The home loan puzzle
When you apply for a home loan after you are 45, you will not enjoy the maximum tenure benefit as in the case of other borrowers. Assume you decide to apply for the loan when you are 45, and your retirement age is 60 years, then the maximum tenure the bank may be willing to offer you will be 15 years. As the tenure is low, the EMI amount you will have to pay will be higher than when you would have borrowed the same amount in your 30s.
A home loan is an important liability in every individual’s life, not only because it is substantial in terms of the quantum, but also because it is possibly of the longest tenure. Increasing salary levels have brought down the average entry age of home loan borrowers over the past decade.
Banks offer maximum home loan tenure of 20 years. So if you wish to complete repayment of the home loan before you retire, you must ideally apply for one when you are at the most 38 years or 40 years old. Some banks offer a higher tenure of 30 years. But invariably banks specify an upper age limit of the borrower at the time of loan maturity. Therefore the age at which one applies for a home loan becomes an important factor.
As mentioned earlier, nowadays working professionals have started purchasing a house within the first few years of beginning their career. But what if you have missed the bus and wish to apply for a home loan after you are 45? Another scenario is if you already have a home loan and wish to apply for a second home loan when you are 45 required for purchasing your second house. Here are a few things to keep in mind:
Research options well: Researching the home loan options in the market is important at any age. However, when you take a new liability after 45, it becomes all the more important, as you have other important goals coming up and even a 50bps differential in the interest rate can make a difference. Also, keep in mind the service levels of the bank you are opting for, as it may not be very easy for you to run around for paperwork.
Opt for the maximum possible tenure: When you apply for a home loan after you are 45, you will not enjoy the maximum tenure benefit as in the case of other borrowers. Assume you decide to apply for the loan when you are 45, and your retirement age is 60 years, then the maximum tenure the bank may be willing to offer you will be 15 years. As the tenure is low, the EMI amount you will have to pay will be higher than when you would have borrowed the same amount in your 30s. Therefore you should try to stick to the maximum tenure the bank is willing to offer you, such that there is no further pressure on your EMI which is already on the higher side.
Opt for a joint loan: As EMI amounts will logically be higher when you borrow late in life, it may not be easy for everyone to manage these payments. In such a case, you can opt for a joint loan, which can make it easier to manage the EMI payments. Alternately, one can argue that at this age, your income will also be high and therefore it may not be difficult to manage a higher EMI. But remember that you may have other important goals in life to take care of, and opting for a joint loan can also help in increasing tax benefits for the family as a whole.
Try to increase down payment amount: When you are 45, the assumption is that you have a good amount of savings. You can use some of these savings to increase the proportion of down payment. This essentially means that the amount you borrow will be lower, and as a result, your EMI amount will be lower. The extra amount you save by a reduced EMI payment can be used for savings for retirement or any other long term goal. However, remember to do a comparison of the interest you earn on your existing investments vis-à-vis the interest on your home loan before you make this decision. If the interest on the home loan is higher than the interest you earn on these investments, it is better to increase the down payment amount. Remember to consider tax benefits from the home loan when you make this comparison.
Use windfalls for repayment: Some banks allow you to extend the loan tenure beyond retirement. However, it is better if you pay off all liabilities before you retire, as you do not have a regular income after retirement. Therefore you should aim to repay your home loan before you retire, whenever you receive any windfalls or one-time lumpsum amount. As prepayment penalties are nil, you can even accumulate small amounts over a period of 6 months or 1 year and make prepayments.
A home loan after 45 is a huge responsibility to take. Keep in mind the above points to make the process easier.
YOU MAY ALSO WANT TO: Calculate the EMI on your home loan – Home Loan EMI Calculator