02 Aug 2021

Fair Calculation of Household Expenses

Lender's Mortgage Insurance: 3 Things You Need to Know


If you are applying for a home loan in Australia, chances are the status of your application will rely on one tool that most lenders use to calculate your borrowing power: the Household Expenditure Measure. While this tool is widely used, it may not be a fair representation of how much you spend. This inaccurate calculation could either leave you struggling with repayments you cannot afford or deny you a home loan you can afford.


What is the Household Expenditure Measure (HEM)? 

The HEM is a guideline banks use for calculating living expenses based on household size. It does not take into account any non-essential living expenses you can cut to save money. It does, however, take into account your location, the number of dependents you have, and your lifestyle. HEM is determined by taking the median amount spent on absolute basics for your lifestyle, location, and family size and adding it to the 25th percentile of the amount spent on items classified as discretionary, such as takeaway food, childcare, and recreation. 


What is the Problem with Using HEM?

HEM doesn’t factor in non-essential expenses, which does affect how much you spend every month. If you have a lot of non-essential costs, you could be stuck with a loan you cannot afford to repay. 


For a fair calculation of your household expenses when applying for a home loan, contact Mortgage House. Instead of using a standard benchmark, we will look at your financial statements to determine how much you spend on average every month. In addition, we will take a complete look at all your income to get an accurate picture of how much of your total income you spend on expenses every month and how much extra you have leftover. Then, we will help you find a home loan that reflects this accurate picture. 


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