FOIR

When you take home loan from a bank, you will be given details about the EMI (equated monthly instalments) that you have to pay them every month. The bank arrives at this EMI by taking into account all other EMIs that you are currently paying for your prior loans and commitments, if any, before taking a fresh home loan. After seeing what is left on your income, the bank calculates your revised EMI using the FOIR option. FOIR usually is expressed as a percentage and it denotes the portion of salary one can afford to pay as EMI for the home loan.

This ratio includes all fixed obligations of the borrower that the customer needs to pay to necessary authorities every month. However, other deductions like Voluntary Provident Fund, Provident Fund, Professional Tax, insurance premiums, recurring deposits and other statutory deductions made from one’s salary are not included.

For example: Income -Rs 50,000 pm
Car loan instalment: Rs 8,000 pm
Fridge loan instalment: Rs 2,000 pm
Proposed housing loan instalment: Rs 15,000 pm

In this case, the FOIR is 50% of the income that is about Rs 25000. Some banks may charge a FOIR of about 30%. Here the total instalments as per the bank’s Fixed Income Obligation Ratio that a person needs to pay every month works out to be Rs 15000. In this example, Rs 10000 is already paid for car and fridge by the borrower every month. So, he has a balance of Rs 5000 as the repayment capacity for the home loan. Depending on this capacity, the home loan will be calculated and arrived at.