How to structure your home loan

I am 45 years old, I work in a private company and I plan to benefit from a housing loan. Given the impact of the new loans on other critical financial goals (the children’s education and my retirement), I want to keep my monthly repayments as low as possible. Please guide me with the best option available to structure my loan.

-Name masked on request

Buying a home is one of life’s critical decisions. It’s good to know that you want to take it with a sharp perspective on other financial priorities. When it comes to your understanding of personal finance, you seem to tick all the right boxes.

Going back to the current question, since you haven’t mentioned the mortgage amount you’re looking for, I’ll highlight a few pointers keeping some assumptions in mind (the assumptions are duly explained).

1. Ask for a maximum LTV* (loan to property value). This will help you reduce your initial margin and save you the necessary money.

*Sabs LTV

a) 90% for loan amount up to 30 lakhs

b) 80% for loan amount between 31 lakhs and 75 lakhs

c) 75% for loan amount above 75 lakhs

Whichever bracket you fall into, you will end up saving money by maximizing your LTVs which you can use for other financial goals.

2. Request maximum occupancy time to keep monthly expenses as low as possible. There are three types of products available in the market which are based on retirement age.

a) Up to age 60 – this will allow for a term of 15 years.

b) Beyond retirement age with the addition of another younger financial candidate.

c) Over 60 and up to 70 (facilitator for a 25 year term) with additional risk mitigation taken by the lender.

I guess Option 1 of a 15 year term will prevent you from achieving your other financial goals. Also, option 2 does not apply to you since you mentioned raising children as one of the goals.

In option 3, since the lender would take an additional risk by granting an additional 10-year tenure to a non-retiree (working with a private company), the bank wants to mitigate its risk. One such product available in the market is the Mortgage Guarantee product (you should contact your lender to check if the Mortgage Guarantee product is available). This acts as a catalyst for home ownership by protecting the interests of the lender. The customer may pay a nominal fee to receive the benefits of this product in the form of higher eligibility and maximum duration. In the event of default, the Mortgage Guarantee protects the lender’s interest with cash support, which is a win-win solution for all.

(Anuj Sharma is COO of India Mortgage Guarantee Corporation)

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