Home loan is a lifetime financial commitment for homebuyers and also at the same time it also involves huge risks for the Bank/ NBFC’s. This is the reason why Banks/ NBFC’s are very much concerned about extending home loan to people who are close to their retirement, regardless of their financial situation. People who are into the last stage of their career have insecure income situations which in turn make it difficult to repay the loan amount by adding the risk to the bank. Mr. Nakade faced a similar situation when he was trying to buy a house in his elderly years. He was shocked and upset to know that no financial institution was ready to offer him a home loan. He approached Mudra Home to find a way out.
Before we disclose our in-house expert team’s advice let’s know more about Mr. Nakade.
Mr. Arjun Nakade is a 56 years old government official with only 4 more years remaining to serve his service tenure. His job was a transferable job which means that he had to travel and stay at various locations across India along with his family. Due to government-sponsored and allotted residence, he always focused on spending for his children’s education instead of buying a house. Though he is financially stable for his future – with a regular government pension, a seven-figure gratuity amount, robust investment in bonds, FDs and many more. But, now he is facing with the possibility of not having a owned house for his post-retirement days.
Banks/ NBFC’s avoid giving home loans to applicants who are at their retirement stage as the repayment cycle is 20 years long and the only regular source of income for the borrower is the pension. Moreover, being in old age the borrower would require more medical attention which is again a big financial expense along with other usual expenditures. So it is hard for Mr. Nakade to convince the Bank/ NBFC about his repayment capacity.
Our in-house expert suggested applying for a joint home loan. Having a co-applicant who has a good earning and still have few years left to retire increases the borrower’s home loan eligibility. In Mr. Nakade’s case, his wife or any of his earning children can be added as a co-applicant. His son could be a perfect co-applicant as his age will be a positive factor that allows a longer tenure and eventually the EMI’s can be reduced.
Lenders would club the income of both the applicant and the co-applicant to conclude at the loan amount and the repayment tenor. Also, in such cases, the Banks/ NBFC’s will ensure that the budding EMI is not more than 60% of the borrower’s net monthly income.
However, the interest rates of the current home loans are considerably low (8.30% onwards), higher EMI’s will lead to a shorter tenure. Though, the investments done by Mr. Nakade’s in the form of bonds and FDs will also work in favor of him. These bonds can serve as a security or collateral for the home loan sanction. Also, at the time of retirement, the borrower will get a huge amount as gratuity which can also be kept as a security or used for part pre-payment of the home loan. Since the borrower does not have any outstanding debts, he is also eligible to apply for home loan overdraft facility which will facilitate the borrower for the faster repayment.
Since Mr. Nakade has to work for another two years, his income till retirement will also be taken into account to calculate the Net Monthly Income (NMI). After that, the pension amount will be considered to arrive at the NMI. For example, if Mr. Nakade and his wife’s combined monthly salary is Rs 75,000, then for the first two years than the total income of the family will be considered as Rs 75,000. Post retirement, if the main applicant’s salary was 40,000 and gets a monthly pension of Rs 10,000, the net monthly income of the main applicant and the co-applicant will be Rs 45,000 only.
Even with a joint home loan there might be a possibility that Mr. Nakade might not get a longer tenor as the Banks/ NBFC’s try to service the loan before the retirement of the working co-applicant.
Another option that Mr. Nakade can opt is to apply for a joint loan with his son. Depending on the case there can be a rare situation that there can be two co-applicants. That means a borrower can also be granted a home loan with the spouse as well as the son. The combined income of all three applicants will be calculated to decide the loan amount. However, in this case only the son can be a primary applicant. Terms and conditions may differ from Bank/ NBFC to Bank/ NBFC.
Another breather for elderly applicants is that some nationalized as well as private banks are coming up with specific home loan schemes to cater them.
All the borrowers avail several benefits in a joint home loan. These benefits can be in terms of eligibility for higher loan amount, income tax relief and many more.