What is the difference between a discretionary expense and a non-discretionary expense?

A customer recently asked…

"What is the difference between a discretionary expense and a non-discretionary expense"?

Here’s what it means.

Let’s start with a non-discretionary expense. This type of expense is essential for daily living, such as a mortgage repayment or rent, utilities and groceries. These are the expenses that are largely unavoidable, you have to pay them.

A discretionary expense, on the other hand, refers to non-essential expenses, such as travel or hobbies, restaurants, alcohol, tobacco, coffee and takeaway food. These are the expenses you do have a choice over, you can control them.

Another way to think about it is needs versus wants. Needs are the non-discretionary expenses and the wants are discretionary expenses.

When applying for a loan it is important to have a good idea of your monthly expenses, both non-discretionary and discretionary.

Non-discretionary and discretionary expenses will be taken into consideration when assessing your loan application. Tracking discretionary expenses separately from non-discretionary expenses makes it easy to see where, and to what proportion, discretionary expenses could be reduced if your spending needs to be cut back.

A great way to understand your non-discretionary and discretionary expenses is to create a monthly budget. MoneySmart.gov.au has a fantastic Budget Planner to get you started. Don’t forget it is important to account for non-discretionary spending first while setting a budget.

What is LVR?

The finance industry is a wide, wondrous world with a language all of its own. One of the many acronyms bandied about is ‘LVR’, which stands for ‘loan-to-valuation ratio’.

Here’s what it means.

Lenders use LVR to provide customers with a guide of how much they will lend against the value of a home. It is the loan amount required to purchase the home expressed as a percentage of the value of the home.

For example, if the home you want to purchase is valued at $420,000, and you need to borrow $100,000 to pay for it, the loan is 24% of the home’s value, making your LVR 24%.

LVR is important because different lenders and loan types have different maximum LVRs.

The higher the lender’s maximum LVR the more a lender will lend against the value of your home and vice versa the lower the maximum LVR, the less a lender will lend against the value of your home.

You can use the calculators below as a guide to how much you can borrow from Land Lease Home Loans.

Loan calculators

With two simple loan options, the loan to suit you will depend on your age, value of your home and the purpose of the loan.

For those of you over 50, still working or have an eligible income stream, and looking to buy a land lease home.

Lifestyle PLUS land lease home loan CALCULATOR

For those of you 65 and over, who own a land lease home and want to release equity or are looking to buy a brand new land lease home.

Lifestyle CAPITAL land lease home loan CALCULATOR

IMPORTANT NOTICE: This information has been prepared without taking account of the needs, objectives, or financial situation of any particular individual. Applicants should consider their own circumstances and, if necessary, seek professional advice. Applications are subject to loan approval criteria. Terms, conditions, fees and charges apply.

Land Lease Home Loans Pty Ltd ACN 642 684 053 is a Credit Representative 527929 of Mortgage Direct Pty Ltd ACN 075 721 434 Australian Credit Licence 391876.