What is HEM? How living expenses affect your home loan

What is HEM? In home lending, it is a benchmark used to check household living expenses. It can help explain why entering a lower spending figure does not always increase your estimated borrowing power.

What is HEM actually measuring?

HEM stands for Household Expenditure Measure. The Melbourne Institute develops it using household-spending research, with quarterly updates that account for inflation. It estimates a reasonable lower level of spending for different household types, income levels and locations.

It is a benchmark, not a personalised budget or a record of what you actually spend. Rent and mortgage repayments sit outside the HEM measure. The Melbourne Institute's explanation of HEM sets out the broad categories behind it.

Why your actual expenses still matter

APRA's mortgage-lending guidance expects banks to use the higher of declared living expenses and an appropriately adjusted benchmark. So higher actual spending should not disappear from the assessment just because a benchmark is lower. Spending less does not necessarily mean the bank will use your lower figure either.

Use a realistic ongoing budget, not your cheapest month. Allow for annual bills, school costs and other irregular spending, converted to a monthly amount. The aim is to understand what you can manage, not find the smallest number that fits.

How the CPHL calculator handles expenses

Our borrowing-capacity calculator uses CPHL estimated living expenses. This is our own approximate model, based on household income, adults and dependent children. It is not an official HEM figure or a promise to match a particular lender.

There are two monthly expense fields. We compare your everyday expenses with our benchmark, use the higher amount, then add your additional ongoing expenses in full.

Everyday living expenses

Include groceries, clothing, personal care, utilities, council rates, ordinary home maintenance and main-home strata/body corporate fees. Also include home, contents and car insurance, transport, phone and internet, subscriptions, recreation, ordinary holidays and pets.

Childcare paid after subsidies, public school costs, out-of-pocket study or professional fees, and medical, dental and pharmacy costs also belong here. Exclude HELP repayments and personal insurance premiums, which are handled elsewhere.

Additional ongoing expenses

Include private school costs, private health, life, income-protection and personal-accident insurance, child support or maintenance, land tax and other regular commitments not entered elsewhere. Childcare is already in everyday expenses, so do not add it again here.

A simple example

Under our current model, two adults and two children with $250,000 annual household income have a benchmark of $5,650 a month. If they enter $5,000 of everyday expenses and $1,000 of additional expenses, the calculator uses $6,650.

If their everyday spending is $6,000 instead, it uses $7,000 including those additional expenses. These are illustrative CPHL figures, not a lender's decision.

Count each cost once

Existing loans, credit card limits and HELP are assessed separately. Continuing rent or board, investment-property costs and secondary-home costs also need to be captured. Follow the calculator's field instructions and do not enter the same cost twice.

Count the people in your household, not just the borrowers. A partner who is not on the loan still has living expenses. Multiple households, adult dependants or complicated shared-care arrangements need an individual review.

Why another lender may give a different answer

Living expenses are only one part of borrowing capacity. Income treatment, existing debts, assessment rates, loan terms and lender policies also matter. Some lenders may assess your capacity higher and others lower than this guide.

Use our calculators as a starting point. For an assessment of your circumstances, book a 15-minute discovery chat and we can work through the numbers together.

About Shane

I'm Shane Stewart, owner and Senior Mortgage Broker at Clear Path Home Loans on the Gold Coast, with a particular focus on medical professionals. My wife, Dr Elize O'Reilly, is a paediatric immunology and allergy specialist. That gives me a personal connection with medical families, alongside my work assessing their lending. Read more about Shane and CPHL.

General information only, accurate as at 8 November 2026. Calculator results are indicative, not a loan approval or a substitute for an individual assessment. Lending criteria and circumstances can change.