How to borrow money with a packaged salary

Are you having trouble getting approval for your home loan because your salary is packaged? Paying for expenses such as rent, superannuation or novated leases out of your pre-tax income is a legitimate tax minimisation strategy and shouldn’t affect your ability to borrow money.

Read on to find out how the banks view salary packaging and how to get your loan approved!

Can I salary sacrifice my home loan repayments?

Yes, in most cases this is possible. We suggest you discuss this with your employer & the ATO to make sure you are eligible to do so. We can arrange a loan for you that accepts repayments directly from your employer rather than using a direct debit from your bank account.

Why don’t some banks accept income that is packaged?

The reality is that many banks and their staff don’t actually understand how it all works. Bank employees rarely receive such benefits themselves and find your payslips to be quite confusing as the breakdown of packages expenses often isn’t labelled clearly.

Some lenders take the view that your income should be assessed using normal tax rates for the gross income you receive. This is hardly fair especially for NGO employees that often receive a far higher after tax income than people on a similar gross income.

How much income will the bank accept?

Most banks assess the gross income only without taking any salary sacrifice tax benefits into consideration.

Our best lender for salary packaging can assess part of your income as “tax free” and as such can lend you significantly more than other lenders. They will accept 100% of your packaged income as long as it is consistent and can be verified by an employment letter.

What are the types of salary packaging?

The main types of salary packaging that we encounter are:

• Superannuation packaging: This is where you have chosen to have part of your salary paid into super. We have a lender that considers this a voluntary contribution and adds this money back to your income when assessing your loan.
• Novated lease: Some employers will allow you to pay for the costs of leasing and running a motor vehicle from your pre-tax salary.
• Rent: Packaged rent causes an issue for some lenders as they note that when you buy a home this rent will cease and so will your benefits. We have been able to get around this by switching to loan packaging after the loan is advanced.
• Home loan: Packaging your home loan is one of the best ways to reduce your tax bill. Your loan must be paid directly by your employer so often we setup a line of credit style account to accommodate this requirement.
• Laptop / phone: Minor electrical goods such as a notebook are often allowed to be salary packaged.

As a general rule, as long as you can explain how your salary is paid and we can breakdown your taxable and untaxed salary then we can find you a suitable lender. We most commonly deal with specialist companies like RemServ, government employees, NGO & not for profit company employees that receive exceptional (and often complex) taxation benefits from packaging / salary sacrificing their expenses. Enquire online to talk to a mortgage broker that specialises in lending to people who have pre-tax deductions in their pay and can help you to salary sacrifice your home loan repayments.

How much can I borrow?

You can borrow up to 95% of the value of a property using a home loan assuming you meet all other criteria such as being able to comfortably afford the debt, having a satisfactory credit history and stable employment.

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Here at the Home Loan Experts our mortgage brokers have extensive knowledge of the guidelines used by Australian lenders. Please contact us to discuss your situation with a mortgage broker.