Children, or dependents, can impact your borrowing power in so many different ways, and effectively reduce your borrowing capacity. Owner-occupier home loans, for example, take into account if you’re single, married, and if you have children or other dependents. 

Factors such as the age of your children, how many you have and where they go to school (public schooling or private schooling) can impact your borrowing power.  Other costs, including private health cover, childcare, extracurricular activities, grocery bills and even the need to upsize your car, are all factors that lenders take into consideration when assessing your borrowing capacity. 

In short, having kids means you’re likely to have more financial commitments than couples or singles without kids, and for many Aussie families, this often means a lower disposable income. 

Don’t let this discourage you from being a homeowner. Having children might reduce your borrowing power, but it doesn’t rule out the ability to secure a mortgage. 

Borrowing power is typically calculated by looking at an individual or couple’s income in relation to their current debts and other financial commitments. Any existing equity is also taken into consideration. 

Lenders have their own assessment rate, which is based on their appetite for risk. As such, a person’s borrowing capacity may change from one lender to another, meaning it’s important to shop around for the best possible deal before deciding on a lender.

The most significant way to increase your borrowing power is to decrease other liabilities and expenses which may affect your ability to borrow. Cutting up credit cards, closing out personal loans, reducing the number of subscription services, and limiting non-essential spending can have a positive impact on your ability to secure a loan. 

It’s important to take into account things like Buy Now, Pay Later (BNPL), which can reduce spending large amounts at once, but also seriously affect your credit score if you do not make repayments on time. While BNPL can be useful for emergency purchases or expenses such as birthday gifts, these services should only be used on occasion. Consider them a credit line for all intents and purposes.

We, of course, want the best for our kids, and there will always be unavoidable expenses like childcare, dental visits, medical costs, clothing, education and many, many more to ensure we’re giving them the best shot at life.  

However, we all feel the pressure of inflation and the rising costs of living, both of which make it increasingly harder for Australians to keep up with repayments and bills. Consciously keeping your costs down and debt low (when possible) can greatly help increase your borrowing power, especially if you have children.

With $141 billion worth of fixed-rate mortgages set to expire this year, and an increasing number of investors looking to refinance their loans for better rates or improved cash flow, considering how dependents can also affect your ability to refinance is crucial. 

While having children or other dependents is an expense that lenders definitely consider when evaluating refinancing applications, it doesn’t mean having kids will stop you from being able to successfully secure a loan or refinance. It does, however, reinforce the importance of understanding your budget and fine-tuning where possible to keep the income-to-spending ratio in a positive position.

Any advice provided is general in nature and should be considered in line with your financial situation, needs and objectives.