National Pension System

Senior citizens too can borrow, but conditions apply

In these times of high inflation, higher medical costs, and grandiose lifestyles, there are many senior citizens who are in need of loans to fulfill some of their requirements – for example, a temporary medical emergency where insurance may not be enough, or buying of property where the borrower needs partial or full funding. In many cases, senior citizens are not aware of the loan options available to them. We look at some options available for senior citizens.

Mortgage loan

This is the most popular loan scheme for senior citizens. Mortgage loan is very popular in United States and other part of the West. It has caught the borrowers’ eye in India recently. Now, many banks are peddling reverse mortgage loan.

Reverse mortgage loan is a scheme launched by banks where borrowers can keep their home as collateral to get the loan. The loan is given through periodic instalment. The periodic payment is called annuity. Reverse mortgage essentially enables senior citizens have extra income from their homes in the old age.

It is slowly gaining popularity in India too. With increasing cost of lifestyle, medical services, and general prices, it has become extremely important to have another source of money than just depending on pension or provident fund which usually is not sufficient.

The key requirements for mortgage loan are that the borrower should not have any outstanding loan against the property being mortgaged and that he or she must be 60 or more.

Personal loan

The general perception is that you can’t get personal loan in old age. Far from being true, many banks have launched personal loan schemes for senior citizens.

The amount can be 12 to 18 times the monthly pension that the borrower is receiving or a fixed amount decided by bank, whichever is lower. So, if a borrower is getting Rs.40,000 as monthly pension, the amount that can be borrowed is 5 lakhs to 7 lakhs. However, if the fixed amount is Rs 4 lakhs, the maximum he or she can borrow is 4 lakhs only.

This amount can be used by the borrower for any purpose. Most of the banks have different ceilings for loans for senior citizens.

Senior citizens would do well to remember:

• You must be a pensioner preferably of the State Govt., Central Govt. or PSU. Most of the banks allow their ex-employees to take personal loan.

• Loan recovery must be completed by the time borrower turns 75 or before that. For example, if the borrower is 65 years old, the loan tenure will not exceed 10 years.

• The EMI should not exceed 40% of your monthly pension. Additionally, banks may put limitation on number of EMIs. For example, the loan may have to be repaid in 48 EMIs (or any other number of EMIs) depending on bank’s own policy.

• Guarantor can be the spouse or any other family member just like in any loan.

Home loan

Senior citizens can avail home loan too but the amount may not be as high. The amount may be capped at certain amount based on the income and financial condition of the borrower. For example, a bank may cap the loan amount to 25 lakhs or 50 times monthly pension whichever is lower with the additional condition that the EMI should be less than 40% of the monthly pension.

Moreover, in home loan for senior citizens, the tenure is fixed in such a way that the borrower’s age doesn’t exceed 75 years. So if you take loan at the age of 60 years, the tenure will be for a maximum period of 15 years. All these criteria impact the amount of home loan senior citizens are eligible for. The collaterals required are property or the insurance policies.

Other loans

There are few more types such as loan against property or fixed deposit. These are quite naturally available to all borrowers because of collateral being offered. At the same time, the loan amount is about 50% of the value of collateral. Hence banks face no risk in recovering the amount.

A few words of caution

Taking a loan is tempting since it constitutes an immediate source of funds. There is nothing that is more satiating than availability of cash in the bank account. While we can afford to spend when we earn, the same is not the case when we have already retired. Hence, senior citizens should avail loan only when there is absolute need for it. A big loan outstanding will be detrimental not only to your finances but to your heir’s finances too.

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