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Variable Income Haircut — 70% Rule

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The rule

MAS Notice 645 (TDSR computation) requires that variable income be multiplied by a factor of 0.7before being included in the borrower's effective monthly income. This haircut is a stress margin — variable income is more uncertain than salary, so the bank assumes only 70% of it will reliably be there to service the loan.

By income type

Income typeHaircutNotes
Fixed monthly salary0% (none)Contractual basic salary
Fixed monthly allowance (housing, transport)0% (none)If contractually guaranteed
Annual bonus (averaged monthly)30% haircut → 70% countTypically averaged over 12 months
13th-month AWS30% haircutUnless contractually guaranteed (rare)
Commission (sales)30% haircutAverage of last 12 months
Freelance / self-employment30% haircutRequires 24-month track record
Rental income from property30% haircut (sometimes further reduced for expenses)Bank-by-bank methodology
Dividend / investment income30% haircutUsually 12-24 month average
Second-job income30% haircutMay require additional verification

Worked example

Borrower profile:

  • Fixed monthly basic salary: $8,000
  • Annual bonus: $30,000 (averaged $2,500/month)
  • Side commission: $1,000/month (averaged)
  • Rental income from a property: $3,000/month gross

Effective income for TDSR:

Fixed:        $8,000  ×  1.00  =  $8,000
Bonus:        $2,500  ×  0.70  =  $1,750
Commission:   $1,000  ×  0.70  =  $700
Rental:       $3,000  ×  0.70  =  $2,100  (some banks apply additional ~30% expense)
                                ─────────
Effective income: ~$12,550/month

Without the haircut, the same borrower would show $14,500/month — a difference of about $1,950/month. At 55% TDSR over 25 years at 4% stress, that's the difference between borrowing roughly $1.55M and $1.35M — about $200K less because of the haircut.

Documentation banks require

  • For fixed income: 3 most recent payslips + latest CPF contribution history.
  • For bonus / commission: latest tax assessment (IRAS NOA) showing the variable component, plus letter from employer confirming the bonus / commission policy. 12 to 24 months of evidence preferred.
  • For self-employed: 2 years of NOA, business profile (ACRA), bank statements.
  • For rental income: existing tenancy agreement (stamped), bank statements showing rent receipts.
  • For dividends: account statement showing 12–24 months of distributions.

Related guides

Frequently asked questions

What is the 70% income haircut in Singapore?▾

Per MAS guidelines for TDSR and MSR computations, only 70% of variable income counts towards a borrower's effective monthly income. So $1,000 of monthly variable income contributes only $700 to the income figure used to size the housing loan. Fixed monthly basic salary is not haircut — it counts at 100%.

What income counts as 'variable' for the haircut?▾

Annual / quarterly bonus (averaged across months), commission, freelance and self-employment income, rental income from properties, dividend / investment income, allowance that is not contractual, second-job income. Anything that isn't a fixed contractual monthly salary or guaranteed allowance is generally treated as variable.

How is rental income haircut?▾

Gross rental income is haircut to 70%, and lenders may further deduct an assumed expense ratio. Some banks apply a 30% deemed expense before the 70% factor, so net contribution can be 70% × 70% = 49% of gross rent. Different lenders apply different methodologies — confirm with your bank.

Does the haircut apply to a 13th-month AWS?▾

Yes, if the AWS (Annual Wage Supplement) is not contractually guaranteed in your employment contract. Most companies' 13th-month bonus is paid in practice but is not legally guaranteed — it counts as variable. If your contract explicitly guarantees the 13th month, it may be treated as fixed at the bank's discretion.

Is there a way to avoid the haircut?▾

Only by demonstrating that the income is contractually fixed and recurring. Some borrowers negotiate with employers to convert variable allowances to fixed allowances for loan application purposes. Banks also generally require at least 12 months of income history (24 months for self-employed) to give weight to variable income at all.