20 Oct 2021

Does Salary Sacrifice Affect Borrowing Capacity?

Borrowing Capacity

Salary Sacrifice is a common practice in Australia. However, it can affect your borrowing power. Keep reading to find out more about what salary sacrifice is and how it can affect both your borrowing power and your home loans. 

Salary Sacrifice Basics

Salary sacrifice is an agreement between you and your employer in which your employer pays you less in exchange for some other benefits. These benefits can include a contribution to your superannuation or payments you can put towards childcare, health insurance, car payments, rent, laptops, phone, or other purposes as defined by your employer. 

How Does Salary Sacrifice Affect My Borrowing Power and Home Loans?

Salary sacrifice can be a perk of your job, but it can be a negative when applying for home loans. Many lenders count salary sacrifice as an expense when it’s not, leading them to miscalculate your monthly expenses. If a lender miscalculates your expenses, it can reduce your borrowing power with them, affecting how large of a home loan you can secure. 

How Do Lenders Determine Whether Salary Sacrifice is an Expense? 

When a lender determines whether or not to assess your salary sacrifice as an expense, they try to determine whether it is voluntary or involuntary. Lenders define involuntary expenses as those that cannot be stopped, like car payments. Many lenders classify these involuntary sacrifices as expenses on home loan applications. Voluntary sacrifices can be stopped and are choices you make, like super contributions. These voluntary sacrifices are not classified as expenses and do not affect your borrowing power. 

If you are sacrificing any part of your salary for any reason, you should consult with the experts at Mortgage House. We can help you find competitive rate home loans. As experts in the lending process, we understand salary sacrifices and can help you find a loan that reflects your total income.

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