Welcome to Scribd, the world's digital library. Read, publish, and share books and documents. See more
Download
Standard view
Full view
of .
Look up keyword
Like this
0Activity
0 of .
Results for:
No results containing your search query
P. 1
Rpd Hindu Loan After Retirement

Rpd Hindu Loan After Retirement

Ratings: (0)|Views: 0 |Likes:
Published by madanmohandeshpande

More info:

Published by: madanmohandeshpande on Nov 07, 2012
Copyright:Attribution Non-commercial

Availability:

Read on Scribd mobile: iPhone, iPad and Android.
download as DOC, PDF, TXT or read online from Scribd
See more
See less

05/13/2014

pdf

text

original

 
November 27, 2011
Clear your home loan before you turn 60
R.P. Deshpande
……………………………………………………………………………………………..This article is the second in the four-part series that isattempting to focus on the repercussions intrinsic to ‘extendedtenures' offered newly in the home loan segment. Long-drawn-out repayment periods are being packaged in brand new ways,and borrowers, who would also be puzzled with trendymarketing concepts, need to recognise the fundamentalreturns and shortcomings inherent in such loans. This week welook into specifics, where we analyse the nature of home loansthat extend beyond one's retirement. Are loans that growbeyond one's earning age worth their value? What exactly dosuch protracted repayments mean to borrowers when theyhave to settle accounts even as senior citizens? Dissect somevital factors before you settle down on tackling such EMIs
 
!……………………………………………………………………………………………
1
 
Extending home loan tenure to an applicant's age of 70 years will notonly prove detrimental to a majority of the borrowers, but from thebanks' perspective, defaulters may also increase, warns R.P.Deshpande.…………………………………………………………………………………………….. The age limit for repaying loans, which used to be up to age of retirement for salaried class and 60/65 years for self-employed/business class applicants by all lenders, has been raised to70 years for all category of applicants, as per the information availableon the website of State Bank of India. The forefathers of home finance system have scientifically made thepolicy of extending loan tenure up to age of retirement, considering allrelevant factors.Once the employed borrower retires, his regular income woulddrastically reduce and even those lucky ones who get pension (only 11per cent of formal employees are eligible for pension in our country),the amount is meagre, may be 30-35 per cent of last emoluments(salary + perks) drawn. After retirement, people tend to spend moretowards healthcare and normally have higher liabilities such aschildren's marriage/higher studies etc. In such a financial condition,continuing loan repayment would be a heavy burden.Even self-employed or business class borrowers may not be able to beactive in their business or profession beyond 60-65 years of age. Theirregular income could also get halved, leaving no room for any loanrepayment schedules.
The shift
One more paradigm shift noticed in the younger generation is thatmost of them would like to take retirement much earlier to 60 years of age. Such people, who have opted for loan repayment beyondretirement, would find it difficult to repay the home loan instalmentspost-retirement. Hence extending loan tenure up to 70 years of applicant's age could prove detrimental to majority of the borrowers. The result: defaults would rise as borrowers above 60 years of age maynot be able to keep up their repayment commitments due to lesserincome generation. The lenders may have to enforce the security of mortgage, under SARFAESI (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act) Act 2002and other legal procedures, leaving senior citizens homeless.
An example
2
 
Let us take the example of Prabhakar Rao, a government employeewith Rs. 55,000 net income, who could realise his dream of owning ahome at the age of 45 years, after exhausting all his life-time savingsand taking a home loan of Rs. 30 lakh at 10 per cent interest, with anEMI of Rs. 27,262. The bank coaxed him into opting for a 25-yeartenure in order to be eligible for required loan of Rs. 30 lakh. Mr. Raothus got a loan with tenure of 25 years (up to his age of 70 years). Thelender considered factors such as Mr. Rao's estimated pension and thefact that his only son (who was 15 years old when loan was taken) maysupport his father for repayment of loan after Mr. Rao's retirement.Let us presume a usual situation when Mr. Rao retires. By then, hewould have spent all his savings for son's education and marriage. Soncould be settled in the U.S. and is not even on talking terms with hisparents. The outstanding loan is Rs. 20.62 lakh and monthly out going(EMI) is Rs. 27,262. Since the pension is not sufficient to meet evenfamily expenses, Mr. Rao becomes a defaulter. The bank maycontemplate enforcing security of mortgage by evicting Mr. Rao andauctioning his property. Thus, after realising his dream of owning ashelter when he was 45 years old, Mr. Rao could be a shelterlesscitizen at the age of 60 years! Where can he go now with his ailingwife?Who is responsible for this plight of Mr. Rao? Surely, it is the dilutednorm of the bank which offered him loan repayment up to the age of 70 years.Had the bank used the wisdom of sound ethics of lending and offeredhim repayment up to retirement age of 60 years, Mr. Rao would haveclosed the loan before his retirement. When he was eligible for a loanof Rs. 25.5 lakh for a 15-year term (50 per cent of income consideredfor EMI), he would have been advised to take a 15-year loan with anEMI of Rs. 27,403 and seek a property costing Rs. 5 lakh less or reducethe size of proposed construction (like reducing one bedroom). The move to extend loan up to 70 years of age of borrowers wouldcreate thousands of Raos, which not only would strain the financialhealth of lenders, but create social problems for elderly people.
Wooing the gullible
Another disturbing factor is that the SBI is trying to woo gullible homeloan seekers with higher amount of loan, which is against the norms of lending.
3

You're Reading a Free Preview

Download
/*********** DO NOT ALTER ANYTHING BELOW THIS LINE ! ************/ var s_code=s.t();if(s_code)document.write(s_code)//-->