Mr. Wakil led a happy life with his family in the quarters provided by his company. He was a financially healthy person who made sure he invested in various beneficial schemes. For over 20 years he and his family moved from one city to another, based on where his company posted him.
However, on his 50th birthday, he realised that he was nearing retirement and would need a permanent place to call home. While this thought had crossed his mind on several occasions, he never really entertained it. But, with retirement only a few years away, the thought of not owning a home started bothering him. This is when he started looking into his home buying options.
Can you relate to Mr. Wakil? Are you in your 50s and planning to buy a house of your own? Although the thought of taking a Home Loan in your 50s, or borrowing money at this stage may seem impossible, it’s not. However, there’s no denying that you could face rejection from some banking institutions, given that a major part of your loan tenure will be a part of your post-retired life. So, if you are planning to avail a Home Loan in your 50s, these are some rules that you need to follow or consider. Read on!
Additional Reading: 5 Useful Tips For Your House Hunt
Income: Now and later
One of the most important factors that will determine your Home Loan approval is your income. Considering you are only a few years away from retirement, your current income, as well as your income in the future, will be considered.
In fact, your pension and retirement plans will also be taken into account to ensure that you will be able to pay your Home Loan EMIs even after retirement. Ideally, lenders prefer if your EMI is less than 40-50% of your monthly income.
If you have any doubts with regard to getting a loan, it’s always good to have a co-signer or a co-borrower. You can either ask your spouse to co-sign the loan with you or if you have children who are earning, you could ask them to be co-applicants. This way, their income will add up to yours and thus improve your chances of getting a loan and a higher loan amount as well. Also, don’t forget to cite all sources of income while applying for a loan. Any extra income will work in your favour!
Additional Reading: All You Need To Know About Home Loan Eligibility
Apart from your income, your Credit Score plays an important part in deciding the future of your Home Loan application. A good Credit Score will work in your favour, but a poor Credit Score will spoil your chances of getting a Home Loan. So, make sure that your Credit Score is good before you apply for a loan.
Also, don’t apply for too many loans all at once as this may negatively affect your credit report. Work towards building a good Credit Score by paying your bills on time and not carrying any Credit Card debt.
Additional Reading: 3 Ways To Improve Your Credit Score Quickly
Down payment you are willing to pay
Ideally, you are required to pay 5% to 25% of the property value as the down payment. This amount comes out of your pocket since the Home Loan doesn’t cover it. The expected down payment varies depending on the borrower’s age and repayment capacity.
If you pay a higher down payment while purchasing the house, you will have to pay lower EMIs in the future. So, it’s beneficial if you can pay as much as you can out of your pocket and depend on the loan less.
Additional Reading: All About The Down Payment For Your Home
Sum of investments
Your retirement plans and investments will help determine your loan eligibility. Whether you’ve invested in Fixed Deposits, Mutual Funds, post office savings schemes, ELSS or Public Provident Fund, you can use it to your advantage.
You can use these schemes as collateral for your loan application. The lender will take all these into consideration, as these will be your sources of income post-retirement. A sum of all your investments and their returns will help you get the loan amount that you need to fund your dream home in your 50s.
Additional Reading: The Beginner’s Guide To Creating An Investment Portfolio
Type of Home Loan
There are two types of Home Loans available – floating and fixed-rate. In the case of a fixed interest rate Home Loan, the interest rate does not change throughout the tenure of the loan. For a floating interest rate loan, the interest rate varies according to the MCLR set by the financial institution.
A floating interest rate will work in your favour if there’s a declining interest rate regime. However, the situation will reverse in case of a rising interest rate regime. Some banks offer a mix of fixed and floating rates as well. In this case, the interest rate is fixed for a certain pre-decided period of time. Once that period is over, the interest rate will become a floating one.
Our advice: Go in for a fixed interest rate if you’re applying for a Home Loan in your 50s. Why? Well, your post-retirement income will be a fixed amount and any change in interest rate, especially a rising interest rate regime, could have an adverse effect on your monthly budget.
So, if you are looking for some certainty in your post-retired life, it’s ideal to opt for a fixed interest rate loan. If you think you can manage a floating interest rate loan (and the risk involved), even if there’s a rising interest rate regime in the future, go for it!
Additional Reading: Fixed VS Floating Rate Of Interest
Tenure of the loan
One can opt for a loan tenure of up to 30 years. However, lenders prefer if the loan is repaid before the borrower reaches the age of 65 – 70. So, it’s possible that you won’t be able to opt for a longer loan tenure.
You can choose a shorter tenure, but don’t forget that it will invite higher EMIs. So, plan your finances accordingly, or else repaying your loan will burn a hole in your pocket. The good thing about a shorter tenure is that you will spend less on interest.
Additional Reading: Important Tips On Buying A Home
Extra charges, if any
Before finalising any loan, make sure you get the lowdown on all the charges involved. Whether it’s a prepayment penalty or processing fees, don’t forget to take these extra costs into account.
If you plan to prepay the loan before its tenure, checking the prepayment penalty charges are a must. Prepayment is a good option since it will help you save on interest. It will also help reduce the loan tenure. However, never use your retirement savings to prepay your Home Loan.
Additional Reading: Costs Involved In A Home Loan
Make sure you check all these factors before finalising on a Home Loan. Now you can go ahead and explore your loan options.