Thursday, 26 May 2016

What is a suitable age to take a Home loan?

Is there a suitable age to take a home loan? If someone were to ask me this my first reaction would be whenever you can afford it and I guess that is what most people will think. Well after I gave some serious thought to the subject it seems that is not the case; taking a home loan has a strong co-relation to the age of the borrower and borrowing at different stages comes with its own baggage. So rather than waiting for the right time it is important that you know what is the right time to borrow and then plan accordingly.

Starting Young…..
Let us look at the scenario when one plans to take a home loan when they are young which means that they have just acquired financial independence (not like two months back); the job is new but still fairly stable and they have less responsibilities. This would generally be the age group 25 to 30, there is no hard and fast rule give or take a few years. Let us consider what are the advantages of starting young:
Ø  Fewer Responsibilities: In the initial years after one assumes financial independence there are considerably lesser financial responsibilities for a person as compared to in later life when the expenses rise due to a growing family. Thus paying the EMI can be simpler in these years and with passing years the EMI burden will ease out due to growth in income.
Ø  Longer Term Available to Repay: Though banks have the maximum loan term fixed as per their own rules but another factor that comes into play is the age of the borrower. The banks are not willing to extend the loan duration beyond the retirement age of the borrower. Thus the sooner you borrow the longer you have to repay the loan, which can ease the EMI burden considerably. The difference even a five year loan term makes to the monthly outflow is considerable and can easily be seen by using a home loans EMI calculator.
Ø  Effective Way of Planning: Buying a house is a great way of financial planning, it brings in financial discipline, helps in building an asset and also aids in tax planning. So the sooner one does the better it is. Also when one starts young there is still some leg room available to scout for the right property, do some research and wait, there is no rush.

On the flip side: 
While starting young has their advantage there is a flip side too, obviously! Since one is at the start of their career they might not be able to afford a big monthly outflow and similarly they may not have enough saved for the down payment. Thus they might have to limit their options to less steeply priced options. It can sometimes put financial pressure on the borrower too!

Don’t Panic If You Are Slightly Older:
Ø  Well if you have crossed that age there is no reason to panic. As obviously when one grows in their career they have more financial security and a higher income flow. Thus buying at this age gives one the edge to be able to bear a bigger loan burden and gives them more flexibility about choosing the right property because of a bigger available budget. Plus if both partners are working they could explore the option of taking a joint home loan. A joint loan has many advantages like bigger eligibility, share responsibility and greater tax advantage.

Do Factor In Other Aspects Too:
Well though the odds are in favor of starting young, the situation may vary from each individual to individual and also depends on some macro factors and of course conditions like financial stability, willingness to commit to a place and so on.
Ø  Property rates: Whenever one considers buying a house they should definitely look at the general market trend for property rates. It does not make sense to invest when property rates are inflated, better to wait for the right time.
Ø  Interest Rates: Home loans interest rates are a major consideration when deciding about from where to borrow and when to borrow. So again look at how the market interest rate trend is, no point taking a very expensive loan. It makes more sense rather to wait for the interest rates to soften.
Ø  CIBIL score: Irrespective of the age one decides to borrow, the CIBIL score is important. In case it is low, you might want to take some time and try to focus on how to increase credit score before applying for a loan. A good CIBIL score is a great advantage when applying for a loan.
Though taking a loan when younger is better; but like stated earlier focus on other factors too like one’s financial stability, employment status and the possibility to stay in one place. Macro factors should also be given due importance along. Borrowing when slightly older comes with its own set of advantages.

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