18 Dec 2021

Pre-Tax Income: Provide Smarter Options

Lenders apply several ratios when evaluating a customer’s application. Among them is buffering. Lenders are willing to provide home loan solutions based on pre-tax income. However, they put the income through stress tests. 

For example, applicants qualify for an interest rate based on their current financial circumstances. Next, the lenders see what happens to the applicant’s income if interest rates increase 3% points. The old measurement stood at 2.5%. However, the Australian Prudential Regulation Authority raised it in October 2021.

The goal is to put applicants in positions to succeed. The Australian government wants citizens to become homeowners. When the housing market becomes overheated, homebuyers pay more. Eventually, the properties become unaffordable, even for the top income earners.

It’s possible to find worthwhile home loan solutions with pre-tax income. For example, the applicant can set up their mortgage repayment through their employer. They can request that their employer withdraw it before applying the taxes to their payslips. 

This strategy helps optimise their income and borrowing capacity. Ideally, applicants have 30% of their income available for their monthly repayment without stress. 

Calculate your home loan borrowing capacity with our mortgage choice calculator.

Pre-Tax Income Loan Solutions Conclusion

It’s possible to obtain smart loan solutions by looking at pre-tax income. In most cases, lenders look at net income since it’s the amount available to the applicant after taxes. They’re willing to assess the income before taxes and put it through a stress test. To gauge your borrowing capacity, contact the loan specialist team at Mortgage House.

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