Many first-home buyers find themselves juggling a mortgage while still carrying student debt, often wondering which to prioritise: their HECS-HELP balance or their home loan. Understanding how each debt works is essential for making a decision that supports your financial wellbeing over the long term.

HECS-HELP is a government loan designed to make higher education more accessible. It is not charged interest, but it is indexed annually based on inflation. Repayments are automatically made through the tax system once your income exceeds a certain threshold. For the 2024–25 financial year, that threshold is around fifty-one thousand dollars. If your income falls below that level, you aren’t required to make any repayments. This structure means that while HECS debt does increase slightly with inflation, it generally grows at a slower pace than most other types of debt.

In contrast, a mortgage is a form of high-value debt that accrues interest daily. Home loan repayments are required regularly and typically consist of both principal and interest components. Over time, the cost of interest can significantly increase the total amount repaid, especially if only minimum repayments are made. Even a small reduction in your loan balance early on can make a noticeable difference to the interest paid over the life of the loan.

When comparing the cost of these debts, the difference becomes clear. HECS-HELP debt is relatively low-cost and only grows in line with inflation, whereas mortgage interest can add thousands or even hundreds of thousands of dollars to your total repayments, depending on the loan size and term. This is why many financial professionals suggest focusing on the mortgage first, especially if your HECS repayments are already being managed through the tax system.

There’s also the matter of cash flow and financial flexibility. Making additional payments toward your mortgage can reduce your loan term, increase your equity, and potentially allow you to access redraw facilities or refinancing options. Voluntary HECS repayments, on the other hand, offer no immediate financial return or flexibility. Once the payment is made, the funds are locked in and can’t be recovered or redirected.

However, there are some cases where making a voluntary HECS repayment could make sense. If you are close to reaching the income threshold and want to reduce your future repayment obligations, or if you anticipate a significant rise in income, making an early payment could help reduce your compulsory repayments down the track. Similarly, if your mortgage interest rate is particularly low or you’ve already built up a strong financial buffer, directing some funds toward your HECS may align with your personal goals.

Ultimately, it comes down to cost, flexibility, and your financial objectives. For most people, prioritising mortgage repayments makes more sense due to the compounding nature of interest and the potential to build equity. Still, every situation is different. If you’re unsure, it’s worth seeking advice from a financial adviser who can help you develop a strategy tailored to your circumstances.