homepersonal finance NewsShould you consider repaying your home loan till you turn 75?

Should you consider repaying your home loan till you turn 75?

Should you consider repaying your home loan till you turn 75?
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By Adhil Shetty  Mar 7, 2019 11:56:27 PM IST (Updated)

Borrowers should cautiously evaluate a number of contradictory factors before deciding whether a longer repayment tenure makes financial sense or not.

A major housing finance company recently partnered with a joint venture to provide home loans whose maximum age eligibility can go up to 75 years. Usually, banks and non-banking financial companies (NBFCs) offer home loans with maximum age eligibility ranging between 60 and 70 years. The increase in age eligibility limit to 75 years may have both positive and negative ramifications for borrowers.

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Let’s discuss what it can mean for borrowers.
Higher Age Limit To Significantly Improve Home Loan Eligibility
Home loan providers usually allow a maximum tenure of 30 years with age eligibility capped at 60 years. This means, if a home loan applicant is 35 years old, the bank would allow a maximum repayment tenure of (60-35) 25 years.
Also, home loan providers usually allow a loan amount not more than 60 times the applicant’s net monthly income. For example, if an applicant’s net monthly income is Rs 50,000, he/she will be eligible for a loan amount of up to Rs 30 lakh.
Home loan providers also consider the tenure eligibility of the borrower depending on his/her age to ascertain the loan amount. If a borrower wants to borrow for a tenure of 30 years. But owing to his/her age of 40 years, they are likely to extend the loan with a shorter tenure of (60-40) 20 years.
In such a case, home loan providers will either ask the borrower to pay a higher EMI or lower the loan amount by paying more margin or apply for the desired loan amount with a co-borrower to fit into the eligibility criteria.
But with an increased age eligibility limit of 75 years, borrowers can now qualify for their desired loan amount and get sufficient time to clear it. Borrowers who are in their mid-40s can also get 30 years to repay the loan (i.e., until they turn 75). Also, borrowers who find their home loan EMIs to be too steep may now have the option to extend their tenure in a bid to make the installments more affordable.
Such a move may also help retirees, who earlier didn’t meet the age eligibility requirement, to now apply for a home loan.
The Key Lies In Evaluating The Cost Of A Longer Loan Tenure
A longer home loan repayment period would result in higher interest amount payment. Also, post-retirement, people may find it difficult to generate the required income for the repayment of the loan. With an increase in the interest rate portion in the overall repayment, the borrower may also get vulnerable to interest rate fluctuation risk.
For example, let’s say you’re a 40-year-old borrowing Rs 50 lakh at 9 percent over 20 years. Your EMI is Rs 44,986 and your total interest payment over 20 years would be Rs 5,796,711. But if you took the same loan over a 35-year tenure, your EMI reduces to Rs 39,200. Despite this, your total interest rises to a whopping Rs 1,14,63,852 – double the interest you’d have paid over a 20-year term.
That being said, there is usually no prepayment penalty attached to a home loan. So, applying for a loan with a longer repayment tenure and repaying it early might make a lot of financial sense for borrowers who can afford to do that.
To summarise, longer repayment tenures may mean a relaxation in eligibility requirements for many borrowers. At the same time, it can also mean a borrower remains indebted for a longer period of time – something that may translate to lower EMIs but higher interest payable.
As such, you’ll be well-advised to cautiously evaluate all these contradictory factors before deciding whether a longer loan repayment tenure works for you or not.
Adhil Shetty is CEO, BankBazaar.com.
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