CHEQUE BOOK

I have taken a home loan from a bank. Is it mandatory to take property insurance for a home loan as the bank is insisting on it?

— Kiran Kaka

There is no RBI requirement that makes it mandatory for you to take property insurance when you avail of a home loan. However, banks are free to insist that you take an insurance policy to safeguard their interests as long as it is not compulsorily linked to buying the insurance policy through them. Therefore, the bank can insist on you taking a property insurance so that the amount is payable in the event of damage to the property due to natural disasters such as earthquake, flood, etc but it cannot insist that the insurance be bought from the company that they represent. If the bank insists on buying insurance, you can purchase it from any other company.

It is in your interest to buy property insurance and also to purchase an additional insurance that covers all the belongings in the house. Also, it is advisable to go in for a term insurance plan and a critical illness and accidental disability plan to cover the amount outstanding on your loan account. This will ensure that you/ your dependents are not burdened with the home loan should anything untoward happen to you or the property.

You will need to assign the policy to the lender. If your lender does not accept the policy from another insurer, there are other lenders in the market who will agree to accept an insur- ance policy from another company. There are various online insurance plans available in the market which are much cheaper compared to the offline options available through banks. You can buy these plans online over the internet and assign the policy to the bank.

I am 62 years old and have my own business. Can I get home loan at this age? Some banks have declined to lend me due to my age.

— Shankar Prasad

Every bank has its criteria for assessing the repayment capacity of the person who has taken a loan from them. These include factors such as monthly income, other EMI, credit history, age etc. The minimum age requirement may be different for different lending institutions. The maximum age may vary from 58 to 65 years depending on the income of the individual. Age also determines the tenure and EMI of the loan. For eg if an individual is 35 years old and will retire at 60, his/her loan tenure will be 60 minus 35 equals 25 years and the EMI will be calculated accordingly. The longer the tenure the lower will be the EMI. The amount of loan eligibility will be low at roughly 1.30 times the annual income.

So, if your annual declared income is 20 lakh and you have no other liability, you will be eligible for a loan of 26 lakh, the EMI for which will be 84,000 per month for 36 months.

If you are professionally qualified or have a very high declared income, some foreign banks might also consider extending a eight-year loan to you (provided you are in good health and are able to provide a life insurance policy for the loan amount which will be fairly expensive at your age).

A much better alternative will be to include your son or daughter as a co-borrower to get a longer term loan and a higher loan amount.

am Teacher in UP Government and my monthly income is 29,000 since last year... how can I avail home loan and how much... also I fill one ITR

—Vineet Chaudhary

Normally lenders grant home loan up to maximum of 80% (90% for loan amount below 20 lakhs) of the agreement value of the property as a home loan. You will also have to pay yourself for stamp duty and registration charges (if your property cost exceeds 10 lakhs), as the banks do not fund these charges. The overall eligibility will be based on your income, your regular outgoings and repayment track record.

Different banks presume different portion of your income as available for payment of EMI’s of loans. It varies from bank to bank and there is no standard norm/formula. But normally the bank will assume that around 40%-45% of your net salary is available for payment of EMI to serve all the loans.

With your income, you should be eligible for approx.

11.75 – 13.25 lakhs @ 9.75 % for a 20 years loan tenure. You can also enhance your eligibility by making your earning spouse / parents to join you as a coborrower or increasing your loan tenure