ICICI bank and Housing Development Finance Corporation (HDFC) have launched a home loan product that allows you to link repayment with your earnings.

The new product allows you to pay an EMI (equated monthly instalment) of Rs 625 per lakh on a 20-year loan at 7.5 per cent, for the first two years.

On a fixed EMI home loan of 20 years at the same interest rate, you’d have to pay Rs 806 per month per lakh, or roughly 29 per cent more. This effectively allows you to borrow more.

Let us assume that you cannot afford an EMI of more than Rs 6,250 per month. Under the new scheme, you could borrow Rs 10 lakh, whereas if you had to pay Rs 806 per month per lakh, you couldn’t borrow more than Rs 775,000.

Under the new scheme, the EMI goes up to Rs 806 per lakh (for a 20-year loan at 7.5 per cent) between the third and seventh years and to Rs 874 from the eighth year till the end of the term.

“The beauty of the new scheme is it allows you to borrow more and scale up the repayment as your income increases,” says Rajiv Sabharwal, who heads ICICI Bank’s home loan business.

HDFC offers another variant of the same product, which allows you to pay more initially and reduce the EMI towards the end of the term.

Say, you are going to retire in 10 years, and your wife, in 15 years. Under the new HDFC scheme, you could take a 15-year loan, and customise your repayment in such a way that you pay off most of the loan in the first 10 years.