Be careful if you are taking a home loan in your mid-40s

She entered my room with a view, with Madonna singing “Like a prayer”.

“We have gone all retro today,” she said.

“Difficult times demand comfortable songs.”

“And how is this comfortable?”

“Well, anything I used to listen to in my teens is comfortable.”

“Like that…”

“Precisely.”

“V, I want to buy a new house,” she said.

“House?” I asked.

“Yes.”

“Why?”

“I am bored of living where I live. Want to move to a better area and a bigger house.”

“You know what you are talking?” I asked.

“Yes V,” she said. “I want to move into a bigger house.”

“Okay, go rent one.”

“Nah,” she said. “Who wants to rent a house?”

“What’s wrong with renting now?”

“First and foremost, my luck with landlords.”

“And?” I asked.

“I think that reason is enough not to rent a house.”

“Hmmm.”

“Why are you so pessimistic about this?” she asked.

“Simply because it doesn’t make sense.”

“Why?”

“Let’s do the math.”

“I know where this is going.” “Your current house is one BHK. Given where you live, it will fetch you around 1.25 crore.”

“Yes, around that.”

“You want to buy two BHK in a better locality in the same area?”

“Yes. I don’t want to leave the area. I just want a bigger, better house near the sea.”

“Such a house with stamp duty and other moving charges will easily cost around Rs 2.5 crore.”

“2.5 crore?” she almost screamed.

“Yes mam. We are talking about the western suburbs of Mumbai after all.”

“Let’s say you are able to sell your current flat for Rs 1.25 crore. That still leaves a gap of around Rs 1.25 crore to fill.”

“Hmmm.”

“You fill a part of that gap with some of your savings. Let’s say around Rs 50 lakh. It still leaves a Rs 75 lakh gap, for which you will have to take a loan.”

“Hmmm.”

“Also, you will have to pay off your current home loan. I think Rs 25 lakh still needs to be repaid on that loan.”

“Yes, you are right.”

“So, we sell your current flat for Rs 1.25 crore; pay off the remaining home loan of Rs 25 lakh. That leaves us with Rs 1 crore. Over and above this, you put in savings of Rs 50 lakh. That still leaves around Rs 1 crore, which you will have to take as a loan.”

“I won’t get the loan?”

“Given your income, you will, but you will be stretching yourself to the hilt.”

“Hmmm.”

“Also, you are not getting any younger.”

“Now what has my age got to do with all this?” she asked, slightly irritated.

“One of the things that banks look at when they give a home loan is age.”

“Hmmm.”

“It’s just a way of judging repayment capacity.”

“Yes. I get that.”

“So, you will turn 44 soon, and given that you have around 16 years till you turn 60, the age at which people generally retire.”

“Hmmm.”

“My guess is you will get a 15 year home loan.”

“What will be the EMI on that?” she asked.

“At an interest rate of 9% per year, a little over Rs 1.01 lakh per month.”

“Oh.”

“Yes. This basically means that for the next few years, all you will be doing is paying home loan EMIs and nothing else.”

“Hmmm.”

“And that’s not a good thing. As you approach the age of 60, you need enough money for life after 60.”

“Yes, but I won’t stop working after 60, that is such a 20th century concept.”

“It is,” I replied. “Nevertheless, at your current age you shouldn’t be loading up on debt. You should be saving more for life after 60. Also, in the day and age we live in, there is nothing like job security and that needs to be take into account as well.”

“Are you telling me it’s too late to dream of living in a bigger house?”

“Not at all.”

“Then?”

“All you need to do is to move from the area you currently live to some other area. Or simply move cities. Go and live in any other city than Mumbai.”

“What are you saying V?” she asked.

“As Javed Akhtar once said, “Sab ka hushi se fasla ek qadam hai, har ghar mein bas ek hi kamra kam hai.”

(The example is hypothetical)

Vivek Kaul is the author of the Easy Money trilogy