Retirees should not be co-applicants

I am a retired person of 65 years of age living in my own house. Can I give a housing loan out of my savings to my son, 33and employed in an MNC, for a purchase of flat on construction-linked-payment basis? If so, what should be the appropriate amount of loan against a flat cost of Rs 1 crore and what should be the period of repayment considering my age? Also what should be the rate of interest?— S. Gupta

It appears that you wish to obtain a home loan and repay it from your savings. As you have your own house, you can opt to take a loan against property and help your son build his home. You can obtain up to around 60 per cent of the value of your home as loan at an interest between 12 per cent and 14 per cent. Your son can take up the remainder as a home loan as he is employed and should be eligible for a loan based on his income.

You could help your son by providing either a part of your savings as down payment, so that the amount of loan is reduced, or you could use it to pay his EMI, if he is unable to include it in his budget. If you plan to be a co-owner of the house, then you will need to sign up as a co-applicant but as you are retired you will be unable to enhance the loan eligibility. As a retiree of 65 years you will not be able to participate actively as a co-applicant or borrow a home loan under your name.

In a construction-linked plan, the loan will be disbursed by the bank to the builder in stages at around 10 per cent or a pre-defined percentage of the loan (which can be up to 80 per cent of the property value depending on how much down payment you wish to pay for the house) in the initial stages and then progress according to the amount required for each stage of the construction. This will work according to the agreement between the builder and you. The advantage is that funds won’t lie idle with the builder.

Current home loan interest rates are 10.5-11.5 per cent, depending on the bank and your son’s credit profile, which takes into account his past credit-management record, place of employment, etc. Also, until the final disbursement of the loan, the actual EMI payment will not begin. Instead the borrower will be required to pay interest alone, called pre-EMI interest on the actual loan disbursed in stages. So with every date of partial disbursement pre-EMI is payable up to the date of the actual EMI payment. The maximum time allowed for pre-EMIs is 24 months or completion of construction, whichever is earlier. If the 24 months end and construction is still not complete, the part disbursement shelled out will be considered as full disbursement and EMI will begin after informing the customer.

(Response by Adhil Shetty, CEO, BankBazaar.com.)

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