Maternity/Paternity Leave and Mortgage Financing
Are you planning to buy a home this year, and you’re on maternity/paternity leave, or you’re planning to go on it? Then you’ll want to read this article.
What is Maternity/Paternity Leave?
Having a child is an exciting time. When you have a child, it’s important to take time off to care for and bond with your child, especially in the early years.
In Canada, women and men have the option of taking maternity or paternity time. Maternity/paternity leave is paid time off from your workplace to care for your newborn child. When you take maternity/paternity leave, the government pays you a portion of your average weekly earnings via Employment Insurance.
In Canada, you have two main choices. You can take a standard 12 months of maternity leave and receive 55% of your average weekly earnings. Or you can take extended 18-month maternity leave and receive 33% of your average weekly earnings.
On top of that, you may receive a top-up from your employer, up to 100% of your salary.
How does Maternity/Paternity Leave Affect My Mortgage Application?
That’s a good question. We outlined above the benefits you may receive from the government and your employer. However, this is separate and apart from your mortgage application.
Generally speaking, lenders will let you use your workplace income while on maternity/paternity leave, as long as you’re able to get a letter of employment from your employer stating your expected return to work date. How much of your base salary you can use depends on when you’re expected to return to work.
If you’re expected to return to work in fewer than 12 months, most lenders will let you use 100% of your base salary on maternity/paternity leave.
If you’re expected to return to work between 12 months and 18 months, most lenders will only let you use 60% of your base salary when on maternity/paternity leave.
Here are Some Other Important Things to Note
If you take an extended maternity leave, you may still be able to use 100% of your base salary. As long as you’re applying for a mortgage when your return to work date is fewer than 12 months away, you should be able to use 100% of your base salary.
Here’s something else to note. You’re usually limited to your base salary. You can’t normally use the 2 year average as you normally would and include variable pay, such as overtime and bonuses, unless you can make a strong case and get an exception from the lender.
Lastly, if your employer isn’t willing to confirm your expected return to work date in writing, this can lead to problems with mortgage financing. That’s why it’s important to confirm that in advance.
The Bottom Line
Did you have any other questions about mortgage applications and going on maternity/paternity leave? Our mortgage experts are here to help. Reach out to us today.