With numerous sanctions and eligibility measures, obtaining a house loan can be a tedious chore even for salaried persons. For retirees and pensioners, it may almost seem implausible to own their own home. Due to the seeming risks involved with loaning money to someone without a fixed income, lenders do not usually lend to pensioners or senior citizens.
So, how can a pensioner improve his/her chances of attaining a home loan?
Add a co-applicant – Co-applying for a home loan with an earning person will increase a pensioner’s eligibility in availing it. When pensioners add their significant other or child as co-applicants of the mortgage, not only does the loan amount increase, but all the applicants are also equally accountable for the housing loan. This increases the eligibility of obtaining a home loan.
Apart from simply increasing the chances of a person being eligible for a loan, adding co-applicants can also lead to 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.
Avoid multiple applications – Your credit score is an important determinant with regard to you availing a loan, and has an impact on the rates of interest that a bank sets on the loan. Applying for a mortgage with numerous financial institutions will lower your credit score. Each time you request for a home loan, a bank or financial institution will investigate with credit bureaus. Every time an enquiry is made with a credit bureau, the higher are the chances of your credit score reducing.
As a substitute, visit online marketplaces to compare various loan products, understand if you meet the criteria required to avail the housing loan, after which you can go ahead and apply for a home loan online. Enquiries made on the internet are often reflected as ‘soft’, meaning your credit score will not be affected.
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 an eligibility criterion as this shows that a lender has something to fall back on in the event that something goes wrong.
Opt for a lower loan to value (LTV) ratio – The LTV ratio refers to the proportion of the value of the house or property that is financed by the bank or the lender. For example, if the value of the property is Rs.1 crore, and the bank agrees to pay Rs.80 lakh as the loan, the LTV ratio is 80%. Opting for a lower LTV will not only increase your eligibility to avail a loan, but also decrease the burden of EMI. The lower EMI is also factored in the approval process for the loan. As mentioned earlier, a lower EMI also means a better eligibility for the applicant.
Choose interest rates wisely – Usually, home loans carry three types of interests: floating, fixed, and variable. At present, only a few banks offer a fixed rate of interest. However, if home loan interest 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 rates of interest usually have benefits when it comes to prepayment and preclosure, not bearing any penalties for either.
What are the hurdles faced by pensioners?
Tenure of the loan – Many housing finance companies and banks anticipate their customers to pay off a home loan before they reach the age of 65 – 70 years. A few banks that offer housing loans to pensioners and retired persons have increased this age to 75 years. The maximum loan tenure in these instances would then have to be roughly 9 – 16 years. The smaller the loan tenure, the more is the equated monthly instalment that a borrower has to pay. Therefore, lenders are forced to believe that pensioners will not be able to afford the EMO. The EMI affordability issue is definitely an obstacle for pensioners to avail a housing loan. This is because the pensioners would have to pay a drastically higher EMI than an individual who has availed a loan that has a tenure of 35 years, for example.
Equated monthly instalment (EMI) affordability – For any lender who sells home loans, the income of a candidate is, by far, the most significant aspect considered before approving a home loan. Usually, banks and other financial institutions prefer providing credit to borrowers whose EMI for the home loan coupled with the EMIs they’re currently paying for other loans do not exceed 40% – 50% of their monthly income. As the revenue from pension is only a miniscule part of a candidate’s last drawn salary, the chances of a retired individual or a pensioner attaining a mortgage reduce considerably.
With technology merged with finance, it is now easy to know the equated monthly instalment one has to incur towards a housing loan. This becomes convenient for retired individuals and pensioners as they can get an estimate of the financial outflow they are going to experience after availing a home loan. This also decreases the odds of denial of a loan as they can apply for home loans as per the EMI they are capable of paying.
With online Home Loan EMI Calculator, one can effortlessly measure the equated monthly instalment that needs to be paid towards a home loan. This can aid a pensioner to evaluate the portion of his/her income that needs to go towards the loan and the amount that can be compromised in order to accommodate the monthly expenditure of a loan. By keying in rudimentary information like interest rate, loan amount, etc., the EMI calculator will give you all the information you need, including how much interest you will be paying, what the principle is, and of course, what your equated monthly instalment is going to be.
As we all know, a slight difference in the rate of interest of a particular loan can have a major impact on the total interest payable on the loan. Thus, it is important to study the different types of mortgages in the market, interest rates, etc., before you narrow down on a particular loan. Make use of the various online marketplaces to compare offers from several banks, which in turn will help you avail the best possible offer for home loans.
(This story has not been created by the editorial team.)