Can I Get a Home Loan with HECS Debt in Australia? | Pay Off Home Loan Faster

Can I get a home loan even if I still have a HECS debt? 🤔

I’m Tony Xia, the Founder and Director of The Mortgage Agency, one of Sydney’s top mortgage broker firms.

In this episode of The Mortgage Chat, we’ll break down how second and third tier lenders can help Aussies with HECS debt or limited borrowing capacity to still get into the property market.

You’ll learn:

✅ How 2nd & 3rd tier lenders differ from big banks
✅ How HECS debt impacts your borrowing power
✅ Real benefits of using smaller lenders
✅ Rental income treatment and borrowing limits
✅ When alternative lending makes sense

📌 If you’ve hit a lending cap or feel stuck with your HECS debt, this episode is for you.

Contact The Mortgage Agency today to book a free chat and explore the right lending strategy for your situation.

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Tony Xia | The Mortgage Agency
📞 0423 718 612
📩 Tony@themortgageagency.com.au

YouTube Chapters:

0:00 Introduction  
0:35 What are second and third tier lenders?  
1:12 Why do people use 2nd & 3rd tier lenders?  
2:10 How do mainstream lenders treat your income and borrowing power?  
3:05 How do 2nd tier lenders assess rental income differently?  
4:22 What’s the impact of HECS debt on loan eligibility?  
5:18 How do smaller lenders treat HECS debt differently?  
6:25 What if you’re maxed out with a big bank—what are your options?  
7:40 Is using a second tier lender risky?  
8:58 Real example: How a 3rd tier lender helped a client buy  
10:15 What should you watch out for when choosing a lender?  
11:42 Final tips for Aussies with HECS debt  

Transcript

0:00

LET'S TALK ABOUT WHAT THE REAL BENEFITS ARE FOR USING A 2ND AND 3RD TIER LANDER WHEN WE USE SECOND AND THIRD TIER LENDERS IT'S BECAUSE YOU'RE CAPPED WITH LENDING WITH THE MAINSTREAM LENDERS AND I'M TALKING ABOUT YOU KNOW YOUR BIG FOUR SAINT GEORGE ETCETERA WELL WITH THE MAINSTREAM LENDERS DEPEND ON WHICH LENDER YOU GO TO THEY MAY SHADE RENTAL INCOME YOU KNOW THEY MIGHT DISCOUNT THAT RENTAL INCOME BY 10 20 25% WITH A SECOND TIER LENDER THEY MAY NOT EVEN SHADE IT SO THERE'S ALREADY AN EXTRA 10 20 OR 25% RENTAL INCOME YOU CAN USE ON THAT good day everyone I'm Tony Shah and thanks for joining me on another episode of the Mortgage Chat today I want to talk about why someone would use 2nd and 3rd tier lenders so first of all why would someone use a 2nd or 3rd tier lenders so most people would use 3rd tier lenders or what you call non conforming lenders is when they have low credit score bad credit credit impaired etcetera but for someone that's normal good credit score nothing adverse why would they use a 2nd or 3rd tier lender and the main reason is borrowing power the first let's talk about what the real benefits are for using a second and third tier lender and I'm talking about banks like Firstmac Resimac um Liberty Lechob Peppa Blue Stone etc right so all the lenders that's outside the mainstream lenders alright now when we use second and third tier lenders it's because you're capped with lending with the mainstream lenders and I'm talking about you know your big four Saint George Me Bank Macquarie Bank ing Bank West Suncorp etcetera when you've maximised your borrowing with those mainstream lenders and you want to keep borrowing money for investment purposes that's when you start jumping into 2nd and 3rd tier lenders and I'll break it down on what are the pros of using these 2nd and 3rd tier lenders so first I'm going to quickly talk to you about the difference in borrowing power when you're comparing major second and third tier lenders especially when you're already holding some investment properties or existing debt so on my whiteboard here I just gave you a quick example right so let's just say I've got a single applicant that's on $150,000 a year p a y g or self employed doesn't matter as long as your taxable income's $150,000 you're living at home and you already hold two investment properties at 400 grand each what so 400 grand loan that's what I'm referring to and they're receiving $400 per week in rent now so let's just say I wanna purchase my third investment property with a proposed rental income on the mainstream lender I can probably get around $200,000 as a loan now with a second tier lender I can get up to 520 with a third tier lender I can potentially get up to $700,000 now third tier lenders generally only works if you structured your existing loans with other lenders correctly that's the only time when a third tier lenders will come in play and you're probably thinking why is there such a big difference on those three borrowing powers with different lenders or different tier of lenders well the main thing is how they assess existing debt and which is what I'm gonna do right now for you okay I'm gonna tell you the difference in how each tier lenders would assess your existing debt or any future debt now mainstream lenders will always have this strict criteria in um their policy and how they assess existing debts because they very regulated by APRRA ASIC etcetera so so all your mainstream lenders will have similar assessment criterias okay so now let's talk about why would a second tier lender allow you to borrow more than a mainstream lender well with the mainstream lenders depend on which lender you go to they may shade rental income you know they might discount that rental income by 10 20 25% now with a second tier lender they may not even shade it so there's already an extra 10 20 or 25% rental income you can use on that okay and also with the mainstream lenders they are and also with the mainstream lenders they require you to add up investment property expense within the calculations now with a second tier lender they may not need you to include that rental include that rental expense such as council rates water rates uh repairs etc right and also the big difference is the negative gearing benefit on the back end so a quick example is with a mainstream lender you know if your rate is uh 6% they will add a buffer on top of that which is what we call a buffer rate of 3% so instead of assessing your loan at 6% they'll assess it at 9% just for stress testing right which is an app requirement but on the back end if it's in the investment property even though it's assessed at 9% you got negative gearing benefits on the back end which they will only still use 6% so they get a assess your rate at 9% but they only apply but they only apply negative gearing of 6% but with a second tier lender if they assess your loan at 9% they're going to use the negative gearing benefits on the back end at 9% as well so that's why there's going to be that big difference on the back end because there's more negative gearing benefits than a mainstream lender on the back end by about 3% and that's why there was a big difference between a mainstream lender and a second tier lender of around $320,000 what with borrowing power because of the rental income the shading and also because of the need of giving benefits on the back end so now let's talk about 30 lenders why their borrow power is so much higher than your mainstream lenders by about $500,000 like what I just showed you and the main reason is how they assess existing debts with other lenders and that's why it's very important if you want to use 30 lenders your existing debts with other lenders call it A&Z Saint George has to be structured correctly in order to get that $700,000 and I'll tell you why so the main reason why a 30 lender you're able to borrow more is how they treat existing debts with other lenders so remember what I just said if you structured your loans correctly with a N Z or Saint George you're existing owner occupier or investment debts it works very well with 30 lenders especially when those debts are at interest only and why is it better because with these 30 lenders call it Peppa or Liberty they will only use the existing repayments what you actually pay with those banks as an assessment now depending on if it's Peppa or Liberty they may add another 20% buffer on those repayments therefore it's a lot more beneficial if your repayments are a lot more lower with those lenders and that's why I said to you it's very important how you structured your existing debts with those lenders right because if those lenders are at PNI principal interest repayments obviously it's gonna be a lot more higher than interest only repayments so if Peppa uses the PNI repayment then obviously your borrow power will be a lot more less than what your interest only repayment will be with those lenders okay so so right now only pepper and Liberty are the only 2 30 lenders that will use existing repayments what you actually pay with those lenders outside of their organization as an assessment in their calculation this is why I just showed you the borrowing power could be the difference of 500,000 as a loan between a major lender and a 30 lender with them because they use existing repayments and like I said to you if you structure it correctly before you go to those lenders it can be very beneficial for you so essentially the benefits of using a second and third tier lender is because No. 1 the borrowing power is a lot more higher and No. 2 it allows you to extend your investment property journey so now this explain to you the benefits of using a second and third tier lender you're probably going to me Tony why don't everybody use second and third tier lenders well now I'm gonna tell you the cons okay and the first con is gonna be the rates are gonna be higher so on a second tier lender the rates are generally around 0.4 to 0.6% higher but with a third tier lender call it pepper or Liberty their rates could be anywhere between 1% to 1.5% especially if you're a heavy investor you have multiple properties some of these 30 non conforming lenders will actually add a investor loading on top of your investment rates which is gonna be a killer okay cause some of these rates sometimes could be up to eight and a/2 or 9% because you're a heavy investor so you're probably thinking Tony why would someone pay those rates well it's a cost of doing business to get more loans and to accumulate more property if your mainstream lenders can't give you the loan you need then you sort of have to go to a second and third tier lender and pay that a little bit extra it's been doing nothing right so if you pay the extra 1% to get that loan for 500,000 dollars and buy a 600,000 dollar property and that property grows by 10 15% over the over the last 12 months they sort of would do that wouldn't you right cause it's the cost of doing business and that's why some of these heavy infusers are willing to pay that extra 0.4 to 1.5% in rates just to get more properties and just to borrow more get more borrowing power accumulate wealth etcetera and the second and most biggest con is you probably won't be able to refinance these loans back to a mainstream lender especially if they are investment loans and you're interest only you have the risk of not being able to refinance back over and those repayments change to PNI repayments from interest only and you're probably thinking uh why can't I just refinance back to a mainstream lender before the interest only term finishes well that's because you're overcapitalized your lending already remember what I just showed you with a mainstream lender your borrowing power is only $200,000 and now if you go to a 30 lender call it pepper or Liberty you borrow $700,000 in the eye of the mainstream lender you've overcapitalized your borrowing power by $500,000 based on their assessment criteria so how the heck can you can just refinance back to him right so the only way to really refinance back to him is your income rate increases your rental yield increases the rates drop in a mixture of all those without those you're pretty much stuck in the 30 lender alright that's why you have the risk of not being able to refinance back to those mainstream lenders your interest only term expires and that interest only repayment turns to PMI repayments which means your repayments will increase significantly therefore you might have a cash flow problem that's why using a third tier lender can be problematic sometimes especially in the long run once you purchase and settled on your property because she can't refinance back to a mainstream lender and generally when I tell a lot of my clients about this risk that deters them from using a 30 lender unless their goal is to sell the property before that interest only term finishes some will actually go Tony do you know what I'll worry about that in the next five years when the English only term is about to expire which is fine right so as long as they understand that risk it's fine okay so now you're probably asking what income do I need to refinance these loans back to a mainstream lender based on the second tier lender if your income increases by $20,000 can be a mixture of salary and rental income by around $20,000 you can probably move those loans back from a second tier lender 520,000 back to a mainstream lender now if you wanna move your 30 loans back to your mainstream lender then you probably need an additional income of around 50 grand between and that could be a mixture of salary and rental income as well that's assuming the rates stay the same obviously if the rates drop then that obviously the income needed to refinance back to mainstream lender will also decrease okay guys so everyone now you know the risk of using a 2nd and 3rd tier lender which generally when I talk about the 3rd tier lender that deters a lot of people from using those third tier lenders but second tier lenders more than likely they'll jump on board because there's only around 0.4 to 0.6% difference and some of these mainstream lenders have these um special refinance policies where you know instead of assessing them at 3% buffer rate as a stress testing they only use a 1% buffer rate as stress testing okay so when you use a second tier lender um refinancing back to a mainstream lender using those policies it's a lot more easier um as long as your broker does that sort of calculations for you and tell you that hey do you know what moving back to a mainstream lender is not a problem so it's very important that I showed you and told you about the cons and pros of using a second and third tier lenders because a lot of these brokers out there don't actually tell you the risk involved they just they just like to tell you the benefits right benefits are great in the short term but the pain can come at the long term especially when the interest only term finishes so there it is everyone hope you enjoyed this episode today hope you Learned something hope to see you in the next episode thanks for joining me on another episode of the Moroccan chat I'm your host Tony Shah and I'll see you next time