28/36 or 20/30/40? Two rules, one salary
Look up a home-buying budget rule in India and you will find two different answers.
Some say 28/36: spend at most 28% of your salary on housing and 36% on all loans. Others say 20/30/40: pay 20% upfront, 30% on housing and 40% on all loans.
On housing they are close. On total loans they are four points apart. That gap decides whether a rate rise is annoying or painful.
Where each one comes from
28/36 is an American rule. It was built for loans where the interest rate is locked for the whole term. If your EMI can never change, you can safely sit near the limit.
20/30/40 is the Indian version. Here, most home loans are floating: the interest rate moves up and down over the years, and your EMI moves with it. The lower limit leaves room for the rate you may be paying in year seven.
What happens when rates rise
Take a ₹1,00,000 monthly salary and a 20-year loan. Borrow exactly enough to hit each limit at 7.5%. Then keep the loan the same and let the rate climb to 10.5%. The bars show how much of that same salary goes on the EMI.
Start at 28% or 30% and you stay under the 40% line even after a three-point rise. Start at 36% or 40% and you cross it. Someone who starts at 40% ends up paying almost half their salary.
| Starting limit | Loan | At 7.5% | At 8.5% | At 9.5% | At 10.5% |
|---|---|---|---|---|---|
| 28% (US rule) | ₹34.8L | 28.0% | 30.2% | 32.4% | 34.7% |
| 30% (India rule) | ₹37.2L | 30.0% | 32.3% | 34.7% | 37.2% |
| 36% (US total) | ₹44.7L | 36.0% | 38.8% | 41.7% | 44.6% |
| 40% (India total) | ₹49.7L | 40.0% | 43.1% | 46.3% | 49.6% |
What people miss
Someone at the 36% limit has not borrowed 8% more than someone at 28%. They have borrowed 29% more: ₹44.7L against ₹34.8L. The limit is a share of your salary, but the loan it unlocks grows much faster than the limit does.
And when rates rise, the bigger loan takes the bigger hit. Three points of rate costs the 28% borrower about ₹6,700 a month. It costs the 40% borrower about ₹9,600.
So which should you use?
Treat 30% on housing and 40% on all loans as your outer limit. Treat 28/36 as the comfortable range to aim for.
Because Indian home loans float, borrow an amount where a two or three point rise still leaves you under 40%. In practice, that means starting near 30%, not near 40%.
Want to see the same kind of stress test applied to retirement savings instead of a house? The withdrawal rate simulator does that.