Does HECS debt affect borrowing capacity in Australia?

Yes, but differently since 30 September 2025. HECS/HELP balances are now excluded from the debt-to-income ratio calculation — so HECS doesn't count toward the 6x DTI cap. However, HECS still reduces borrowing capacity through the serviceability ceiling: the ATO compulsorily withholds HECS repayments from salary above income thresholds, reducing the net take-home pay available to service a mortgage.

How much does HECS reduce borrowing capacity?

The impact depends on income. At $80,000 gross income, HECS repayments are approximately 4% of income — about $3,200/year or $267/month withheld by the ATO. At $120,000, repayments are approximately 6.5% — about $7,800/year or $650/month. Dividing the monthly HECS repayment by the monthly serviceability rate gives the approximate reduction in borrowing capacity. At 9.49% stress rate and $650/month HECS, borrowing capacity is reduced by approximately $80,000–$90,000.

Should I pay off my HECS before applying for a mortgage?

Usually not — HECS is excluded from the DTI cap since September 2025, and the serviceability impact is modest relative to the cash required to clear the debt. Paying $40,000 to clear a HECS debt might save $150–200/month in repayment withholding, which increases borrowing capacity by only around $18,000–$25,000. That $40,000 would add far more to your deposit ceiling if kept as savings.

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GetReal — Methodology

HECS/HELP and borrowing capacity

v1.1 — updated September 2025 (APRA exclusion from DTI)

Since 30 September 2025, HECS/HELP balances are excluded from lenders' debt-to-income ratio calculations per APRA direction. HECS does not count toward the 6× DTI cap. However, HECS still reduces borrowing capacity by reducing net take-home pay through compulsory ATO repayment withholding.

The September 2025 APRA change was significant — for borrowers with large HECS balances, it removed an artificial ceiling that bore no relationship to their actual repayment burden. But HECS still matters for serviceability (Ceiling 3).

How HECS affects serviceability

The ATO withholds HECS repayments from salary above income thresholds at tax time. GetReal estimates monthly HECS withholding from gross income and deducts it from take-home pay in the serviceability calculation. If you enter actual take-home pay already net of HECS, GetReal does not double-count.

HECS compulsory repayment rates (2025–26)

Repayment income threshold	Rate
Below $54,435	Nil
$54,435 – $62,738	1.0%
$62,739 – $70,619	2.0%–2.5%
$70,620 – $84,107	3.0%–4.0%
$84,108 – $100,174	4.5%–5.5%
$100,175 – $119,309	6.0%–7.0%
$119,310 and above	7.5%–8.0%

Impact of HECS on borrowing capacity — $100,000 income

Gross income: $100,000 HECS repayment rate: 5.5% (at $100k threshold) Annual HECS withholding: $5,500 Monthly HECS: $458/month Without HECS (monthly surplus): $3,200 With HECS (monthly surplus): $2,742 Reduction in max loan at 9.49% stress rate: ≈ $56,000

Should you pay off HECS? Rarely. Paying $40,000 to clear HECS might save ~$458/month — worth ~$56,000 in borrowing capacity. But that same $40,000 kept as deposit adds far more to your Ceiling 1. The serviceability saving rarely exceeds the deposit impact.

↗ Source: ATO — HELP debt repayment thresholds (2025–26)