Loan Basics: Special schemes for the elderly

Senior citizens may think that the option of getting a loan is not open to them, given their age and limited income, in many cases. But many banks offer special schemes for housing and personal loans that cater to seniors. Here’s what’s on offer.

Buying or renovating a home does not always mean that seniors should dip into their savings kitty. Canara Bank, for instance, offers loans to seniors who may be pensioners, salaried or self-employed and less than 70 years of age. The amount depends on the income source of the borrower, age of the property and whether the loan is for land/home purchase or renovation. The loan must be repaid by the time the borrower turns 75. The interest rate is a floating rate, usually at the bank’s base rate and may perhaps be linked to the MCLR rate now.

Likewise, South Indian Bank offers home loans to those over 55 years of age and draw a pension. The maximum loan amount is ₹25 lakh or 50 times the monthly pension (whichever is less). The added restriction is that the monthly EMI should not exceed 50 per cent of the monthly pension. But the bank does not seem to provide any concessional rate for senior citizens.

All personal loan products offered by banks are also open to seniors. Similar to any other borrower, loan eligibility is assessed based on income, expenses and repayment capacity. But the limitation is that they may be required to finish repayment by 75 years of age, in many cases. Some banks have specific personal loan products for seniors. Punjab National Bank offers personal loans to those drawing their pension through its branches.

The maximum loan amount depends on the age and type of pension. Borrowers less than 70 can get a loan of up to ₹10 lakh; this reduces to ₹5 lakh for those above 75. The loan amount is limited to 18 times the net monthly pension for regular pensioners and 20 times for those who were in the defence services and drawing a pension. The interest rate is 2.50 per cent over the prevailing base rate.

Dena Bank’s scheme for pensioners offers a personal loan of up to ₹1.5 lakh (or six months pension, whichever is lower). But borrowers are required to complete the repayment by the time they are 80.

A third option for seniors is reverse mortgage. Seniors who own a house can get a reverse mortgage loan. In this, the home is used as collateral, provided there is no outstanding loan against the property. The home must have at least 20 years of life left and must be self-occupied.

The loan amount is paid out in periodic instalments, for a period of 5-20 years. You can get a one-time payment besides the recurring payments, but this is capped at ₹15 lakh.

After the loan tenure, the borrower can continue to live in the home for their lifetime. There is also an annuity scheme, called the reverse mortgage loan enabled annuity (RMLeA), in which you will receive lifetime annuity rather than the payments ending after a fixed tenure.

Besides these special products, generic loan against collaterals such as property, rent receivables, fixed deposits and gold are also available to seniors. Points to consider

Banks may insist on having a guarantor for the loan given to seniors. This can be the spouse who is eligible for family pension or children with a source of income. They may also take third-party guarantee.

In case of fully or partly secured loans, you may have to submit proof of investment, says Adhil Shetty, CEO of Bankbazaar.com.

Seniors without a regular source of income such as pension or salary may have only limited choices such as loan against collateral. For seniors with a property rented out to a commercial tenant, loan against rent receivable may be a great option to consider.

Manavjeet Singh, Founder & CEO, Rubique, a market place for loan products recommends that seniors opt for secured loans as unsecured and long-tenure loan options may be limited or can be expensive for borrowers.

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