Does HECS Debt Affect My Home Loan Borrowing Power? (Australia 2026)
Yes — HECS-HELP debt reduces your borrowing capacity for a home loan in Australia. It does not prevent you from getting a mortgage, but it does affect how much you can borrow. Here is exactly how lenders treat it.
How HECS Debt Affects Your Borrowing Capacity
HECS-HELP debt is not like a credit card or personal loan. It does not appear on your credit file and does not affect your credit score. However, lenders treat your compulsory HECS repayments as a committed financial obligation — reducing the income available to service a home loan.
The mechanism:
- Your income exceeds the minimum HECS repayment threshold (FY2024–25: $54,435)
- The ATO automatically deducts a compulsory repayment from your tax refund (or adds it to your tax liability)
- Lenders know this will happen — they assess the repayment as a committed outgoing, reducing your disposable income
- Your borrowing capacity is calculated on your income after the HECS repayment obligation
HECS Repayment Rates (FY2024–25)
Compulsory repayment rates are a percentage of your repayment income (broadly, your taxable income):
| Repayment income | Repayment rate |
|---|---|
| Below $54,435 | Nil |
| $54,435 – $62,849 | 1.0% |
| $62,850 – $66,620 | 2.0% |
| $66,621 – $70,618 | 2.5% |
| $70,619 – $74,855 | 3.0% |
| $74,856 – $79,346 | 3.5% |
| $79,347 – $83,407 | 4.0% |
| $83,408 – $87,936 | 4.5% |
| $87,937 – $92,969 | 5.0% |
| $92,970 – $98,474 | 5.5% |
| $98,475 – $103,766 | 6.0% |
| $103,767 – $109,668 | 6.5% |
| $109,669 – $116,362 | 7.0% |
| $116,363 – $123,061 | 7.5% |
| $123,062 – $129,318 | 8.0% |
| $129,319 – $137,897 | 8.5% |
| $137,898 – $149,999 | 9.0% |
| $150,000 – $160,578 | 9.5% |
| $160,579 and above | 10.0% |
Source: ATO. Thresholds are indexed annually — check ato.gov.au for the most current figures.
Worked Example — How Much Does HECS Reduce Borrowing Capacity?
Borrower profile:
- Salary: $90,000/year
- HECS balance: $35,000
- HECS repayment rate at $90,000: 5.5%
- Annual HECS repayment: $4,950/year ($413/month)
Impact on borrowing capacity: Lenders assess the $413/month as a committed outgoing — similar to a minimum credit card payment. This reduces the income available to service a home loan.
At a 6% assessment rate over 30 years, approximately every $100/month of committed expense reduces borrowing capacity by roughly $14,000–$17,000.
$413/month HECS repayment → approximately $57,000–$70,000 reduction in borrowing capacity (indicative — lenders vary).
For someone earning $90,000 with no HECS: potential borrowing capacity ~$550,000–$600,000. With HECS: approximately $480,000–$540,000.
Borrowing capacity estimates are illustrative only — actual figures depend on individual circumstances, lender policies, and current interest rates.
Does the HECS Balance Matter — or Just the Repayment?
Both — but in different ways:
The repayment amount (based on income) is what directly reduces your borrowing capacity. A larger HECS balance at the same income level does not reduce borrowing capacity further.
The balance matters because:
- If you pay it off, the repayment obligation ceases — improving borrowing capacity
- It represents money leaving your finances over many years (reducing wealth accumulation)
- It indexes to CPI each year (June 1) — growing in real terms over time
Does It Matter Which Lender You Use?
Yes — some lenders are more conservative than others in how they assess HECS obligations. Most will use the compulsory repayment amount based on current income. A few may use a higher estimated repayment. A mortgage broker can identify which lenders apply the most favourable assessment for your income level.
Frequently Asked Questions
Does HECS appear on my credit file?
No — HECS-HELP debt is not reported to credit bureaus. It does not appear in your credit report and does not affect your credit score.
Does paying off HECS improve my borrowing capacity immediately?
Yes — once HECS is repaid, the compulsory repayment obligation ceases. You can request your employer update your tax withholding and provide evidence to a lender that the HECS balance is nil.
Does my HECS balance affect how much deposit I need?
Not directly — the deposit required is based on the LVR, not the HECS balance. However, because HECS reduces borrowing capacity, you may need a larger deposit to reach the property price you want.
Related Guides
- How HECS Repayments Reduce Your Borrowing Capacity
- Should I Pay Off HECS Before Applying for a Mortgage?
- HECS vs Saving for a House Deposit — Which Should Come First?
- HECS Debt and Home Loans Hub
This article provides general information about HECS-HELP debt and home loan borrowing capacity in Australia. For advice tailored to your income and HECS balance, speak with a licensed mortgage broker. Find one through MoneySmart.