Key takeaways
- A HECS/HELP debt reduces your borrowing power but rarely stops you buying.
- Lenders count the compulsory repayment as an ongoing commitment, not the full balance.
- Paying it off boosts borrowing power slightly — but the cash may do more good as deposit.
- The repayment is income-based, so the impact varies from person to person.
Few things cause more needless worry for first-home buyers than a HECS debt. The good news: it’s one of the most benign debts you can carry into a home loan. It won’t block your purchase, and lenders treat it far more kindly than a credit card or personal loan. What it does do is trim your borrowing power a little — so it’s worth understanding, not fearing.
How lenders see it
Your HECS repayment is compulsory once your income passes the repayment threshold, and it’s a percentage of income above that line. Because it reduces your take-home pay, lenders factor the repayment into your serviceability as an ongoing commitment. Crucially, they generally focus on the repayment, not the total balance — unlike a personal loan, where the whole debt weighs on you.
Its effect on borrowing power
The repayment lowers the income available to service a mortgage, so it reduces your borrowing capacity modestly. The higher your salary, the larger your HECS repayment — which is why the impact isn’t the same for everyone. For most buyers it’s a small dent, not a wall.
Before you rush to clear it, run the numbers. Paying HECS off removes the repayment and lifts borrowing power a little — but that same money in your deposit might push you under 80% LVR and save you thousands in LMI. Often the deposit wins.
Should you pay it off first?
Sometimes, but rarely just for the loan. If clearing HECS is the difference between two loan sizes you care about, it can help; more often, keeping the cash for your deposit or LMI threshold is the smarter play. It’s a genuine trade-off worth modelling both ways — which is part of the wider planning in our first home buyer guide.
Broker Insight. We regularly see buyers assume a HECS debt rules them out, or that they must clear it first. Usually neither is true — it trims borrowing power modestly, and the cash is often better as deposit.
See how your HECS really affects your budget
We’ll model your borrowing power with and without the HECS debt — and tell you whether your cash is better as a repayment or a deposit. Free, no obligation.
Book your free game plan callFrequently asked questions
Does HECS affect my home loan?
Yes, but it won’t prevent you from getting a loan. HECS/HELP repayments are compulsory once your income passes a threshold, and because they reduce your take-home pay, lenders count them as an ongoing commitment when assessing serviceability. That lowers your borrowing capacity somewhat — but a HECS debt is viewed very differently from consumer debt like credit cards, and it rarely rules out a purchase.
Should I pay off my HECS before buying?
Usually not just for the sake of the loan. Paying HECS down does slightly increase your borrowing power by removing the repayment from your commitments, but the money often does more good as part of your deposit — especially if it helps you cross the 80% LVR line and avoid LMI. The right move depends on your numbers, so it’s worth modelling both before you decide.
How do lenders assess a HECS debt?
Lenders look at your compulsory HECS repayment, which is a percentage of your income above the threshold, and treat it as a recurring expense that reduces the income available to service a loan. They generally don’t treat the total balance the way they would a personal loan. Because the repayment is income-based, a higher salary means a bigger HECS repayment — which is one reason the impact varies from person to person.
This guide is general information only and does not take your personal circumstances into account. It is not financial or credit advice. Government schemes, lender policies, rates and tax rules change over time and eligibility criteria apply. Speak with us for advice tailored to your situation.