Home Loan Affordability Calculator

Home loans can unlock the door to your dream home. To assess your eligibility for a home loan, the initial step involves evaluating the highest property value feasible for purchase using a home loan. You can use a home loan affordability calculator to do this task. 

What is home loan affordability?

Home loan affordability is the amount of home loan or mortgage you or your family can afford to repay. The home loan affordability calculator, often referred to as the mortgage affordability calculator, calculates based on the applicant's income and financial situation. Banks will try to understand whether the applicants have a stable source of income and whether it is enough to take on monthly EMIs and other costs such as property taxes, insurance, and maintenance.

What is a home loan affordability calculator?

A home loan affordability calculator will take your monthly income, capacity to make a down payment, and the applicable interest rate as the inputs and will show you how much home loan you can afford.

How does the house affordability calculator work?

Shriram Finance’s house affordability calculator is a handy tool that instantly calculates the value of the house you can purchase. You only need to enter your monthly income, the down payment you can handle, and the interest rate on which banks are ready to offer you a home loan.

Then, this online home loan calculator will return the property value and the home loan value for a house you can afford.

How to use the home loan affordability calculator?

You can use the home loan affordability calculator in the following steps:

STEP 1 – Enter your monthly income

STEP 2 – Enter the tenure of the loan

STEP 3 – Enter the interest rate for the loan

STEP 4 – Enter the down payment you can afford to make

STEP 5 – Hit proceed and see the property value and the home loan for a home you can afford to buy

You can use a home loan affordability calculator to test out different scenarios. You can experiment with different loan tenures, monthly incomes, and interest rates.

By comparing different loan tenures, you can figure out how much will be the benefit of increasing the tenure of your home loan.

Suppose you have a monthly income of ₹1 lakh, and the bank is willing to give you a home loan at 8.5% interest p.a. You need to decide the tenure of the loan.

On the home loan affordability calculator, you can keep your monthly income and interest rate unchanged and experiment with the tenure. You start with 10 years and then move on to 12, 14, 16 and 18 years.

Once you are done, you will be able to make the following table:

Assuming a monthly income of ₹1,00,000 and existing EMIs totaling ₹25,000, you may be eligible for a home loan of approximately ₹36,29,442 over a 10-year tenure at an interest rate of 8.5% p.a.

So, you learn that by increasing the tenure from 10 years to 12 years, the home loan amount increases by more than ₹4 lakhs.

So, unless necessary, you should avoid increasing tenure in this case beyond 14 years as the increase in home loan value is dropping. Please note that in this example, it is assumed the bank wants to keep the home loan EMI at 40% of your monthly income.

How to calculate a home loan based on salary?

The best way to calculate your home loan based on your salary is to use an online home loan affordability calculator or a spreadsheet application like Excel. When using an online home loan affordability calculator, all you need to do is just enter your monthly income, tenure, and applicable interest rate and click on proceed. Then, the website will show you the home value you can get a home loan for.

If you plan to use Excel, you can use the PV (present value formula). The PV formula in Excel has 3 inputs, rate, NPER, and PMT. You need to enter the annual interest rate divided by 12 as the rate, the number of months as NPER, and the monthly contribution to the home loan EMI as PMT. Make sure that PMT is not more than 40% of your monthly income, as banks will not give a home loan in such cases.

For a monthly income of ₹1 lakh, a monthly EMI of ₹40,000, a tenure of 12 years, and an annual interest rate of 10%, the Excel formula should look like this:

=-PV (10/12,12*12,40000)

Home loan affordability calculation formula

To calculate home loan affordability by hand, you can use the following home loan affordability formula:

Home value = (Contribution to home loan EMI) / [1 + (Annual interest rate / 12)] ^ (12 * Tenure)

Factors that Affect Home Loan Affordability

1. Monthly income

A home loan is the largest loan most people will ever take in their entire lives. It takes up a significant part of your monthly income. So, the higher your monthly income, the higher the valued home you can buy through home loans.

2. Tenure

If your home loan tenure is short, you should make high EMIs. Banks would hesitate to give you home loans with short tenures since it makes it very difficult to repay the home loan. So, you can boost your home affordability by increasing your home loan tenure.

3. Down payment

You can boost your home loan affordability by making a higher down payment. It will make your home loan EMIs smaller and easier to repay. If the home loan EMI drops enough, the bank may think you can afford the home loan.

4. Credit scores

Your credit score shows whether you are a responsible borrower or not. You are more likely to be able to afford to repay a home loan if you have a higher credit score.

5. Existing debt

If you have a lot of long-term debt to repay, a lot of your monthly income will go towards EMIs. In such a situation, it might not be possible for you to repay a home loan.

 Benefits of Using a Home Loan Affordability Calculator

No chance of errors

When calculating home affordability through spreadsheets or by hand, you should ensure you do not make any mistakes while applying the home affordability formula. But, with online home affordability calculators, you do not need to worry about things like this as they are tested multiple times before launch.

High-speed calculations

Home affordability calculators are considerably faster than humans, and when you consider the effort of making a model in Excel to calculate home affordability, online home affordability calculators take the win.

Testing out different scenarios

By changing the inputs for monthly income, tenure, or interest rate, you can see the various values of affordable homes and make an informed decision.

Conclusion

A home loan affordability calculator is a convenient tool to determine the property value you can afford speedily. Unlike working with spreadsheets, which could necessitate manual model creation, Shriram Finance's home affordability calculator proves significantly more user-friendly and convenient. You can test out various scenarios and make the optimal choice.