Home Loan Tips for Commission Earners | Is Commission taken into account for mortgage? | How is commission income calculated for a bond?
Also see: Home Loans For Self Employed Clients
When securing home loans for commission earners, it is important to note that the banks would need to assess the most recent 6 months earnings to calculate your average income earned. Once an average amount has been determined, only a percentage of this will be considered to calculate the affordability of the home loan.
In the case of a monthly salary package comprising of a basic salary portion as well as an additional commission incentive, only 50% of the average commission earnings will be used as part of the assessment.
For example:
Basic salary = R10 000
Total commission earned for 6 months = R30 000
Commission Average over 6 months = R5000 [R30 000 divided by 6]
50% of Commission Average = R2500
Total Salary considered for bond approval = R12 500.00 [Basic plus 50% Commission Average]
Should the applicant strictly earn a commission based salary, where income varies on a monthly basis without any fixed basic, a higher percentage of the average commission will be taken into account. In this instance, the banks will base the percentage size on the consistency of the commission earnings, and on merit of the applicants overall credit scoring. Usually an 80% Ratio will be used, in some cases up to the full average.
For example:
Total commission earned for 6 months = R120 000
Commission Average over 6 months= R20 000 [R120 000 divided by 6]
80% of Commission Earnings = R16 000
Total Salary of R16 000 will be considered for bond approval
After the correct income amount has been derived at, and tax deductions, as well as other monthly expenses have been deducted, the remaining disposable cash flow will reflect the maximum amount available to repay a mortgage. Tax deductions are usually taken at 20% of the average commission used for the affordability assessment. Higher tax deduction percentages are applied, depending on the tax thresholds set for each income bracket.
In addition to providing 6 months payslips, you would be required to produce 6 months bank statements which match up with the net salary deposits paid by the employer directly to your banking account.
Should you require more clarification concerning commission based earners, you are welcome to contact us directly.