How Much EMI Can you Really Afford with Current Salary?

Mar 09, 2017

If you are looking to purchase a house, one of the biggest stress-causing thoughts will be the fact that you will have to shell out a large amount of money every month for your home loan EMIs.

It is indeed a very draining experience to see a large part of your monthly income going towards loan repayment.

So what can you do about it?

Fact is that whenever you take a loan, you will necessarily have to pay EMIs. The only option you have is to ensure that your EMI is not too high when compared to your income. After all, you need money for other expenses as well as some savings too.

So let us say that you have an income of Rs 60,000. Lenders have already put a cap on the EMI that a borrower can have. This cap is at 40% - which means that your total EMI in a month cannot exceed 40% of your income, i.e. 40% of Rs 60,000 = Rs 24,000.

But this is a general rule based on research and analysis done by lenders. And if your expenses are higher than usual, even this EMI might look daunting. So it makes sense to keep your EMIs within lender specified limit but in accordance with your actual repayment capacity and comfort level. If you think that its tough for you to pay Rs 24,000 as EMI, don't hesitate in asking your lender to reduce your EMI. It can be done in 3 ways:

  • Increase the loan tenure (most probable)
  • Decrease the interest rate (least probable)
  • Lower your loan requirement (might not be possible for you as the house cost is already fixed)

But another thing to note here is that your income will increase in future. So the EMI/Income ratio might be closer to 40% today. But as your income increases, your EMI will form smaller part of your income. So make sure that as and when your income increases, you also increase your EMIs or make regular part prepayment to bring down the overall cost of the loan.