7-Point Checklist for Home Loan Borrowers Aged 50+

Over the last two decades in India, the demographic of people applying for home loans has witnessed major transformations. A loan applicant’s eligibility is generally based on such factors as creditworthiness, life stage, property type, repayment capacity, employee history, etc. However, age is one common factor that binds all these factors. The home loan seekers’ population can be categorised broadly into three age groups – those in their 20s, 30-45 years, and 45 to retirement age.

The younger generation earns significantly higher salaries compared to their predecessors, and therefore, borrowers in their 20s and 30s constitute a major percentage of the population looking for home loans. Primarily due to the age benefit, this age group has the maximum borrowing choices. However, it is also true borrowers over 45 years of age, commonly referred to as late home loan seekers, also have more borrowing choice options, permitting them to leverage their limited repayment tenure.

Let’s assume a 52-year old man wants to buy property, but is finding it tough to get the loan sanctioned due to his age. Here are some important factors he can bear in mind while applying for a home loan:

• Loan options : Usually at this age, a lot of banks and NBFCs are skeptical of offering a loan. It is, therefore, imperative to do as much research as possible before taking a loan. Although this is vital for applicants of any age, it is more so in case of late home loan seekers. Even a seemingly small differential of 50 basis points (BPS) can make a big difference. (100 BPS = 1%).
• Tenure : Since age is one of the most important factors considered during a loan application, financial institutions usually try restricting the home loan tenure to a person’s retirement age, making 60 the age limit. Younger people can get a loan with a 20-25 year tenure, while people aged 45 years and above may find it difficult to get a longer term loan. In several cases, either banks do not sanction loans at all to single applicants aged 50+ years or they lower the tenure.

At 52 years of age, this loan applicant’s chief concern would be the tenure, i.e. the time taken to repay the entire loan amount, inclusive of interest.

Though the maximum tenure that all major banks offer is 30 years, if the loan applicant is 45 years or more, it means that they have approximately 15 years for repayment. Lower the tenure, higher the equated monthly installment (EMI). Therefore, longer the tenure, the better it is, as this ensures one can pay the home loan EMIs comfortably.

• Income band: The source, stability, and quality of a loan applicant’s income have a direct bearing on a loan application’s outcome. Purely based on stability of income, a person employed by a reputed company can get a higher loan amount. Additionally, banks categorise certain sectors as being either risky or stable, hence the home loan eligibility of people working in stable sectors is higher compared to those in other sectors.
• Down payment : At an older age, it is better to keep the down payment amount high. At the age of 52, it is assumed that the applicant has accumulated sizable savings he can use to lower borrowings. Before arriving at a final decision, it is advisable to compare interest earned on all his existing investments with the interest on the home loan. The tax benefits received from the home loan must be considered too.
• Credit worthiness : On receiving a home loan application, the person’s credit score is one of the first things banks scrutinise, because this illustrates one’s creditworthiness and spending and saving habits. The applicant must therefore check his credit score on CIBIL before applying for a home loan. It is also important to be vigilant about credit card payments, not exceeding the credit limit, and having a healthy balance of secured and unsecured loans.
• Outstanding loans : Existing/running loan repayments negatively impact loan eligibility because it is considered a drain on the person’s repayment capacity to service a new EMI. It is therefore best to close small loans like credit card loans, car loans, soft loans, etc., as this indicates higher availability of funds to repay the home loan, thereby increasing the applicant’s home loan eligibility.
• Co-borrower : Since it is usually assumed that the financial capacity to repay is inversely proportional to one’s age, a joint home loan account is a good bet as one grows older. This lowers the liability of high EMIs and helps increase tax benefits for the entire family.

Adding a co-borrower for the home loan, increases eligibility, particularly where the borrower falls in a higher age bracket and also when the loan amount is high. Banks usually have a higher cut-off age limit if there is a co-borrower for the loan, thus increasing the chances of getting a longer tenure loan.

Financial institutions closely scrutinise relationships between co-borrowers. It is advisable to add a younger co-borrower for the joint home loan, for instance, children or spouse with greater earnings visibility.

Conclusion

It is true that an applicant’s age is a critical factor determining home loan eligibility, loan tenure and loan quantum. However, instead of feeling demoralized, those in higher age brackets should focus on the above mentioned aspects to optimize their loan eligibility and tenure.

Selecting a bank that is liberal in considering loan applications of higher age groups and which offers specialized personal service, is the first step to begin with. One must also understand what criteria the bank uses to work out the loan quantum and tenure.

For those in the higher age group, realizing the dream of buying a home has become a lot easier, thanks to aggressive home loan schemes and liberal financing options that have become available in the last few years. In addition, income tax incentives serve a catalyst while repaying home loan EMIs. So older people, take heart.