Commitments

Commitment vs Expense

Banks treat these two categories differently — and the line between them isn’t always obvious. Here’s how to think about it.

How commitments affect borrowing

For home loans and personal loans, it’s straightforward: whatever your required monthly repayment amount (RMRA) is, that’s what gets captured as an ongoing payment to be deducted from your income.

But here’s the twist — banks take a risk lens to everything. They don’t assess your repayments at the contracted amount. They build in a buffer.

Some lenders are willing to use the actual contracted repayment — they’re typically the ones who’ll lend you more. This is exactly where a broker earns their keep: matching your situation to the lender most likely to offer the best outcome on amount, speed, and rate.

Novated leases

Common as a salary deduction, a novated lease lets you minimise your taxable income while still paying for the commitment. Some lenders understand this — they’ll still deduct the commitment, but they’ll also let you use a tax-free income component, which can lift your borrowing capacity.

Credit cards — the hidden killer

Most people have credit cards for: emergencies, rewards points, or “got it years ago, never used it, forgot about it.” Here’s the catch — when a bank assesses you, they only look at the limit on the card, not the balance.

Two strategies to consider

Buying soon and need more borrowing capacity?

A broker can review your full financial picture, scan the lender market, and tell you the maximum you can realistically borrow. If reducing existing commitments would unlock more capacity, they’ll walk you through how.

Got equity already and want to relend?

Paying out and closing unsecured commitments will help increase your borrowing capacity (subject to available equity). Worth noting: if you do this, you’ll have the debt longer and probably pay more interest overall. Weigh that against your short and long-term goals before deciding.

HEM — the household expenditure measure

HEM is one of the most misunderstood parts of a loan application. Most people have never heard of it. It’s not a one-size-fits-all figure — banks calculate a minimum living expenditure based on:

Categories that sit outside HEM

Banks are required to assess these separately, and they can reduce your borrowing capacity:

• Private school fees
• Private health insurance
• Investment expenses
• Rental expenses

Need vs Want

Whether you’re a budget wiz or you dread looking at the numbers — if you’re about to take on a mortgage, a budget is non-negotiable. The five common ongoing costs banks classify as a “need”:

• Food — groceries (not eating out)
• Transport — car, fuel, registration, public transport
• Bills — electricity, water, gas, rates, phone, internet, insurances
• Dependent children
• Entertainment — within reason

A good broker can identify lenders who use lower minimum HEM costs — particularly helpful for borrowers who genuinely live frugally and shouldn’t be penalised for an averaged figure.