How banks really count your bonus, commission and rental income

Most people work out what they can borrow by taking their total pay, multiplying by 55%, and dividing by an instalment. If your income is a flat monthly salary, that gets you close. If a third of your package is a bonus, or you are a commissioned professional, or you are counting on rent from an investment unit, it will overstate your borrowing power — sometimes by several hundred thousand dollars.

The gap is not the bank being difficult. It is written into the rules every bank in Singapore has to follow, and it comes from two separate adjustments applied one after the other.

The two adjustments

Under the Total Debt Servicing Ratio (TDSR) framework, your monthly debt obligations may not exceed 55% of your gross monthly income. Both sides of that fraction get adjusted before the bank does the sum.

1. Your income is cut. Banks must apply a minimum haircut of 30% to variable income and to rental income. Only 70 cents of every such dollar reaches the calculation.
2. Your instalment is inflated. Banks must size the instalment using a medium-term interest rate floor — 4% a year for residential property — even when the package you are taking charges far less.

Each one alone is manageable. Together they are why the number the bank gives you can look so far from the one you calculated.

What counts as variable income

The distinction the bank draws is not between “salary” and “not salary”. It is between income that arrives predictably every month and income that does not.

Two details catch people out. First, gross monthly income is measured before tax but excludes your employer’s CPF contribution — so the figure the bank works from is lower than your total cost to the company. Second, the 30% haircut is a minimum. MAS sets the floor; individual banks are free to be more conservative, and they differ from one another in how they count it. Two banks looking at the same commissioned professional can arrive at materially different loan sizes.

How the variable portion is averaged

Banks take the average of the monthly variable income earned in the preceding 12 months. A bonus paid once a year is divided across twelve months, not treated as income in the month it landed. This matters for timing: if you have just had an unusually strong year, that year is what gets averaged, and if you have just changed jobs the history may not be there to average at all.

Rental income has extra conditions

Rent is haircut by the same minimum 30%, and the bank must verify it against a stamped tenancy agreement that is signed by you as landlord and has at least six months remaining. A lease running down to its last quarter, or an informal arrangement with no stamped agreement, does not count — regardless of how reliably the money has been arriving.

The numbers, worked through

Take a couple buying a private home. One earns $9,000 a month with a $36,000 annual bonus; the other earns $5,500 a month, all fixed. They have a car loan costing $1,200 a month. On paper the household earns $210,000 a year.

The haircut removes $900 a month. At the 55% ceiling that leaves $9,130 for all debt, and after the $1,200 car loan, $7,930 a month for the mortgage.

Now the second adjustment. Suppose the package they are taking charges 2.5%. The bank does not size the loan on 2.5% — it must use the higher of the 4% floor and the package’s thereafter rate. Over a 25-year tenure, $1,000,000 of loan costs about $4,486 a month at 2.5%, but about $5,279 a month at 4%.

The lever most people miss: eligible assets

If the shortfall is a problem, there is a route back that has nothing to do with income. Banks may convert certain financial assets into an “income stream” for TDSR purposes, by applying a haircut and then amortising the result over 48 months.

The difference between pledging and not is large. $500,000 sitting unpledged in a Singapore dollar account is haircut by 70%, leaving $150,000, which amortised over 48 months adds about $3,125 a month to recognised income. The same $500,000 pledged for four years takes no haircut at all, and adds about $10,417 a month.

In the worked example above, pledging $500,000 would lift recognised income from $16,600 to roughly $27,000 — more than enough to close the entire $376,000 gap. The trade-off is that the money is committed for four years. Whether that is worth doing depends on what else the funds are for, and it is a decision worth taking advice on rather than guessing at.

What you can actually do

• Get the assessment before you commit, not after. The expensive version of this discovery happens after the option fee is paid. An in-principle approval settles it first.
• Ask more than one bank. The 30% haircut is a floor, not a standard. Banks may differ in how they treat commission, director’s fees and foreign-sourced income, and the spread between the most and least accommodating can be six figures of loan quantum.
• Mind the twelve-month window. Because variable income is averaged over the preceding year, timing a purchase shortly after a strong bonus cycle — and not immediately after a job change — works in your favour.
• Get the tenancy agreement stamped and keep it long. Six months of remaining lease is the threshold. Renewing early, before you apply, can be the difference between rental income counting and not counting.
• Check whether pledging beats stretching. Pledging assets is often a cheaper way to reach a number than accepting a longer tenure or a worse package.
• Watch tenure and age together. A longer tenure lowers the stressed instalment and raises the loan you qualify for, but tenure is capped by your age and pushing past the cap costs you loan-to-value.

Sources. Thresholds, haircuts, averaging rules, tenancy-agreement conditions, medium-term interest rate floors and the eligible-asset schedule are taken from the Monetary Authority of Singapore’s explainers on calculating TDSR for property loans and TDSR thresholds, which set out the requirements under MAS Notice 645. The 55% threshold applies where the Option to Purchase was granted on or after 16 December 2021. Worked examples are illustrative; individual banks apply their own credit policy on top of these minimums, and nothing here is a commitment to lend.