In short? Your HECS debt will impact your borrowing power.

Should you try to pay it off before getting a home loan? Well, this is where things get a little bit more nuanced...

Here’s some good news to kick us off – indexation doesn’t really impact your borrowing power or home loan application.  

Why not? Well... because no matter the size of your total HECS debt (which increases with indexation), your repayments are set as a certain % of your income.

And it is the size of your HECS repayments themselves (not how many you have left) that the bank will look at with your home loan application. Yep!

So indexation doesn’t play a role in your borrowing power, but your HECS repayments do...

The general rule of thumb is that your maximum borrowing power will reduce by around 10x the value of your annual HECS repayments.

Now, how do you know if paying off your HECS debt is the best approach for you?

Here are a few factors for us to consider:

• What’s your current borrowing power and how much do you need/want to borrow?
• Do you have other debts (car loans, personal loans, or credit cards)? Paying these off might have a greater impact (not all debts are created equal) on your application and borrowing power.
• How much HECS debt do you have left?
• Do you have enough (or more than enough) saved up for a deposit and other fees?
• What does your ‘serviceability’ look like (money going in and out)?

For example – if you have a small HECS debt, and more than enough saved up for your deposit, paying it off might be a great move.

But on the flip side... if your HECS debt is still hefty and you just have the amount you need for your deposit, keeping your HECS debt as is might be your go-to move.

Your best bet? Line up a chat with a home loan expert (happy to help) to get a good snapshot of your current situation and review your options.

All the best,

Vanessa

Vanessa Grieves
Finspo Home Loan Expert