As you graduate from University and start to focus on your career, one financial question seems to continuously be asked. The question is: Should I take out a mortgage or pay off my HECS debt first?
Not only is it a common question, but it’s a great one as young adults are looking for a place to settle down. You might be thinking about getting married and starting a family. While there is no perfect answer to this question, we can help you decide.
Before we begin, it’s important to know a little more about HECS debt. HECS makes it possible for qualified Australians to cover university fees without having to pay upfront. While a HECS debt does not carry interest, it does increase annually based on CPI.
The typical consensus on paying off HECS debt is that it’s more beneficial to pay off other debt first. But does that mean that taking out a mortgage is a good idea while you still have HECS debt?
Whether or not you can take out a mortgage highly depends on whether you have the ability to repay the loan. Your ability to repay the loan is not just based on your income from your job; it’s also based on what other debts you have. Having an outstanding HECS loan may reduce your ability to get approved for a mortgage. It might also reduce the amount that lenders are willing to give you to buy your new home.
In addition, new regulations are taking effect which are resulting in HECS loans having to be paid back quicker than previously. Not only do they have to be paid back faster, but the amount of payments are on the rise too, which will affect your ability to be able to pay your mortgage.
Does this mean that you shouldn’t consider taking out a mortgage if you still have a HECS loan? Not necessarily, but what you will have to do is weigh your options carefully based on your unique financial situation. You may having the income to support both a mortgage and reducing your HECS debt. In order to get a good idea on the best option for you, it’s best to reach out to a qualified financial planner from Ricarmo Financial Group to see if now is the right time to take out a mortgage.