Was curious what is the impact of a $10-$20k HECS Debt on ability to get a home loan and amount? Is it better to pay this amount of HECS Debt off first before apply for home loan or to keep it in order to borrow less?
Would anyone know a ballpark entry of how much less I can borrow?
Thanks in advance.
thanks - is the reduction applied for the entire duration of the loan (e.g. 20 years) or just the number of years that it will take to pay off the debt? would it be better to pay the debt off before getting the loan?
In a way it's for the life of the loan but you're looking at it at a wrong angle.
Say if you need $100520 income to service your loan and the bank will give you the loan. But because you have hecs, the bank only uses $92k to their servicing calculation then they won't give you a loan because you need $100530 in order to meet the loan servicing.
Simple as that.
Hi, someone mentioned that rather than pay off the HECS debt early in extra payments, to stall as much as possible since the money can be invested at higher rate. I assume this does not apply if one is looking to apply for a home loan? Would appreciate your opinion. Just looking at the way things are: soaring house prices, HECS debts to be paid off before being approved for loan, it's almost certain parents need to chip in and help with a considerable deposit otherwise our children will not ever own a house.
It's an unenforceable debt, therefore there really is no real reason to pay it off voluntarily unless you are absolutely unable to find any investment which gives a better return than the CPI index.
I have heard from a friend that of you voluntarily pay off some of the HECS debt by the end of the year, the Government will also help with a certain percentage.
From memory, I think it was 5% but I didn't look out up yet. Not real sure if that helped.
Yes this is true.
The government will reduce your loan based on your payment. E.g.) if you pay $20,000, $1000 will be deducted from your total hecs debt.
From the way I see it. It is best to pay off the hecs debt as you save 5% + 2.2% in hecs increments per year.
Bare in mind that if you put this in a interest savings account, it is quite hard to get more than 7.2% return. Also, you will be taxed on the interest earned.
But that 5% is once off. Let's say you invest 20k at 3.5% return after tax, then you get an extra 1.3% every year, that will overtake the 5% in a few year's time.
I don't recommend paying off your HECS if you're intending to buy a home. A HECS debt is infinitely better than a home loan debt. Yes you're borrowing capacity is affected by the amount of your debt, but your borrowing will also need to increase by that same amount that you used to pay off the debt i.e. the 20K.\
indexation on HECS this year was only 1.5%. It's average since around the 2-3% mark. Like people say, it's the "best debt you'll ever have". The 5% discount makes it a good decision to pay off your bulk when you're nearing the end of your debt (e.g. say $5k left) before June 1 to avoid indexation, plus you get the discount and your tax back that was withheld throughout the year for HECS purposes. That being said, the 5% discount ends at the end of this yr (dec).
I did a quick calc the other day, and factoring in a variety of factors (the difference between indexation, 5% discount vs increased loan interest, less tax refund from negative gearing, etc) over a period 10 or so years, i'd essentially balance out. That's in today's market of low interest rates. If interest rates revert back to averages of 5-6% I'd be much worse off having paid HECS. That being said, you're already one step too late because indexation just got applied to your account.
Also, if you're looking to build a good deposit, you're 20k is better used for that. Lender's mortgage insurance is PAINFULLY expensive, and you're probably shooting yourself in the leg if you use your money for HECS instead.
broker here.
If you have HECS debt, the lender will deduct a % off your income when they use your income for servicing. The threshold can be found here http://studyassist.gov.au/sites/studyassist/payingbackmyloan….
For example if you earn $100520 this year, they will only use $100520 * 0.92 = $92478k for servicing. Hope that makes sense.