Can you buy a ₹1 crore flat with a ₹1 lakh monthly salary? Understand the math behind loans and EMIs.

If you earn a monthly salary of ₹1 lakh and wish to purchase a home worth ₹1 crore, the options outlined here can assist you. Let’s break down the calculations regarding loans and EMIs.

Earning a monthly salary of ₹1 lakh and wanting to buy a ₹1 crore home requires more than just a rough calculation. Whether or not you can actually purchase such a property depends on factors like the home loan amount and the down payment. Here, we explore the EMI, down payment, and affordability aspects of buying a ₹1 crore home.

Knowing the price of the house is not enough when planning a purchase. Your ability to secure a home loan depends on several factors, including your monthly income, existing debts, household expenses, and accumulated savings.

Home Loan of ₹75 Lakh

Suppose you intend to purchase a property worth ₹1 crore and can make a down payment of ₹25 lakh. In this scenario, taking a home loan of ₹75 lakh for a tenure of 30 years at an interest rate of 7.75% would result in an EMI of ₹53,731. Over the 30-year repayment period, the homebuyer would pay a total of approximately ₹1.93 crore; notably, ₹1.18 crore of this amount would go solely towards interest payments. In other words, while the loan principal is ₹75 lakh, the total amount repaid would be ₹1.93 crore.

Consequently, for an individual earning ₹1 lakh per month, more than half of their salary would be consumed by the home loan EMI. This leaves very little money for household expenses, insurance, investments, emergency costs, and other essential expenditures. While a loan of ₹75 lakh might be mathematically feasible, the resulting EMI could place a significant financial burden on the homebuyer.

Making a larger down payment reduces the amount the homebuyer needs to borrow, which in turn lowers the monthly EMI payments.

To illustrate this with an example:

If you make a down payment of ₹40 lakh for a property worth ₹1 crore, you would only need to borrow ₹60 lakh. This results in a lower EMI and a reduced total repayment amount. For instance, increasing the down payment from ₹25 lakh to ₹40 lakh reduces the loan amount by ₹15 lakh, bringing the required loan down to ₹60 lakh. This adjustment could save you approximately ₹10,700 per month on your EMI.

Here is an overview of the approximate monthly EMIs for various loan amounts, based on an interest rate of 7.75% and a 30-year tenure:

₹75 lakh loan: ₹53,731
₹70 lakh loan: ₹50,150
₹65 lakh loan: ₹46,570
₹60 lakh loan: ₹42,985

Being eligible for a loan and being able to afford it comfortably are two different things.

Loan eligibility does not guarantee affordability; for example, while an individual earning ₹1 lakh per month might technically be able to pay an EMI of ₹53,000, the crucial question remains: how much money is left for household expenses and financial goals after making that payment?

Keep these 4 points in mind:

Someone earning ₹1 lakh a month can avail a home loan of ₹1 crore; however, after paying an EMI exceeding ₹53,000, very little money would remain for other expenses. Unless one has ₹35–40 lakh available for the down payment, taking out such a home loan on a ₹1 lakh salary could be a difficult decision.

Making a larger down payment when taking the loan not only results in a lower EMI but also makes it easier to manage your financial situation. It is entirely up to the home loan borrower to decide whether they prefer paying a lower EMI by making a substantial down payment or remaining in debt for a longer period with a lower EMI.