HOW DO KIDS AFFECT YOUR BORROWING POWER?
Having children can, of course, be a wonderful lifelong blessing, but needless to say that bundle of joy brings along with it a huge bundle of extra costs, especially over those child-rearing years. Everything from childcare to clothing, toys, transport, school fees, uniforms, stationary, sports fees, food costs and medical insurance, to name a few, needs to be paid for.
A number of studies here and overseas have shown that the average cost of raising two children to the age of 18 is somewhere between $13,000 and $16,000 a year (based on an average household income of $64,000 a year). The most expensive years are when kids are between 12 and 14 years old.
Because dependent children do come at a cost, this can impact your borrowing power in several ways. Lenders take into account all the things mentioned above, as well as the fact that having a child often means at least one parent no longer works full time. The Government’s Paid Parental Leave Scheme has been a godsend for helping new parents through those first few months, but it may not be recognised by lenders as income due to the fact it’s a fixed-term payment. Banks will also not recognise child support from an ex-spouse as a form of income unfortunately. Casual or part-time work is sometimes taken into account by lenders, but not always.
But don’t toss your toys out of the cot just yet. With the right help from your financial adviser, it may still be possible to get you into your family dream home. We can run through your personal situation and future goals, and give you tips on things you can do to maximise your chances of securing a mortgage that works for you. Even simple things like reducing your credit card limit can have a big impact because your bank treats your application as if your card is maxed out, even if it isn’t. A $25,000 limit on your card could reduce your borrowing power by up to $120,000. So, get rid of the plastic!
Our mortgage service is free, we can secure a better interest rate than your bank would offer, and we’ll help you structure your loan to pay it off faster. Plus, we’re even happy to pop over for a chat after the nippers are in bed!