How HECS-HELP Debt Affects Your Home Loan

HECS-HELP debt is one of the most common financial obligations for younger Australian borrowers — and one of the most misunderstood in the context of home loans. It does affect your borrowing capacity, but not in the way many people expect.

How HECS-HELP Repayments Work

Unlike a standard loan, HECS-HELP has no monthly repayment and no interest (though it is indexed annually to CPI). Repayments are compulsory and collected through the tax system once your income exceeds a threshold. For 2025–26, the repayment thresholds are:

• $54,435 — 1% of income
• $62,849 — 2%
• $66,153 — 2.5%
• $70,113 — 3%
• $74,322 — 3.5%
• $78,782 — 4%
• $83,710 — 4.5%
• $88,524 — 5%
• $93,969 — 5.5%
• $99,997 — 6%
• Higher thresholds continue up to 10% at $141,848+

Repayments are calculated on your entire income once you cross the threshold, not just the amount above it. So at $80,000 income, you repay 4% of the full $80,000 ($3,200/year or approximately $267/month).

How Lenders Assess HECS Debt

Lenders do not treat your HECS debt balance as a traditional loan. They cannot see the total balance on most standard credit checks. However, they do ask you to disclose it, and they assess the compulsory repayment amount as a recurring obligation that reduces your disposable income.

The compulsory annual repayment at your income level is divided by 12 and treated as a monthly expense. This directly reduces your assessed borrowing capacity. At $90,000 income, the compulsory HECS repayment is approximately $4,950/year ($412/month). This single line item typically reduces borrowing capacity by approximately $80,000–$100,000 depending on the assessment rate used.

Should You Pay Off HECS Before Buying?

This depends on comparing the HECS indexation rate against your mortgage rate. HECS-HELP is indexed to CPI each year on 1 June. The 2024 indexation rate was 4.7% (down from 7.1% in 2023). A typical mortgage rate is 6.0–7.0%.

In most rate environments, mortgage debt costs more than HECS debt, making it financially better to keep the HECS debt (cheaper debt) and use your savings toward a larger home deposit (which reduces LMI or avoids it entirely). The exception is if the indexation rate is high and you are close to paying off the HECS balance entirely — at which point a full payoff removes the compulsory repayment obligation and improves borrowing capacity.

HECS vs Mortgage Rate Comparison

At the current RBA cash rate of 4.1%, a variable mortgage rate of approximately 6.0–6.5% substantially exceeds recent HECS indexation rates of 3–5%. This means every dollar used to voluntarily pay down HECS debt is "earning" a 3–5% effective return, while the same dollar used as additional mortgage deposit (reducing an LMI premium or reducing the mortgage balance) earns a 6–6.5% effective return. The mortgage paydown is almost always the better financial use of a surplus dollar.

Practical Steps if HECS Is Limiting Your Borrowing

• Make a voluntary lump-sum HECS payment if you are close to paying off the remaining balance entirely — removing the obligation fully is the cleanest outcome
• If the balance is large, focus on building a larger deposit rather than partial HECS reduction
• Check your ATO MyGov account to confirm your exact HECS balance before applying — some lenders will want this figure
• Apply to lenders that are more generous in their HECS assessment methodology (a broker can identify these)

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