FOIR Headroom and the Rate-Reset Squeeze on a ₹62 Lakh Home Loan
Sanchay Housing Finance is processing a home loan application from Ms. Rhea Malhotra, 34, a salaried product manager. Her net monthly take-home is ₹92,000; her spouse, a co-applicant, earns ₹38,000 net a month, supported by three salary slips and Form 16. The bureau report shows a car loan EMI of ₹11,400 and a credit card with a minimum payable of ₹3,200 a month. Policy caps total EMIs at 55% of combined net income, counts the credit-card minimum as the obligation, and allows a maximum tenure of 25 years for salaried applicants. The request is ₹62,00,000 against a property valued at ₹78,00,000, at a floating rate currently 8.75% p.a., with a processing fee of 0.5% of the loan plus 18% GST. The credit committee meets tomorrow and the branch head wants a decision note, not a file summary.
1. Compute the servicable EMI, the EMI on the requested amount, the resulting FOIR and the LTV. Should the loan be sanctioned, and with what conditions?
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Step 1 - EMI capacity. Combined net income = ₹92,000 + ₹38,000 = ₹1,30,000. A 55% FOIR gives ₹71,500 of total EMI capacity. Deduct disclosed obligations: ₹11,400 + ₹3,200 = ₹14,600. Servicable EMI = ₹56,900.
Step 2 - EMI at the requested amount. r = 8.75%/12 = 0.0072917, n = 300. EMI = P × r × (1+r)^n / ((1+r)^n − 1). With (1.0072917)^300 ≈ 8.841, EMI ≈ ₹62,00,000 × 0.0072917 × 8.841/7.841 ≈ ₹50,970. Resulting FOIR = (50,970 + 14,600)/1,30,000 = 50.4%, inside the cap, leaving about ₹5,930 a month of headroom.
Step 3 - LTV. 62,00,000/78,00,000 = 79.5%, within the 80% ceiling that applies to home loans above ₹30 lakh and up to ₹75 lakh.
Step 4 - cost disclosure. Processing fee 0.5% of ₹62,00,000 = ₹31,000; GST at 18% = ₹5,580; total ₹36,580, before stamp duty and CERSAI charges.
Decision: recommend sanction at ₹62,00,000, subject to verifying the car loan's residual tenor, confirming the bureau shows no unlisted obligations, confirming co-applicant income continuity, and assigning the property insurance to the company. The headroom is thin, so the note must flag that any rate reset will push the EMI beyond capacity - this file will come back.
2. The applicant now asks for ₹70,00,000 on the same property and the same tenure. Evaluate the request and state the options that meet her need without breaching policy.
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The two tests bind differently.
EMI test: EMI scales linearly with principal. At ₹70,00,000 the EMI is (70/62) × ₹50,970 ≈ ₹57,560, giving FOIR = (57,560 + 14,600)/1,30,000 = 55.5% - about ₹660 a month over the cap.
LTV test: 70,00,000/78,00,000 = 89.7%, far above the 80% ceiling, which caps the loan at 0.80 × ₹78,00,000 = ₹62,40,000.
The LTV cap, not the FOIR, is the binding constraint here: no amount of income proof can take the loan past ₹62.40 lakh against this property.
Acceptable routes:
- Sanction ₹62.40 lakh after a fresh independent valuation, with the borrower funding the balance ₹7.60 lakh from own sources.
- Close the ₹11,400 car loan from own funds - this raises servicable EMI to ₹68,300, but does not change the LTV ceiling, so it helps only if a higher-valued property is identified.
- A larger down payment or a different property changes the arithmetic. Extending the tenor does not, because the 25-year cap is already exhausted.
Not acceptable: recording a higher value without a fresh independent valuation, or structuring a step-up/teaser EMI to squeeze the file under the FOIR test. Both convert a policy decline into a mis-selling and audit finding.
3. Two years later the rate resets to 9.25% p.a. The borrower asks to keep her EMI unchanged. Work out the outstanding balance, the reset EMI, and whether her request can be met.
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Outstanding after 24 EMIs. Balance = P(1+r)^24 − EMI × [((1+r)^24 − 1)/r] = ₹62,00,000 × 1.19052 − ₹50,970 × 26.128 ≈ ₹60,49,500.
Reset over the remaining 276 months at r = 0.0925/12 = 0.0077083: EMI = ₹60,49,500 × 0.0077083 × 8.326/7.326 ≈ ₹53,000, a rise of about ₹2,030 a month.
If the EMI is held at ₹50,970, the tenor stretches: n = −ln(1 − P×r/EMI)/ln(1+r) = −ln(1 − 0.9149)/0.0076788 ≈ 321 months. Added to the 24 already served, that is 345 months ≈ 28 years 9 months, which breaches the 25-year policy cap. The request cannot be granted as it stands.
To hold the EMI unchanged within the cap, the balance must fall to the present value of ₹50,970 over 276 months = ₹50,970 × 114.15 ≈ ₹58,18,000 - a part-prepayment of about ₹2.31 lakh.
Recommendation: offer the borrower either a part-prepayment of ~₹2.31 lakh with an unchanged EMI, or acceptance of the ~₹2,030 reset. Note that the cap applies to contractual tenor, so a fresh 25-year term cannot be granted on the residual balance. Record the conversation, because the temptation in such files is to extend the tenor quietly and let the system's end-date drift.