How to borrow money with a packaged salary

Are you having trouble getting approved 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, how to get your loan approved or how to get a better interest rate!


Who can salary sacrifice?

Depending on the company you work for and the sector you’re in, it may be possible to salary sacrifice.

Most non-government organisations and charities offer this as an incentive to work in these industries despite a low salary.

We suggest that you discuss this with your employer and the Australian Taxation Office (ATO) to make sure you’re eligible to do so.

We can then arrange a loan for you that accepts repayments directly from your employer rather than using a direct debit from your bank account.


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” which means they can lend you significantly more than other lenders.

They’ll accept 100% of your packaged income as long as it’s consistent and can be verified with an employment letter.

Please contact us on 1300 889 743 or fill in our free assessment form to discuss your situation.

We can help ensure that your packaged income counts!


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

Did you know that many banks decline applications for people who have salary packaging because the banks believe they can’t afford the repayments?

The reality is that many banks and their staff don’t actually understand how it all works!

Bank employees rarely receive such benefits themselves so they find your payslips to be quite confusing as the breakdown of package expenses often aren’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 non-government organisation (NGO) employees that often receive a far higher after tax income than people on a similar gross income.

Our mortgage brokers know which banks will assess your full income and which documents to provide to make your mortgage approval a simple process.


Can I salary sacrifice my mortgage repayments?

It’s quite simple to set up your mortgage so that it’s salary packaged.

Follow these simple steps and you can sort this out in no time:

  • Talk to your HR department: Ask your employer if they can allow you to salary package your mortgage and find out if there are any implications for other expenses that you’ve packaged.
  • Talk to a mortgage broker: Give us a call on 1300 889 743 or fill in our free assessment form and one of our mortgage brokers can switch your mortgage to a type that has the required features for salary packaging. We may even find you a better interest rate too!
  • Change your repayments: You’ll need your repayments to come directly from your pay so we’ll normally set up the repayment dates to match your salary payment dates in order to avoid arrears.

Disclaimer: We suggest you seek financial advice if you have a more complex situation with additional expenses that have been salary sacrificed or investment properties that may affect your tax position.


Want a better interest rate?

If you’re looking to salary package your mortgage and want to get the best interest rate possible on your existing loan, please call us on 1300 889 743 or fill in our free assessment form and our mortgage brokers will help you find the right lender!


What are the types of salary packaging?

The main types of salary packaging that we encounter are:

  • Superannuation packaging: This is where you’ve 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’ve 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 set up 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, we can breakdown your taxable and untaxed salary and find you a suitable lender.

We most commonly deal with specialist companies like RemServ, government employees, NGOs and not-for-profit company employees that receive exceptional (and often complex) taxation benefits from packaging / salary sacrificing their expenses.

Fill in our free assessment form or contact us on 1300 889 743 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.


What are "Technical Arrears" and how do I avoid them?

If your mortgage isn’t set up correctly then you may find yourself getting an angry phone call from your lender, even though you haven’t missed any repayments.

The reason being is that the bank expects to receive a particular amount of interest on a particular date.

It can be hard to match this up with your employer as your pay dates may fluctuate by a few days, causing you to be in technical arrears.

In addition to this, your repayment size may change as interest rates go up and down over time.

As a result, you may need to change the amount that your employer pays into your mortgage as interest rates change.

Sounds complicated? It doesn’t have to be!

Some banks have home loans specifically designed to suit the needs of people who salary sacrifice.

They offer more flexibility with the date of repayments and they allow any shortfall in repayments to be automatically direct debited from your cheque account.

This saves you the hassle of trying to manage your money: it all happens automatically and your repayment history remains perfect.

If you set up your mortgage the right way, this will not be a problem!


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.

You can also boost your borrowing power using your super contributions.


Apply for a salary sacrifice home loan today!

At Home Loan Experts, our mortgage brokers have extensive knowledge of the guidelines used by Australian lenders.

Please call us on 1300 889 743 or fill in our free assessment form and explain how you earn an income.

  • Harrison

    Will banks allow 2 different mortgage payments to be included under salary sacrifice? I’ve one owner occupied property repayments reduced from my salary now.

  • Hi Harrison,

    Yes, Salary sacrifice is quite flexible and you may have have several payments come out of your pay. So, you can speak with your employer and have second payments as well.

  • Keira

    My pay date fluctuates regularly and this can be anywhere from a day to a week at most so will this be a problem?

  • Hi Keira,

    Banks expect to receive a particular amount of interest on a particular date, however, there are some banks that have home loans specifically designed to suit the needs of people with salary packaging. They offer more flexibility with the date of repayments and they allow any shortfall in repayments to be automatically direct debited from your cheque account. This saves you the hassle of trying to manage your money so if you set up your mortgage the right way, this will not be a problem.

  • beeston

    Can I borrow at 95% even if I’ve got a few more debts than I’d want to right now?

  • Hey beeston,

    Banks will not generally accept people with many credit cards and personal loans. As a rough guide, people who have more than 5% of the purchase price in unsecured debts such as personal loans and credit cards are often not approved. So if you have a lot of debts, you may have to go for a lower LVR.

  • Rider

    How much can a child or two affect our borrowing power for a home loan?

  • Unfortunately, having dependents can significantly affect your borrowing power. To find out just how much impact they can have on your borrowing power and, more importantly, how you can improve it despite that, please check out this page:
    https://www.homeloanexperts.com.au/how-much-can-i-borrow/dependents-on-borrowing-power/

  • Mia

    My husband is a freelancer and we’re thinking of him applying alone because of a few recent mistakes that got 2 defaults lodged on my credit file. I’m sorting things out right now so I would just like to know if he can qualify on his own.

  • Hey Mia,
    Most freelancers are self-employed and work on a contractual basis so lenders will need at least three of your husband’s most recent bank statements and two years’ tax returns. If he can provide these, he may be able to borrow up to 90% LVR. A 95% lend is also available but it will mean stricter qualifying criteria such as strong income and minimal debts along with a clean credit history. Please check out the freelancer mortgage page if you’d like to research more:
    https://www.homeloanexperts.com.au/unusual-employment-loans/freelancer-mortgage/

  • Julie Maher

    Hi

    Just wondering if nsw police officers can salary sacrifice a mortgage
    As we have been told no but other government places are allowed

    Thanks

  • Hi Julie,
    I haven’t seen a police officer do this in the past. It’s best to check with your HR department as they would know.

  • Mandy

    Ihi

  • Mandy

    Hi
    Im just curious how the lender will work out my gross income earns p.a my base salary $50000 pa & my gross income earnings shows on payslips date 4/3/2017 is $33200 plus I work overtime a lot during last few months however I made salary sacrifice of $1075 fortnightly. Will bank included salary sacrifice pre tax as well