What is the best age to go for a Home Loan?

By: Bank of Baroda
Fri Nov 1, 2019
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Buying a home is a dream for every individual across the globe. The only problem is affordability. Buying a house needs to fit the budget. One’s dream need to be realistic in order to achieve it.

From a lender’s point of view a person becomes eligible for loan if he is earning a sufficient income from a legitimate source. He has to have a steady source of income and enough saving after taking care of the regular expenses and other loans as he has, to repay the equated monthly installments (EMI) of the home loan. These factors are known as creditworthiness of the borrower and credit behavior of a borrower is assessed in India by what is known as CIBIL score.

The CIBIL score takes into account the credit history of the person, whether he had defaulted on his loans earlier and similar other points.

Another point that comes up is age which decides the tenure of the loan that is relevant for purchasing a property.

Age in isolation is not a factor, what the lender would also like to look at is the earning and repayment capacity of the person, quality of the property he is planning to buy and the loan amount he is seeking.

Let’s take the case of a house property which is worth say Rs 75 lakh which includes all taxes and statutory charges. Assume that the lender is willing to fund 80 percent of the amount, which in our case is Rs 60 lakh.

Now, let’s consider three person aged 25, 35 and 45 who approach the lender for the loan on this property.

These days the younger generation gets a good starting salary especially if he has a good education or is a professional. In our case let’s consider an average individual.

Clearly, a 25 year old person can take the loan for the longest period possible, which in India can be around 30 years. The middle-aged person can be eligible for the loan for 20-25 years. The eldest individual will get a loan with a tenure of 10-15 years maximum. The lender would consider the useful working life of the borrower before fixing a tenure.

Lenders generally hesitate to lend a housing loan to an elder person. Part of the reason is the limited working life he has in front of him and secondly because his obligations increases with age. Children’s higher education needs to be funded, their marriage and medical cost associated with him and his spouse which can lead to cash flow mismatch going forward.

However, if the older person has a strong income stream and needs money for a shorter tenure, lenders would be interested in it. They may or may not ask for more collateral against the property since in a small tenure window price fluctuations can act as an added risk.

Or they may consider taking a higher down payment which would mean a lesser exposure and time risk for the lender.

Another way the older person can improve the chances of getting a loan is by applying for it with a co-borrower. This way the risk of the lender is reduced and there are more than one income stream to take care of the EMI payment.

There is no fixed and ideal age for taking a home loan. Finally what matters is the affordability. As a rule of thumb the EMI outgo should not exceed 30 percent of the income. Anything higher would put stress on the financials of the individual.

Financial markets in India have now matured offering an individual multiple avenues of raising money. Having said that, assets like a home is best bought as early as possible in one’s life since after this he can concentrate on wealth creation.

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