How does HECS affect borrowing capacity?

Mechanic: HECS-HELP is repaid via the income-contingent loan system, once your income exceeds the repayment threshold (~$54K in 2026), a percentage of your income (typically 1-10%, scaling with income) is deducted at tax time. Lenders factor that deduction into their serviceability test as a non-discretionary commitment.

Lender variation: major banks generally include HECS at the published ATO rate (e.g. 8% if you earn $100K+). Some non-major lenders apply HECS only on the actual repayment amount (not the full %), which can be 1-2 percentage points more generous. Asking your broker which lender's policy is most generous to your situation is the lever, same income + same loan, different lenders, different borrowing capacities.

Numerical example: $120K gross income, $25K HECS balance. ATO HECS rate at $120K is ~7%. Bank treats HECS as $8,400/year deduction = ~$700/month commitment. That commitment, at a serviceability buffer-stressed rate (rate + 3%), reduces your borrowing capacity by roughly $50-80K. Same household with no HECS = $50-80K more capacity.

Lever: pay down HECS before applying, especially if balance is small. Voluntary HECS payments are tax-deductible until 2017-tax-year + offer no after-tax benefit since (no rate of return). However, making a voluntary lump-sum to clear the debt before a mortgage application removes the lender-side capacity hit + can be net-positive if the increased borrowing power lets you buy a better-fit property.