Private Health Insurance and It’s Impact on Getting a Loan

To understand how Private Health Insurance impacts your ability to get a loan, we first need to explain the process of how lenders assess your living expenses.

For the bank to feel comfort about your ability to repay your current and proposed commitments, they want to see your current living expenses. This includes everything you spend on a month to month basis. Things that you cannot really go without. They are called Living Expenses, HEMS, GLEE and MLR’s. At the end of the day, it’s all the same thing, your families expenses.

Family units change in every customer application and not all consumers are as frugal or spendy as others, so whilst the banks have a benchmark (HEMS) set by the regulatory bodies, we must ensure we have accurately assessed and declared your living expenses.

Now, lets get to Private Health. Amongst other things, most lenders have taken the stance that Private Health is not calculated inside your living expenses and is an “additional” required cost, much like a loan repayment. Other items that are excluded from living expenses are: Child Support Payments, Body Corporate, Life and Income Protection Policies, Land Tax, Private School Fees and Investment Property Costs. These costs are considered above and beyond the minimum living expenses.

So…how does it impact you? Glad you asked! As an example, if your family unit spends approx $4100 a month for general living expenses and the bank considers your minimum expenses $4300 a month based on your incomes, lifestyle, post code and number of dependents in the family, the bank will use $4300 as the base line. If you hold Life and Income Protection and Health Insurance at $450 a month, then that is added to the bank minimum of $4300. Meaning, your declared expenses are $4750. The difference in borrowing capacity changes because your declared expenses are higher.

This is also the same if the bank considers your HEMS at $4300 a month but your last 6 months of statements average $5000 a month expenses, we must declare the higher cost to ensure you can maintain your living expenses once you buy your new property! Check out our other blogs to consider things to do before your Home Loan Application!