How much is your Loan Eligibility?

Buying a home is one of the most significant decisions of a lifetime. While you  go around to see the offers from various brokers, you might realize buying isn’t an easy decision and to be honest you do waste a lot of time till you decide to sit back and re-plan. 

A good planning start with the following basic questions. What can be my budget for the home? How much loan am I/we are eligible for? Being a working professional with savings from last few years of work life, your budget for purchasing the home is pretty much decided by the maximum eligibility for home loan.

For a majority of people, the sources of finance for buying a new home includes the following

a. Personal savings till date

b. Home loan from a bank or other financing institutions

As per the current RBI norms, the applicant must contribute a minimum 20% of the cost of the purchase price of the home. This means the banks or financial institution can provide only 80% of the purchase price. The immediate question which comes to everyone’s mind is – How much is my home loan eligibility ? Here is quick guide to calculate your home loan eligibility even before approaching you bank. Most banks use a similar benchmark.

There are several factors that determine your eligibility which includes your education profile, your credit history, age, where you are working etc. However to simplify the calculation, the banks use the following broad benchmarks to calculate your home loan eligibility based on your EMI payment capability.

Case A : Net monthly Salary < Rs 17,000/- (Net annual income of < 2,00,000)

If your net monthly salary is upto Rs 17,000 the banks assume your maximum monthly EMI payment capability to be ~35% of your net monthly fixed salary ( Salary that hits your bank account after deductions). For e.g  if your monthly fixed salary is Rs 15,000/- then your maximum monthly EMI payment capability is Rs 5,250/- (i.e 15,000 * 35%).

Case  B : Net monthly Salary  Rs 17,000/- to INR 42,000 (Net annual income of greater than 2,00,000 but less than INR 5,00,000)

If your net monthly salary is above  Rs 17,000 but less than INR 42,000/- the banks assume your maximum monthly EMI payment capability to be ~50% of your net monthly fixed salary ( Salary that hits your bank account after deductions). For e.g  if your monthly fixed salary is Rs 40,000/- then your maximum monthly EMI payment capability is Rs 20,000/- (i.e 40,000 * 50%).

Case  C : Net monthly Salary  Rs 42,000/- to Rs 83,000 (Net annual income of greater than 5,00,000 but less than INR 10,00,000)

If your net monthly salary is above  Rs 42,000 but less than INR 83,000/- the banks assume your maximum monthly EMI payment capability to be ~55% of your net monthly fixed salary ( Salary that hits your bank account after deductions). For e.g  if your monthly fixed salary is Rs 50,000/- then your maximum monthly EMI payment capability is Rs 27,500/- (i.e 50,000 * 55%).

Case  D : Net monthly Salary  > Rs 83,000 /- (Net annual income of greater than 2,00,000 but less than INR 10,00,000)

If your net monthly salary is above  Rs 83,000 the banks assume your maximum monthly EMI payment capability to be ~65% of your net monthly fixed salary ( Salary that hits your bank account after deductions). For e.g  if your monthly fixed salary is Rs 1,00,000/- then your maximum monthly EMI payment capability is Rs 65,000/- (i.e 1,00,000 * 65%).

Based on which category you fall into, your home loan eligibility is given in the table below.

Loan eligibility  based on your monthly Salary and also provides the EMI payment.

Category

Net Monthly Salary (Rs)

Monthly EMI (Rs)

Loan eligibility at different interest rate (Rs Lacs)

10.0%

10.50%

11.00%

11.50%

Case D

3,00,000

1,95,000

202.00

195.32

188.92

182.85

Case D

2,60,000

1,69,000

175.13

169.27

163.73

158.47

Case D

2,00,000

1,30,000

134.71

130.20

125.95

121.90

Case D

1,50,000

97,500

101.03

97.66

94.46

91.43

Case D

1,20,000

78,000

80.80

78.13

75.57

73.14

Case D

1,10,000

71,500

74.09

71.62

69.27

67.05

Case D

1,00,000

65,000

67.35

65.10

62.97

60.95

Case D

90,000

58,500

60.62

58.60

56.67

54.86

Case C

80,000

44000

45.60

44.07

42.63

41.26

Case C

70,000

38500

39.90

38.56

37.29

36.10

Case C

60,000

33000

34.20

33.05

31.97

30.94

Case C

50,000

27500

28.49

27.54

26.64

25.78

Case B

40,000

20000

20.72

20.03

19.38

18.75

Case B

30,000

15000

15.54

15.02

14.53

14.07

Case B

20,000

10000

10.36

10.02

9.69

9.38

Case A

15,000

5250

5.44

5.26

5.09

4.92

Note: Some banks calculate the maximum EMI payment capability on the basis of your Gross salary then you can do the above broad calculation on the following basis

  • 40% of monthly  gross income if < 15,000
  • 45% of monthly gross income if >15,000 but upto 45,000
  • 50% of  monthly gross income if >  45,000

If you have monthly incentive or annual bonus then can you get higher home loan eligibility?

Apart from this if you are employed as a sales personnel where you have monthly incentives or if you have a annual bonus, then ~40%-50% of your net monthly bonus / incentives is added to your monthly fixed salary (provided you can show that you have been receiving the same). E.g if your monthly fixed salary is Rs 50,000/- (as in Case C above) and you have an additional annual bonus of say Rs 1,00,000 / – which mean a payment of Rs 80,000/- after reducing 20% income tax . Your monthly EMI capability increase to ~ Rs 29,000/- (i.e  [ monthly fixed 50,000 + 40% of monthly net bonus (80,000*40%/12) ] * 55%)

Increase your home loan eligibility with a co-applicant ?

One can also increase the home loan eligibility if you have a co-applicant who has additional income say for e.g your spouse. In the event your spouse is also salaried and is shown as a co-applicant, then the banks calculate the eligibility for you and your spouse separately and the same is added for your joint eligibility. For e.g if your salary is INR 70,000/- then as per Case A your maximum monthly EMI payment capability of  65%  of your monthly fixed salary w is Rs 45,500/- (i.e 70,000 * 65%). If your Spouse salary is INR 50,000/- then as per Case A your spouse maximum monthly EMI payment capability of  65%  of his or her monthly fixed salary is Rs 32,500/- (i.e 50,000 * 65%). Hence your combined maximum monthly EMI payment capability is Rs 88,000/- ( 45,500 + 32,500).

Note: if your’s and your Spouse salary is less than 40,000 however the combined is more than 42,000/- then your EMI capability is still calculated on a conservative basis as per Case B and not as per case C

For more details calculation use LoanYantra.com

How to use home loan EMI calculator for calculating the EMI?

How to use home loan EMI calculator for calculating the EMI?

What is EMI?

Equated Monthly Installment – EMI for short – is the amount payable every month to the bank or any other financial institution until the loan amount is fully paid off. It consists of the interest on loan as well as part of the principal amount to be repaid. The sum of principal amount and interest is divided by the tenure, i.e., number of months, in which the loan has to be repaid. This amount has to be paid monthly. The interest component of the EMI would be larger during the initial months and gradually reduce with each payment. The exact percentage allocated towards payment of the principal depends on the interest rate. Even though your monthly EMI payment won’t change, the proportion of principal and interest components will change with time. With each successive payment, you’ll pay more towards the principal and less in interest.

Here’s the formula to calculate EMI:

where

E is EMI

P is Principal Loan Amount

r is rate of interest calculated on monthly basis. (i.e., r = Rate of Annual interest/12/100. If rate of interest is 10.5% per annum, then r = 10.5/12/100=0.00875)

n is loan term / tenure / duration in number of months

For example, if you borrow ₹10,00,000 from the bank at 10.5% annual interest for a period of 10 years (i.e., 120 months), then EMI = ₹10,00,000 * 0.00875 * (1 + 0.00875)120 / ((1 + 0.00875)120 – 1) = ₹13,493. i.e., you will have to pay ₹13,493 for 120 months to repay the entire loan amount. The total amount payable will be ₹13,493 * 120 = ₹16,19,220 that includes ₹6,19,220 as interest toward the loan.

Computing EMI for different combinations of principal loan amount, interest rates and loan term using the above EMI formula by hand is time consuming, complex and error prone. Our EMI calculator automates this calculation for you and gives you the result in a split second along with visual charts displaying payment schedule and the break-up of total payment.

How to use LoanYantra.com Home Loan EMI Calculator?

With colourful charts and instant results, our EMI calculator is easy to use, intuitive to understand and is quick to perform. You can calculate EMI for home loan and personal loan, education loan or any other fully amortizing loan using this calculator.

Enter the following information in the home loan EMI calculator:

  • Principal loan amount you wish to avail (rupees)
  • Loan term (months or years)
  • Rate of interest (percentage)
  • EMI in advance OR EMI in arrears (for car loan only)

Use the slider to adjust the values in the EMI calculator form. If you need to enter more precise values, you can type the values directly in the relevant boxes provided above. As soon as the values are changed using the slider (or hit the ‘tab’ key after entering the values directly in the input fields), EMI calculator will re-calculate your monthly payment (EMI) amount.

A pie chart depicting the break-up of total payment (i.e., total principal vs. total interest payable) is also displayed. It displays the percentage of total interest versus principal amount in the sum total of all payments made against the loan. The payment schedule table showing payments made every month / year for the entire loan duration is displayed along with a chart showing interest and principal components paid each year. A portion of each payment is for the interest while the remaining amount is applied towards the principal balance. During initial loan period, a large portion of each payment is devoted to interest. With passage of time, larger portions pay down the principal. The payment schedule also shows the intermediate outstanding balance for each year which will be carried over to the next year.

Floating Rate EMI Calculation

We suggest that you calculate floating / variable rate EMI by taking into consideration two opposite scenarios, i.e., optimistic (deflationary) and pessimistic (inflationary) scenario. Loan amount and loan tenure, two components required to calculate the EMI are under your control; i.e., you are going to decide how much loan you have to borrow and how long your loan tenure should be. But interest rate is decided by the banks & HFCs based on rates and policies set by RBI. As a borrower, you should consider the two extreme possibilities of increase and decrease in the rate of interest and calculate how much would be your EMI under these two conditions. Such calculation will help you decide how much EMI is affordable, how long your loan tenure should be and how much you should borrow.

Optimistic (deflationary) scenario: Assume that the rate of interest comes down by 1% – 3% from the present rate. Consider this situation and calculate your EMI. In this situation, your EMI will come down or you may opt to shorten the loan tenure. Ex: If you avail home loan to purchase a house as an investment, then optimistic scenario enables you to compare this with other investment opportunities.

Pessimistic (inflationary) scenario: In the same way, assume that the rate of interest is hiked by 1% – 3%. Is it possible for you to continue to pay the EMI without much struggle? Even a 2% increase in rate of interest can result in significant rise in your monthly payment for the entire loan tenure.

Such calculation helps you to plan for such future possibilities. When you take a loan, you are making a financial commitment for next few months, years or decades. So consider the best as well as worst cases…and be ready for both. In short, hope for the best but be prepared for the worst!