Salary Packaging/Sacrificing Your Mortgage: Is It Worth It?

Tax
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November 2, 2025

If you’ve ever wondered whether you can salary sacrifice your mortgage, the short answer is yes — but only in some cases. In Australia, salary packaging a mortgage allows you to make home loan repayments from your pre-tax income, potentially saving you thousands in tax.

However, the rules are strict, and not every employer or lender allows it. Let’s break down exactly how salary sacrifice into a mortgage works, who qualifies, and whether it’s actually worth it.

What Does Salary Sacrificing a Mortgage Mean?

Salary sacrificing (also called salary packaging) is when you and your employer agree to redirect part of your salary before tax is applied — typically towards benefits like a car, laptop, or superannuation.

When it comes to salary sacrificing a mortgage, that pre-tax portion is instead paid directly to your home loan account by your employer. The arrangement can help you reduce taxable income and pay down your mortgage faster.

This setup is similar in concept to salary sacrificing to super, but instead of boosting your retirement savings, you’re building home equity.

How Salary Sacrificing a Mortgage Works

Here’s how it typically works in practice:

You and your employer enter a written agreement to salary sacrifice a fixed amount each pay cycle.
The sacrificed amount is deducted from your gross income (before tax).
Your employer sends the money straight to your lender to repay your mortgage.

Because the repayment comes out of your pre-tax pay, your taxable income decreases, which can lower the tax you owe at the end of the year.

Example:
Let’s say you earn $100,000 annually and agree to salary sacrifice $10,000 towards your mortgage. Your taxable income drops to $90,000. That could mean significant annual tax savings — depending on your marginal rate — while helping you clear your loan faster.

Salary Sacrifice vs Regular Mortgage Repayments

Aspect	Regular Repayment	Salary Sacrifice Repayment
Payment Source	After-tax income	Pre-tax income
Taxable Income	Higher	Lower
Employer Role	None	Required
Accessibility	Universal	Limited to certain sectors

The key difference is the tax timing — whether your repayments come out before or after tax is calculated.

Who Can Salary Sacrifice a Mortgage in Australia?

Not everyone can use this strategy. In most cases, salary sacrificing a mortgage is only available to:

Government employees
Workers in not-for-profit organisations (like public hospitals, charities, or community services)
Employees under specific enterprise or workplace agreements

Private-sector workers generally cannot salary package home loan repayments unless explicitly allowed by their employer and compliant with ATO salary packaging rules.

Always check with your HR department or payroll provider before making assumptions — and confirm that your lender accepts employer-directed payments.

Benefits of Salary Sacrificing a Mortgage

When done correctly, salary sacrificing a mortgage can offer several benefits:

Lower taxable income: Reduce the income you’re taxed on, which could drop you into a lower tax bracket.
Faster debt reduction: Every pre-tax dollar you redirect to your mortgage pays down principal faster.
Potential interest savings: Clearing your balance sooner can save thousands in interest over the loan’s life.
Convenience: Automatic deductions make repayments consistent and disciplined.

These are the same types of advantages that make salary sacrifice super benefits so popular — just applied to your home loan instead.

Downsides and Considerations

While the tax advantages sound appealing, there are several things to keep in mind:

Not all employers or lenders allow it. It’s generally restricted to the public or not-for-profit sectors.
Fringe Benefits Tax (FBT) may apply if the benefit isn’t exempt. This can offset the potential tax savings.
Reduced take-home pay: Because the sacrifice occurs before tax, your net pay will drop — which can affect day-to-day cash flow.
Less flexibility: Once set up, funds go directly to the lender. You can’t redirect them without employer approval.
Impact on superannuation: Sacrificing to your mortgage instead of super could slow your long-term retirement growth.

To understand potential FBT implications, check out our guide on Fringe Benefits Tax and Salary Packaging.

Salary Sacrifice Mortgage vs Salary Sacrifice to Super

Both options use pre-tax income, but they serve different goals.

Goal	Salary Sacrifice Super	Salary Sacrifice Mortgage
Purpose	Boost retirement savings	Pay down home loan faster
Access	Locked until retirement	Immediate benefit (reduced debt)
FBT Risk	None	Possible
Employer Requirement	Common	Restricted

If your goal is to retire early with more savings, salary sacrificing to super might deliver better long-term returns.

If your focus is on debt reduction and home ownership, salary sacrificing a mortgage could make sense — provided your employer allows it and FBT doesn’t apply.

How to Set Up a Salary Sacrifice Mortgage

Check eligibility: Ask your employer whether mortgage payments can be packaged.
Consult your lender: Ensure they can receive payments directly from your employer.
Draft a written agreement: Salary sacrifice arrangements must be formalised.
Review tax impact: Confirm with your accountant or tax agent that you’ll actually save after FBT.
Monitor results: Regularly review your payslips and loan statements to confirm everything’s applied correctly.

Example: Salary Sacrificing a Mortgage in Action

Let’s say:

Gross income: $110,000
Amount sacrificed to mortgage: $15,000
New taxable income: $95,000

Depending on your marginal tax rate, you could save roughly $4,500 in tax each year. That’s $4,500 more applied to your mortgage principal instead of the ATO.

However, the benefit only works if your employer and lender both participate — and if no FBT is triggered.

Should You Salary Sacrifice Your Mortgage?

It can be a smart strategy if you’re eligible and your employer offers it — especially if your goal is to reduce debt and lower taxable income simultaneously.

However, it’s not for everyone. The complexity, limited eligibility, and potential FBT exposure mean you should always get professional advice before making changes.

If you want a simpler pre-tax benefit with fewer risks, salary sacrificing into superannuation is often the more flexible option.

Final Thoughts

Salary sacrificing your mortgage can be an effective way to reduce tax and build home equity faster — but it’s not a one-size-fits-all solution. Each situation depends on your income, employer, and financial goals.

At KSH TAX, our accountants can assess your eligibility, calculate your potential tax savings, and help you structure a salary packaging plan that truly benefits you.

Contact our team today to book a salary sacrifice review and find out whether this strategy makes sense for your financial situation.

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