgage and get ahead on your payments (including overtime, tax returns and gifts). Try to build a buffer so that if there are any financial hiccups, your mortgage will be paid.

When your new family member arrives, try to drop your mortgage payments to the minimum amount. But if you are on the same salary because of parental leave via work, don’t drop your payments until you have to.

Take the opportunity to shop around – are you getting the best deal on your mortgage? Do your research and check out features that may help you manage on a reduced income. If you think refinancing might be an option, don’t forget to consider exit fees from your current loan and application fees for a new one.

It might also be time to talk to your lender about interest rates. Interest rates are at an all-time low now, but they are unlikely to stay that way. Is now the best time to change to a fixed rate, or change up your loan structure to a combination of fixed and variable rates?

What changes can you make to your spending habits?

If you don’t have a budget, now is a good time to set one up! Use a budget planner to get started, and see for yourself exactly how much money is coming in and where it disappears to each week.

If you use direct debit to pay bills and subscriptions, a budget refresh is a good time to look through your account and double check exactly how much you are paying to who. It’s easy to lose track of your monthly expenses, especially automatic payments. If you find some things you don’t need or can do without, cancel them and boost your budget.

The day-to-day spending check in leads nicely into a conversation about financial goals and the ‘big stuff’. Get clear on any major purchases coming up and decide on the best time to make changes to your mortgage or look into debt consolidation. Ideally, these are conversations you can have before your family grows, as some lenders may not approve a loan application while you’re on parental leave, even if you have paid parental leave and a guaranteed return to work date.

What support are you entitled to?

Most employees are entitled to 12 months unpaid parental leave when a child is born or adopted, with a guaranteed return to their previous position and conditions. An employee must have been working for their employer for 12 months before taking leave.

You or your partner may also be eligible for paid parental leave through the Australian Government’s Paid Parental Leave Scheme. This is an 18 week payment, and you are eligible if you are the primary carer of a newborn or newly adopted child, individually earned less than $150 000 in the last financial year, are on leave or not working while receiving the payment, and can meet the requirements of the work test.

Your employer may also provide paid parental leave as part of your workplace benefits. Leave provided by your employer doesn’t impact your eligibility for the Australian Government’s Paid Parental Leave Scheme – you can be paid both. There is no obligation for businesses to offer maternity/paternity leave, but it is built into many workplace agreements these days. For example:

The Australian Government provides a Dad and Partner Pay, a payment of $719.35 a week for up to two weeks while you’re on unpaid leave to care for your new child.

The Australian Government also has a Newborn Upfront Payment and Newborn Supplement which you may be eligible for if you are not getting Paid Parental Leave for your child.

Let’s talk choices

The last thing you want to be stressing about as your family grows is where your next mortgage payment is coming from. Our experts are here to help you make plans that suit your family. 

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