What Are Monthly Expenses Composed Of?

Clients and potential borrowers need to understand the various factors that can influence their borrowing capacity and potential for becoming approved for a home loan. Mortgage brokers, lending specialists, and banks will look at certain aspects of an individual’s finances to calculate borrowing power, including living expenses, income, and debt. 

Monthly expenses are composed of a variety of factors, including the following fixed and variable expenses:

1. Rent or mortgage 
2. Groceries
3. Household maintenance
4. Car repayments
5. Bills
6. Childcare
7. Entertainment
8. Retirement preparation
9. Personal care: doctors visits, prescription medications, clothing, hygiene products
10.  Saving for large purchases

Fixed expenses are expenses that are less likely to change from month to month, like car repayments, rent or mortgage payments, and monthly bills. Variable expenses are expenses that fluctuate from month to month depending on outside factors, such as personal care, childcare, entertainment, and grocery expenses. 

Some clients may request assistance with budgeting, so being knowledgeable about the various elements that need to be factored in can help you successfully create an easy-to-follow budget that encaptures all necessary elements. Budgeting can help your clients to successfully reach their financial goals, whether that be retirement preparation, purchasing a new home, or renovating their existing home. 

Mortgage brokers and banks calculate potential borrowing capacity by subtracting living expenses and debt repayments from their client’s overall monthly income. Clients find it extremely helpful to have a broker or lending specialist who understands the various expenses that will be included in the calculation of borrowing capacity.