Can You Refinance if You’re Unemployed, on Parental Leave, or Your Income Has Changed?

Refinancing a home loan depends on one key question: can you afford the repayments? When your employment or income changes, that question gets more complicated.

Here’s how lenders look at refinancing when you’re unemployed, on parental leave, or earning less than before.

1. Can You Refinance If You’re Unemployed?

In most cases, no. If you’re unemployed and don’t have a stable income source, refinancing is unlikely.

Lenders must follow responsible lending rules. They won’t approve a new loan unless they believe you can make the repayments. If you’re between jobs and have no regular income, you simply won’t meet the test.

There are exceptions, like if you have a partner with strong income, or significant investment income, but they’re rare.

If you’re currently unemployed, your best option is usually to stick with your existing loan. If needed, talk to your lender about hardship options or ask if they’ll reduce your rate.

Once you’re working again, and have a few months of payslips, you can look at refinancing.

2. Can You Refinance While on Parental Leave?

Yes, but it depends on your situation.

Many lenders will consider your application if you’re on approved leave and have a clear plan to return to work. They’ll want to see:

• A letter from your employer confirming your return date and salary
• Any income you’re receiving during leave (such as paid parental leave, annual leave, or government support)
• Your partner’s income, if applicable
• Your current expenses, including any increase from having a new child
• Your savings buffer, if you’ve set money aside to cover repayments while on leave

Some lenders will use your full return-to-work income in their assessment. Others will apply a discount or require that your household income can cover the loan in the meantime.

The main goal is to show that your income will return and that you can manage the loan in the interim.

Not all lenders take the same approach. A mortgage broker can help you find one that regularly works with borrowers on parental leave.

3. Can You Refinance with Reduced Income?

Yes, if your new income is still enough to meet lender servicing rules.

If you’ve taken a pay cut, reduced your hours, or lost access to overtime, you might still qualify. But you’ll need to pass the lender’s serviceability test, which usually involves proving you can make repayments at a buffer rate (typically 3% above your actual rate).

Many people run into trouble here. Your repayments might be manageable in real life, but on paper, the numbers don’t work.

If the drop in income is recent or temporary, some lenders may be more flexible. Others won’t be. The difference between approval and decline often comes down to how close your situation is to the line—and which lender is assessing it.

What If You’re Currently Not Eligible?

If you can’t refinance right now, you still have options.

1. Negotiate with your current lender.
   Ask them to review your rate. Explain your situation and highlight your good repayment history. Even if you can’t switch, they may still offer a better deal to keep you.
2. Add a co-borrower.
   In some cases, adding a partner or family member who earns regular income can help. This isn’t a step to take lightly—they’re on the hook for the loan too—but it can make a difference in borderline cases.
3. Build a stronger case.
   Focus on keeping your repayment record clean, reducing your loan balance, and rebuilding income. Even a few months of consistent income can turn things around.
4. Use a broker.
   Some lenders are more flexible than others. A good broker will know which lenders are open to parental leave cases or can handle reduced income scenarios. That insight can save you time and multiple applications.

What About Special Refinance Programs?

Several major banks have introduced simplified refinance options in response to rising rates.

These programs often use a reduced buffer (for example, 1% instead of 3%) if you’ve had a good repayment history and aren’t looking to borrow more.

They don’t always apply if you’re unemployed, but they can be helpful if your income has dropped or hasn’t kept up with interest rates.

Ask your broker whether any lenders are currently offering this type of pathway.

Key Tips by Situation

1. Unemployed:
   Refinancing is not likely to be approved. Focus on keeping up with your current loan and improving your income position before applying again.
2. Parental Leave:
   Possible, but requires clear documentation and a strong return-to-work plan. A broker can help you target the right lender.
3. Reduced Income:
   Possible, depending on the numbers. Each lender calculates things differently, so shopping around (or getting help) matters.

Final Thought

Your ability to refinance isn’t just about your past, it’s about what you can afford going forward. If you can clearly demonstrate that, many lenders will work with you, even if your income has changed.

If you can’t show that yet, you’re not stuck forever. Revisit the idea once your income stabilises or your situation improves.

In the meantime, don’t be afraid to ask your current lender for a better deal. You don’t have to refinance to get relief.