Quick Answer
Most Canadian banks only count the base salary on your T4 and discount or ignore overtime, bonus and shift-premium income unless you can prove a two-year history of it on your T4s and Notices of Assessment.
Big-five banks typically average your last two years of overtime and use 50% to 100% of that average, depending on lender policy and your employer letter. Credit unions and some monoline lenders in Ontario can be more flexible, and alternative (B) lenders can count 100% of documented variable income on a case-by-case basis.
The right documentation — a current paystub, two years of T4s, two years of NOAs, and an employment letter that confirms overtime is regular and expected to continue — can move the same file from a declined bank application to an approval at a different lender.
Whether a bank, a credit union or an alternative lender is the right fit depends mostly on how long you have earned the overtime, how your employer documents it, and your overall debt-service ratios.
I earn it, but my bank won't count it
You are a TTC operator in Mississauga pulling a steady 12 hours of overtime most weeks. You expected your bank to see your real pay — the number on your pay stub — when you asked for a pre-approval. Instead, the amount they used to qualify you looks like someone else's job. It is roughly your base salary, with the overtime missing.
You are not alone, and you have not done anything wrong. Canadian banks treat overtime, bonus and shift-premium income differently from base pay, and most of them discount it heavily or ignore it until a specific set of conditions is met. The good news is that "my bank said no" and "no lender will count my overtime" are two very different sentences.
This article walks you through why banks do this, which Ontario lenders typically count overtime, what documentation unlocks the higher tier, and the exact sequence to follow if your bank has already said no — without burning another credit check.
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Why banks discount overtime income
Lenders split your employment income into two buckets: guaranteed (the base salary your employer owes you whether or not you work extra) and variable (overtime, bonus, commission, shift premium — pay that depends on hours worked or performance). Base salary is used at 100% because it keeps coming in even in a downturn. Variable income is used cautiously because it can shrink or disappear.
Federally regulated banks also sit under OSFI's B-20 guideline, which requires them to qualify every applicant at the greater of contract rate plus 2% or 5.25% (more on how qualification works). This stress test does not change how overtime is counted, but it shrinks the overall approval, so any income the bank discounts hits your qualifying amount twice.
The "two-year average" you may have heard about is the industry convention for variable income. It means the lender adds the last two years of overtime from your T4s, divides by two, and uses some percentage of that number — often 50% at a bank, sometimes 100% at a credit union or alternative lender — as your qualifying overtime income. If you have less than two full years of overtime history, most A-lenders will use zero.
Terms like GDS, TDS, monoline and alternative lender come up often — our mortgage glossary defines each in plain English.
Source: Statistics Canada · Pegasus Mortgage Lending Center Inc.
Pegasus Mortgage Lending Center Inc. FSRA Lic # 11479
How different lender tiers count overtime
Each tier treats overtime differently, and the gap between them is often the gap between a declined application and an approval. A big bank underwriting your file in Toronto typically counts 50% of your two-year overtime average — and only if your employer letter confirms the overtime is regular. The same file at a credit union in the GTA may be counted at 100%, especially for stable public-sector or unionized jobs. Monolines sit between the two, with policies that vary by product. Alternative lenders can count 100% of documented variable income case by case, in exchange for a shorter term and a higher rate. Private lenders usually ignore income composition entirely and lend against equity, which is rarely the right tool for a straightforward T4 overtime problem.
A good broker's job is to read your T4s and NOAs first, then match you to the tier that actually fits, so you submit one clean application instead of three bruising ones. See why work with a broker for the full picture.
| Lender tier | OT typically counted | Min. history | Key document | Rate impact |
|---|---|---|---|---|
| A-lender (big bank) | 50% | 2 years | Overtime-specific employer letter | Lowest |
| Credit union (Ontario) | Up to 100% | 2 years | Employer letter + T4s + NOAs | Low to moderate |
| Monoline lender | 50–100% | 2 years | Depends on product | Competitive |
| Alternative (B) lender | Up to 100% | 1 yr + YTD | Paystub + T4 + NOA | Higher |
| Private lender | N/A (equity-based) | — | Property appraisal + equity | Highest |
Source: Pegasus Mortgage Lending Center Inc. underwriting observations, Ontario market.
Pegasus Mortgage Lending Center Inc. FSRA Lic # 11479
The documentation stack that unlocks the higher tier
Six documents do most of the work on an overtime-income file:
- Current paystub — shows year-to-date earnings and the current overtime rate.
- Two years of T4s — the raw history a lender averages. Box 14 shows total employment income; Box 40 may break out taxable benefits.
- Two years of Notices of Assessment (NOAs) — the CRA's confirmation that the T4 figures were reported and taxes are current.
- Employment letter (standard) — confirms role, base salary and employment status. This alone rarely unlocks overtime income.
- Employment letter (overtime-specific) — confirms overtime is regular, scheduled or expected to continue, and ideally names the two-year average. This is the single piece of paper most banks and credit unions want to see.
- Three months of bank statements — shows the deposits matching the paystub figures.
HR departments at the big GTA employers — Toronto hospitals, the TTC, Peel Region warehouses, Brampton auto plants — write overtime-specific letters routinely once asked correctly. Asking with the right wording is where a broker typically saves the file.
| Document | A-lender | Credit union | Monoline | Alt (B) lender |
|---|---|---|---|---|
| Current paystub | ✓ | ✓ | ✓ | ✓ |
| Two years of T4s | ✓ | ✓ | ✓ | 1 yr + YTD often OK |
| Two years of NOAs | ✓ | ✓ | ✓ | Often |
| Employer letter (standard) | Required | Required | Required | Required |
| Employer letter (overtime-specific wording) | Unlocks OT | Unlocks 100% | Unlocks OT | Helpful |
| 3 months of bank statements | Sometimes | Often | Often | ✓ |
Source: Pegasus Mortgage Lending Center Inc. internal underwriting checklist.
Pegasus Mortgage Lending Center Inc. FSRA Lic # 11479
Where this depends on your file
Five factors in your own file decide which lender tier is realistic, and the right call changes meaningfully based on each of them.
If your bank has already said no on your overtime, that is almost always a lender-fit problem, not a dead end. A 15-minute call with a Toronto broker can show you which Ontario lenders would look at your file differently — before anyone pulls your credit a second time.
Book a 15-minute call Try Instant Pre-ApprovalStep-by-step: what to do if your bank has already said no
- 1Pause new applicationsGive yourself at least two weeks while you gather documents and get a second opinion.
- 2Pull your T4s and NOAsLast two of each (CRA My Account), plus three months of bank statements, and request the overtime-specific employment letter from HR.
- 3Call a brokerShare the documents so they can read the file before pulling credit.
- 4Review options across 2–3 lender tiersTypically one A-lender, one credit union or monoline, and one alternative lender — with no application submitted yet.
- 5Pick one pathBased on rate, term and overtime recognition — not on brand familiarity.
- 6Submit one clean applicationWith the right documentation stack, to the lender whose policy fits your file.
Our booking page is the fastest way to start step 3.
Common mistakes
- Applying at three banks in a row — every hard credit pull can drop your score, and banks often see other recent inquiries on your bureau.
- Submitting with a generic HR letter — if the letter does not name overtime as regular, no amount of pay-stub math will change the number the underwriter uses.
- Assuming all A-lenders have the same policy — big-five banks differ meaningfully on overtime treatment, and their policies change quarterly.
- Ignoring the downward trend — if 2025 is lower than 2024, prepare an explanation before the underwriter asks.
- Treating alternative lending as a punishment — a one-year alt-lender mortgage that gets you the home at full overtime income can be a bridge, not a sentence.
- Waiting for "next year's T4" when the right lender would approve today on year-to-date paystubs.
- Forgetting the NOAs — many brokers and lenders cannot submit without two years of NOAs, even if the T4s are in hand.
Frequently asked questions
Why does my bank only count my base salary when I have steady overtime?
How many years of overtime do I need on my T4 before a mortgage lender will count it?
I work overtime at a hospital in Toronto — will a lender count 100% of it?
My overtime was lower this year than last year — does that hurt my mortgage application?
What should be in my employment letter so overtime actually counts?
If one bank in the GTA said no, can a different lender still approve me using the same income?
Is it better to apply at another bank myself or use a mortgage broker?
Does using an alternative lender for overtime income mean a much higher rate?
For more general questions, see our full FAQ page.
Overtime income and a bank "no"? Talk to a GTA broker this week.
Your overtime is real income, and the right lender will treat it that way. On a 15-minute call we read your T4s, run your numbers against A, B and alternative lenders, and tell you — honestly — which path fits your file best, before anyone touches your credit.
Book a 15-minute callOr call 416-281-9628
About the author
Razi Khan
Founder, CEO & Licensed Mortgage Broker · Pegasus Mortgage Lending · Toronto, Ontario · FSRA Lic # 11479
Razi Khan is the Founder, CEO, and a licensed Mortgage Broker at Pegasus Mortgage Lending Center Inc., based in Toronto. With over 20 years of experience in the Canadian mortgage industry, Razi has personally guided more than 3,000 clients through some of the most complex and high-stakes financial decisions of their lives — from first-time purchases in the GTA to refinancing strategies, alternative lending solutions, and cross-border mortgages for Canadians buying in the United States.
Razi founded Pegasus in October 2008, launching the brokerage at the height of a global financial crisis. He works across the full spectrum of borrower profiles, with particular expertise in complex files including self-employed borrowers, credit-challenged clients, and investors building multi-property portfolios.
Learn more about Razi Khan →Sources & references
- OSFI — Guideline B-20: Residential Mortgage Underwriting Practices and Procedures
- FSRA — Mortgage brokering sector (regulator of Ontario mortgage brokers and brokerages)
- Financial Consumer Agency of Canada — Qualifying for a mortgage
- CMHC — Mortgage loan insurance for consumers
- Statistics Canada — Average weekly earnings, by industry, Ontario (Table 14-10-0064-01)