Today we are going to briefly introduce how your bonus income can help with your loan application. Let’s take a look together.
John works at one investment bank earning nearly $500,000 annually with PAYG income.
He bought a house two years ago and had an existing loan willing to refinance and get cash out at the same time. Also, he would like to buy another investment property for the purpose of negative gearing. Otherwise, the tax he has to pay is 45% of total income over $180,000 plus 2% Medicare levy, which means almost half of his income has to go to ATO’s pocket. The problem is that his total bonus income is up to $300,000 whereas the base salary is only $100,000 or so.
Then the bank’s policy regarding to bonus income becomes quite important.
You may have already known that 80% of bonus income can be counted as borrowing capacity. In most cases, the base salary is higher than bonus income. However, some banks do not accept bonus income if it’s higher than base salary. There is specific requirement issued by Westpac and St George: the maximum bonus can be counted as borrowing capacity is 20% of base salary. More precisely, if the base salary is $100,000 per year, then only $20,000 can be the extra borrowing capacity brought by bonus income, which is truly unreasonable considering that there are certain people whose main income source is from bonus.
As for ANZ, only the YTD bonus income during latest financial year will be required. The advantage is that no past bonus income statements are required. Then you will be better off if you take out a loan at the end of financial year rather than the beginning.
What is the majority bank’s requirement on how to specify bonus income?
Firstly, a two-year bonus income statement, and they will the choose the lower figure into consideration.
This is to ensure that your bonus income is stable and ongoing; otherwise, banks won’t be able to accept it.
Besides, you need to prepare latest two-year PAYG Summary and the bonus YTD of last Pay slip for each financial year to prove your bonus income.
Back to John’s case, he has been receiving bonus income for three years, but he didn’t pass borrowing capacity assessment when he just started work in 2016. This is because his bonus income was only around $150,000 whereas it has increased to $300,000 in 2017 and 2018. The 2018 PAYG has not available yet, but John needs to cash out for the down payment. After discussing with bank, they approved using the annualized bonus income YTD to calculate borrowing capacity considering John is financially sound after all.
Sometimes it is necessary to have special approval outside of bank policies so that we could handle different situations.
We will help you find the right product based on your bonus income.
If you have any questions, don’t hesitate to call us
VIP Hotline: 1300 880 123