The right age for home loans!
By Joseph Samson
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Taking the recent case of an interest rate hike, there are two options available. One: To increase the EMI and keep the loan tenure same and Second: to keep the EMI same and hike the loan tenure.

However, the second option is generally, not a given in most cases! Only if the loan borrower is young, can he get an extension in his loan tenure. However, the loan tenure can be hiked to a maximum of 25 years. If the loan borrower is in his 40's, the only option available in such as case would be to increase the EMI.

What can explain this? The reasoning is that by the time one is in his 40's, the rate of increase in potential income is much less as compared to what one can expect at a younger age.

Another benefit that the age of the borrower brings to a comparatively younger borrower is the increased loan eligibility. Even though the criteria depends mostly on the current income that the borrower draws, but it also considers the potential of increase in salary as a factor. So, one has an option to easily opt for a top-up loan to meet personal needs or to take care of an increased EMI. In addition, there are some repayment options available, such as Step-Up repayment facility or SURF. Under these options, the EMI is low in the initial period and it increases at a later stage. This scheme ideally suits a young borrower, who is climbing up the professional ladder.

Let's consider an example. Suppose a 30-year old individual takes a home loan of Rs. 30 lakh at an interest rate of 9 per cent for 20 years. Suppose he earns about Rs. 50, 000 per month. In 2008, the interest rate increases to 11 per cent. Since he is 30-years old, he has an option of increasing the loan tenure to the maximum limit of 25 years. However, by the time the interest rates increases, his salary also increases by 7 percent year on year and hence, has increased to Rs. 77, 140 till 2008. Hence, he can easily choose an option of either increasing the EMI or increasing the loan tenure.

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