HECS Debt & Home Loans: 5 Tips for Mortgage Brokers to Help Their Clients

HECS Debt and Home Loans

Are your clients concerned about how their HECS debt may impact applying for a home loan? HECS, or “HECS-HELP” is a student loan program offered by the Australian Government to pay for a student’s university studies, or studies with an approved higher education provider.

When individuals apply for a home loan, their HECS debt will be considered by the lender and may affect the home loan application. Whilst each lenders’ criteria to calculate an individual’s borrowing capacity may vary, all lenders treat student debt in the same way they treat other loans and forms of debt, including car loans, personal loans, and credit cards.

As a mortgage broker, this means that it is important to assist your clients in understanding how their HECS debt may impact their overall financial situation and ability to service for a loan. Here are our 5 tips that you can provide your clients with who have a HECS debt and want to improve their borrowing capacity.

1) Reduce Other Debts

When your clients are applying for a home loan, lenders take into account their overall debt-to-income ratio. So, it is important for your clients to minimise or eliminate other debts, such as credit card balances or personal loans. This is because having existing debts means that a client is regularly putting money towards repaying these debts, as well as a mortgage; the money available to pay off the mortgage will be lowered. Therefore, reducing these debts will improve your clients’ borrowing capacity.

2) Improve Credit Score

If your client has an excellent credit score, a lender is more likely going to approve them for a loan, give them a lower interest rate, and have more favourable lending conditions. Encouraging your clients to pay their bills on time, make repayments on time, avoid overspending on credit cards, and maintain a healthy credit history, will have a positive impact on their borrowing capacity.

If your clients are unsure of what a credit score is or where they can find theirs, here is a simple definition:

Your credit score, sometimes also referred to as your credit rating, is based on the amount of money you’ve borrowed, the number of credit applications you’ve made, and whether you pay back these loans on time. Essentially, your credit score determines your debts (past and present), your loans (and loan enquiries), your credit cards, your current credit limit, and any accounts you’ve opened and closed. One late payment can greatly reduce your credit score, so it important to always pay your bills and make loan repayments on time, and not overextend yourself financially.

To check your credit score, simply visit a main credit reporting organization of Australia’s website, such as Equifax.

3) Increase Savings

Your client’s savings do affect their borrowing power. Having a substantial savings account can demonstrate to lenders your client’s financial stability and is a way for lenders to assess your client’s ability to make repayments. Lenders want to see evidence of genuine savings; money that your client has saved over an extended period of time. This indicates positive financial habits and presents the client as a lower risk borrower.

Having a higher deposit also means that your client may not have to borrow as much money from the lender when purchasing a home. Because your client will be a lower risk to the lender, the caqpacity for their borrowing power to improve, is likely to be greater.

4) Demonstrate Stable Income

Lenders want to see that your client has a consistent and reliable income. Lenders often prefer a permanent role from borrowers, such as permanent part-time or full-time employment. Encourage your clients to stay employed within their permanent role for an extended period before applying for a home loan. Your client’s risk to the bank is minimised greatly if they have a stable income source, which subsequently improves their borrowing capacity.

5) Seek Professional Advice

It is essential for your clients who have student loans to seek advice from you as their mortgage broker. A mortgage broker is beneficial in the process, as you can review their application and provide expert advice as to which lenders may look favourably to your client’s situation in regard to their HECS debt.

It is important that you ensure your client understands the advice that you provide with them, and that you maintain a consistent relationship with them. This will help them create trust for you, and in return will seek your advice with confidence.

Maintaining a relationship with them can be done through regular communication and updates, in the form of text messages, phone calls, email newsletters, blog articles, and social media posts. Your client will feel like they are your priority, and that you are committed to the care and service you provide for them.

As a mortgage broker, it is up to you to provide tailored loan advice based on your client’s specific circumstances and help them navigate the borrowing process effectively. As a leading aggregator in Australia, we have the infrastructure and support for our brokers to do just that. Contact us today to see how we optimise your business and elevate your professional success.

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