If you’re a ‘Pay As You Go’ (PAYG) Commission Income employee, you may be unsure how banks will evaluate your income. The truth is, each bank's policy varies significantly for this employment type. To cut through the confusion, this article focuses on different banks' policies and how they suit different applicants and their situations.
Scenario 1 - 3 Months Annualised
Tim earns a base income of $80,000. In July, August, and September, he had an excellent 3 months and earned commissions of $40,000 (his previous 3 months only brought in $5,000 in commissions).
For Tim, it was recommended to go through ‘Bank A’ that has a policy where they only need 3 months of Year-to-Date commission on the payslip. We can then annualise the $40,000 to $160,000. This results in Tim’s income being:
Base Wage: $80,000
Commissions: $160,000
Scenario 2 - 6 Months Annualised
Let’s flip the above scenario. In the last 3 months, Tim only earned commissions of $5,000. However, he had a very busy 3 months before this and earned $40,000 in commissions. Therefore, over a 6-month period, the total was $45,000.
‘Bank A’s’ 3-month policy would not suit Tim as his annualised income would only be $20,000. Therefore, ‘Bank B’ would be recommended as they have a 6-month policy which annualises to $90,000. This results in Tim’s income being:
Base Wage: $80,000
Commissions: $90,000
Scenario 3 - 24 Months of Commission Income
Sarah has been working in her job for the last 24 months and earned the following commissions: $95,000 in her first year, and $105,000 in the second and most recent year.
While we could use the policies of ‘Bank A’ and ‘Bank B’ discussed above, ‘Bank C’ offers a significantly lower interest rate. ‘Bank C’s’ policy averages the last 2 years of commission income, which for Sarah works out to be $100,000.
‘Bank C’ would not be suitable for Tim’s scenarios as his most recent 3 and 6 months were higher. But for Sarah, as it doesn’t impact her borrowing power, we can go for the lower rate.
The Value of a Mortgage Broker for Commission Employees
As you can see, the value of a mortgage broker for commission employees is significant because your maximum borrowing capacity will vary greatly from bank to bank.
At LBK, we’re passionate about helping you understand your situation and secure the finance you’re looking for. Reach out today to discuss your options:
Mobile: 0401 225 713
Email: lmckean@lbklending.com.au
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