Home Loans with a HECS-HELP Debt

Does a HECS debt stop you buying a home

No. A HECS-HELP debt does not disqualify you from a home loan, and lenders see it constantly, most younger buyers have one. You can absolutely buy with a student debt, and many people do every year.

What it does do is reduce your borrowing power, because your compulsory repayment is money that cannot also go towards a mortgage. So the real question is not whether you can buy, it is how much you can borrow with the debt in place, and whether it is worth reducing it first. That is what the rest of this guide answers.

How lenders treat HECS-HELP

Lenders treat a HECS-HELP debt as an ongoing financial commitment, similar in spirit to any other regular repayment. Because you are required to repay a percentage of your income once you earn above the repayment threshold, that percentage is income the lender knows is not available to service your loan. So they build your compulsory repayment into their serviceability assessment and reduce your borrowing capacity accordingly.

The size of the impact scales with your income: the more you earn, the higher your compulsory repayment rate, and the larger the reduction. Lenders differ slightly in exactly how they apply this, which is one more reason the choice of lender affects your final number. See how much can I borrow for how serviceability works overall.

How much borrowing power it costs

This is where people are often surprised. Because the compulsory repayment is a percentage of your whole income and continues year after year, its effect on borrowing power can be several times the annual repayment itself. A commitment of a few thousand dollars a year can translate into tens of thousands of dollars less that a lender will lend you, because they project that cost across the life of the loan.

The exact figure depends on your income and the lender, so the practical step is to model your borrowing power both with and without the debt. If the difference is small relative to your goal, the debt is a non-issue. If it is large and you are close to the balance, paying some down might tip you over the line. Start with the borrowing power calculator.

Should you pay it off before buying

Not always, and this is where good advice earns its keep. Paying off a HECS-HELP debt removes the commitment and can lift your borrowing power, but the money you use to clear it is money you no longer have for your deposit or costs. For many buyers, a larger deposit does more for them than clearing student debt, because it reduces LMI and widens their lender options.

The sweet spot is usually when your balance is small and clearing it would meaningfully increase your borrowing power or push you over a serviceability line. When the balance is large, throwing your savings at it can leave you short on deposit and no better off. The right call is specific to your numbers, which is exactly what we model with you before you decide.

How HECS repayments work

Under the income-contingent system, you only make compulsory repayments once your income rises above the annual threshold, and the repayment rate steps up as your income increases. Repayments are usually withheld through your pay, and the balance is indexed each year rather than charged interest in the traditional sense.

For a home loan, what matters is that the compulsory repayment is tied to your current income, so a lender assessing you today looks at the repayment your income implies now. If your income is below the threshold, the impact on serviceability is minimal; as it rises, so does the effect.

Other debts usually matter more

It is worth keeping HECS in perspective. For most buyers, unused credit card limits, personal loans, car finance and buy-now-pay-later accounts do more damage to borrowing power than a student debt does, and they are far easier to fix. Lenders count your full credit card limit even if the balance is zero, so trimming cards you do not use can free up more capacity than paying down HECS.

Before you obsess over your student debt, look at the whole picture. Often the quickest wins are elsewhere, and a broker will point you to the changes that move the needle most for your situation.

First home buyers with a HECS debt

Having a HECS-HELP debt does not affect your eligibility for first home buyer support. You can still access a First Home Owner Grant on a new home, stamp duty concessions, and the federal First Home Guarantee for a low deposit purchase with no LMI, and in South Australia, HomeStart Finance. Your student debt only touches the borrowing power side of the equation, not the grants and schemes. Our first home buyer guide covers what you can claim.

How we help

We model your borrowing power with and without your HECS-HELP debt, so you can see in real numbers what it actually costs you and whether paying it down is worth it for your situation. We also match you to the lender that assesses your income and commitments most favourably, and make sure you are not leaving borrowing power on the table elsewhere. It costs you nothing, and it turns a vague worry into a clear decision.

Practical ways to protect your borrowing power

If a HECS-HELP debt is trimming your capacity, there are levers that often matter more than the debt itself. Reduce or close unused credit card limits, because lenders count the full limit as if drawn, even at a zero balance. Clear small personal loans and buy-now-pay-later accounts, which weigh on serviceability out of proportion to their size. Keep your everyday spending tidy in the months before you apply, since lenders review your actual statements.

Then model your position properly: work out your comfortable repayment on the repayment calculator, check your capacity with and without the HECS balance, and only then decide whether paying some down is the best use of your savings versus keeping it for your deposit. In many cases a larger deposit, which can reduce or avoid LMI, does more for you than clearing the student debt. The right answer is specific to your numbers, and that is the calculation we run with you.

Common questions