Case study: paying out $11,300 of HECS lifted borrowing power by $96,000

The situation

A single professional on $138,000 with $115,000 saved, looking to buy in Melbourne's inner east. Her HECS-HELP balance was $11,300, which at her income triggered a compulsory repayment of around $6,900 a year — roughly $575 a month.

Her initial assessment came back at $604,000, about $90,000 short of the properties she was inspecting.

The challenge

• The compulsory HECS repayment is treated as a committed monthly expense
• Most lenders count it for as long as any balance remains
• Paying it out would reduce her deposit
• She needed to know whether the trade-off was actually worth it

What we did

We modelled it both ways. Keeping the HECS balance preserved a larger deposit but capped borrowing at $604,000. Clearing the $11,300 removed $575 a month of assessed commitment, which lifted borrowing capacity to roughly $700,000 — a $96,000 increase for an $11,300 outlay.

Crucially, we confirmed with the lender that once the ATO shows a nil balance, the repayment is disregarded entirely. Some lenders will disregard HECS if it will be cleared before settlement; others require it already showing as nil. We chose one of the former so she could pay it out from settlement funds.

The outcome

• HECS balance cleared, removing a $575 monthly assessed commitment
• Borrowing capacity rose from $604,000 to about $700,000
• Deposit reduced by $11,300 but the purchase ceiling rose $96,000
• Purchased at $672,000 with the extra headroom

When this doesn't apply

If your HECS balance is large — say $40,000 or more — clearing it usually isn't practical, and the money is better used as deposit. The strategy works precisely when the balance is small relative to the annual compulsory repayment, because you're buying back a large committed expense for a modest cash outlay.

It also only makes sense close to an application. Outside that window, HECS is indexed at a low rate and there are better uses for your cash.