HECS - impact on borrowing capacity

Discussion in 'Loans & Mortgage Brokers' started by Scott No Mates, 28th Dec, 2019.

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  1. Scott No Mates

    Scott No Mates Well-Known Member

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    How does a HECS debt impact on borrowing capacity?

    There's a lower limit for income before you must start paying the debt.

    So if a graduate/purchaser has say $20k a HECS debt, $80k income how does their borrowing capacity get impacted compared to someone without any debt?

    Assuming no living at home, no credit cards, defaults/bankruptcy, car loans, other assets, say 10% deposit for $600k established property.

    Is all debt treatment the same? eg. HECS/car loan, credit cards, loan shark
     
    Scott No Mates, 28th Dec, 2019
    #1
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    the amount payable will basically be assessed as a 'tax' reducing borrowing cap. I had a client with about $12k outstanding on HECS and it wouldn't service, even though the repayments on this woud have been loan. The solution was to pay out the full $12k
     
    Terry_w, 28th Dec, 2019
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  3. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    HECS is probably the cheapest loan most people will ever see, but the impact on borrowing capacity can be significant because it is a cash flow drain.

    It's very simple to model your servicing with and without the HECS in place. If it makes a difference to the next deal, pay off the residual HECS, otherwise leave it in place.
     
    Peter_Tersteeg, 28th Dec, 2019
    #3