The Higher Education Contribution Scheme (HECS) is a necessity for many Australians that pursue tertiary qualifications, allowing the cost of tuition to be paid off after a certain income threshold is met. If you’ve got a student loan debt, such as HECS or FEE-HELP, you may be wondering if this will impact your ability to obtain a home loan. In this blog we will examine how your HECS debt may come into play when organising a home loan, and tips to minimise its impact.
Does having a HECS debt affect home loan applications?
Rest assured that having a HECS or FEE-HELP debt certainly does not immediately make you ineligible for a home loan. Many homeowners in Australia have secured home loans with an outstanding HECS debt, and in most cases it shouldn’t pose a significant issue. However, there are a few ways in which your student loan may impact your application depending on your situation.
Student loans may impact your borrowing capacity
Because your HECS debt will be included when evaluating your overall financial health, it may have some impact on your total borrowing capacity. Having a HECS or FEE-HELP debt reduces what your lender will consider disposable income, which then reduces the amount that you’re capable of repaying on your mortgage.
Your credit score will be considered
Although having a HECS debt is extremely common and not necessarily frowned upon, your lender will of course consider your overall financial history and credit score. Demonstrating timely repayments of your student loans will be beneficial for your home loan application, as it exhibits good financial behaviour.
A higher household income means a higher HECS repayment
Having a high household income is a big step in the right direction for securing a home loan. However, since the amount of HECS or FEE-HELP you repay is on a sliding scale with your income, your lender will need to take into account any large debt repayments and how this may impact your ability to meet mortgage repayments.
Tips for managing HECS debt when applying for a home loan
Reduce overall debt
Wherever possible, reducing your overall debts can be a great way to improve how your finances appear to a lender. Even paying off smaller debts can be an easy way to offset the potential impact of your HECS debt.
Plan for the future
For many Australians, student loans aren’t going anywhere quickly. You should expect and plan for repaying your HECS or FEE-HELP debt for the immediate future and how this may impact your mortgage repayments.
Seek advice from a mortgage broker
Discussing your HECS debt and overall financial situation with a mortgage broker can put you at ease while giving you a realistic idea of how your student loan could affect your home loan journey.
Depending on your financial situation, your HECS debt may or may not have a noticeable impact on your home loan process. Speaking with a mortgage broker about your concerns and financial position is a great way to get a better idea of how your student loan could affect your home loan application. Our team of expert mortgage brokers can help you with your home loan needs. Book an appointment with one of our Borro brokers today or call the team on 1300 1BORRO.
