For many Australians, a HECS-HELP loan is an invaluable financial tool that enables them to complete their university education without the burden of upfront tuition fees. However, while these loans offer great flexibility in repayment, they are still considered a financial obligation and can influence your ability to secure a home loan.
Understanding how HECS debt impacts borrowing power, whether it’s worth paying off before applying for a mortgage, and what steps can help strengthen your loan application can put you in a better financial position when entering the property market.
How HECS Debt Affects Your Home Loan Application
When you apply for a mortgage, lenders conduct a financial assessment, taking into account your income, expenses, assets, and liabilities—including any outstanding HECS debt. Although HECS operates differently from credit cards and personal loans, lenders still consider your annual HECS repayments as an ongoing financial commitment.
Since HECS repayments are deducted directly from your salary by the Australian Taxation Office (ATO), they reduce your take-home income—which is a key factor in determining how much you can afford to borrow. Even if you have no other debts, your lender will include HECS repayments when assessing your financial capacity.
Unlike traditional loans, lenders do not assess HECS based on the total amount owed. Instead, they focus on how much is deducted from your income each year.
How HECS Impacts Borrowing Power
HECS can affect your borrowing power by reducing your disposable income. When lenders assess a mortgage application, they consider your income and financial commitments to determine how much you can afford to repay. For most salary earners, HECS repayments are automatically deducted from your salary, lowering the amount of income available for mortgage repayments. Essentially, the more you contribute toward HECS, the less money remains for other financial obligations, which can result in a lower borrowing capacity.
Lenders also evaluate your debt-to-income ratio (DTI), which measures your total financial obligations compared to your gross income. A higher DTI suggests that a significant portion of your earnings is already allocated to existing repayments, making lenders more cautious about approving higher loan amounts.
Because HECS repayments are tied to income, their impact varies depending on how much you earn. Higher incomes result in larger HECS repayment percentages, which lenders factor into their affordability calculations.
Tips for Your Home Loan Application with HECS Debt
A HECS-HELP loan doesn’t have to be a barrier to homeownership. Here are some steps to strengthen your loan application while managing HECS debt effectively:
1. Check Your HECS Balance and Repayments
Since HECS is indexed annually to keep pace with inflation, it’s important to stay informed about how much you owe. You can check your HECS balance through your ATO portal or by calling the ATO Helpline at 1300 650 225.
2. Prioritize Paying Off High-Interest Debts
Lenders view credit cards, personal loans, and car loans as higher-risk debts than HECS. Reducing these debts can improve your borrowing capacity more effectively than paying off HECS early.
3. Increase Your Home Deposit
Increasing your home deposit size can offset the impact of HECS repayments on borrowing capacity. A larger deposit also improves your loan-to-value ratio (LVR), leading to:
- Lower interest rates
- Reduced or waived Lenders Mortgage Insurance (LMI)
- Stronger loan approval chances
4. Take Advantage of First-Home Buyer Schemes
Having HECS debt doesn’t prevent you from accessing government support when purchasing a home. Check your eligibility for grants, schemes, or incentives such as the Stamp Duty Concessions, First Home Owner Grant or the First Home Loan Deposit Scheme to assist with your home purchase.
5. Speak to a Mortgage Broker
A mortgage broker can assess your overall financial situation and provide tailored advice on:
- Whether paying off HECS will significantly improve your borrowing power
- Alternative strategies to increase loan eligibility
- Which lenders are more flexible in assessing HECS debt
Final Thoughts: Can You Get a Home Loan with HECS?
Yes! A HECS-HELP loan doesn’t prevent you from securing a mortgage, but it does reduce borrowing power by limiting how much of your income is available for repayments. Since lenders consider HECS deductions as an ongoing financial obligation, they may offer a lower loan amount compared to applicants without HECS.
Before making any financial decisions—such as repaying HECS early—it’s best to consult with a mortgage broker. They can help determine the best strategy for maximizing borrowing power and securing the right loan for your needs.
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