Indians are buying homes with money they haven't earned yet
Published by India Today
Abhishek Kumar's role: Quoted
Abhishek Kumar said buyers often confuse loan eligibility with true affordability and overlook upkeep, taxes and rate rises. He suggested keeping the EMI to 30 to 35 per cent of take-home pay and cautioned against loans running into retirement.
What Abhishek Kumar said
Why is the home loan a bank approves not the same as what I can afford?
The mistake I see most often is treating the largest loan a bank will sanction as if it were the amount you can comfortably carry. Many buyers look only at the basic EMI. They leave out maintenance, property tax and registration costs, and they do not factor in what happens to the EMI if interest rates go up later. Affordability has to be judged on your own finances, not on the lender's eligibility figure.
How much of my income should go towards a home loan EMI?
In my view, a household's EMI should stay within 30% to 35% of its net monthly income. To fit within the bank's lending caps, many buyers now set aside 40% to 50% of take-home pay, sometimes more. When that happens, the EMI swallows the whole investable surplus: families cut or pause their investments, stop building their retirement corpus and never put aside an emergency fund covering six months.
Is it risky to take a home loan that runs into retirement or relies on two incomes?
Yes. A loan that stretches into retirement eats into the money that should pay for your living costs after you stop working. Counting on both salaries continuing without a break for 20 to 30 years is also a fragile arrangement, because it leaves no room for career breaks, illness or layoffs, and the household then carries a serious risk of default.
What happens when a home purchase depends on future salary growth?
I have seen a young couple in a metro put close to 55% of their household income into EMIs for a premium flat. It worked on paper until one of them lost a job in a restructuring. Within a year they were in a severe cash crunch, because they had no liquid emergency fund and had stopped investing. Many urban buyers today are borrowing against income they have not yet earned, betting on decades of steady career growth.
In our words, from what he said in the piece. General information, not personal advice.
More of Abhishek's views on money management
The article examines how Indian homebuyers now start with the largest loan a bank will offer rather than what they can afford. With prices rising faster than incomes, 25 to 30-year tenures and dual-income loans are common. It looks at how high EMIs crowd out saving and how loans can run into retirement.
Publisher source
Indians are buying homes with money they haven't earned yet