Close to retirement? Getting a loan won't be easy

When Jamshedpur-based Siddhi Sharma approached a bank for a Rs 20-lakh (Rs 2 million) home loan, she wasn't sure of the response.

With just six years to go for her retirement and pension the only source of income after that, she did not know how the bank would structure the loan.

To her surprise, the bank agreed to give her a 20-year loan, but with a rider.

She was asked to opt for a joint loan with her salaried daughter, the latter being the main borrower.

As a co-borrower, her liability would be limited compared to her 26-year old daughter, who would have a longer working life.

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Home loans have tenures of 15-20 years. This could further go up in a rising interest rate scenario, when banks raise the tenure instead of raising the customer's equated monthly instalments (EMIs).

Generally, they do not extend the tenure beyond five years over one's retirement age.

They are not averse to offering loans to those close to retirement, or, even retired individuals.

Most banks are willing to give such borrowers loans till 70 years of age.

However, banks remain cautious about covering liabilities for loans that go beyond one's retirement age.

Every case is looked into on an individual basis after assessing the borrower's assets and liabilities statement, besides those of income and expenditure, say bankers.

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Banks also consider a salaried individual's post-retirement benefits such as monthly pension before finalising the repayment structure.

"Though there is no fixed loan-to-income ratio we insist on, loans are given only after taking into account the borrower's repaying capacity," says, M D Mallya, CMD, Bank of Baroda.

If, like Sharma, the customer has a few years before retiring and is willing to make a part payment from his retirement benefits at the time of retirement, he could continue with lower EMIs till the loan is paid.

Such loans will have higher payouts in the initial years.

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The other option is asking the customer to pay the balance amount at one go at the time of retirement.

"In case of salaried individuals, banks ask them to become a joint borrower with either spouse who still has some years before retirement, or children who are salaried and have regular incomes," says P V Raveendran, general manager, Central Bank of India.

Some banks may include the spouse as well as the children's income with that of the borrower.

Going by the Reserve Bank of India's stipulation of a loan-to-value ratio of 80:20, banks offer a maximum of 80 per cent of the property's value as loan.

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The remaining 20 per cent is the margin money the borrower needs to pay the builder upfront.

But, when the borrower is on the wrong side of fifty, banks prefer the former to have a higher stake in the property and give only 65-70 per cent of its value.

What would help improve one's eligibility for loans at such times is having collateral like property, gold and other investments that will be considered as a guarantee.

This is especially so if the borrower is a self-employed individual.

Even for salaried individuals, if the senior citizen plans to remain in active service even after his retirement, his chances of getting the loan would be higher.