10 MAY, 2022

If you are planning on purchasing a home and applying for a home loan to finance this purchase, it is crucial for you to meet the home loan eligibility criteria set by the lender. A prudent method to review your eligibility is through an online housing loan eligibility calculator. Such calculators are particularly designed to solve the home loan seeker’s queries linked with Equated Monthly Instalment (EMI) calculations and offer a better understanding of their home loan eligibility.

All you need to do is input basic details on the home loan eligibility calculator to know your eligibility. Components to be inputted on the calculator include the principal amount, repayment tenure, and home loan interest rate. On providing these three details, the EMI calculator instantly computes your EMI and overall interest outgo. If you are not satisfied with the outcome, you always have the choice to try innumerable combinations by altering the values of the inputted data to derive an affordable EMI.

A quick online search can help in finding a suitable housing loan eligibility calculator. However, before you use the calculator, ensure to consider the factors listed below to compute an optimal home loan EMI:

  • Check your net monthly income

Your net monthly income is the most crucial factor that decides the home loan amount you are eligible for. Before you enter your required loan amount detail in the online calculator, make sure you have factored in all your incomes including income from other sources. Doing so will allow you to avail a bigger home loan amount to fund your home purchase.

  • Figure out a favorable repayment tenure

As a shorter home loan repayment tenure results in lower interest outgo, you may consider opting for a shorter repayment tenure without factoring your repayment capacity and monthly outgo towards financial goals. Note that failing to contribute towards your goals may propel you to avail expensive loans later to achieve such crucial goals. And choosing aggressive repayment tenures without sufficient buffers may propel you to default on your home loan EMIs during periods of unemployment or financial emergencies. This in turn may negatively affect your credit score and thus your future credit eligibility.

Instead, you must opt for a suitable repayment tenure that permits you to comfortably repay your EMIs after factoring in your contingency fund and contributions for other financial goals. Remember as most home loans offer floating interest rates, you can always opt for the prepayment option on availing huge surpluses without incurring any prepayment penalty.

  • Identify your monthly obligations

Lenders generally factor in your repayment capacity when evaluating your application for a home loan. They usually require your monthly loan repayment obligation including your new loan EMI to be under 60 percent of your monthly income. If you exceed this limit, your chance of securing a home loan is lower.

Thus, before you compute your EMI using a calculator, ensure to first calculate your existing monthly EMI obligations. Make sure it is within 60 percent of your monthly income. In case it is not, then you must first consider lowering your existing debts by either foreclosing or prepaying a few of your debts. Also, you can choose to avail a longer repayment tenure or make a higher down payment on the home loan to lower your overall EMI outgo and increase your approval chances for the home loan.

Ending note

Once you have factored in the above three points, you can use the home loan eligibility calculator to know your EMI and overall interest outgo.  A fair estimate through the calculator endows a better understanding of the cost of financing your home. This also allows you to make an informed decision before you apply for a home loan based on your current and future financials.

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.