Paying off a home loan is often the main goal of many home buyers. Mainly because they know the quicker they pay off their mortgage, the more they save. So, if saving more is your goal, then you may want to consider salary sacrificing your mortgage.
Salary sacrificing allows an employee to pay their mortgage from their salary before tax. This concept can:
- Reduce tax paid on the income earned.
- Allow you to pay off your home faster.
- Make it easier for you to manage mortgage repayments.
However, not all organisations offer salary sacrificing to their employees. Therefore, it pays to ask.
If the firm you work for salary sacrifices, then you need to be certain it’s for you before you opt-in. Factors you’ll need to consider are:
- Australian Taxation Office rulings Check with the ATO to ensure that you’re eligible to salary sacrifice your home loan.
- Loan type Salary sacrificing your mortgage is only available for an owner-occupied home. So, if your property is an investment, then you’ll need to look at other options.
- Lender approval You’ll need to ask your lender if they accept salary sacrificing. Not all lenders will accept this form of payment for a loan. So, if this is what you want, then you may need to shop around for another lender.
- Employer approval – Ask your employer or human resources department, if you can salary sacrifice your home loan. If it is possible, then make sure you ask if this will affect your superannuation or any other payments.
- Contact your accountant Making a decision without professional advice is costly. So, contact your accountant and ask them about salary sacrificing your mortgage.
There are many benefits to salary sacrificing. These are as follows:
- You’ll pay less tax If you earn a sizeable income, then salary sacrificing your home loan reduces your taxable income. Therefore, you’ll pay less tax at the end of the financial year.
- Reduce your interest repayments Paying your mortgage before tax means you can increase repayments and reduce your interest further. This tactic will pay off your mortgage faster.
- Increase your disposable income With you getting taxed less and your mortgage already paid for, you’ll have more disposable income. You can use this to save for a holiday or new car. Alternatively, you can pay even more off your home loan.
- Convenience Directly paying your mortgage from your salary means you no longer manage the payment yourself. This option frees-up your time and removes the stress of home loan repayments. Plus, you’re paying off your home without even realising it’s happening.
With benefits come disadvantages. The pitfalls of salary sacrificing are:
- Employer refusal Not all employers offer salary sacrificing. In fact, many believe that it will be too time-consuming and costly to establish. However, this is typically not the case. So, it could be up to you to convince them.
- Employer limits Not all employers will allow you to salary sacrifice all your mortgage repayment. Some employers have a limit. Therefore, you’ll need to check if you can salary sacrifice enough.
- Less superannuation As salary sacrificing reduces your income, your mandatory superannuation payments will decrease. Therefore, you’ll need to assess the impact on your retirement savings.
- Fees Some employers will charge you an administration cost to cover the setup of your salary sacrifice arrangement. Thus, you’ll need to ask about this cost.
Do you want to know more about salary sacrificing your home loan? Then contact eChoice, we can help you find out if you’re eligible. Our brokers also have access to 100’s of home loan products, so we’ll find you the right mortgage.
Tags: Home Loans