2024-05-23 28Hse Editor
As the end of the year approaches, people start to look forward to bonuses or double pay from their company. How much income an applicant earns will have a direct impact on the ratio of mortgage repayment to income. This, in turn, will affect the results of their mortgage application and the stress test – so can bonuses or double pay be included in income calculation?
A wage earner's income is usually divided into monthly salary or basic salary, commissions and bonuses. Apart from the monthly basic salary, other incomes are calculated in different ways, so it is important to calculate them carefully when buying a property. First of all, before calculating their income, employees should note whether their employment contract specifies calculation methods and time of payment of commissions, bonuses, and double pay.
When calculating income, if the employment contract stipulates that the company will distribute double pay every year, the payment can be counted as fixed income. For example, if a buyer has a monthly salary of HK$20,000 and also receives an additional HK$20,000 in double pay, this double pay will be divided into 12 equal installments. This means the monthly income will increase by HK$1,666 to HK$21,666.
It’s worth noting that when applying for a mortgage, people with a fixed income need to provide proof of income such as pay slips for the last three months. As for double pay, banks may require buyers to provide pay slips, employment contracts and bank statements for the month of double pay. Monthly statements serve as proof, so buyers can make preparations accordingly before applying for a mortgage.
As for bonuses, banks generally calculate them based on the average bonus amount over two years. For example, if the applicant receives a bonus of HK$40,000 in the first year and HK$80,000 in the second year, the average annual bonus income is HK$60,000, which means that the monthly income will increase by HK$5,000 evenly over 12 months.
Since banks use the average of two years' bonus as a benchmark, what if the applicant's company only pays one year's bonus but not the other? Typically, the two-year average of the bonus is calculated. However, there is also an upper limit, and the upper limit is three times the monthly salary. This is how the bank calculates an applicant’s bonus without a two-year benchmark.
Regarding commission income, banks generally calculate it based on the average of the past six months. Different banks have different methods of calculation. For example, some banks will exclude the highest and lowest commissions in the past few months and then calculate the average, whereas other banks will calculate income based on the average commission, or compare the one-year and six-month averages and use the lower one. Since different banks calculate commissions differently, buyers should check with their bank before applying for a mortgage.
Travelling allowance is another type of income. If the amount of monthly allowance is the same as specified in the employment contract, it will be directly deducted as income without discount. If the amount of monthly allowance is not the same, it will be calculated based on the average of the last six months.
Many workers will resign and switch to another one after receiving a bonus or double pay. Is it required to notify the bank if you switch jobs after getting a mortgage? Most banks loan letters do not state that they need to be notified when the homeowner resigns or switches jobs. As long as the applicant makes loan payments on time, they can switch jobs without affecting their mortgage.
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