Have you ever wondered whether your HECS debt is assessed when the bank calculates your home loan interest rate and repayment terms? We have created this quick guide for you to understand how your home loan application is affected by your HECS debt.
There are a number of different scenarios that come into play, including whether you have offset your Higher Education Loan Program (HELP) debts and your personal circumstances.
HECS (Higher Education Contribution Scheme) is a loan established when you study full time in Australia. The money is used to help you pay for university fees, and you may be eligible for a part-time loan if you study part-time.
You have to start paying back your HECS debt to the Australian Government when you finish your studies. The Australian Taxation Office (ATO) will calculate the amount you have to pay, and you will have to repay the loan with interest on a monthly basis.
To make your repayments, you have several options. You can set up a repayment plan with the ATO, have them deduct the payments straight out of your wages, or you can make your own arrangements with the ATO.
If you have a HECS debt, certain calculations do not include it when the bank sets your home loan interest rate and repayment terms. So, if you have a HECS debt, either from a current or previous loan, it will not affect the HECS debt that you have offset with a superannuation fund or your debt repayment history.
Student debt is usually not considered in the calculation for variable-rate loans, but it will be considered for fixed-rate loans. If you are a first-home buyer and have a variable-rate loan, your application will be assessed on whether you have a HECS debt. However, even if you do, the ATO will not count your loan amount in the loan assessment.
For home loans that are fixed interest rate loans, your application will not be affected by your debt. However, if you have a HECS debt and have a fixed-rate loan, it will be added to the loan amount to assess your eligibility for the loan.
In the event that you have a superannuation loan and a HECS debt, your home loan will be assessed on your superannuation loan balance instead of your HECS debt. If you have a home loan that has been approved with a superannuation loan, you may also be able to consolidate your HECS debt with your superannuation loan.
When it comes to property investment, HECS debt will be a part of the total amount of debt in the calculation. This is because HECS debt and property investment debt are both considered in the debt-to-income ratio.
If you have a HECS debt, the best way to reduce the debt is to pay more than the minimum amount of your payments. If you pay more than the required amount, the balance of your debt will reduce quicker. However, the ATO will not allow you to pay more than you can afford, so you should only pay more if you can afford it.
If you have a home loan, you should look into the home loan offset and redraw facility. This will allow you to use your home loan to pay off your HECS debt and save you more money.
Carrying a HECS debt does not have any impact on the interest rate or repayment terms of your home loan. However, if you have a HECS debt and a home loan, you will have to include the amount of your debt in your home loan application for it to be included in the assessment.
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