Private school fees and borrowing capacity: your options

Private school fees can reduce your home loan borrowing capacity, even on a good household income. We have lenders that can assess those fees differently. Teachers Mutual Bank Group may include them within your overall living expenses, while Macquarie may consider excluding them if you meet its conditions.

Before you lower your property budget, I’d check who pays the fees, how many school years are left and what savings you’ll have after buying. We can compare suitable lenders and work out whether those details change your borrowing options.

With many regular banks, private school fees are added separately to the household living expense assessment. In the client comparisons below, Teachers Mutual Bank Group assessed those fees within overall living expenses. This was one factor in the higher borrowing figures.

The fees still need to be declared and covered in your budget. Any loan is subject to the lender’s approval and needs to make sense for your financial circumstances. If you’re in a similar position, speak with us. We can check whether this approach suits you.

You may qualify through another brand in the group. We have compared UniBank home loans and Firefighters Mutual Bank home loans for clients in this position. Each brand has membership requirements, so we check which one you can use.

These clients went on to settle their loans. School fees were only part of the picture. Some also had bonus income that was not included in the borrowing calculation, or had received pay rises. We needed to look at each family’s full budget and the repayments before recommending a loan.

Sarah and James wanted to buy a $1m investment property. Their school fees were limiting the amount regular banks would lend. I compared those lenders with UniBank, part of Teachers Mutual Bank Group.

We arranged a $200k equity release against their existing home and an $800k investment loan through UniBank. Both loans settled. Buying costs needed separate savings.

Both loans had to fit the overall budget, along with their existing home loan. Splitting the borrowing does not remove any debt or school fees from what needs to be disclosed. We check the full plan with the lenders before proceeding.

Ben and Emma’s updated budget included private school fees and private health insurance. With those costs added separately, the regular bank we checked would likely limit their purchase budget to about $900k.

Firefighters Mutual Bank, part of Teachers Mutual Bank Group, included those costs within general living expenses in our comparison. After assessing their full financial position, the lender approved the loan for their $1m purchase, which went on to settle.

This comparison was about the price they could buy at. Their deposit, equity and buying costs also affected the loan they needed. Because they were using equity from an existing property, we also needed to compare moving the existing lending across.

Macquarie can consider excluding private school fees where applicants have enough savings to cover the remaining schooling years, or where school fees are the purpose of a cash-out application. Cash-out means borrowing extra money against a property for a stated purpose.

This is something we can check for you. It still needs lender approval, and your income, deposit, debts and other expenses must support the loan. We would also compare the rate and fees with other suitable options.

For Matt and Kate, our comparison showed about $1.4m in borrowing capacity with regular banks including the school fees. Macquarie’s figure was about $1.6m, assuming their available cash could cover the remaining fees.

That was a $200k difference before considering any changes to their other debts. Closing a credit card or paying out a car lease could change the figures again, so we kept those as separate options in the comparison.

Say you have $200k in savings and school fees of $30k a year for another 4 years. At today’s fees, that is $120k still to pay.

You cannot spend the same $120k on the house deposit and keep it for school fees. I’d work through the buying costs and the cash left afterwards before relying on this option.

Allow for fee rises and extras such as uniforms, devices, camps and transport. The lender needs to be satisfied the available savings cover the remaining fees. An account balance on its own does not explain how you plan to fund both the home and school.

Lenders check whether your income can cover the loan repayments after household expenses and other debts. They usually compare your declared everyday living costs with a household spending benchmark, often called HEM. The higher figure is generally used for the costs covered by that benchmark.

Private school fees commonly sit outside that comparison and are added separately. Spending less on groceries does not automatically cancel them out. Fees of $30k a year are another $2,500 a month to allow for in the assessment.

That is a dollar-for-dollar reduction in the monthly money available in the calculation. It does not mean your maximum loan falls by just $30k. The effect on the loan amount depends on the lender’s rules, the assessment interest rate, the loan term and your other commitments.

Having only a few school years left is worth raising. A lender may still include the current fees in its affordability calculation unless it accepts a different treatment. Fees finishing soon does not automatically mean they can be ignored.

If you want to improve the rest of your application too, our borrowing power guide explains other commitments to review before applying.

You may be able to increase your home loan or refinance to fund school fees, subject to approval. Equity is the difference between your property’s value and what you owe. The amount you can actually borrow also depends on the lender’s valuation, lending limit and your ability to repay.

I’d compare using existing savings first. Borrowing can spread the payments out, but it adds interest and puts the debt against your home. You could still be paying for school long after your children have finished.

Take $120k borrowed at 6% a year, with monthly repayments covering both the loan and interest. Changing the repayment term makes a large difference:

The 30 year option lowers the monthly repayment by about $1,600, but adds about $119,810 in interest if you take the full term to repay it. That is why I’d ask what repayment you can sustain and when you want this part of the debt cleared.

These figures assume the whole $120k is borrowed upfront, the rate stays at 6%, and there are no fees, offset savings or extra repayments. They show the cost of the term, not a current lender offer. Drawing funds gradually or keeping them in an eligible offset would change the interest cost.

A separate loan split can make the school fee debt easier to track. Ask about a shorter term or extra repayments, and check the conditions before committing. If you refinance the existing mortgage as well, compare its costs over the same remaining term so a fresh 30 year loan does not disguise the extra interest.

Our home equity guide explains access to equity, and our refinancing guide covers the costs of changing lenders.

Tell us who pays the school, how much they cover and how long the arrangement is intended to last. Bring evidence of payments and the funding arrangement. We can check what the lender will accept.

Help from family does not automatically remove the expense. If the money is a loan you must repay, that repayment matters too. Think about how you would cover the fees if the support stopped.

If your child is enrolled to start private school next year, include that in the discussion even if the fees are not on your bank statements yet. We need the budget you expect to live with after settlement.

For a child close to finishing, bring the remaining fee schedule and final school year. If fees have been prepaid or a scholarship applies, bring the documents showing the amount and period covered. We can then ask the lender how it will assess the remaining cost.

Start with your annual fees, the school years left for each child and your savings balance. Tell us whether you are buying, refinancing or looking to fund the fees. We can then work out what else is needed.

You do not need to decide to borrow for school fees before speaking with us. We can check whether the savings you already have support a different assessment, whether a smaller loan is more comfortable, or whether waiting would put you in a better position.

Lenders generally pay us commission when a loan settles and may pay an ongoing trail commission. In most circumstances, we do not charge a customer broker fee for residential home and investment loans. We explain any fee that applies and our commission before you proceed.

School fees are one part of your borrowing assessment. Our income and employment hub covers the pay lenders can count. For the other side of your budget, see how HEM works and ways to improve borrowing power.