InvestorQ : Are there any factors that affect a customer’s home loan tenure?
Rohan Bhadani made post

Are there any factors that affect a customer’s home loan tenure?

Karim Sahu answered.
3 years ago

Yes, there are numerous factors that affect a customer’s home loan tenure and being aware of these can help you enhance your loan tenure. Most customers want to get a loan with a long tenure so that they can repay the loan with ease.

However, you must remember that home loan tenure and home loan amount are directly correlated. This means that higher the home loan tenure you opt for, higher is your home loan eligibility, and hence higher is the home loan amount.

A home loan’s tenure depends on various factors and being aware of the same will help you get a loan with a longish tenure.

- Borrower’s age and source of income

A lender gives a borrower a loan based on the borrower’s ability to pay back and this is determined on your income. As a young borrower has many years to continue earning, vis-à-vis a middle-aged individual, a lender will prefer a borrower younger in age.

Sixty is the average retiring age for salaried individuals and hence, the maximum tenure of home loan one would get, would be equal to the remaining years of service. If you are self-employed, lenders will treat 65 as the retirement age for professionals, freelancers and businessmen. Thus, by default, self-employed borrowers may have a higher home loan eligibility.

A person who is about to retire, is generally not eligible for a home loan, unless he/she is able to prove that they have another regular source of income.

- Property’s age

The age of the building in which you are purchasing a home also plays a very crucial part in determining your home loan’s eligibility. Given that the house is pledged as a security for the home loan, it is the only recourse that the lender has, if a borrower fails to repay the home loan.

Hence, a lender will not provide a home loan to a borrower for a tenure that is longer than the residual life of the property that he/she intends to buy.

A property’s residual life is determined by an architect or civil engineer, who will conduct a physical audit of the property. Unlike retirement age, there is no standard age for a building and it will vary from one building to another. Residual life depends on the material used for construction, location of the property, etc. For properties situated near the sea, the residual life may be lower than those of properties situated on plains, due to corrosion caused by the salty sea breeze.

Logically, the tenure of a home loan, cannot be longer than the property’s residual life. In the rare occurrence of a longer tenure being granted than the residual life of the property, the lender carries the risk of losing its security if the property is destroyed or collapses. This is exactly why lenders do not normally finance old and dilapidated properties.

- Leasehold properties

If the property for which a loan is being taken is constructed on a leasehold land, then the home loan tenure cannot be higher than the balance period of the lease, even though the property may be in good condition, as the lender would be unwilling to risk the possibility of the lease not being renewed. Such cases are rare, as land leases are normally granted for a fairly long period. However, this situation may arise for a property, if the lease period of the land is near.