Paying off HECS V Leaving Money in Offset

LNick Jo on 12/08/2023 - 14:05

Hi

I'm trying to decide whether to pay off my remaining HECS debt or just leave the money in my mortgage offset account.

I have an investment property and I have $140k in savings in my offset account so the outstanding balance on the mortgage is $0 so I'm not currently paying anything on it (interest rate is 7.03%). I also have a $31,000 HECS debt.

Is there any benefit to taking 31k out of my offset and paying off my HECS as a lump sum? Obviously this would increase my take-home pay but I'd also be paying interest on my mortgage again (roughly $220 a month I think). The mortgage interest would be tax deductible because it's an investment property.

I fully acknowledge that I'm in a very fortunate financial position and neither option would create much financial difficulty but just trying to work out what the best use of my money is.

Any advice would be much appreciated.

Cheers

Financial HECS-HELP

Comments

  • Malik Nasser on 12/08/2023 - 14:13

    Do the calculations.
    You mention that you have $140k in your loan offset account, and that your loan balance is $0, but is the size of the loan actually $140k? (if your loan was say $130k, and you had the $140k in offset, then your loan balance will still show $0, but you would have an additional $10k not actually doing anything - not totally sure on this, depending on how your banks shows it in your account).

    • Nick Jo on 12/08/2023 - 14:41

      The loan is $140k. The offset doesn't let me put any more in there than the total value of the loan so there's nothing extra in the offset.

      I also have $50k in an ING Savings Maximiser.

  • zonra on 12/08/2023 - 14:21
    +9

    As above, do the calculations.
    But if you do decide to pay off HECS, consider waiting until May next year (before it gets indexed). Paying it off now offers no benefits beside taking home more each paycheck.

    • Jake D on 14/08/2023 - 12:34

      You can always provide your employer a new TFN declaration form stating you don't need "have a HECS debt" if you are sure you will pay it off before the EOFY, or are happy to pay it yourself in a lump sum after doing your tax return.

  • fredz0r on 12/08/2023 - 14:30
    +2

    You would pay your hecs off or use it for another investment? Having it sit in an offset against an investment property is insane as you can claim the interest against your tax….

    • Malik Nasser on 12/08/2023 - 15:06
      +2

      You still need to do your calculations.
      You can only claim back at your marginal tax rate. So best case, if you are in the top tax bracket you can claim 45%, so the 7.03% mortgage rate becomes 3.87% (effective). If the index rate is below this (which it probably will be come next May/June), then it is still best to leave it in the offset account.
      As for HISA accounts (ING Savings Maximiser), you will need to use the after tax rate (which again is based on your marginal tax rate).
      Just do the calculations for all scenarios, and allocate accordingly.

  • bobbified on 12/08/2023 - 18:56
    +2

    If you take out money from your offset account, interest applies immediately. Whereas, with the HECs, we're at the start the period/year, so it won't be indexed again until June next year.

    So leave the money in your mortgage offset and put aside whatever extra cash you have each pay period towards the HECs debt and pay it off just before the next index/interest calculation (1 June 2024).

    (Having said that, HECs has the cheapest "interest" out of everything, so if you're considering any other debt in the new future, it's probably best to just leave the HECs for now).

  • GoldenDragon888 on 13/08/2023 - 09:20

    The only good time to pay off your HECS debt is in the financial year it would be paid off with your tax.
    You pay it early to avoid that years increase.
    Also do your calculations.
    Interest Cost as a percentage after tax = Interest Rate x ( 1 - (tax rate + medicare levy))
    CPI or what ever they use for HECS increase.
    Compare and put money in the higher cost one.

  • lewislardboy on 14/08/2023 - 12:40

    As of June 2023, your 31k would've been hit with the indexed inflation amount — ouch. Any benefit your savings got in the offset or ING would have been eroded by having this structure. Depending on this years indexed rate; you'll need to assess what this years best move is.

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