When applying for a home loan, it makes sense to do all in your power to make yourself as attractive to a lender as possible. This can include having the largest deposit possible, having a strong credit score and reducing any debt or lines of credit where possible.
When considering this last item, people tend to overlook their HECS-HELP debt, however this is equally important to consider and affects you when applying for a home loan.
Why you shouldn’t forget your HECS-HELP debt
Technically HECS-HELP debt is interest-free, however it is indexed each year in line with inflation. Last year on 1 June 2023, all HECS-HELP debt was indexed at 7.1%, after being indexed at 3.9% in 2022. This 7.1% indexation marked the biggest indexation to HECS-HELP debt in thirty years - on a $50,000 loan, this was an increase of $3,550 to the debt.
Why it matters
While HECS-HELP debt may not be something many consider as a debt or loan, banks consider it as such and take it into consideration when assessing you for a home loan. As it is a loan that you have to make repayments on, it affects your disposable income and your ability to repay your home loan in their eyes and can affect your borrowing capacity - or even your ability to get a loan at all.
Additionally, as HECS-HELP debt repayments are automatically taken out of your salary once you earn over a certain threshold, it will directly affect your income – this is why banks consider it when considering your loan application.
Ways to reduce HECS-HELP debt
In order to reduce HECS-HELP debt to improve your chances of being approved for a loan, you can:
Choose to make a lump sum payment to reduce the debt
Pay small incremental amounts on top of the minimum repayments whenever possible
Aim to make as many payments as possible before June 1 of each year rolls around to avoid indexation.
Being aware of your HECS-HELP debt in relation to your home loan application is just one way to ensure you have the best chance of getting a home loan that you are happy with. For more help in starting your property ownership journey, contact us here or speak to a Credabl consultant today on 1300 27 33 22.
Disclaimer
This article is a guide only and does not constitute any recommendation on behalf of Credabl Pty Ltd (ACN 615 968 100) or any of its related bodies corporate (Credabl). The information in this article is general in nature and we have not taken into account your personal objectives or financial circumstances or needs when preparing it. Before acting on this information you should consider if it is suitable for your personal circumstances. Credabl is not offering financial, tax or legal advice. You should obtain independent financial, tax and legal advice as appropriate.
