Is your packaged salary preventing you from getting a home loan? Paying for rent or novated leases straight from your pre-tax salary can actually help you to move into a new house faster. Find out more about salary packaging and how to use it.
Understanding Salary Packaging
Also known as salary sacrifice, salary packaging is viable when your paycheck includes employee benefits. In the eyes of certain lenders, this increases your ability to make repayments.
Most non-government organisations (NGO) and charities allow salary packaging, as do some businesses. In such cases, lenders will be getting repayments straight from your employer.
To find out whether you are eligible for salary sacrifice, you first need to ask your employer. Also, you should check with your accountant and the Australian Taxation Office (ATO).
If you are eligible, how much you can borrow depends on your gross income. Some lenders will consider part of your income tax-free.
Do All Banks Accept Salary Packaging?
Unfortunately, not. Some banks believe that borrowers with packaged salaries can’t pay back loans. This happens because banks don’t know the benefits of packaged salary home loans.
Bank employees themselves usually don’t receive the benefits that come with a packaged salary. Add to that the fact that package expenses aren’t always listed on the payslip and it’s easy to understand why.
The truth is that most lenders find it easier to assess home loan applicants using normal gross income tax rates. But this is hardly fair to NGO employees and others with a packaged salary.
If you have a packaged salary, your after-tax income might be considerably higher than that of someone with an average income. But you shouldn’t accept the home loan screening banks use. You can salary sacrifice instead.
How to Salary Sacrifice Repayments
First of all, you can use a how much can I borrow calculator. This will give you a basic estimate to start.
You can then talk to your organisation. Ask them whether you can salary sacrifice for your mortgage. To package your home loan, your employer must pay the repayments. This usually calls for an account similar to a line of credit. If you’ve packaged other expenses already, mention it.
Also, talk to an expert to find out more about a salary sacrifice. For example, the team of advisers at uno can tell you which lenders offer salary sacrifice home loans. Also, they may be able to find you a good interest rate.
Furthermore, a broker can arrange that your repayment dates match your pay dates. Since repayments will come from your pay, this helps you avoid repayment issues.
Salary Packaging Issues and How to Avoid Them
Salary packaging home loans need to be set up properly. Otherwise, you may get into trouble with your lender. This can happen even if you think you are making repayments at the right time.
It’s important to understand that lenders expect a certain interest on a specific date.
The trouble is that, with many employers, pay dates may fluctuate. Even a small delay of a few days may cause problems. In technical terms, this is “technical arrears”.
Another problem that goes hand in hand with arrears has to do with changing interest rates. These may have an impact on your repayment size.
All this may make salary packaging sound like a lot of trouble. However, you can avoid the hassle. Some lenders can offer you special salary sacrifice home loans.
What’s so special about these? They have more flexible repayment dates. So, if for whatever reason your employer doesn’t pay on time, the lender may request another payment the following day. This can make a big difference.
Also, these home loans can debit your cheque account. When growing interest increases the repayment beyond what your employer can pay, your cheque can cover the difference. For maximum convenience, you can set up a direct debit.
Ultimately, if you want to avoid issues and maintain a positive credit history, salary sacrificing is worth considering. It can help you to make the most of salary packaging without the complications that may come with it.
You might even be able to borrow up to 95% of the value of your home. To qualify for this, you’ll need a positive credit history and a stable job.
What to Do Next
At uno, our home loan brokers can help you to take advantage of the flexibility of salary packaging. We recommend that you…
- Calculate how much you need to borrow using a Funds Required Calculator
- Get advice on a complex situation and compare home loans
- Talk to an expert on salary packaging about your options
This information is general in nature, and you should always seek professional advice when making financial decisions.