The Hidden Mortgage Factors: How Childcare and Insurance Costs Can Affect Your Borrowing Power
A quick heads-up: The information in this article is designed as a general educational guide only and does not constitute personalised financial, tax, or legal advice. Because everyone's situation is unique (and bank policies change frequently), we recommend speaking with a licensed Financial Adviser to see how this applies to your specific circumstances. For full transparency on our terms of service, how we are remunerated by lenders, and any specific situations where a fee may apply, please read How We Get Paid.
When you apply for a mortgage, it is completely natural to focus entirely on interest rates and the size of your deposit. But behind the scenes, bank credit assessors are looking closely at something else that actually dictates your final approval: your everyday living expenses.
Under New Zealand's responsible lending laws (the CCCFA), banks have to make absolutely certain that any mortgage they give you is manageable. To do this, they apply internal formulas to figure out exactly how much "spare cash" you have left over at the end of the month.
The interesting part? Different banks treat your lifestyle expenses very differently. If you have kids in daycare or hold a fair amount of personal insurance, walking into the right bank can make a massive difference to how much you can borrow.
Here is a straightforward look at how lenders calculate those everyday factors, and how to navigate them so you get the best result.
How banks assess childcare (the double-dip effect)
If you have a child in daycare, you already know it is a significant weekly expense. Banks recognise this too. However, lenders differ wildly in how they factor this cost into your budget.
Some banks calculate your childcare expenses as a completely separate, additional cost on top of their own built-in minimum living expenses. Other banks take a much more flexible approach based on what you actually spend. We like to call the strict approach the "double-dip" effect.
Imagine a single parent who manages their budget very carefully, spending $1,000 per month on basic living expenses (food, power, clothing), plus $2,000 per month on childcare.
What about your personal insurance?
Childcare isn't the only expense banks look at closely. Monthly premiums for life, health, or income protection insurance are fantastic for protecting your family, but they also factor into your monthly outgoings.
Just like the childcare example, lenders treat insurance premiums very differently:
The three ways banks might look at your application
Because banks assess these two major expenses so differently, lenders generally fall into one of three categories when they review your application.
(While the banks don't actually use these names, here is how we categorise them behind the scenes to help our clients!)
- The Strict Approach (Bank A): Uses high internal baseline minimums, and then stacks both your childcare and your insurance premiums directly on top. This results in the most conservative borrowing limit.
- The Middle Ground (Bank B): Takes a hybrid approach. They might be realistic about your childcare (using your actual basic living expenses rather than an inflated minimum), but they still treat your insurance as a strict, separate cost that must be added on top.
- The Flexible Approach (Bank C): Uses your actual basic living expenses alongside your childcare costs, and considers your insurance to be absorbed into your normal household running costs. This approach generally maximises your potential borrowing power.
Try it yourself: the expense simulator
Use the interactive toggle below to see exactly how these three different bank policies process the exact same family profile, and how much it impacts the final borrowing capacity!
How we help you find the right fit
If you have a growing family or comprehensive insurance policies, walking directly into a single bank branch can limit your options. If that specific bank happens to use a highly conservative assessment method, you might be offered tens of thousands of dollars less than you would qualify for elsewhere.
At Home Loan Factory, we have access to the expense calculators and servicing policies across our panel of major lenders in New Zealand. Before we even submit your application, we run your numbers through the unique calculators of multiple different banks—strategically matching your specific lifestyle profile to the lender who will view your childcare and insurance expenses most favourably.
Are childcare or insurance costs featuring heavily in your budget? Get in touch with the team at Home Loan Factory today for a clear, easygoing chat about your options.
