Bajaj Housing Finance Extends Home Loan Maturity to 40 Years: Know How It Will Affect EMIs

Based on the age of the applicant at the time of the home loan application, Bajaj Housing Finance has changed the tenor limit.

Extending the term of the loan to 40 years will increase affordability and reduce the EMI of the loans.- (Image: India.com)

New Delhi: In a major move, Bajaj Housing Finance announced it is extending the maximum term of home loans to 40 years for salaried employees. This simply means that the applicants for a home loan can now pay the total loan in 40 years, compared to 30 years earlier.

Based on the age of the applicant at the time of the home loan application, Bajaj Housing Finance has changed the tenor limit. The age range to qualify for the loan is 23 to 75 years old, with 75 years old being the maximum age at the loan maturity date.

As per a report from Moneycontrol, Equated Monthly Payments (EMIs), based on a 40-year home loan term, now start at Rs. 733 per lakh, assuming an annual interest rate of 8.5 percent. The home loan has an introductory rate of just 8.5 percent per annum for wage earners and professionals, with the option for potential borrowers to tie their interest rate to an external benchmark, such as the repo rate.

Impact of the change on EMIs:

“A longer term means that borrowers can borrow a larger loan amount without affecting their fixed obligation on the income ratio (FOIR),” said Adhil Shetty, Chief Executive Officer (CEO) of BankBazaar.com when asked about the effect of a change in the mood of the EMIs on Moneycontrol.

According to the calculations in the report, if the loan term is extended to 40 years, it will increase affordability and lower the EMI of the loans. For example, at an interest rate of 8.5 percent, the EMI per lakh for a 40-year loan is more than 5 percent lower than the EMI per lakh for a 30-year loan.

What is FOIR and how does it affect your EMIs?

FOIR stands for Fixed Income Obligation Ratio. It refers to the portion of a person’s monthly income that is used to meet their fixed monthly obligations. Lenders usually consider EMI obligations, including those of the proposed loan, when determining an applicant’s fixed monthly obligations.

Let’s take an example to understand this: Suppose your monthly salary is 70,000 per month and you apply for a home loan with a monthly EMI of 20,000 and your total recurring monthly obligations are 30,000 (including the home loan EMI), then your FOIR is 20,000/70,000 * 100, or 42.85%.

The higher the share of fixed costs in your salary, the higher your FOIR, and therefore the smaller the chance that you will get a loan on better terms than the one who has a better FOIR than you.