Friday, 15 June 2018

What is the Right 'age' to Apply for a Home Loan?


Most people buy a house only once in their lifetime. This is usually because of financial limitations rather than a choice. After all, a house or flat in a good location is quite expensive, and since most people fund their purchase with the help of a loan which has a tenure ranging between 15 years to 25 years, it’s usually not possible to take two home loans.
Now, when comparing your loan options viz. HDFC home loan, SBI home loan, etc. you are likely to consider factors like interest rate, loan term, prepayment charges, etc. However, do you know what’s the right “age” to apply for the loan in the first place?
Home Loan and Age
Believe it or not, your age matters a lot to the banks when you apply for a loan. Although factors like your CIBIL score, repayment history, etc. are important too, your age can also affect your loan application.
The reasoning here is simple- the retirement age of a salaried individual is generally believed to be 60 years, and that of a self-employed/business-owner 65 years. So, if you take a home loan, then its tenure should end before your retirement age (which could be either of the two options depending on your situation). So, getting a loan at a young age is a good idea.
Another reason why applying for a house loan at a young age is beneficial is financial security. This largely has to do with the interest rate.
Here is the thing- the interest rate, whether it’s an HDFC home loan or a PNB home loan, is never impervious to market changes. So, the interest rate fluctuates throughout the tenure. The question is- what are you to do when you are 10 years into a loan and with 10 years still remaining, the interest rate goes up?
When the financial burden of a house loan increases because of a hiked interest rate, then you are usually left with just two options-
·        Increase the EMI so that the tenure remains the same
·        Increase the loan tenure so that the EMI remains the same
Now, while there is nothing wrong with the first option as it does save you money on the interest and helps repay the loan sooner, it’s not always viable. This is because it’s not always possible to bear the increased EMIs. Thus, the second option can come in handy, although this is where your age can pose problems.
Your bank will agree to increase your loan tenure only if they think you are capable of repaying the outstanding balance. For instance, if you are 40 years old and your loan term ends in the 10 years, then the bank may not be comfortable in extending the term by another 5 years. This is because you will be much closer to your retirement age, and your income growth won’t be much either. On the other hand, say, you are in your 30s and have a high CIBIL score, then you can easily increase your loan tenure by 5 years or even more.   
So, what’s the right “age”?
At this point, we have established that getting a home loan when you are young is always better than when you are old. However, what’s the right age really? Unfortunately, there is no exact answer to this question. However, most experts will agree that the right age to get a loan is late 20s or early 30s. In fact, the sooner you repay your debt, the better. Opting for a long-term only increases your financial burden as you end up paying a lot in interest. Plus, there is always the risk of increase MCLR rate, etc.
Bottom Line
Buying a house at a young age certainly has its advantages. However, you should also focus on the other factors, such as inculcating the habit of saving money, improving credit management, maintaining a good credit report, increasing your CIBIL score, etc. These things can greatly reduce your debt burden as you can qualify for a low interest rate loan easily and also enjoy better terms. Even more importantly, the sooner you take responsibility, the better. Good luck!

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