The home loan tenure and home loan amount are positively correlated. So, higher the home loan tenure that you opt for, higher is the home loan eligibility, subject to the minimum margin requirement relative to the value of the property. So, it makes sense for a borrower to opt for a longer tenure, so as to be able to have a higher loan eligibility, as well as the flexibility to prepay it, in part or in full. Most home loans, by default, have a high tenure of 20 years and in some cases even up to 30 years. The tenure of a home loan, depends on various factors, which you should be aware of, before you approach the lender for your loan.
Age and source of income of the borrower
Home loans are given, on the basis of a borrower’s ability to service it and this, in turn, is determined by your income. Consequently, the overall loan amount eligibility, will depend on your age and the retirement age. For salaried individuals, 60 years is generally taken as the retirement age and thus, the maximum tenure of home loan you would get, would be equal to the remaining years of service. In case you are self-employed, lenders are willing to treat 65 as the retirement age for professionals and businessmen. Thus, self-employed borrowers, by default, may have a higher home loan eligibility. A person who is about to retire, is not generally eligible for a home loan, unless s/he is able to prove that they have another regular source of income.
See also: Home loans: Longer tenure ones are the best bet
Age of the property
The age of the building also plays a very important part, in determining your home loan eligibility. As the house is pledged as a security for the home loan, it is the only recourse that the lender has, in case of a default in servicing the home loan. Consequently, the lender will not provide a home loan for a tenure that is longer than the residual life of the property that you intend to buy.
The residual life of the property, is determined by an architect or civil engineer, who will conduct a physical audit of the property. Unlike the retirement age, the age of a building is not standard and will vary from one building to another, depending on the material used for construction, location of the property, etc. For properties situated near the sea, the residual life may be lower than those of properties situated on plains, due to erosion caused by the salty sea breeze.
The tenure of a home loan, cannot be longer than the residual life of the property. In case a longer tenure than the residual life of the property is granted, the lender carries the risk of losing their security, in case the property is destroyed or collapses. This is why lenders normally do not finance old and dilapidated properties.
Leasehold properties
In case the property is constructed on a leasehold land, the home loan tenure cannot be higher than the balance period of the lease, even though the property may be in good condition, as the lender would be unwilling to risk the possibility of the lease not being renewed. Such cases are rare, as land leases are normally granted for a fairly long period. However, this situation may arise for a property, if the lease period of the land is nearing its end.
(The author is a tax and investment expert, with 35 years’ experience)
Balwant Jain is a tax and investment expert. He is a rank holder CA, CS of 1983 batch and a Certified Financial Planner (CFP). He has varied experience in providing his own consultancy, as well as working as the chief financial officer, as well as a company secretary. He has been regularly contributing articles to leading business and mainline dailies, as well as electronic media. He regularly appears on business channels like Zee Business and CNBC Awaaz, as a personal finance and taxation expert. He has also been a visiting faculty of NMIMS (Narsee Monjee Institute of Management Studies), Mumbai. He also regularly conducts workshops on various subjects of investments and taxation.
Twitter: https://twitter.com/Jainbalwant
Email: [email protected]
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