Benefits Of Taking Home Loan At The Age Of 24
For Anita Raj, a graduate from the Indian Institute of Management-Lucknow, grabbing a seven-figure salary right at the start of her career was not difficult. Financially wise, Raj, 24, decided to buy a house with a home loan, to keep her monetary health in good shape.
Many of us might wonder whether availing of a home loan at such a young age is a wise decision. The answer is, yes.
How does starting young help a borrower?
- Most lenders offer home loans to those aged between 22 and 70 years, while the minimum age criterion for entrepreneurs is 25 years. Further, lenders offer a home loan for a maximum tenure of 30 years these days. A young borrower, Raj for example, will be done repaying her debt by the time she turns 54. So, the sooner you start, the better for you.
- A young borrower also has a higher loan eligibility. A future increase in the salary is one of the factors while deciding the amount to be given as loan. The chances of a sharp rise in the salary of someone in his 20s or 30s is higher than someone in his 40s.
- The responsibilities of a person in his 20s is different from the responsibilities of a person in his 30s. For instance, dependents are fewer, so a young home loan borrower gets to enjoy a higher fixed-obligation-to-income ratio (FOIR). A new earner is also presumed to have marginal or no obligations, his CIBIL (Credit Information Bureau India Limited) score is minus one, increasing the chances of higher loan amount. Needless to say, there is less chance of a default, as someone who has just started the career and is availing of the home loan is ambitious and climbs up the career ladder to build a strong equity.
- One of the methods used by bankers to calculate the loan eligibility is the step-up or FLIP method. The method is used for a salaried borrower, whose income is not very high in the initial years but is expected to increase with time. So, the system using the FLIP or the step-up method sets the repayment facility with low equated monthly instalments (EMIs) during the period when the income of the borrower is low and increased EMIs when the income increases. This works in the favour of the young borrower who is a new earners.
- Applying for a home loan at a young age also gives one ample time to scrutinise the home loan market and choose the one that is the best for him at different time intervals.
Our quick tip
- You must have surplus funds to avail of the home loan. These funds will be required for making the contribution of 20 per cent or more as down payment (margin money) towards the home loan amount and the fees and charges for procuring the home loan.
- There is no right or wrong age for people taking home loans. The decision lies on your equity and mental and financial appetite for debt. Every individual takes his or her own time to settle with the idea of buying a house and availing of a loan for it. Do, however, take into account the future liabilities if you want to take a home loan.