By the time you reach the age of 50, you are looking for a permanent house to settle in. People save money for their entire lives to buy a new house. By this age, you also have to consider about your post retirement plans. Sometimes, home loans are not sanctioned by the bank when you are in the age of 50s and have an inadequate income. The only recourse available at that time would be to go for a personal loan or mortgage loan, both of these would be highly expensive.
Your loan application will be judged on the basis of your income. The possibility of your approval increases if your pension amount is sufficient to accommodate EMI’s. Usually, banks prefer the amount of EMI to be significantly lower than your pension income. If you have EMI on any other loan, that amount is deducted from the total pension while calculating your income for sanctioning home loan.
A credit score decides the creditworthiness of a person. A lender evaluates your credit score to analyse the probability of you repaying the loan. If your credit score is good, it will work in favour of your loan application and if not then it works against your loan application. A good credit score can be built by timely payment of EMIs, bills and credit card debt.
Generally, the bank asks you to pay 10-25% of the value of property as down payment. The bank also considers factors such as age and repayment capacity while deciding the amount of down payment. If you choose a larger amount of down payment, your EMIs may reduce in future.
There are two types of home loans based on the interest rate – floating and fixed. The interest for fixed rate home loans remains the same during the period of loan. On the other hand, the interest for floating rate loans varies according to MCLR (Marginal Cost of funds based Lending Rate), set by the bank. Although the floating rate home loan works in your favour when the interest rate is down, it may disturb your monthly budget if the interest rate increases. The possibility of an increase in interest rate needs to be considered, especially in an inflationary economic environment because you will have a fixed income from pension.
Generally, home loans are available for the tenure of 25 to 30 years. But the lenders prefer that you repay the loan before the age of 65-70. So, you need to consider a shorter tenure of loan, when you are in your 50s. Eventually, it will result in a larger amount of EMI’s. Thus, you should plan the finances accordingly so that repaying the loan does not become a burden.