Can a HECs Debt affect a loan application?


Can a HECs Debt affect a loan application?

Let’s talk about everyone’s favorite topic—student loans! Okay, maybe not everyone’s favorite, but it’s worth knowing about, especially if you’re thinking about getting a mortgage in Australia.

So, here’s the deal with HECS debts: They’re interest-free, which is awesome! But—yes, there’s a but—they do get adjusted for inflation every June. In 2023, with Australian consumer inflation going a bit wild, HECS debts shot up by a whopping 7.1%! That’s the highest jump we’ve seen in over three decades.

Now, what does this mean for you? Well, if you’re carrying around a typical $25,000 student loan, you might’ve just seen it balloon by over $1,700. Ouch, right?

But here’s where it gets interesting—your HECS debt actually affects your borrowing power when you’re applying for a mortgage. How? Well, lenders take a look at a bunch of stuff, including your income, expenses, and existing debts (yep, that includes HECS). The more you owe in HECS, the less you might be able to borrow for your dream home.

And it’s not just about borrowing less—it could also affect your debt-to-income ratio. Basically, if you’re already shelling out a big chunk of your income for debt repayment, lenders might see you as a bit of a risk. Nobody wants that label, right?

But don’t sweat it! There are ways to boost your borrowing power, like improving your credit score, finding ways to increase your income, or saving up a bigger deposit. Plus, working with a savvy mortgage broker, like us at SFP Financial, can help you navigate these tricky waters and find the best solution for your situation.

So, while paying off your HECS debt might seem like a headache, it’s all about finding the right balance for you. And hey, who knows? With the right guidance, you might just be a step closer to owning your dream home sooner than you think!