Voluntary HECS Repayment

Mkh198 on 25/08/2015 - 16:22

Hi,
I am deciding on wether to make a voluntary repayment and pay out the remaining $7600 HECS debt. If I do by Dec 31st 2015 then the government will credit 5% of the voluntary repayment- so I'll be saving $380 in the long run. Cost to pay on Amex is 1.45% therefore a $111 credit card fee that is not tax deductible. Paying on credit card will also give me 11500 QFF points. I am currently in the market to buy my first house. Finance is pre-approved, but was saving some extra $$ just in case the house I wanted to buy was more then what is pre-approved.
Thoughts on paying debt outright and getting savings + points or allowing my wage to pay out the remaining debt over the next 2 years? Or BPAY with no credit card fee (11500 points is probably not even worth $111 is it?)

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Comments

  • cypher67 on 25/08/2015 - 16:39
    +4

    HECs is the cheapest loan you will ever get. Put that $7600 on your homeloan instead and you will be saving much more in the long run than just a once off 5% and some QFF points.

  • QW3RTY on 25/08/2015 - 16:45

    So by paying out your HECS now, you'd pay:

    ($7600*0.95)+$111 = $7,331 ($269 or 3.54% saving)

    Investing the $7,600 cash at a risk free rate of return of 1.74% results in interest accumulation of:

    (7600*1.0174) = $7,732 ($132.24 or 1.74% interest gain)

    Would make sense to pay now, take the discount, suffer the credit card fee hit, take the points and enjoy your extra $136.76 that you saved in the two year long run.

    • sareth on 25/08/2015 - 17:45
      +6

      Nobody in their right mind would invest in 1.74% government bonds when you can get more than DOUBLE that - 3.5% from an equally risk-free savings account. This gives a gain of $266.

      • MITM on 25/08/2015 - 20:47

        Risk free - but not tax free
        Pay it off for peace of mind. Once you're into homeownership, the bills keep rolling in.

    • Forenti on 25/08/2015 - 19:47

      Also the interest should really be calculated over two years since that's when the HECS will be paid off otherwise - this makes the interest option even more favourable

  • loiloi on 28/08/2015 - 15:32

    Another thing to remember is that banks ask if you have a HECS = lower borrowing capacity.

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