Home loan is a major financial commitment for homebuyers but, at the same time, it also entails huge risks for the bank. This is the reason why banks are very apprehensive about extending home loan to people who are close to retirement, regardless of their financial standing. People who are on the last leg of their career have an insecure income situation which could make repayment difficult for them adding to the risk of the bank. Mr. Subramanian faced a similar situation when trying to buy a house in his elderly years. He was shocked and disappointed to know that no bank was ready to offer him a home loan. He approached Paisabazaar for finding a way forward.
Before we reveal the advice of our in-house experts, let’s dwell on who Mr. Subramanian is.
Mr. Gopala Subramanian is a 58 years old government official with only 2 more years remaining in his service tenure. His job was transferable which meant he traveled and stayed in various locations across India with his family. As he was always allotted a government-sponsored residence, he focused on spending on his children’s education instead of buying a house. Though he is financially sound — steady government pension, a seven-figure gratuity amount, robust investment in bonds and FDs — he is faced with the prospect of not having a house of his own for his post-retirement days.
Banks avoid giving home loans to applicants at the verge of retirement as the repayment cycle is 20 years long and the only regular source of income for the borrower is his pension. [Also read: 7-point Checklist for Home Loan Borrowers Aged 50+] Moreover, due to old age he would require more medical attention which is again a big financial outgo along with other usual spends. So it is hard for Mr Subramanian to convince the bank about his repayment capacity.
Paisabazaar Advice on How to Get a Home Loan at the Age of 60
Our in-house expert suggested joint loan application. Having a co-applicant who earns well and still has 8-10 years left to retire increases one’s home loan eligibility. In Mr. Subramanian’s case, his wife can be added as a co-applicant. His son could also be a perfect co-applicant as his age will work as a positive factor allowing a longer tenure and subsequently reducing the EMI.
Option 1: Joint home loan application with his wife
Lenders would club the incomes of both the applicants to arrive at the loan amount and repayment tenure. Also, in such cases, banks would ensure that the potential EMI does not account for more than 60% of the applicants’ net monthly income.
While the current home loan interest rates are considerably low (8.30% onwards), a shorter tenure will lead to higher EMIs. Mr. Subramanian’s investments in the form of bonds and FDs will also work in favor of him as he can pledge these for the home loan sanction. Also, at the time of retirement, he will get a hefty amount as gratuity which can also be pledged or used for part pre-payment of the home loan. Since he does not have many outstanding debts, he will also be eligible to apply for home loan overdraft facility which will facilitate faster repayment.
Since Mr Subramanian will be working for two more years, his income till retirement will be taken into account for calculating the Net Monthly Income (NMI). And post that, his pension amount will be considered to arrive at the NMI. For example, if Mr Subramanian’s and his wife’s monthly salary is Rs 40,000 and Rs 35,000, respectively, then for the first two years the total income of the family will be considered as Rs 75,000. Post retirement, if he gets a monthly pension of Rs 10,000, the net monthly income will be Rs 45,000 only.
Even with a joint home loan, Mr. Subramanian might not get a longer tenure as the banks try to service the loan before the retirement of the working co-applicant.
Option 2: Joint home loan application with son
The other option is that Mr. Subramanian applies for a joint loan with his son. In some rare situations, one can also be granted a home loan with the spouse as well as the son. The combined income of all three will be considered for deciding the loan amount. However, only the son can be the primary applicant. Other terms may also differ from bank to bank.
Another breather for elderly applicants is that some lenders, such as SBI and Canara Bank, are coming up with specific home loan schemes to cater to them.
Joint home loans offer several benefits to borrowers, in terms of eligibility for higher loan amount and income tax relief. Read our article What No One Tells You About Joint Loan to know more about the benefits of availing joint home loan.