I'm 35, Earning 1.5 Lakh Monthly. Can I Afford a Home Loan for a 3BHK?

Hi Sir, i m 35 yrs man, me &wife earns 1.50 after tax. 25k house expenses, 10k mf pm, 50k loan repayment around 9 lac interest free. I want to buy a flat for next 5-6 yrs. With this financial situation.. How much loan we can afford for any flat down payment will be around 10 lakh.. For 3bhk.?? Plz suggest

Ans: You are 35 years old, and you and your wife have a combined monthly income of Rs. 1.50 lakhs after tax. You have monthly expenses of Rs. 25,000, invest Rs. 10,000 in mutual funds, and have a loan repayment of Rs. 50,000 (interest-free, Rs. 9 lakhs). You want to buy a flat in the next 5-6 years, with a down payment of around Rs. 10 lakhs.

Assessing Your Financial Health
Income and Expenses
Monthly Income: Rs. 1.50 lakhs
Monthly Expenses: Rs. 25,000
Mutual Fund Investment: Rs. 10,000
Loan Repayment: Rs. 50,000
Savings and Down Payment
Current Savings: Assuming your savings include the Rs. 10 lakhs for the down payment.
Down Payment: Rs. 10 lakhs available for the flat.
Determining Affordable Loan Amount
EMI Calculation
Monthly Income: Rs. 1.50 lakhs
Total Obligations: Rs. 25,000 (expenses) + Rs. 50,000 (loan repayment) + Rs. 10,000 (MF investment) = Rs. 85,000
Disposable Income: Rs. 1.50 lakhs - Rs. 85,000 = Rs. 65,000
EMI Affordability
Safe EMI Range: Up to 40% of monthly income.
Affordable EMI: 40% of Rs. 1.50 lakhs = Rs. 60,000
Loan Eligibility
Loan Tenure: Typically, up to 20-30 years.
Interest Rate: Assume 8% for calculation.
Planning Your Purchase
Loan Affordability
EMI Calculation: Rs. 60,000 per month.
Loan Amount: Use an EMI calculator to determine the loan amount.
Down Payment and Total Cost
Down Payment: Rs. 10 lakhs.
Flat Cost: Down payment + loan amount.
Steps to Follow
Save Aggressively: Increase savings to reduce loan burden.
Prepay Existing Loan: Aim to clear the Rs. 9 lakhs loan before taking a new one.
Enhance Investments: Continue mutual fund investments for future growth.
Investment Strategy for Flat Purchase
Increase SIP Amount
Current SIP: Rs. 10,000
Increase SIP: Gradually increase SIP to Rs. 20,000 for better returns.
Diversify Investments: Allocate funds across equity, debt, and hybrid funds.
Emergency Fund
Build Emergency Fund: Ensure at least 6 months of expenses are saved.
Use Liquid Funds: For quick access during emergencies.
Insurance Coverage
Health Insurance: Ensure adequate health insurance coverage.
Life Insurance: Secure term insurance for family protection.
Final Insights
To buy a flat in the next 5-6 years:

Aggressively Save: Increase your savings rate.
Clear Existing Loan: Aim to repay the Rs. 9 lakhs interest-free loan.
Increase Investments: Enhance your SIP to build a corpus.
Affordable EMI: Plan for an EMI within Rs. 60,000.
Emergency Fund: Maintain a robust emergency fund.
By following these steps, you can secure a flat and manage your finances effectively.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

www.holisticinvestment.in

Ans: At the age of 45, with a monthly take-home salary of Rs. 1 lakh and two children to support, choosing the right home loan amount is crucial for your financial security. You are paying Rs. 14,000 in taxes, which impacts your overall cash flow, and living in a rented house further adds to your expenses. Let’s walk through how to make an informed decision regarding the home loan amount.

Factors to Consider
Income and Expenses:

Your net take-home salary is Rs. 1 lakh. Out of this, Rs. 14,000 goes toward taxes, leaving you with Rs. 86,000 for other expenses. Understanding your monthly obligations—like rent, children’s education, and other essential expenses—will help determine how much you can allocate toward a home loan EMI.

Since you have two children, one in the 8th grade and one in the 5th grade, their educational costs are likely to rise in the coming years. Factoring these rising costs is important in your loan planning.

Loan Tenure and EMI Capacity:

Typically, lenders suggest that your EMI should not exceed 40-50% of your monthly income. Since your take-home salary is Rs. 1 lakh, an affordable EMI would be around Rs. 40,000 to Rs. 50,000.

However, since you have other responsibilities like rent and family expenses, it’s safer to aim for a slightly lower EMI—perhaps Rs. 30,000 to Rs. 40,000—to ensure you don’t face financial stress.

Key Aspects of a Home Loan Plan
1. Affordability:

Taking a loan you can comfortably repay without sacrificing your lifestyle is crucial. While banks may offer you a higher loan amount based on your income, it's wise to choose a loan that aligns with your cash flow and family needs.

If you are currently paying rent, don’t forget to factor in that once you own a home, some rent expense will convert into an EMI. However, other homeownership costs such as maintenance, property taxes, and repairs need to be planned for.

2. Tenure:

Since you are 45, it’s recommended to opt for a loan tenure that matches your retirement plans. If you plan to retire by 60, a loan tenure of 10 to 15 years is ideal. This ensures you are debt-free before retirement.

While a shorter tenure increases the EMI amount, it reduces the overall interest burden. A longer tenure, on the other hand, gives you lower monthly EMIs but increases the total interest outflow. A 15-year tenure offers a balanced option for most people in your situation.

3. Interest Rates:

Interest rates vary based on the loan provider and market conditions. Fixed interest rates provide stability, while floating rates fluctuate with the market. It’s important to evaluate which option suits you based on your risk tolerance. A floating rate might be beneficial if interest rates are expected to decrease, but if you prefer predictability, a fixed rate may be a safer bet.

Consideration for Children’s Education
Your children’s education is a major future expense, especially since one is already in the 8th grade and another in the 5th. As they progress to higher studies, costs will increase substantially. This makes it important to strike a balance between loan EMI payments and saving for their education.

A portion of your income should be directed towards building an education fund for your children. You may want to explore mutual funds or other investments that offer potential growth for this goal. This ensures that while you repay your loan, you are not compromising on their education.

Tax Benefits on Home Loan
The new tax regime does not provide significant benefits on home loan interest repayment like the old regime. However, you may want to assess if switching to the old tax regime helps you save on taxes via home loan interest deductions under Section 24 (up to Rs. 2 lakh annually) and principal repayment under Section 80C (up to Rs. 1.5 lakh annually).

It's worth calculating whether the tax savings from the old regime would outweigh the simpler filing process and lower taxes in the new regime. Consulting with a tax expert or a Certified Financial Planner can help clarify this decision.

Rental Expense and Transition
You are currently living in a rented house. Once you buy your own house, the rent you pay will be replaced by EMI payments. However, homeownership brings additional costs like property maintenance, which are not present when renting.

A planned transition from renting to owning will allow you to manage both rent and EMI in the initial period, ensuring you don’t feel overwhelmed by dual payments. Ensuring an adequate emergency fund will also help you manage unforeseen costs related to homeownership.

Emergency Fund and Insurance
Before committing to a significant financial obligation like a home loan, make sure you have an emergency fund. This fund should cover at least six months of living expenses, including loan EMIs, rent, and other essentials. This will safeguard you in case of any unexpected financial stress, like job loss or medical emergencies.

Additionally, securing a life insurance policy that covers the outstanding loan amount is crucial. This ensures that in the unfortunate event of your demise, your family won’t be burdened with the loan repayment.

Home Loan Amount Recommendation
Based on your current take-home salary of Rs. 1 lakh, and assuming you’re comfortable with an EMI between Rs. 30,000 to Rs. 40,000, you could potentially afford a loan of Rs. 35 lakh to Rs. 50 lakh, depending on the loan tenure and interest rates.

However, it's always better to aim for a lower loan amount and keep enough buffer for other future expenses. You may need to adjust this based on your children’s education, retirement goals, and other long-term plans.

Final Insights
At 45, managing your finances well is essential to ensure a smooth transition to homeownership while balancing your children's education and future expenses.

Aim for an EMI that is no more than 40% of your take-home salary to avoid financial strain.

Consider a loan tenure that allows you to be debt-free before retirement.

Balance your loan repayments with savings for your children’s education and future needs.

Explore whether switching to the old tax regime can save you on taxes due to home loan deductions.

Always maintain an emergency fund and secure life insurance for loan protection.

A Certified Financial Planner can guide you in structuring your financial decisions for the future and ensuring a balanced, secure financial plan.

Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment