With multiple approvals and numerous eligibility criteria, attaining a Home Loan can be a strenuous task even for salaried individuals. For pensioners, it may almost seem inconceivable to own their dream house. Due to the apparent risks involved, lenders do not usually lend to senior citizens or individuals without a fixed source of income.
Obstacles Faced by Retired Home Loan Applicants:
1. Equated Monthly Instalment (EMI) affordability – For any lender, income of the applicant is the most important factor taken into consideration before approving a particular loan. As a rule of thumb, banks and other lenders prefer loaning money to applicants whose expenditure including house rent, existing EMIs, etc. don not exceed 40% – 50% of the total monthly income. As the income from pension is only a minute part of an applicant’s last drawn salary, the chances of a pensioner attaining a Home Loan is very slim.
2. Tenure of the loan – Many banks and housing finance companies expect borrowers to repay the loan before they turn 65 - 70 years old. Some banks that offer Home Loans to retired individuals have extended the age to 75 years. The maximum tenure of the loan in these cases would there be around 10 – 15 years. And, the shorter the tenure of the loan, the higher the EMI payable by the borrower. Therefore, because of the EMI affordability issue mentioned earlier, this would be a hindrance for pensioners as they would have to be paying a radically higher EMI than someone who has opted for a loan with a tenure of 30 years, for instance.
Tips to Improve your Chance of getting a Home Loan as a Pensioner
1. Add a co-applicant – Adding a co-applicant who is an earning member will increase your eligibility in availing a Home Loan. When pensioners add their spouse or children as co-applicants for the loan, not only does the total income of the applicants increase, but they are also held equally responsible for the loan. This increases the eligibility of attaining a Home Loan. Apart from just increasing the eligibility, adding a co-applicant can also reap tax benefits. If the co-applicants are also the co-owners of the property, they can avail tax deductions on principle and interest repayment as mentioned under Section 80C and Section 24, respectively.
2. Avoid multiple applications – Your credit score plays an important role in your loan approval process and also has an impact on the interest rates that a lender sets on the loan. Applying for a Home Loan with multiple banks will bring down your credit score. Every time you apply, a lender will enquire with credit bureaus. And, every enquiry would result in a decrease in credit score.
As an alternative, visit online marketplaces like Bank Bazaar to compare loans, gauge your eligibility and then apply for a particular loan. Online enquiries are often considered soft enquires and will not affect your credit score.
3. Use high-yield investments as collateral – The returns from equity or mutual funds usually yield a higher rate of interest that the interest charged on Home Loans. By providing these investments as collateral, banks may consider this to be an eligibility criteria as this shows that a lender has something to fall back on in the event that something goes wrong.
4. Opt for a lower loan to value Ratio (LTV)– The LTV refers to the proportion of the value of the house or property that is financed by the bank or lender. As an example if the value of the property is Rs.1 crore, and the bank agrees to pay Rs.80 lakh as the loan, the Loan to Value ratio is 80%. Opting for a lower LTV will not only increase your eligibility to avail a loan but also decreases the burden of EMI. The lower EMI is also factored in while approving the loan. And, as mentioned earlier, a lower EMI means a better eligibility for the applicant.
5. Choose interest rates wisely – Usually Home Loans carry three types of interests; floating, fixed and variable rates of interest. Presently, only a few banks offer a fixed rate of interest. However, if Home Loan rates are expected to rise in future, it would be wise to opt for a fixed rate of interest. On the other hand, if Home Loan rates are expected to decline in future, opt for a floating rate of interest. Floating rate of interests usually have benefits when it comes to prepayment and pre closure, not bearing any penalties for ether.
With technology amalgamated into banking, it is now easy to comprehend the EMI one has to pay for a loan. This becomes handy for pensioners as this would give them a rough idea as to how much a financial burden they’re going to incur after receiving a particular loan. This also reduces the chances of rejection as they can apply for Home Loans according to the Equated Monthly Instalments that they can afford.
With EMI Calculators, one can, with great precision, get to know the Equated Monthly Instalment payable by him/her on a particular loan. This can help an individual assess how much to save and what can be compromised financially in order to accommodate the EMI payable. Bank Bazaar’s Home Loan calculator helps you understand your EMI and plan your monthly expenses, so that you won’t have to burden yourself in future with any unforeseen costs. By entering basic details such as loan amount, interest rate, etc., the EMI calculator will give you all the information you need, including how much interest you’d be paying, what the principle is, and of course, what your Equated Monthly Instalment is going to be.
As we all know, a small variation in the interest rate of a particular loan can have drastic implications on the total amount payable by an individual. Therefore, if it important to research on the various types of loans, interest rates, etc. before you narrow down on a particular loan. You can also use Bankbazaar EMI calculator to compare offers from several banks, which in turn will help you avail the best possible offer for Home Loans. You can use Bank Bazaar’s EMI calculator by following the link mentioned below.