Buying a house is a very expensive affair. But those days are gone when people would save for years, cut down their expenses, and then buy the house of their dreams. The world we live in today has made a lot of things easy for us. Amongst them is buying a home. Thanks to home loans, owning a home is now so much easier. Those who want to attain their dream of having a house can apply for a home loan and make their dream come true. Different financial institutions are offering various kinds of home loans. You can choose the one that best fits you.
While deciding on a home loan, you should consider a lot of factors like current home loan interest rates, tenure, EMI amount, flexibility, etc. However, special attention should be given to tenure. This term refers to the number of years over which you are required to repay the loan amount through EMIs. Tenure can make a lot of difference. So always make sure you spend enough time understanding it and choosing the right tenure.
Things to keep in mind while choosing the tenure:
Age of the person taking the loan
Now age is something that plays a very important role. Banks or other financial institutions consider this as a crucial factor since they believe that the lesser your age is, the more years you have of steady income. In case the borrower is approaching retirement age, they might have to go for shorter tenures. In your early career, however, you may be able to choose a more lengthy tenure like 10, 15, 20 years, or even longer.
The interest rate on home loan
Home loan interest rate is directly connected to your EMI and tenure. The longer your tenure is, the more interest you would be required to pay. If you choose a long tenure, you would be spending a very big amount as interest.
Your income
In deciding the home loan tenure, your income is an important factor that determines your repayment capability. If you are ready to pay higher EMIs and your income allows you to do that, you should go for a shorter tenure. However, in case you are unable to shed a lot of money every month, then the longer tenures make sense for you. But remember, you will have to pay more interest on your loan amount.
Let us help you understand the above with an example. Suppose Ram wants to get a home loan and his age is 27. Ram earns INR 1,00,000 in a month and wants a home loan of INR 20,00,000. If he chooses a tenure of 10 years, at an interest rate of 8%, he will be paying INR 29,11,862 in total to the bank. However, if Ram chooses 15 years as his tenure, he would be paying INR 34,40,348 to the bank. And if he goes for 20 years, he will be paying a hefty amount of INR 40,14,912.
Home loan amount
home loan amount is also one of the factors that may affect your home loan tenure. Banks may give you the repayment schedule as per the home loan amount and the interest on it.
Existing debts
In case you have any existing debts or loans, make sure to consider them before choosing the home loan tenure. If you want to increase your borrowing capacity, you may be able to settle some of these debts or combine them into one loan. Alternatively, you can extend the tenure of your mortgage and reduce your monthly payment. By doing so, you will be able to manage your other debts while you can take advantage of the home loan benefits.
Other than the loan tenure, one should also consider other factors while getting a home loan.
Frequent prepayments are a good idea
When you get a chance to save some extra money that you do not urgently require, use it for prepaying the loan amount. It will reduce the principal amount, and subsequently the interest rate.
Do a lot of research
Home loan is a big thing and a lot of research work should be done before opting for one. Do your homework of comparing different plans and different financial institutions, and then come to the final decision.
Increase your down payment amount
By increasing the down payment amount, you can save a lot of interest.
Increase EMIs
To reduce your interest rate, you can increase your EMI if and when your financial capabilities increase.
In conclusion
There is no perfect tenure for home loans. Everything depends on the borrower’s preferences.
However, it is recommended that you take a house loan before the age of 28 since it will give you more time to repay it. But again, it depends on the individual.
