New Delhi: In a big move, Bajaj Housing Finance announced that it is extending the maximum tenor of housing loans up to 40 years for salaried employees. This simply means the home loan applicants will now be able to pay the total loan in 40 years, compared to 30 years earlier.
Based on the applicant’s age at the time of the house loan application, Bajaj Housing Finance has altered the tenor capping. The age range for eligibility for the loan is 23 to 75 years, with 75 years being the maximum age at loan maturity.
As per a report by Moneycontrol, the equated monthly payments (EMIs), based on a 40-year house loan tenor, now begin at Rs. 733 per lakh, assuming an annual interest rate of 8.5 percent. The house loan has an introductory rate of just 8.5 percent annually for salaried people and professionals, with the option for potential borrowers to link their interest rate with an external benchmark, for example, the repo rate.
“A higher tenor means borrowers can borrow a larger loan amount without impacting their fixed obligation to the income ratio (FOIR),” Adhil Shetty, Chief Executive Officer (CEO), BankBazaar.com, was quoted as saying when asked about the effect of a tenor change on the EMIs on Moneycontrol.
As per the calculations in the report, if the loan’s tenor is extended to 40 years, it will boost affordability and lower the EMI of the loans. For instance, at an interest rate of 8.5 percent, the EMI per lakh for a 40-year loan is over 5 percent lower than the EMI per lakh for a 30-year loan.
FOIR stands for Fixed Income Obligation Ratio. It refers to the proportion of one’s monthly income used for servicing his fixed monthly obligations. Lenders usually consider the EMI obligations, including those of the proposed loan, when arriving at an applicant’s fixed monthly obligations.
Let us take an example to understand this: let’s suppose that your monthly salary is 70,000 per month and you are applying for a home loan that has a monthly EMI of 20,000 and your total recurring monthly obligations are 30,000( including the home loan EMI), then your FOIR is 20000/70,000 * 100, i.e., 42.85%.
The higher the proportion of fixed expenses in your salary, the higher your FOIR, and subsequently, the fewer the chances that you are going to get a loan at better terms than the one who has a better FOIR than you.
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