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Does a HECS-HELP debt affect your home loan application?

Having unpaid HECS or HELP debt probably won't derail your home loan application. But your lender will look at it and the debt will lower your borrowing power.

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Will my HECS-HELP debt hurt my home loan application?

For most borrowers, having a HECS-HELP debt doesn't mean your home loan application will be rejected. Because repayments come out of your salary automatically (if you're earning above the income threshold), it doesn't affect your income in the way other debts do.

But your debt is factored into your debt-to-income ratio (DTI). That means your overall debt position relative to your annual gross income before tax. HECS-HELP debt can therefore limit your maximum borrowing capacity, even if it's unlikely to derail your whole application.

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The best debt you'll ever have. But...

Higher education loans like HECS and HELP don't come with interest charges, and are generally considered your least urgent debts.

Many borrowers (including this author) have no trouble getting their home loans approved despite having HECS-HELP debts. But there's no guarantee your lender won't ask you about your student debt. We've even heard cases where lenders demand applicants pay off their outstanding higher education debt before approving a loan.

You should seek personal financial advice before deciding to pay off a HECS-HELP debt early. And if you have other, interest-charging debts like personal loan or credit card debt, you should usually focus on those first.

How HECS-HELP debt affects your debt-to-income ratio

When you apply for a home loan your lender examines many things, including your income, assets, debts and expenses. Every lender has different methods for calculating how much you can safely borrow.

One important calculation is your DTI. Your DTI is calculated by dividing your total debts by your annual income. Here's a quick example:

  • You want to apply for a $400,000 home loan
  • You have $3,600 left on your car loan and a $10,000 HELP debt
  • You earn $100,000 a year and have no other income or debts
  • Your DTI calculated as $413,600 ÷ $100,000 = 4.136

Your DTI is therefore 4.136.

Recently the Australian Prudential Regulation Authority (APRA) informed the lenders it supervises that HECS-HELP debt must be considered when calculating a borrower's DTI. Prior to this clarification it seems some lenders were looking at these debts more closely than others.

🔥 Hot tip: Ask a lender about your HECS debt before you apply

Got a big HECS-HELP debt? Before you submit a full application for a home loan, you could ask your lender how much your outstanding debt will hurt your borrowing power.

Every lender has its own standards and lending criteria. Some may not care too much at all, while another lender may have a problem with it.

Mortgage brokers can also help you find a suitable lender in this scenario, as they have a good sense of different lenders' criteria.

How to improve your chances of home loan approval

If you're worried your HECS-HELP debt could hurt your home loan application or cut your borrowing power drastically, don't panic. There are steps you can take to minimise the effects of your HELP debt and potentially increase your borrowing capacity.

Paying off your least urgent debt (your no-interest HECS-HELP loan) is probably not the first thing you'd do.

Here are some tips to improve your borrowing position:

  • Pay off your your most urgent, high-interest debts first. Debts like credit card and personal loan debt are a bigger issue for most borrowers than HECS.
  • Take another look at your monthly spending and identify ways you can cut back. Ideally, cut back your spending in the months before your application.
  • Check your credit score before applying. HECS-HELP debt won't directly affect your credit score. But checking your credit score can help you identify any nasty surprises (or mistakes) in your credit report.
  • Be realistic about your borrowing capacity. The more you stretch your borrowing capacity the more your uni debt will start to weigh down your application.
  • Don't overapply. Every full loan application you submit is a mark on your credit score. That's why you only want to apply with one lender. If this lender rejects your application completely, then you have to apply somewhere else.

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1 - 20 of 26
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Macquarie Bank Basic Home Loan P&IHome≥ 40% Deposit

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homeloans.com.au Low Rate Home Loan with Offset P&IHome≥ 40% Deposit

homeloans.com.au Low Rate Home Loan with Offset
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2.87%
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loans.com.au Smart Booster Discount Variable Home Loan P&IHome≥ 20% Deposit

loans.com.au Smart Booster Discount Variable Home Loan
2.74%
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$613
Home buyers can get a very low discounted variable rate for the first year. Requires a 20% deposit. Add an offset sub-account for an additional 0.10% on your interest rate. Get your loan processed fast and settle within 30 days.

Unloan Variable Home Loan P&IInvestment≥ 20% Deposit Refinancers only

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2.84%
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$621
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6.05%
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3.07%
3.11%
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$640
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Credit services for Aussie Select, Aussie Activate and Aussie Elevate products are provided by AHL Investments Pty Ltd ACN 105 265 861 (“Aussie”) and its appointed credit representatives, Australian Credit Licence 246786. Credit for Aussie Select products is provided by Residential Mortgage Group Pty Ltd ACN 152 378 133, Australian Credit Licence 414133 (“RMG”). RMG is a wholly-owned subsidiary of the Commonwealth Bank of Australia ABN 48 123 123 124 AFSL and Australian Credit Licence 234945. Credit for Aussie Activate products is provided by Pepper Finance Corporation Limited ACN 094 317 647 (“Pepper”). Pepper Group Limited ACN 094 317 665, Australian Credit Licence 286655 acts on behalf of Pepper. Credit services for Aussie Elevate products are provided by AHL Investments Pty Ltd ACN 105 265 861 Australian Credit Licence 246786 (“Aussie”) and its appointed credit representatives. Aussie is a trade mark of AHL Investments Pty Ltd ABN 27 105 265 861. Credit and any applicable offset accounts for Aussie Elevate are issued by Bendigo and Adelaide Bank Limited ABN 11 068 049 178 AFSL / Australian Credit Licence 237879.

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