How to pay your mortgage while on maternity leave

There are many exciting moments as you prepare for the birth of your baby. A little less exciting, but nevertheless extremely important aspect, is to plan on how you can afford your mortgage while on maternity leave with a reduced family income. Managing the loan repayments may be challenging, even if you’re eligible to receive the government’s parental leave pay.

Before going on maternity leave, know your options and find strategies that can work for you. Some of the potential options could include:

Create a buffer

You can create a buffer by making additional payments on your home loan, which will be available in your home loan's redraw facility, and can be used to pay the mortgage while you are on maternity leave. Alternatively, you could deposit extra money into your home loan's offset account. If your loan doesn’t provide these options, you can contact the lender or your mortgage broker to look into setting them up.

Switch to interest-only repayments

You may be able to change your loan instalments to interest-only payments for one or two years. This can reduce the monthly cost of your mortgage while on maternity leave. However, because you won't be lowering your home loan's principal during this time, your mortgage may take longer to pay off, costing you more in interest, fees and charges over the long term. Also, some banks may charge a higher interest rate during an interest-only period, so remember to check before proceeding with this option.

Check for fixed interest rates

Switching to a fixed rate mortgage will allow you to know the exact amount you'll have to pay during your maternity leave period, which can help to reduce your stress and plan your family’s monthly budget. However, fixed-rate loans are often less flexible than variable-rate loans, so you may want to consider seeking advice from a mortgage broker before going ahead.

Pause the repayment

You may be able to ask your lender to halt the repayments or reduce the instalment amount for a period of three months to one year. The conditions for pausing the repayment vary from one lender to another, but some common conditions may include:

• Your loan account should be at least one year old, and you should have a reasonable track record of paying the instalments on time.
• You’ll have to show the lender how you’ll get back on track after your maternity leave. This means you may have to show evidence from your employer that you still have a job after your leave.
• The loan to value ratio (LVR) may have to be reduced to 90%, and you should own at least 10% of the home; however, this may not work out if home prices in general are falling.
• The repayment holiday may be available only if you’re ahead with the loan and have surplus funds to dip into during your maternity leave.

Affording a mortgage on maternity leave is not the only challenge you’ll have to deal with. If afterwards you plan to return to work only part-time, your income will reduce, and you’ll need to consider how to make the home loan instalment payments while your childcare and related expenses may increase. Consider talking to a mortgage broker to discuss the various issues and find the best solution for you and your family.

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