ATM :: Applying for a home loan after 45? Do not miss these tips

Adhil Shetty,CEO, | MoneyControl
Borrowing after 45 years of age may make the borrower worried about repaying his home loan. However, these tips can help you reduce your anxiety and offer some peace of mind.


Durgesh, 48, a government employee, was planning to take a home loan. He has only 10 years left in service and his loan requirement was 15 lakhs. He was confronted with a number of questions like any other late loan takers: Am I eligible for the required amount? Will it be difficult for me to manage the higher EMI? Can I continue paying the loan after my retirement, provided I have pension? Can I include my son’s income if I’m not eligible for the loan?

As he thought about it, more doubts surfaced: Should I break my FD to manage the down payment? What should I do to preempt the EMI from becoming a burden? Soon, Durgesh was overwhelmed.

Loans are usually offered so long as one has salary. So, the lesser your service period, the shorter will be your loan tenure, which means EMI burden on you is higher.

A higher EMI has an upside as well as a pitfall. The good news is that your interest outflow will be lesser, as you pay off your loan sooner. The bad news is that your loan eligibility will be reduced and the EMIs can weigh heavily on your personal finances.

Taking the case of Durgesh here, if he takes a loan of 15 lakhs for 10 years at 11% interest rate, his EMI will be around Rs.20663, and he will pay back Rs.25 lakhs. But if he takes the same loan for 20 years, he pays back Rs.37 lakhs in total – a staggering increase of Rs.12 lakhs!

Like Durgesh, many borrowers in the 45-60 age bracket battle many self-doubts when in the market for a home loan. Here are some of them answered.

Am I eligible for the required amount?

Usually loans are offered till you are in service. For example, Durgesh earns a salary of Rs30000. So his loan eligibility for 10 years is 12 lakhs only. But since he is a government employee, he gets pension. He can use part of his pension for loan repayment, and banks too may consider this option. His loan application can be therefore considered for up to 20 years, and he can be offered a higher amount.

Considering his pension will be lesser than his salary, the EMI outflow post retirement will be lesser. This is also called step-down repayment options, as the later EMIs are stepped down here.

Other options for him are to consider his wife or son (if they are employed) as joint applicants. If he is having any additional income like rental income from some any other property, that too can be considered.

Will it be difficult for me to manage the EMI? How should I prevent the EMI from becoming a burden?

In Durgesh’s case, his monthly salary being Rs.30000, it will be difficult for him to service a loan of 15 lakhs. Moreover, he has other expenses to take care of as well, like his down payment and funds for his second son’s higher education.

Durgesh can opt for an accelerated loan repayment option. Under this option, he can choose for a lesser EMI during the initial years. As he works through the loan tenure, the EMI slowly grows with the passing years. However, there are two flip sides to this option.
1) Lesser EMI means more interest outflow
2) Growing EMI means a higher outflow when he is deprived of his salary post retirement

If he plans his repayment smartly, he can opt for an accelerated EMI here, provided he plans to close or make part prepayments on his loan when he gets his gratuity and EPF amount on retirement. This way, the EMIs will not be a burden for him; to curb the interest outflow, he can choose to close down the loan soon he gets retired.

Alternatively, since he has an FD with the same bank, till he retires, he can opt to earn the interest out of it, or opt for a dividend option from some of his MF investments. This means, he gets some additional income every month. And with this additional income, the EMIs will not be a burden for him. If he owns some other property, he can think about renting it out to earn some additional income.

How should I manage the down payment? Should I break my FD to manage it?

The strategy to be adopted is completely based on the financial situation of the individual. However, considering the other expenses one may meet during retirement, breaking an FD is not advisable.

However, there are some alternatives for Durgesh. If he owns some other properties, he can plan on selling it to raise some funds so that he can manage both his son’s education and down payment. If he can afford to pay more EMI, i.e. if he has any passive income, he can plan for a loan against FD, a PF loan or a loan against his insurance policies to raise some funds, so that his temporary financial crunch will be managed. If he is holding some shares, he can plan on selling a couple of them.

Alternatively, instead of taking both the burden of his son’s higher education as well as down payment simultaneously, he can opt for an education loan for his son, so that he needs to worry only about the loan down payment.

If none of the above options work, he can check with his bank if to see if they offer the proportionate release option which can bring down his EMI considerably in the initial few instalments.

Above all these, latecomers on the home loan scene should research their options well. This is because some banks charge a higher fee based on the age of the applicant if they have considered pension income, since this constitutes a risky profile for them.

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