Lenders generally average your bonus, commission, or overtime income over the past two years, then use that average only if the trend is stable or rising. If your variable pay has been dropping, most lenders will use the lower figure instead of the average, or in some cases leave it out of your qualifying income entirely. The exact method varies by lender, but this two-year-average-plus-trend framework is the starting point almost every lender applies.
Pekoe is a licensed mortgage brokerage, FSRA Licence #13321 in Ontario and RECA licensed in Alberta. We qualify borrowers on variable income every week, and matching the right lender to the way your pay actually works is a core part of the job. Below is the framework, plus a worked example showing exactly how the math flows from your pay stubs to your qualifying monthly income.
The Two-Year-Average Rule
Most lenders average your variable income over the last two years using your T4 slips and Notice of Assessment (NOA), then divide that average by twelve to get a monthly figure they add to your base salary. This applies to bonus pay, commission, and overtime alike, though the documentation each type requires can differ. The two-year window exists because a single strong year could be an outlier, and lenders want to see a pattern, not a one-time spike.
Some lenders average the two years evenly. Others weight the more recent year more heavily, or use the lower of the two years as a conservative floor rather than a true average. This detail varies by lender, so treat the even two-year average as the common baseline, not a promise of how any specific lender will calculate your file.
A same-lender renewal typically does not re-test this income at all, since you already qualified once. A new application, whether it’s a purchase or a switch to a new lender, will ask for the two-year history again.
The key fact: most lenders average two years of bonus, commission, or overtime income and only count that average toward your qualifying income if the trend is stable or increasing.
The “Stable or Rising” Test
Lenders will not average a declining income the same way they average a flat or growing one. If your bonus or commission fell from year one to year two, most lenders assume the drop could continue and will use the lower of the two years, or exclude the variable income altogether, rather than take a two-year average that overstates what you can rely on going forward.
This is the part that surprises borrowers who assume averaging always works in their favour. A borrower whose overtime went from $12,000 to $9,000 year over year is very unlikely to get credit for the $10,500 average. Most lenders will use $9,000, or ask for a letter explaining the drop before deciding whether to count it at all.
The reverse is good news. If your income is flat or growing, the two-year average (or sometimes the higher recent year, depending on the lender) works in your favour, because the lender has evidence the pay is likely to continue.
The key fact: rising or stable variable income generally qualifies at the two-year average, while declining variable income is usually qualified at the lower year or excluded, and the specific approach varies by lender.
A Worked Example: Converting Variable Pay to Qualifying Income
Here’s an illustrative example showing how the math works for a borrower with a base salary plus overtime pay. This example is for illustration only, and the averaging method itself can vary by lender.
Aisha earns a $58,000 base salary as a machine operator, plus regular overtime. Her overtime was $7,200 two years ago and $9,600 last year, an upward trend.
| Line item | Amount | Calculation |
|---|---|---|
| Overtime, year one (2024) | $7,200 | From T4 / pay stubs |
| Overtime, year two (2025) | $9,600 | From T4 / pay stubs |
| Two-year average overtime | $8,400 | ($7,200 + $9,600) ÷ 2 |
| Monthly qualifying overtime | $700.00 | $8,400 ÷ 12 |
| Monthly base salary | $4,833.33 | $58,000 ÷ 12 |
| Total monthly qualifying income | $5,533.33 | $4,833.33 + $700.00 |
Because Aisha’s overtime rose year over year, the lender in this illustration uses the full two-year average rather than the lower figure. Her base salary is added on top without any averaging, since regular salary is not variable income. Her total qualifying monthly income for debt-servicing ratios comes to $5,533.33, before any other debts are factored in.
If her overtime had instead fallen from $9,600 to $7,200, a more conservative lender might qualify her using only the $7,200 figure, dropping her monthly qualifying overtime to $600.00 and her total to $5,433.33. The direction of the trend, not just the average, changes the outcome.
The key fact: qualifying income from variable pay is the two-year average (when rising or stable) divided by twelve, added to your base monthly salary, and the lender’s chosen method should always be confirmed against the specific pay history in front of them.
Documents Lenders Want to See
Expect to provide two years of T4 slips, two years of Notice of Assessment (NOA) from the CRA, recent pay stubs, and a letter of employment confirming your position, pay structure, and how long you have earned bonus, commission, or overtime. Some lenders also want a letter from your employer confirming the variable pay is likely to continue at a similar level. The exact document list varies by lender and by how large a share of your total pay the variable portion represents.
If commission makes up all or most of your income, some lenders treat the file more like a self-employed application, especially where you claim employment expenses against that commission on your tax return. Our guide to getting a mortgage when you’re self-employed covers that adjacent scenario, and if your declared income looks lower than your real earning power because of write-offs, our post on qualifying with low declared self-employed income walks through the options.
The key fact: the standard document package for variable income is two years of T4s, two years of NOAs, recent pay stubs, and an employment letter, though a heavier commission structure can pull your file toward self-employed-style documentation.
Bonus vs Commission vs Overtime: Does the Income Type Matter?
Yes, the income type changes what a lender wants to see and how cautiously they treat it, even though the two-year-average framework applies broadly across all three. Overtime on a salaried role can draw more scrutiny than overtime on an hourly role, since some lenders question whether salaried overtime is a normal, ongoing part of the job. Commission that makes up a small top-up to a base salary is usually easier to qualify than commission that is 100% of your pay.
| Income type | Common treatment | Typical documentation |
|---|---|---|
| Bonus | Two-year average if stable or rising; varies by lender whether recent year is weighted more | T4s, NOAs, employer letter confirming bonus history and likelihood of continuance |
| Commission (partial pay) | Two-year average, similar to bonus; larger commission share draws closer review | T4s, NOAs, pay stubs, employer letter describing commission structure |
| Commission (all or most of pay) | May be treated closer to self-employed income; expense write-offs reduce declared income | T4s, NOAs, and possibly a statement of employment expenses if you claim deductions |
| Overtime (hourly role) | Two-year average if regular and documented as a normal part of the role | T4s, NOAs, recent pay stubs, employer letter confirming overtime is ongoing |
| Overtime (salaried role) | More lender variation; some exclude it unless clearly established as recurring | Same as above, often with added employer confirmation |
The key fact: every variable income type generally runs through the same two-year-average and trend test, but how strictly a lender applies it depends on whether the pay is a small top-up or the bulk of your income.
What If Your Variable Income Just Started or Dropped?
If you have less than two full years of variable pay, most lenders either cannot use it yet or will apply a more conservative partial-year calculation, since there is no established two-year trend to point to. A new job that comes with bonus potential is treated cautiously in year one, because there is nothing on your NOA yet to prove it. In this case, lenders typically qualify you on base salary alone until a second year of history exists.
A drop in variable income does not automatically sink your application. It usually means the lender uses a lower qualifying figure, not a decline outright, and a broker who knows which lenders are more flexible on this can still find you a fit. If you want to see how your specific bonus, commission, or overtime history affects your number before you apply, get an instant pre-approval at pekoe.ca/rates.
The key fact: less than two years of variable income, or a recent drop, generally means a lower or partial qualifying figure rather than an automatic decline, and lender flexibility on this point varies widely.
Frequently Asked Questions
Do lenders count overtime pay when I apply for a mortgage?
Most lenders will count overtime if you have a two-year history of it and it is documented as a regular part of your role. They typically average the two years, and the exact treatment depends on whether you’re salaried or hourly and how consistent the overtime has been.
How many years of bonus or commission income do lenders need to see?
Two years is the standard, using your T4 slips and Notice of Assessment. Less than two years is often qualified conservatively or not counted at all until a second year of history exists.
What happens if my commission income dropped from last year to this year?
Most lenders will use the lower recent figure instead of averaging the two years, since a decline suggests the higher year may not repeat. Some may exclude the income entirely, so getting a clear read from a broker before you apply is worth the time.
Can I count bonus income from a new job I just started?
Generally not right away, since there is no history on your Notice of Assessment to confirm it. Most lenders qualify you on base salary alone in year one and revisit your bonus history once a full year or two has passed.
Do lenders average commission income the same way as bonus income?
The starting framework is the same two-year average and stable-or-rising test, but a commission structure that makes up most or all of your pay can push a lender toward self-employed-style documentation. A broker can tell you quickly which lenders will treat your specific pay mix the way you need.
CTA Section
Variable income should not be the reason a good file gets a weak answer.
Talk to a broker who knows exactly how each lender treats bonus, commission, and overtime pay before you apply.