You’ve just found out a baby’s on the way. Somewhere on the to-do list, behind nursery paint colours and prenatal appointments, is “sort out the home loan.” It’s a fair instinct to push that one down the list.
This is the case for not doing that.
Lenders see income very differently from how you and I do. To them, your borrowing capacity is a function of what you earn right now, not what you’ll earn over the lifetime of the loan. When parental leave shrinks your assessable income, your borrowing capacity shrinks with it. Sometimes dramatically. And the window to act on the pre-leave version of your finances is narrower than most people realise.
What lenders actually see when one partner goes on leave
Government-paid Parental Leave Pay is set at the National Minimum Wage: $948.10/week before tax (until 30 June 2026), rising to $1,004.90/week from 1 July 2026. For most professional households that’s still a significant drop from the working income, often less than half. Some employers top this up to a percentage of base salary for a defined period (commonly 12–18 weeks); others don’t.
Lenders treat parental leave income unevenly:
- Government PPL is usually counted, but at the actual paid rate
- Employer top-up is sometimes counted at face value, sometimes discounted, sometimes excluded entirely depending on the lender
- Post-top-up unpaid leave is generally not counted
A Canberra couple earning a combined $180,000 with one going on 6 months of leave often sees assessable income drop to $95,000–$115,000 during the leave period, depending on the top-up arrangement and lender policy. That translates to roughly $150,000–$250,000 less in borrowing capacity on a typical refinance.
Three real reasons to refinance before leave starts
1. Lock in your full borrowing capacity for a future move
If there’s any chance of upsizing in the next 12 months, a bigger home for the family, or a move closer to family support, your borrowing capacity assessed now will be substantially higher than the same assessment 6 months from now. Even if you don’t move immediately, pre-approval keeps your options live.
2. Access equity now, while income’s at full strength
Renovating the nursery, building an extension, or paying down high-interest debt (credit cards, car loans) before leave starts removes financial pressure during the months you’ll have less coming in. Equity access assessed at full income gets you a cleaner approval than the same request mid-leave. See the three pathways to access equity for a renovation for the structural options.
3. Lock in a better rate while you have lender choice
Refinancing for a lower rate is hardest during a reduced-income period, fewer lenders will say yes, and the ones who will may offer worse rates. Refinancing at full income gives you the full lender panel and the best rate position. See the six signs it’s time to refinance to check whether you’re already due.
Why the 4-6 month window matters
Lenders typically want to see 2-3 recent payslips at full income before approval. From application to settlement is usually 4–6 weeks. Add buffer for the property valuation and document gathering.
That puts the practical window at 4–6 months before leave starts. Start earlier than that and the assessment may go stale before you settle. Start later and you risk the income drop landing mid-application.
For second or third pregnancies, the window matters even more, short employer tenure since returning from previous leave can complicate income verification.
Pregnancy on the horizon? A 15-minute call confirms your full-income borrowing capacity, identifies whether equity access makes sense before leave starts, and tells you the realistic timing for your situation.
Book a 15-min broker call → · 0461 117 777
What to do this week
If you (or your partner) are heading into parental leave in the next year:
- Calculate your current equity, current property value minus loan balance
- Check your rate against current market, even a 0.3–0.5% gap is worth knowing about
- Book a 15-minute broker call, we’ll run your full-income borrowing capacity and identify whether anything’s worth doing before leave starts
The earlier the conversation, the more options stay on the table.
Common mistakes that cost families money
The patterns we see most:
- Waiting until after the baby is born, income has already dropped; the lender pool has narrowed and rates worsen
- Assuming employer top-up will be treated at face value, different lenders treat this very differently
- Skipping the nursery renovation now and trying to do it on reduced income six months later
- Forgetting that pre-approval lasts 90 days, and can be extended without restarting the process
If you’d like the personalised version, your borrowing capacity at full income, equity position, refinance options, and realistic timeline, book a 15-minute call with Harbir.
Or call 0461 117 777 | Email info@creditstar.com
Frequently Asked Questions
Q1. How does parental leave affect borrowing capacity?
Ans. Lenders assess on current income. Parental leave reduces your assessable income, often by 40–60% depending on top-up arrangements, and your borrowing capacity reduces in proportion.
Q2. How long before parental leave should I refinance?
Ans. The strategic window is 4–6 months before leave starts. That allows enough time for application, valuation, and settlement at full income.
Q3. Will my employer top-up count as income for a home loan?
Ans. It depends on the lender. Some count top-up at face value, some discount it, some exclude it entirely. A broker can match you to lenders with the most favourable treatment.
Q4. Can I get pre-approval while on parental leave?
Ans. Yes, but options narrow. Your full-income payslips may still count if they’re recent enough, but assessable income for borrowing capacity drops as the leave period extends.
Q5. Should I access equity before parental leave?
Ans. If you’re planning a renovation, nursery build, or want to pay down high-interest debt, doing it pre-leave is usually cleaner, your full income makes for an easier approval.
Q6. Does government parental leave pay count as income?
Ans. Yes, lenders usually count it, but at the actual rate (the National Minimum Wage, currently $948.10/week before tax, rising to $1,004.90/week from 1 July 2026), which is still well below most professional incomes.
Q7. What if I’m already on parental leave, is it too late?
Ans. Not necessarily. Some lenders are more flexible than others on leave income. A broker can identify which lenders will still consider your file, though options are narrower than pre-leave.
Q8. Can I refinance to lower repayments before going on leave?
Ans. Yes, and often a smart move. Lower repayments during the leave period reduce financial stress. Refinancing to a better rate or extending the loan term are both options.
Q9. Does my partner’s income offset the impact if they’re not going on leave?
Ans. Partially. The partner still working at full income offsets some of the borrowing capacity drop, but most lenders still apply a percentage discount or family expense increase for the leave period.
Q10. How long does refinancing take if I’m 4–6 months from leave?
Ans. Typically 4–6 weeks from application to settlement. Starting 4–6 months out gives you a comfortable buffer and the option to pause if circumstances change.
This guide is general information only and doesn’t take into account your personal situation. Lender policies on parental leave income vary significantly, confirm with a broker before relying on any specific assumption. For advice specific to your circumstances, book a call with Harbir Singh, Credit Representative 506564 of BLSSA Pty Ltd ACN 117 651 760, Australian Credit Licence 391237..
