How To Check HECS Debt — Can It Affect Your Home Loan Application?
Universal Finance • September 30, 2024
From pay slips to bank statements, a lender needs to see many things when you apply for a home loan. Personal debt is also a major consideration for lenders, and one common concern among Australians is how their HECS debt might impact their ability to secure a home loan.
In this blog, we'll explore what HECS debt is, how it's repaid, how lenders treat HECS debt, how to check your HECS debt and other types of debt considered during the lending process.
What is HECS debt?
HECS-HELP (Higher Education Contribution Scheme-Higher Education Loan Program) is a government loan scheme that helps eligible students pay for their university education. The debt accrued under HECS-HELP covers tuition fees, and students are required to repay this debt once their income reaches a certain threshold.
Here’s how the repayment process works:
- Income threshold
— HECS debt repayments begin once your income exceeds the minimum repayment threshold, which is adjusted annually. For the 2023-2024 financial year, the threshold is $48,361.
- Repayment rates
— The repayment rate ranges from 1% to 10% of your income, depending on your earnings, where higher income levels result in higher repayment rates.
- Automatic deductions
— Repayments are automatically deducted from your salary by your employer, similar to tax withholdings.
- Voluntary repayments — You can also make voluntary repayments to reduce your HECS debt faster, which can be beneficial if you're planning significant financial commitments like applying for a home loan.
How lenders treat HECS debt
When applying for a home loan, lenders assess your overall financial situation, including any existing debts. Here's how HECS debt may affect your home loan application:
- Impact on borrowing capacity
— HECS debt reduces your disposable income, impacting your
borrowing capacity. Lenders consider your monthly HECS repayments as part of your financial obligations.
- Serviceability assessment — All lenders perform a serviceability assessment to determine whether you can manage the home loan repayments along with your other debts, including HECS. A high HECS repayment can lower your borrowing power.
- Credit history — Unlike other forms of debt, HECS debt does not appear on your credit report. However, lenders will still take your credit history into account when evaluating your financial situation.
- Debt-to-income ratio — HECS debt contributes to your overall debt-to-income ratio, a key metric lenders use to assess your ability to repay the loan.
How to check your HECS debt
Having an overview of your financial situation can help you prepare for your home loan application. Knowing the exact amount of your HECS debt is crucial when planning to apply for a home loan. Here's how you can check your HECS debt:
- Log into your MyGov Account — Using your unique username and password, log in to your MyGov account linked to the Australian Taxation Office (ATO).
- Navigate to the ATO Online Services
— Access the ATO online services through MyGov. Here, you can view your HECS-HELP balance, repayment history and current debt status.
- View your individual tax return
— Your annual tax statement will also provide details of your HECS debt and any repayments made during the financial year.
- Contact ATO for further assistance — If you have trouble accessing your account online, you can contact the ATO directly for assistance.
Other types of debt that lenders consider during your application
In addition to HECS debt, lenders consider other types of debt during the home loan application process. These include:
- Credit card debt
— Lenders assess your credit card limit(s) and minimum monthly repayments. But does HECS affect your borrowing capacity? The answer is yes; credit card debt can significantly impact your borrowing capacity. Many lenders may also see non-utilised lines of credit as a liability, so it’s a good idea to close unused credit cards before submitting your application.
- Personal loans — Any existing personal loans are factored into your debt-to-income ratio, as your repayments can reduce your borrowing capacity. Lenders will consider the outstanding balance and monthly repayments.
- Car loans — Similar to personal loans, car loans are included in your financial assessment. The remaining balance and repayment obligations are taken into account.
- Alternative debts — This includes any other financial obligations such as store cards, payday loans, Buy Now Pay Later services and any other regular debt repayments you may have.
Four tips to improve your chances of being home loan approved
To enhance your chances of securing a home loan, consider the following tips:
- Reduce existing debts — Reducing your credit card limits, paying down credit card balances and personal loans can improve your debt-to-income ratio and increase your borrowing capacity.
- Review your budget — Ensure your budget accounts for all financial obligations, including HECS debt. A clear, manageable budget can reassure lenders you are responsible when it comes to managing your finances.
- Maintain stable employment — Lenders prefer applicants with a stable income and want to see at least two to three payslips, so avoid changing jobs or industries before applying for a home loan.
- Seek professional advice — A mortgage broker simplifies the home loan application process, from comparing lenders on your behalf to preparing and submitting your application.
Let Universal Finance Corporation manage your home loan application
If you’re about to begin your search for the right home loan, make Universal Finance Corporation your first step. Our team has great expertise in managing HECS debt and other financial commitments and can help you present a strong application to potential lenders.
Contact us today to book a consultation and take the first step towards securing your dream home.
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