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

A major housing finance company recently partnered with a joint venture firm to provide home loans whose maximum age eligibility can go up to 75 years. Usually, banks and non-banking financial companies 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.

Let’s discuss what it can mean for borrowers.

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 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. Say a borrower’s income allows him/her to qualify for a Rs 30 lakh loan with repayment tenure of 30 years. But owing to his/her age of 40 years, they are likely to extend the loan but with a shorter tenure of 20 years. In such a case, home loan providers will either ask the borrower to 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 instalments 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.

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.

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.

That being said, the current system of bank MCLR rates determining home loan interest rates is likely to change as they will soon be linked to external benchmarks (like treasury bills) following an RBI order. How much impact it makes to your home loan EMIs remains to be seen.

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.