Availing a home loan is never an easy proposition, as the age grows. Living a comfortable life after retirement is a dream for many, and many want the same to be enjoyed in a house of their own.
Though home loan rates are at an all-time low with some banks and lending institutions offering loans at nearly 6.90 per cent interest, retired people often
find it difficult to avail a home loan. Though some banks offer special loan products for pensioners and retirees, the inherent vulnerability associated with growing age and increased vulnerability to failing health refrains many of them from accepting loan applications by retired people.
Retired home loan applicants, unlike their younger and working peers, are more likely to miss their home loan equated monthly instalments (EMIs) or find it difficult to repay their loans on time due to lack of regular income and sudden unforeseen expenses. This leads to an increased risk of loan rejection in many
cases. Many retired people are not aware of some basic factors that can not only increase their chances of loan approval but also relieve them of the looming loan liability.
Short Loan Tenure
Banks, housing finance companies and non-banking finance companies cross-check and verify the antecedents of retired people seeking home loans to decide their eligibility for the loan amount. With the retirement period being synonymous with loss of income and an increased tendency to suffer from diseases, lending companies prefer to avail loans to retired people not more than 70 years old.
This means a retired person aged 60 years can take a loan for not a period not exceeding 10 years. Retired people must apply for short tenure loans to ensure that their loan applications are considered and approved in one go.
Lower Loan Amount
Irrespective of the loan-to-value (LTV) ratio that the lending company may profess, retired people must opt for a lower loan amount to ease the loan application and approval process. This means that a retired loan applicant must be ready to bear the burden of contributing a major part of the property cost before borrowing the rest of the amount.
Also, a lower loan amount translates to lower EMIs, thus, increasing the loan affordability of the borrower and reduced credit risk for the lender too. Retired people unsure of their EMI outgo can use an EMI calculator available online to check the money outflow, and thereby, determine the amount of loan they must apply for.
Adding a Co-applicant Helps
Retired people looking for a higher loan amount must co-apply for the loan with someone with a stable income and high credit score. This is because retired people are eligible for small loans only. Applying for a joint loan with someone who is younger and more eligible for loan repayment owing to age and regular income increases the chances of availing a higher loan amount for a longer tenure at lower interest rates.
Many retired people realize that they must pay higher EMIs due to limited loan tenure, and can add a co-applicant in their loan application to borrow more than they can return with ease through reduced EMIs due to the longer loan repayment period available.
Providing Insurance as Collateral
Lending companies may insist on taking a home loan insurance plan along with the home loan to prevent the latter from turning into bad debt. Though buying home loan insurance is not mandatory, retired people must pay for it to secure the asset for which they are seeking the loan.
However, retired loan applicants who have already bought an insurance cover need not avail of the home loan insurance facility and can opt for offering their term insurance policies as collateral for the loan. This will ensure quick approval of the loan and repayment of the entire loan amount in the event of the sudden death of the borrower.
Also, the retired loan applicant must make sure to verify that the insurance cover amount is equal to or more than the loan amount to ensure full repayment of the
loan from the policy amount. While both kinds of insurance policies act to protect the loan applicants in some cases, the loan applicant cannot transfer the home loan insurance policy if the housing loan is transferred to another lender.
Take a Secured Loan
Banks are mostly apprehensive of giving out loans availed without any collateral. Therefore, retired people must opt for a secured loan. A loan application backed by an asset ensures greater acceptance by the lenders. Lending companies prefer giving secured loans so that the asset can be used as collateral to pay for the unpaid loan amount if the retired loan applicant falters in repaying the loan amount.