Is buying a house near retirement a good decision?

Retirement is a significant milestone in a person’s life and to navigate this stage of life with ease, early retirement planning is crucial. One of the most important decisions is home buying. Generally, people consider investing in a property early on in their life to ensure a comfortable life after retirement. However, whether or not one should buy a house near retirement will depend on a lot of factors, such as financial situation, circumstances, and retirement goals. If you are in the age group of 46 to 56 years and are considering buying a house, we explain why you should go ahead. This is the age when an individual is likely to have a set career and higher income compared to those younger than them. This could be an ideal time to start making investments in real estate to ensure a secure retired life. We also share some useful tips for buying a house near retirement.

If you are aged between 35 to 45 years and thinking to buy a house, read this article where we share some useful tips and discuss why 35 is the best time for home ownership.

Advantages of buying a house near retirement

Typically, there are several benefits of buying a house before retirement.

Financial stability

Buying a house when you are in your late 40s to 50s puts you in an advantageous position in terms of financial strength. This is the stage where you would have found stability in your career, made significant savings, and are ready to focus on other major goals in your life.

Home loan benefits

Home loan tenures can go up to 20 to 30 years. So, it is always a wise idea to start your home buying journey in your 20s and 30s. However, you can still look for some benefits when applying for a home loan in your late 40s or 50s. Lenders consider individual income source as a key factor when process loan applications. This becomes a crucial point, especially if you are above 60.  Now closer to your retirement age, you are likely to get a home loan with a lower tenure.

Further, opting for a joint home loan is another popular option most people in their 40s consider. This way, one can share the financial burden of paying huge EMIs.

Lumpsum payments and equity building

In your late 40s or 50s, you can consider making lumpsum payments towards your home loan, especially through windfall gains such as bonus, gratuity, inheritance, etc. By planning towards increasing your monthly payments, paying off the loans sooner and also making large down payments towards the house purchase cost, you can build your home equity and improve your financial situation.

Tax benefits

Home loan applicants get tax deductions up to Rs 1.5 lakh on principal repayment under Section 80C and tax deductions up to Rs 2 lakh on the interest paid under Section 24 (b) of the Income Tax Act. Further, one can avail of higher collective tax benefits through a joint home loan, up to Rs 2 lakh respectively for each of the co-borrowers. In addition to this, home buyers can get tax deductions under section 80C for stamp duty and registration charges.

Better decisions in terms of location and type of property 

When purchasing a property in the late 40s or 50s, a person would be in a better position to understand their lifestyle needs. This will help them take a decision that is suited for their family and dependents. This is particularly true when it comes to selecting the right location. Since an individual is likely to be more stable in their career, they can decide on the most favourable location for buying a property that is close to their workplace, children’s school, etc. Similarly, at this age, one will have a better understanding of the type and size of property that would be required to lead a comfortable lifestyle.

Diversifying assets and long-term benefits

Investment in real estate, whether buying a residential or a commercial property, gives an opportunity to diversify your assets and build your wealth in the long run. With the growing real estate sector in India and increasing property prices, buying a property will provide you with sound returns. You can look forward to earning through rental income for your retirement.  

Disadvantages of buying a house near retirement

Financial risks

It is important for a person to be retirement-ready by the time their reach their late 40s or 50s. At least they should have a retirement plan in place. Paying off home loans while saving for the future can become a struggle without adequate planning.

Not have adequate savings for retirement can increase the risk of using one’s current savings to meet expenses related to household. One should be ready to meet the cost of home maintenance besides the house purchase costs. This implies that if the new property requires some repairs or renovation, the costs could have been distributed over a few years had the purchase been made earlier. Thus, buying a house close to retirement without adequate planning can be a disadvantage.

Not enough time for planning 

Buying a house is a time-consuming process, which is why early planning is crucial. Prior planning and investment in real estate give you a better understanding of the homebuying process. Purchasing a house in your 20s or 30s will build your home equity and by the time you are in your late 40s or 50s, you could even consider selling the house and buy another property. However, the benefits are comparatively lesser if you start house hunting in your late 40s or 50s.

Limited mortgage options

Home loans have become vital for prospective home buyers in today’s scenario of rising property prices. When approving the loan application, a lender considers various factors such as the applicant’s age, income, etc.. The earlier you choose for a home loan, the better it is since you are likely to get lower interest rates. As an individual grows older, finding the best loan at attractive interest rates becomes challenging. The closer you are to your retirement age, the more difficult it gets. This is because of the possible lack of a steady income source in old age.

Tips for buying a house near retirement

Evaluate your financial situation

If you are looking to buy a house in your late 40s or 50s, start the process by assessing your income, debts and savings. Set a realistic budget for your house purchase. Moreover, you must assess your loan requirements at this stage. A long loan tenure lowers the EMI. However, it will increase the total interest paid. So, it is essential to strike a balance between affordability and repayment of loans before retirement.

A popular thumb rule people follow for retirement planning is the 30X rule. According to the 30X rule, one should save 30 times their current annual expenses before retirement. For example, if your age is 52 years and your monthly expenses are Rs 70,000 (or annual expenses of Rs 8.4 lakh). Then, as per the 30X rule, one requires 30 times 8.4 lakh, which is Rs 25.2 crore.

This rule is related to the popular financial planning formula, the 25X rule, which helps determine the money (i.e. 25 times the annual expenses) one must save for retirement. This is based on the 4% withdrawal rule, which helps estimate how much money retired individuals can withdraw from their retirement funds yearly.

When it comes to spending on EMIs, the expenses should not exceed 40% of one’s monthy income. So, if you are earning Rs 60,000 per month, the EMI expenses should be about Rs 24,000 per month.

Assess available options

Make sure you compare different lenders and maintain a good credit score which is crucial for getting attractive home loan rates. You may also look at the various government schemes or lenders that provide loans for mature applicants (those approaching retirement age). This way, you could get some unique benefits.

Choose the right property based on your family’s needs

One of the foremost considerations in your late 40s or 50s should be to select the right type of property at the right location. Many people might still be in the transitionary phase in their 40s, with children growing up and moving out for higher studies. One may also consider taking an early retirement and choosing to live in another city. All these factors will influence the size of the property and location.

For example, with children moving abroad, one wants to downsize and move into an independent house, one should take into account the additional maintenance costs that comes with it, besides the privacy and other benefits. Thus, buying an apartment would be a better option if you are contemplating moving out after a few years.

Apply for a joint home loan to get a higher loan amount

When planning for your future after 50 years of age, you must consider the benefits of a joint home loan with your spouse, parent, children or siblings. When processing a joint loan application, lending institutions consider their income, credit score, among other factors. Having a co-borrower can make you eligible for a higher loan amount. Moreover, you can pay off the EMIs faster, giving you a lot of tax benefits and a secure future.  

Consider making down payments to stay financially secure

If you are in your late 40s or 50s and have a stable job and sufficient savings, consider paying off your home loans early. You can use your additional income, such as a bonus, to make large down payments. Consider a down payment of 20% or more to lower your EMIs. This is necessary, particularly since you may have a shorter loan term due to your age. This can help bring down the EMI burden substantially and reduce the interest component. It will save you from the financial burden once you retire. At the same time, it is crucial to strike a balance with your other life goals such as children’s education, building retirement fund, etc.

Hire a legal expert for proper guidance

To make an informed property purchase decision, it is wise to consult a legal professional who can help verify documentation, including property title, necessary to establish the rightful property ownership. This will ensure your investment remains secure and prevent property disputes in the future. Make sure to obtain the encumbrance certificate from the local authority in your state. This is legal document that shows whether there are any outstanding debts against the property, such as loans, liens or property taxes.

Plan for future expenses

As applicable for every home buyer, make sure you have set aside a budget to meet the unexpected that may arise with home ownership. These could include potential structural upgrades, renovation costs, and electrical or plumbing work. Find out the maintenance charges levied by the homeowner association or society and the property tax rates in the area. All these add up to a significant amount. Thus, prior planning to cover these expenses is important.

Evaluate the resale value

While you may be planning to buy a house for end use, checking the property’s potential resale value is still necessary. Analyse the neighbourhood’s future growth trends and property price appreciation. In case you plan to rent out the property, you should check the potential rental value and demand in the area. It is beneficial to properly understand the rental laws and other property-related regulations in the state.

Should you buy or rent a house when nearing retirement?

Many prospective home seekers in their late 40s or 50s are confused between two choices: buying a new house before they retire or renting out and saving for the future. While the decision to buy or rent is primarily based on an individual’s financial situation, priorities and future goals, there are some points that one can consider making an informed decision.

Buying a house involves a significant amount of money. It involves the cost of purchase, including home loan EMIs and down payments, registration fees and stamp duty, maintenance expenses, furnishing expenses, etc. At the same time, it brings some unique benefits for the buyer in the form of tax deductions on home loan interest payments and principal amount. Property is a long-term asset. Compared to renting, one can invest in a property and pay off their loans early, building equity and value over time. While you are still younger, you could make the most the benefits of buying a house, with lower interest rates because the options become limited as you get older.

On the other hand, renting a house may seem to be the most viable option for someone looking to lower their financial obligations while fulfilling other goals in life. Monthly rentals are lower and easily manageable compared to EMIs. Moreover, one can be flexible in terms of choosing the location to rent a property. They can relocate when they desire. Unlike buying a house, renting involves fewer upfront expenses, except for the security deposit. So, renting is a better option if one has not yet decided to live in a particular location permanetion.

However, there are some drawbacks of renting. It involves the hassle of moving from one place to another, including the considerable shifting costs. Besides, rent also keeps increasing by at least 5% to 10% annually.

So, before making a decision, it is important to know that while homeownership comes with long-term benefits and a sense of security, renting homes is less of a financial burden and a flexible choice.

Furthermore, renting may seem the ideal choice for those in their 20s who are still settling in their professional life. However, by the time they reach their late 40s or 50s it is high time they invest in a property to avoid the challenges of finding home loans.

Housing.com News Viewpoint

Buying a house is an important life decision which should be made after thoughtful planning and considering several factors. One should do proper research and assess the financial implications of their investment. To avoid any mistakes and help you find the best choice, it is necessary that you consult a professional, such as a financial advisor and a legal expert, who can help you plan make the right choice.

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