How Senior Citizens Can Avail Of Home Loan
How Senior Citizens Can Avail Of Home Loan
Given the number of requirements and processes, availing of home loan may appear to be a daunting task even to young, millennials. Financial institutions examine various factors to ensure safety of their funds and no doubt income and age are among the top factors that are examined closely to assess the repayment capacity of a home loan applicant. So, does it mean that senior citizens would find it difficult to get a home loan? No, it is not like that.
Here are a few ways through which a senior citizen can get a home loan.
Stable income from a co-applicant: A senior citizen’s eligibility to get a loan increases if there is a co-applicant who is earning. Alongside, such a measure can lead to taxation benefits. Under Section 80C and Section 24 of the Income Tax (I-T) Act, tax deductions can be availed of on the principal and interest amounts if the co-applicants are also the co-owners of the property.
Avoiding applying multiple times: The rate of interest set by the bank on the loan is also determined by the credit score of the borrower. If the borrower has applied with various financial institutions for a loan, it lowers the credit score. The chances of a loan are decreased if an inquiry is made by a bank or financial institution to a credit bureau which has the past records of the borrower.
Instead, opting for online marketplaces to check the various loan products and the eligibility would save a lot of time and effort with lowering your credit score. These are considered ‘soft’ ways to make an enquiry without affecting your credit score.
Collateral in the form of high-yield investments: Collateral to banks or lending institutions can be in the form of mutual funds or equity investments which have a higher interest rate than that charged on home loans.
These investments can be considered as a cushion which can add to the eligibility criterion of the borrower.
Lower loan-to-value (LTV) ratio: The LTV ratio is the ratio of the property or house financed by the lending institution or the bank. For instance, the LTV ratio is 80 per cent if the value of the property is Rs 1 crore and the bank pays Rs 80 lakh as the loan.
Opting for a lower LTV will decrease the EMI payment, along with increasing the eligibility of the borrower to avail of the loan.
Interest rates: It is wise to choose interest rates with caution. Three types of interest rates can be charged on home loans which are fixed, variable and floating. If the home loan interest rates are expected to rise in the future, fixed interest rates are preferred. If however, rates are expected to fall, floating interest rates can be opted for.
Floating interest rates are beneficial as they don’t carry any charges for pre-closure and prepayment of the loan.
Difficulties faced by pensioners
The tenure: Many lending institutions believe their borrowers will pay off the loan before 65-70 years of age. Some banks have increased this age limit to 75 years.
The upper limit for tenure in case of senior citizens could be between 9-16 years. The EMI increases if the tenure of the loan is shorter.
EMI affordability: First and foremost criterion for lending is based on the income of the individual and the ability of the borrower to pay the EMIs without exceeding 40-50 per cent of his income.
However, in case of pensioners or retired persons, the pension is only a limited amount and, therefore, attaining a loan is difficult.
EMI calculation: With advancement in technology and finance, it is now much easier to know the EMI to be paid on a home loan. This helps a pensioner or a retiree to plan their financial outflow better. They can opt for loans on which they can easily pay EMIs instead of the ones that may be outside their budget.
A prospective borrower can use online Home Loan EMI Calculator to measure the EMIs to be paid each month on a home loan.
By typing in basic information in the EMI calculator like interest rate, amount of loan, loan tenure, etc., it calculates the exact amount of EMI to be paid along with principal amount, interest to be paid, etc.
This allows the pensioner to prepare for the loan as well as the expenditure to be incurred monthly on the loan.
Before opting for a particular type of loan, study the different types of loans, interest rates and mortgages available. Make use of online marketplaces as they compare different loans and rates of interest of various banks at a click of a mouse and make it easy for a prospective borrower to decide on a home loan.