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Buying your own house is the biggest dream of every working person and middle class family. Amidst the rising property prices in the Indian real estate market, most of the people realize their dream only through home loan. When a person’s monthly in-hand salary is ₹ 50,000, the first question that arises in his mind is how much loan the bank will sanction him and how much EMI will burden his pocket every month. According to financial experts and home loan advisors, it is very important to understand your financial capacity and the exact EMI formula before taking the loan, so that the budget does not get disturbed in future and the loan can be repaid in a stress-free manner.
Banks’ 50% FOIR rule: How much EMI can be allowed on ₹50,000 salary?
Whenever you apply for a home loan in a government or private bank, the bank checks the ‘Fixed Obligation to Income Ratio’ (FOIR) based on your total income. Major banks in India (like SBI, HDFC, ICICI, PNB) allow a maximum of 40% to 50% of the total in-hand salary of any salaried employee for all EMIs.
The simple math is that if your monthly in-hand salary is ₹50,000, the total of all your monthly installments (EMIs) should not exceed ₹20,000 to a maximum of ₹25,000 per month. Banks ensure that after paying the EMI, you have at least 50% of your salary (i.e. ₹25,000) saved for family’s daily expenses, children’s education, medical emergencies and household needs.
If you already have an ongoing car loan, personal loan or bike EMI of ₹5,000, the bank will deduct the same from your maximum budget of ₹25,000 and your new home loan EMI will be capped at ₹20,000 only.
How much home loan can one get on a salary of ₹50,000?
If you do not have any existing loan or EMI and your CIBIL score is more than 750, your loan eligibility is decided based on the maximum monthly EMI capacity of ₹25,000. Currently the average home loan interest rates across the top banks of the country are around 8.50% to 9.00% per annum.
Based on the annual interest rate of 8.50%, the estimated loan amount for different tenures is as follows:
For a tenure of 15 years: The bank can sanction you a loan of around ₹25 lakh to ₹26 lakh, with a monthly EMI of around ₹24,600 to ₹25,000.
For a tenure of 20 years: Your loan eligibility may increase to around ₹28.5 lakh to ₹30 lakh, making the EMI around ₹25,000.
For a tenure of 25 years: You can get a home loan of around ₹31 lakh to ₹32.5 lakh, with an EMI of around ₹25,000 per month.
For a tenure of 30 years: For a maximum tenure of 30 years, the bank can give you a home loan of approximately ₹32.5 lakh to ₹34 lakh.
Scientific formula to calculate home loan EMI: Calculate your installment yourself
There is a universal formula used in the banking system to calculate the home loan monthly installment (EMI). If you want to understand it, the formula is as follows:
EMI = [P × R × (1+R)^N] / [(1+R)^N – 1]
Here P means Principal Loan Amount, R means Monthly Interest Rate (Annual Rate / 12 / 100), and N means Total Number of Months (Loan Tenure in Months).
For example, if you take a home loan of ₹25,00,000 (Rs 25 lakh) at 8.50% per annum for 20 years (240 months):
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Monthly Interest Rate (R) = 8.5 / 12 / 100 = 0.007083
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Number of months (N) = 240
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Under this formula your monthly EMI will come to exactly ₹21,696.
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Your total interest payment in 20 years will be ₹27,07,040 and the total repayment amount will be ₹52,07,040.
Effect of tenure: Longer tenure reduces EMI but doubles the interest.
Often people choose the longest tenure of 25 or 30 years to keep the EMI small. Lower EMIs reduce the pressure on the monthly budget, but the total interest going to the bank is much more than the principal amount.
If a loan of ₹25 lakh is considered for different tenures at 8.5% interest:
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Tenure of 15 years: EMI will be ₹24,619 and total interest will be ₹19.31 lakh.
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Tenure of 20 years: EMI will be ₹21,696 and total interest will be ₹27.07 lakh.
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Tenure of 30 years: EMI will be ₹19,223 and total interest will be ₹44.20 lakh.
Clearly, with a tenure of 30 years, the EMI is reduced by only ₹ 5,396, but you have to pay an additional interest of ₹ 24.89 lakh. Therefore, choosing a tenure of 15 to 20 years as per salary is considered to be the most balanced and wise decision.
Eligibility and conditions required for loan approval
Apart from salary, banks also evaluate these important factors before approving a loan:
Credit Score (CIBIL Score): Your credit score should be 750 or above. Banks offer interest rates as low as 0.25% to 0.50% if you have an excellent CIBIL score.
Job Stability: Applicant must have at least 1 year in the current organization and total work experience of at least 2 to 3 years.
Age Limit: For salaried employees, the minimum age at the time of loan application should be 21 years and maximum 60 years at the time of retirement.
Legal Documents of the Property: It is mandatory to have the title deed of the property being purchased, approved map and NOC from the local development authority (like DDA, BDA, LDA, RERA etc.).
Down payment arrangement: Banks give loan only 75% to 80% of the registered value of the property. You have to spend the remaining 20% to 25% down payment and registry/stamp duty from your savings.
4 smart golden rules to reduce home loan burden
Add co-applicant: If your wife, parents or working brother becomes a co-applicant, their income is also added, which can take the loan eligibility above ₹50 lakh and also get interest rate concessions.
Pay 1 additional EMI annually: If you pre-pay just one additional EMI a year, your 20-year home loan will end in about 16 to 17 years and save lakhs of rupees in interest.
Increase EMI by 5% with salary increment: If you increase your EMI by just 5% with every annual increment, the 20 year loan gets completely paid off in just 12 years.
Take full advantage of income tax exemptions: There is a tax exemption of up to ₹1.5 lakh on principal repayment under Section 80C of the Income Tax Act and up to ₹2 lakh per year on interest paid under Section 24(b), thereby reducing your actual tax liability.