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What is the 28 36 Rule in a Home Loan?

Highlights

  • What is the 28 36 Rule and why should you know about this?
  • How do Lenders check the affordability of a borrower using the 28 36 Rule?

Home Loans are considered to be one of the most popular financial products among customers. The reason behind this fact is a home loan that helps individuals buy homes that can otherwise be hard to achieve given their high prices. That’s why they opt for a home loan provided by the Banks, Non-Banking Financial Companies (NBFCs) and Housing Finance Companies (HFCs). With this facility, they can get the required loan amount for a fixed period of time at affordable interest rates. In any individual’s life, buying a house is probably the biggest purchase and he or she must know if it is the right time to buy the house or not.

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Suppose you found your dream home and are ready to opt for the required loan for it. Before making one of the biggest decisions of your life, you must know whether you would be able to afford the home loan or not. We will tell you about the 28 36 rule by which you can know what is the maximum amount of debt you can afford at a particular point in time. Lenders also use the 28 36 rule to estimate a borrower’s affordability so that they can know how much loan amount they should give.

In this article, we will be telling you every aspect of the 28 36 rule so that you can make a better decision while opting for a home loan. So, without any further delay, keep reading.

All About that you need to know!What This 28 36 Rule All About?

When you decide to opt for a home loan, it is important for you to know how much loan amount you can afford and similarly, lenders also check your affordability. For both cases, this 28 36 rule is pretty useful. If we were to put it simply, this rule states that an individual should spend a maximum of 28% of his/her monthly income towards housing expenses and a maximum of 36% of his/her monthly income towards the overall debt whether its credit card dues, personal loan, car loan, etc.

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According to lenders, the 28 36 Rule ensures to keep the borrowing capacity of an individual always in check. Any borrower who follows this rule will be less likely to default when it comes to paying the credit card dues or Loan EMIs. The importance of this rule increases in the case of Home Loans as these loans are usually high-ticket purchases and taken for a long period. This rule also decides whether you will be able to get a home loan or not.

Let’s understand the first part of this rule, which is to not to spend more than 28% of your total monthly income on the housing expenses. So, let’s consider you have a monthly income of INR 60,000 then you should not spend more than INR 16,800 on the housing expenses. These housing expenses are generally summed up as Monthly Principal Amount, Interest Amount, Property Taxes and Insurance Payments. This is also known as the Front End Ratio.

Now, coming to the second part of the 28 36 Rule, an individual should not spend more than 36% of the total monthly income on the total debt. So consider a borrower who has a monthly income of INR 60,000. In that case, he should not spend more than INR 21,600 on the total debt. These debts can be credit card EMIs, personal loan EMI, Car Loan EMI, etc. This part is called the Back End Ratio.

So, before providing you a home loan, lenders always check if a borrower is qualifying under this rule and whether it will be okay for them to provide a loan amount or not. You can also see how the monthly income of an individual can play an important role in determining your home loan affordability. An individual with higher monthly income will always have higher chances to get a higher loan amount as compared to an individual with low monthly income.

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  • Home Loan Interest Rates August 2020
    Axis Bank7.75% - 8.55%
    Bank of Baroda7.00% - 8.40%
    Citibank8.20%
    HDFC6.95% - 8.00%
    ICICI Bank6.95% - 8.05%
    Indiabulls Housing Finance Limited8.80% - 11.05%
    Kotak Bank7.20% - 9.30%
    LIC Housing6.90% - 7.90%
    Piramal Capital & Housing Finance9.00% - 9.10%
    PNB Housing Finance8.60% - 9.45%
    Reliance Home Finance8.75% - 14.00%
    State Bank of India/SBI6.95% - 7.60%
    Tata Capital9.20% - 9.35%