Your living expenses affect how much a lender is prepared to lend you. Lenders assess what your household spends alongside your income, existing debts and proposed home loan repayments. They may compare the expenses you declare with a household expenditure benchmark and information shown in your financial records.
Use our living expenses calculator to estimate your household expenses based on the number of adults and children in your household, where you live, your living arrangement and your lifestyle.Your result is an estimate. A lender’s assessment may differ because each lender applies its own serviceability policy.
Why do banks care about my living expenses?
Lenders need to determine whether you have enough income left after your existing commitments and living costs to meet the repayments on a proposed home loan.
This makes living expenses part of your home loan serviceability assessment. The assessment goes further than adding up groceries and utility bills. Lenders may consider expenses across categories such as:
- Groceries
- Utilities
- Transport
- Insurance
- Healthcare
- Personal expenses
- Phone and internet
- Education and childcare
- Recreation and entertainment
- Other regular household spending
Your spending pattern matters because some expenses are difficult to reduce quickly, while others are more discretionary. The distinction becomes important during a home loan assessment. A lender needs a realistic picture of what your household spends rather than the lowest figure that fits the application. Your living expenses are also only one part of serviceability. Income, credit limits, existing debts, dependants, proposed repayments and the lender’s assessment rate all affect the result.
How Do Banks Calculate Your Living Expenses?
Lenders generally assess your living expenses using several sources of information rather than relying on a single number.
These may include:
Your declared expenses
You provide an estimate of what your household spends across the expense categories requested by the lender.
Your financial records
A lender may review bank and credit-card statements available during the assessment and compare the transactions with the expenses you’ve declared.
A household expenditure benchmark
Lenders may compare your declared expenses with a benchmark such as the Household Expenditure Measure (HEM).
If your declared spending falls below the benchmark used by the lender, the lender may apply its benchmark figure instead. This is why reducing the number you enter on an application doesn’t necessarily increase your borrowing power. The lender still needs to assess a reasonable level of household expenditure. The exact treatment differs between lenders, so the same household expenses don’t always produce the same borrowing capacity across every lender.
How Will The Living Expenses Calculator Help Me?
The calculator gives you a starting point for estimating your household expenses before applying for a home loan.
It also helps you think about your spending according to your household circumstances rather than relying on a rough monthly figure.Use the result to:
- Estimate your household living costs.
- Compare different household and lifestyle scenarios.
- Prepare for the living-expense questions in a home loan application.
- Get a clearer picture of how much of your income remains for loan repayments.
Don’t treat the calculator result as the figure a lender will automatically use.
Your lender will complete its own serviceability assessment and may use different expense categories, benchmarks and lending rules.
A Lower Expense Figure Doesn’t Automatically Mean Higher Borrowing Power
This is an important distinction for borrowers using a living expenses calculator.
Suppose your household genuinely spends $4,000 a month but you enter $2,500 because you plan to cut back after buying a property. A lender doesn’t necessarily assess your application using the $2,500 figure.
It may compare your declaration with its benchmark and the information available from your financial records.
If the lender doesn’t accept the lower figure, your serviceability assessment will reflect a higher expense amount.
For this reason, use the calculator to build a realistic estimate of your spending rather than trying to find the lowest possible result.
Tips for using the calculator
Choose the options that best represent your current household. Include the adults and financially dependent children who form part of your household. Select a lifestyle category that reflects how you normally spend rather than how you intend to spend after taking out a home loan.
The calculator accounts for basic living costs such as groceries, utilities, phone expenses, transport and entertainment.
Rent and mortgage repayments are treated separately, so you should account for your housing costs when assessing your wider budget.
If you’re preparing for a home loan application, reviewing several months of transactions may also help you identify regular expenses that are easy to overlook.
Subscriptions are a good example. Individually, streaming services, apps, memberships and other recurring payments look small. Together, they form part of your regular household spending.
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What Is The Household Expenditure Measure (HEM)?
The Household Expenditure Measure, commonly called HEM, is a household expenditure benchmark used in home loan serviceability assessments.
It provides lenders with a reference point when assessing the living expenses declared by a borrower.
HEM isn’t a personalised household budget. Your actual spending may sit above the applicable benchmark because of your lifestyle, household circumstances and ongoing financial commitments.
This distinction matters when using an online living expenses calculator. Your calculator result estimates household expenditure. A lender still applies its own assessment methodology when deciding how much you qualify to borrow.
Why do banks use the HEM?
Lenders have responsible-lending obligations when assessing consumer credit applications. Living expenses form part of the information considered when determining whether a proposed loan is suitable and affordable for a borrower.
A household benchmark gives lenders another reference point when assessing declared expenses.
It also helps identify declarations that require closer examination.
For example, a borrower may declare unusually low household spending. The lender doesn’t have to accept that figure at face value. It may compare the declaration with its benchmark and other information available during the application.
HEM doesn’t replace the lender’s assessment of your circumstances.
What Are The Types Of Expenses In HEM?
Household expenditure is commonly divided into different categories so lenders can distinguish normal household costs from expenses that need separate consideration. The existing HEM framework on this page groups expenditure into basic expenses, discretionary expenses, and non-basic expenses.
- Basic expenses cover ordinary household spending.
- Discretionary expenses relate to lifestyle spending.
Some expenses sit outside the benchmark and need to be assessed separately. For a borrower, the category matters less than making sure the expense hasn’t been left out of the application.
What Expenses Are Not Included In HEM?
A household benchmark doesn’t capture every financial commitment a borrower has.
Expenses that may need separate consideration include:
- Rent
- Existing mortgage repayments
- Private-school fees
- HECS/HELP commitments
- Certain lease payments
- Child support and maintenance
- Some medical expenses
- Certain insurance expenses
- Professional fees
- Other ongoing financial commitments
The practical point is that passing a HEM comparison doesn’t mean the lender has finished assessing your expenses.
A borrower with significant commitments outside the benchmark may have less income available for a new mortgage than another borrower with the same income and household size.
This is one reason a living expenses calculator shouldn’t be used as a standalone borrowing-power calculator.
How is HEM calculated?
HEM is designed to provide a benchmark for household expenditure based on household characteristics.
The applicable benchmark may vary according to factors such as income, relationship status and the number of dependants.
You don’t normally need to calculate HEM yourself when applying for a home loan. The lender incorporates the relevant benchmark into its serviceability assessment.
What matters is how your declared expenditure compares with the figure the lender uses.
If your actual expenses are higher, the lender may assess the higher expenses rather than reducing them to the benchmark.
If your declaration is below the applicable benchmark, the lender may still use its benchmark for the assessment.
Does HEM Determine How Much I Can Borrow?
No. HEM is one input in a wider home loan serviceability calculation.
A lender may also assess:
Your gross and net income
- Personal loans
- Credit-card limits
- Proposed loan term
- Existing home loans
- Number of dependants
- Proposed loan amount
- Assessment interest rate
- Other debts and commitments
- Other lender-specific serviceability rules
This explains why knowing your monthly living expenses doesn’t tell you exactly how much you qualify to borrow.
Two applications with similar incomes and household expenses may still receive different borrowing-power results if their debts, dependents or other circumstances differ.
Lender policy also affects the calculation.
Banks Don't Rely On HEM Alone
A common mistake is treating HEM as the lender’s living-expense figure.
It’s better understood as a benchmark within the assessment.
Lenders still consider the expenses you declare and the financial information available to them. They also apply their own serviceability rules.
The lender then assesses your proposed mortgage repayments using its applicable assessment methodology rather than looking at household expenditure in isolation.
This creates an important distinction:
Your actual budget tells you what you feel comfortable repaying.
The lender’s serviceability assessment determines what it is prepared to lend.
Those two figures don’t always match.
Do Higher Living Expenses Reduce Borrowing Power?
Higher ongoing living expenses generally leave less income available to service a home loan. The size of the effect depends on your wider financial position and the lender’s assessment. For example, two households earning the same income may receive different borrowing-power results if one has higher childcare, education or other ongoing household costs.
The same principle applies to debts. A household with lower living expenses but substantial existing debt may have less borrowing capacity than a household spending more each month but carrying fewer financial commitments. Looking only at living expenses gives you an incomplete picture of borrowing power.
Should I Reduce My Living Expenses Before Applying For A Home Loan?
Reviewing your spending before applying helps you understand your budget and identify expenses you no longer need.
Don’t reduce your declared expenses simply to produce a stronger application.Your application should reflect your circumstances accurately. A lender may compare your declaration with other financial information and its expenditure benchmark.
If you genuinely change your spending habits before applying, keep in mind that lenders differ in how they assess recent reductions in discretionary expenditure. This is an area where the lender’s policy matters. A broker can assess the application against the policies of suitable lenders rather than assuming every lender will treat the change in the same way.
Why Your Living Expenses And Your Lender's Figure May Be Different
A borrower may calculate household spending carefully and still see a different expense figure used in the lender’s serviceability assessment. There are several possible reasons.The lender may:
- Use a benchmark higher than your declared expenses.
- Categorise an expense differently.
- Identify recurring spending that wasn’t included in your estimate.
- Treat an ongoing commitment separately from normal household expenses.
- Apply different rules to particular expenses.
A discrepancy doesn’t automatically mean your calculation is wrong.
It means your household budget and the lender’s credit assessment serve different purposes. Your budget measures what you spend. The lender’s assessment determines the expenditure figure it will use when assessing the proposed loan.
Want To Know How Your Expenses Affect Your Home Loan?
The calculator gives you an estimate of your living expenses. It doesn’t tell you exactly how a particular lender will assess them or what you qualify to borrow.
Home Loan Experts can assess your income, debts, living expenses and other commitments against lender serviceability policies to identify suitable home loan options. Call us on 1300 889 743 or complete our free assessment form to speak with one of our mortgage brokers.