Would you want to know if mortgage payments are salary sacrificed? In my experience, the word “sacrifice” undoubtedly evokes thoughts of relinquishing something, which can induce feelings of melancholy and evoke the eponymous Elton John song.
To exult, however, is to make a sacrifice in the context of salary packaging or salary sacrificing.
Salary sacrificing, an agreement between an employee and their employer in which the employee pays for certain goods or services with pre-tax income, can result in substantial cost reductions.
Examples of salary sacrificing include:
- Purchasing a vehicle or computer.
- Financing child care.
- Making pre-tax contributions to superannuation and a mortgage.
- It can decrease one’s taxable income, thereby increasing disposable income.
Salary sacrifice can also revolutionize your mortgage experience; however, consider the benefits and drawbacks.
Seek the counsel of a financial advisor regarding your particular circumstances. Salaries can be sacrificed to accelerate the repayment of one’s mortgage and save money.
A non-Australian may find the notion of forgoing one’s hard-earned dollars as appealing as a Vegemite sandwich; however, when executed correctly, this astute financial maneuver can reduce one’s tax liability and abbreviate the duration of one’s mortgage.
However, that is not all; I will continue to educate you on the subject as you read.
ALSO READ – Can Mortgage Payments Be Paid In Advance
Now, let’s get started.
Can Mortgage Payments Be Salary Sacrificed
They can, but not all companies give them the choice. You should find out what your company offers, and remember that you can only salary sacrifice your mortgage if you own your house.
Different lenders will have different rules about how you can make salary sacrifices, but most will let you.
How you can make your mortgage payments will also depend on whether or not your home loan company allows salary sacrifice payments.
These kinds of deals are only available for home loans that the borrower lives in, not for loans for rental properties.
It’s important to remember that people with high incomes (those in the highest tax band) who can use wage sacrificing to pay off their home loans get more benefits than people with low or moderate incomes.
If you make less than $100,000 a year, paying less on your mortgage might not be worth it.
ALSO READ – Can A Mortgage Company Force You To Refinance
Who Can Salary Sacrifice Mortgage Repayments
The first thing you should do is ask your boss if they are open to a salary-sacrificing plan.
Some companies don’t let their workers save money on their salaries because they might have to pay fringe benefits tax (FBT) for their employees.
Some fields, like health, charity, and not-for-profit, usually get an FBT exemption or refund, which makes it easier to put pay packages into place.
Next, ask your lender if they will let you pay your mortgage with a salary loss. Studying before agreeing to anything is essential because not all lenders will.
Most of the time, salary sharing is only possible for home loans for people who live in the home.
Once more, some people can’t sacrifice their income for their home payments. For a chance to win, you must:
• Have a job in Australia.
• Work out a salary-packaging plan with your boss.
• Get a mortgage from a company that lets you sacrifice your salary.
• Types of workers who can pay their debt with their salary instead of extra money.
Not all workers in all fields and companies can pay off their debt with their wages. Companies that don’t have to pay the Fringe Benefits Tax (FBT) usually offer salary sacrifice.
There are higher chances for workers in the following fields and companies to be able to sacrifice their mortgages:
• The public sector, which includes state hospitals and government offices and agencies; • Non-profits; • Big businesses
ALSO READ – Can A Bank Withdraw A Mortgage Offer
Should Your Salary Sacrifice Your Mortgage
Whether you should sacrifice your salary to pay your mortgage varies depending on your situation.
While it’s easy to see how a pay-sacrifice plan can help you, there are some other essential things you should think about before making a decision:
There may be a processing fee charged by some businesses to set up this deal. Also, your company might have a cap on how much pre-tax income you can pay cut each year.
This plan could change your ability to get some tax breaks, government aid, the Medicare levy fee, and child support payments.
People often make the mistake of thinking that their company will put less money into their super fund. It is up to your boss to pay you all your awesome guaranteed benefits as if you had yet to sacrifice your salary.
Suppose giving up your job to pay your mortgage sounds like something you’d like to look into but need help figuring out how to begin, talk to one of our expert agents.
There are a number of loans that they will offer you that will help you find one that meets your financial needs.
Once more, here are some pros and cons to think about:
Pros:
- In the long run, you can save on home payments.
- Your taxed income can go down.
- Your boss will take care of all the paperwork for pay sacrificing.
- You will get paid less, which is a con.
You can only put a certain amount of money into your retirement fund at a time. Your concessional contributions for the year can be at most $27,500.
This includes the money you give from your salary and the money your company puts in through the super guarantee.
It might not be suitable if your yearly income is less than $37,000. As long as your income is less than this amount, the tax rate you pay is only 19%. Because of this, income loss might not be worth it since it would only lower your tax bill by 4%.
ALSO READ – Can A Mortgage Offer Be Declined
What Are The Best Alternatives To Sacrificing your Salary And Mortgage
There are a few other ways to lower your mortgage payments if you can’t or don’t want to waive your mortgage payment, such as:
- I am making extra payments on your home.
- You are getting a cheaper interest rate on your home by refinancing.
- We are being disciplined when using balance funds.
- You are letting someone use a part of your house.
- You can rent-vest until you have enough money in the house to buy it.
- I am moving down to a smaller home.
- You are using your retirement savings to pay for your house.
You should join the First Home Super Saver Scheme if you are looking into pay loss because you want to buy your first home.
It is possible to accelerate the repayment of your mortgage and save money by forgoing your salary.
However, it would help if you thoroughly considered the pros and cons before deciding.
Additionally, seeking assistance from a financial adviser regarding your situation would be beneficial.
ALSO READ – Are Mortgage Payments The Same Every Month
What Are The Advantages Of Mortgage Salary Sacrifice
1. When you agree with your boss to give up some of your salary to pay your mortgage, that money will go straight to your loan.
This will make it look like you’re making less money, so you’ll pay less in income tax each year.
Salary sacrifice mortgages aren’t suitable for everyone who wants to get a home loan, but those who can get them enjoy these benefits:
One way to save on taxes is by giving some of your pre-tax pay to your loan. You’ll pay less tax every year, even if it feels like you’re making less money.
2. Pay off your home loan faster. You pay less income tax when your salary reduces your home loan. So, you can use the money you saved to pay for other things. For instance, you can pay off your loan faster and pay less in interest over the life of the loan.
3. More money in your pocket: You can reach your living goals if you have more money. Instead of making more significant loan payments, you can use the extra money to buy a trip, a new car, or other things.
4. Convenience: Giving up some of your salary makes it easier to repay your home loan. Since your company handles the mortgage payments, you don’t have to worry about that as much.
ALSO READ – Are Mortgage Payments Less Than Rent
What Are The Drawbacks Of Salary Sacrificing Your Mortgage
But some things could go wrong if you pay off your home loan with your salary. Once a deal is made, you won’t be able to get your sacrificed wage because it will be taken out of your pre-tax pay and sent straight to your loan.
Giving up your job to get a home loan can be a great way to save money on your mortgage. But there are a few things you should know before you begin:
1. Employers may disagree: Your pay sacrifice home loan deal could be turned down by your boss if it takes too much time, costs too much money, or doesn’t benefit the business.
2. Less money coming in: You might be able to raise your contributions, but this will probably mean less money coming in.
Having to deal with this could make it harder to meet your financial and family budget needs. It could also stress your mortgage because you’ll pay more each month towards your loan.
3. Less money for perks and retirement: Your company contributes based on your net income, which is your income after all expenses are paid.
This means you have less saved for retirement than you would have had you not given up your pay.
You might also get less in salary benefits like extra pay, etc., because they are based on how much you make after pre-tax cost payments are taken out.
4. Administration fees: Because of the routine work of setting up your salary packaging, some companies may charge an extra fee.
5. Lack of cash flow: If you need steady and smooth cash flow, putting your money into home loan payments might be better.
ALSO READ – Are Mortgage Payments Fixed
How To Salary Sacrifice Mortgage
You should set up the mortgage salary sacrifice deal ahead of time since plans to sacrifice only affect future salary payments and no payments already made.
You should change the terms of your present job in a new written agreement if you want to use this setup later in your career and your boss agrees.
Home loan salary sacrifices must be in your job contract with your boss. You have to set it up ahead of time because it can only be used for future salary payments and not for payments that have already been made.
When you start a new job, you usually sign an employment contract. But if your boss agrees, you can change the rules of your current job by writing a new agreement.
Here are the steps you need to take:
- Talk to your current or future HR department to determine if you can sacrifice some of your pay for your home loan.
- If you want to make sure that a pay sacrifice makes you more money, talk to your lawyer or tax advisor and have them do the maths.
- Find a home loan with good terms or refinance the one you already have. Then, talk to the lender about your salary-cutting plans and make sure they take your gross earnings into account, not just your taxed income, after the sacrifice when they figure out how much you can borrow.
- Set up a way for your company and the loan to repay each other.
ALSO READ – Do Mortgage Payments Start Right Away
Final Thought
Now that we have established that mortgage payments can be salary sacrificed, however If you are still determining whether or not sacrificing your mortgage for salary is the best course of action, you should consult a certified mortgage broker to explore your alternatives.
Additionally, remember that the ability to fund a mortgage through salary sacrifice is restricted to owner-occupier properties, not investment properties.
Furthermore, not all lenders permit this mode of payment; therefore, if your desired lender does not take it, you may need to research to locate one that does.