Is Your HECS Debt Limiting How Much You Can Borrow?

When applying for a home loan, all of your existing liabilities (debts) are listed on your application. All of these liabilities reduce the total amount that you can borrow.

When you have a HECS debt, the minimum monthly payment due is listed as a liability on your home loan application, regardless of whether you have $1,000 left to pay or $100,000. The banks calculate this in a similar way as you owning a credit card or having a personal loan, even if your HECS debt is likely to be paid out within 1-2 years based on your current income.

In recent months, a few of the banks have made changes to how they assess HECS liabilities. An example of these changes is to exclude any HECS liability if less than 20K is remaining on the debt. So how does this impact your borrowing potential?

Based on your salary of 80K, 100K or 120K, assuming the HECS liability of under 20K is the only debt you have, the following are the improvements to your borrowing power if the liability is no longer included in your borrowing calculator:

·         On an 80K salary, no HECS liability allows you to borrow an additional 30K for your home loan

·         On a 100K salary, no HECS liability allows you to borrow an additional 60K for your home loan

·         On a 120K salary, no HECS liability allows you to borrow an additional 90K for your home loan

As you can see, the higher the salary, the more impact of not including the HECS liability in your borrowing potential.

If you have spoken to a bank or broker previously and you currently have a HECS liability of under 20K, it may be worth speaking with them again to see if your borrowing power has increased. This policy is exclusive to only a few banks, so if yours hasn’t changed, it is worth speaking to a broker to look at your options.

For any questions on the above, please call me on 0414670151 or email jennifer@jblhomeloans.com.au