I am 45 years old and I am working in a private firm and I am planning to take home loan. Considering the impact of new loans on other important financial goals (children’s education and my retirement), I want to keep my monthly payments at the lowest possible level. Please guide me with the best option available to structure my loan.
-Name withheld on request
Buying a home is one of the important decisions in one’s life. It’s good to know that you want to take it with a sharp perspective on other financial priorities. With regard to your understanding of personal finance, you are ticking all the right boxes.
Coming back to the question, since you have not mentioned the amount of home loan you are seeking, I am highlighting a few points to keep in mind (assumptions are duly explained).
1. Ask for the maximum LTV* (loan-to-value of the property). This will help you reduce your upfront margin amount and help in saving the required cash.
*LTV Subs
a) 90% for loan amount up to 30 lakhs
b) 80% for loan amount between 31 lakhs to 75 lakhs
c) 75% for loan amount above Rs.75 lakh
No matter which bracket you fall into, you’ll save money by maximizing your LTV, which you can use for other financial goals.
2. Ask for maximum tenure to keep the monthly outlay at the lowest possible level. There are three types of products available in the market which are based on retirement age.
a) Up to 60 years – This would enable a tenure of 15 years.
b) With the addition of another young financial applicant beyond retirement age.
c) Above 60 years and up to the age of 70 years (enabling for a tenure of 25 years) with additional risk mitigation taken by the lender.
I think option 1 of 15 years tenure will be a hindrance for you to achieve your other financial goals. Further, option 2 is not applicable to you as you have mentioned children’s education as one of the goals.
In option 3, since the lender would be taking the additional risk of giving an additional tenor of 10 years to the non-pensioner (working with a private firm), the bank would like to reduce its exposure. One such product available in the market is mortgage guarantee product (you will need to reach out to your lender to check if a mortgage guarantee product is available). It acts as an enabler for home ownership by protecting the interests of the lender. The customer can pay a nominal fee to avail benefits in the form of higher eligibility and maximum tenure under this product. In the event of a default, the mortgage guarantee protects the interests of the lender through cash flow support, which is a win-win solution for all.
(Anuj Sharma is the Chief Operating Officer at India Mortgage Guarantee Corporation)