Boost your borrowing power using your super
Do you make concessional super contributions under a salary sacrificing arrangement with your employer?
There are some lenders that will consider this as an additional contribution and add this back to your income when assessing your home loan application.
This is a great way to increase your borrowing power whether you’re PAYG and self-employed and pay into your own self-managed super fund (SMSF).
What do most banks think?
It really depends on whether you’re PAYG or you have your own SMSF.
PAYG
Most banks won’t actually add back any additional superannuation contributions that you make.
These contributions show up as an additional deduction on your payslip so the bank actually includes it as an expense when assessing your assets and liabilities position.
This is despite that fact that you’re making extra super contributions for tax benefit purposes and you may be in a position to stop these voluntary contributions at any time!
Specifically, this is where you’re paying into super under a salary sacrifice, award or tax-deductible personal contribution.
SMSF
There are actually some banks that can help but very few will add back concessional super contributions if you’ve just started making them or you’re close to retirement.
Please call us on 1300 889 743 or complete our free assessment form so we can help you find a lender that will take into account your super contributions.
How much of it will they use?
If you’re applying for a home loan in your personal name and not for your SMSF, our best lender will actually use 100% of these concessional contributions.
For SMSF borrowing, there are some lenders that will accept 80-85% of these additional contributions but there are others that will add back all of it.
Read more about how lenders will assess SMSF income on the SMSF loans page.
What are the restrictions?
PAYG
It’s important to provide evidence from your employer that you can stop these before-tax contributions at any time.
SMSF
The main problem is that lenders aren’t sure whether your trust deed will allow you to easily stop making these additional contributions.
Luckily, some lenders take the common sense approach that you only need to make the concessional contributions once you’ve bought the property!
Similarly, if you’re close to retirement and you’ve been making voluntary contributions for a while, banks will be concerned that stopping them in favour of making mortgage repayments will put you into undue financial hardship.
Will they accept other types of salary packaging income?
As a general rule, as long as you can explain how your salary is paid, we can break down your taxable and untaxed salary and find you a suitable lender.
So in many cases we can help you add back the following salary-packaged items, either partially or in full:
- Novated lease: Some employers will allow you to pay for the costs of leasing and running a motor vehicle from your pre-tax salary.
- Rent: Packaged rent causes an issue for some lenders as they note that when you buy a home, this rent will cease and so will your benefits. We have been able to get around this by switching to loan packaging after the loan is advanced.
- Home loan: Packaging your home loan is one of the best ways to reduce your tax bill. Your loan must be paid directly by your employer so often we set up a line of credit style account to accommodate this requirement.
- Laptop / phone: Minor electrical goods such as a notebook are often allowed to be salary packaged.
Check out the salary sacrifice home loan page for more information.
Concessional vs non-concessional super contributions
Concessional contributions are before-tax contributions that allow you to rapidly grow your retirement savings and pay much less in tax.
If you earn a low income and your employer makes concessional contributions on your behalf, you may even be eligible for a government co-contribution.
Non-concessional contributions are any after-tax contributions that you make to your super fund above the government-backed Superannuation Guarantee (SG). You don’t pay tax on these additional contributions as long as you stay with the non-concessional contributions cap.
You should check out the Australian Taxation Office (ATO) website for regulations, tax refunds, co-contributions and caps that you may be eligible for.
It’s recommended that you seek out independent financial advice before making a decision related to superannuation and retirement planning. These caps and the tax savings you stand to make can change on a regular basis.
Discover if you qualify
We’re experts in helping borrowers who make concessional super contributions to increase their borrowing power.
Call us on 1300 889 743 or complete our free assessment form to find out how we can help you get approved for a home loan.