Home loan presents a convenient way to purchase a house. On the other hand, they are a long term financial commitment as well. It requires careful planning and execution to repay a housing loan without any default. Typically, home loan tenure ranges between 18-20 years, and in some cases, it can go beyond that as well.
Therefore, it requires you to prepare, and you can consider the following facts before choosing your home loan tenure.
3 factors to look out for during the selection of home loan tenure
Your age
One of the most crucial factor to consider here is the age of an applicant. If you are in your 20’s or 30’s you can opt for a loan tenure of 20 years or beyond. However, borrowers of an advanced age need to pick limited tenures to ensure repayment before retirement.
According to the experts, it is always better to close a home loan before retirement, or till the point, you have access to regular income. The reason being, housing loan EMIs are typically high value, and without a steady income, it is not easy to meet it.
Your income
Once you have sorted out the ‘age’ factor, you need to consider your monthly income next. As mentioned above, home loan EMI are sizeable amount, and they will take out a significant portion of your salary. Along with that, you need to meet the other household expenses as well. Therefore, careful planning for the home loan tenure selection is crucial. Here is an example for better understanding.
Now, if you opt for short loan tenure like 10 years for an advance of Rs.25 lakh at 12% interest, your EMI will be around Rs.35000. On the other hand, you take the same amount on 20 years repayment tenure, the instalment will reduce to around Rs.27000, which is a significant saving.
Interest rate
The interest rate charged on home loans is calculated on a yearly basis. It means if you opt for a longer tenure, you need to pay more interest, and vice-versa.
However, a point to note here is that you need to pay a higher EMI with a short tenure. Thus, consider that as well.
Selecting the right home loan tenure is not easy. However, if you think you have made a mistake a few years after paying EMIs, you can always opt for a balance transfer facility to rectify it.
Read Also: Top factors which influence your home loan’s interest rate
