The dream of owning a house is something that many people aspire to. However, with the rising cost of the property, it can be challenging to save enough money to make this dream a reality.
As a result, many people opt to apply for a home loan. But before you jump into applying for a home loan, it's crucial to understand what home loan tenure is.
So here's a detailed explanation of home loan tenure, the factors affecting it and how you can choose the best tenure for a home loan.
What is a Home Loan Tenure?
A home loan tenure is the time frame within which you must repay the entire loan amount along with interest. It affects the interest rate and the number of EMI payments you need to make. Choose a tenure that suits your financial situation and preferences.
To make the process of calculating your EMIs easier, you can use an online home loan EMI calculator.
Short-Term Housing Loan Tenure
Short-term loans are an excellent option for quick financing, typically lasting up to 5 years. However, the minimum tenure for a home loan is 1 year. If you wish to apply for this, the minimum loan amount for a minimum home loan tenure is Rs 5 lakhs.
However, the trade-off for a shorter loan period is that lenders usually charge a higher interest rate, and the EMI amount is generally higher. So, although the EMI amount may be higher due to the loan being spread over a shorter time period, the total interest you pay will be lower.
The advantage of a short-term loan is that you can repay your debt quickly and become a homeowner sooner.
Length of Long-Term Home Loan Tenure
When it comes to home loans, longer repayment tenures are ideal. These tenures are typically longer than 5 years, with the maximum home loan tenure reaching 30 years. You can apply for a maximum loan amount of Rs 5 crore if you opt for a max tenure for a home loan. Lenders usually charge lower interest rates for long-term loans as the repayment period is spread out over several decades. This also means that the EMI payments are lower.
However, keep in mind that the total interest paid will be higher due to the longer duration of the loan. Overall, longer repayment tenures provide an affordable and convenient way to finance your dream home, making it the best tenure for a home loan.
Minimum vs. Maximum Tenure for Home Loans Repayment
The tenure for home loan repayment can vary significantly, typically ranging from a minimum of 5 years to a maximum of 30 years. When applying for a home loan, the repayment tenure and the interest rate impact the EMIs.
Choosing a shorter tenure generally results in higher monthly EMIs but reduces the total interest paid over the loan period. On the other hand, if you opt for the maximum tenure (or longer tenure), monthly EMI payments can be lowered, making them more manageable. However, it increases the total interest cost over time.
As a result, it is important to choose an appropriate home loan tenure based on your financial capacity.
How to Choose the Best Home Loan Tenure
You need to consider various factors before applying for a home loan. These include-
1. Loan amount
The choice of repayment tenure depends on various factors, including the loan amount. If you have applied for a sizeable loan amount, opting for a shorter tenure can result in high EMIs and interest payouts, making it financially difficult to pay off the loan.
As a result, it makes sense to choose a longer home loan tenure to make repayment easier.
2. EMI payment capacity
Your repayment tenure will affect the EMI payments, which makes it important to determine the EMI amount that you can comfortably pay. Use a home loan EMI calculator to choose the right combination of repayment tenure and EMIs to ensure smooth repayment.
3. Age Your age at the time of taking the home loan is crucial. Younger borrowers can opt for longer tenures, while older borrowers might need to choose shorter terms to ensure repayment before retirement or the cut-off age by the lender.
Factors Affecting Home Loan Tenure
#1 Borrower's age
Younger borrowers can opt for a more extended tenure as they have more working years ahead of them to repay the loan. Sixty is the average retiring age for salaried individuals; hence, the maximum tenure of a home loan would be equal to the remaining years of service.
If you’re self-employed, lenders may treat your retirement age as 65 increasing your chances of being eligible for a home loan.
#2 Age of the property
When a borrower takes out a home loan, the property serves as collateral, meaning that in the event of a default, the lender can sell the property to recover the outstanding debt. The loan tenure cannot exceed the property's residual life.
Therefore, if the property is older, you may be required to opt for a shorter tenure to mitigate the risk of default.
#3 Income and financial stability
Lenders prefer borrowers with a stable job history, as this reduces the risk of default. For instance, if you have a higher income and better financial stability, your chances of getting a home loan are higher than those with a lower income or poor financial stability.
Plus, a person about to retire is generally not eligible for a home loan unless they can prove that they have another regular source of income.
#4 Leasehold properties
When you buy a property built on leasehold land, you’re essentially paying rent to the land owner to use it.
As a result, when you apply for a home loan to buy a property on leasehold land, the lender will only give you a tenure equal to or shorter than the remaining leasehold period. The reason is that if the leasehold period ends, the lender may be unable to sell the property to recover their money if you default on the loan.
To end
If you think you cannot repay the loan in the short term, opt for a maximum home loan tenure. But if you're still worried about the home loan tenure, turn to Tata Capital.
We provide you with the flexibility to choose the loan amount, tenure, and EMIs, as per your repayment capability - all at a competitive home loan interest rate.
Apply now and fulfil your dream!
FAQs
1. What should be home loan tenure?
Home loan tenure should be chosen based on the interest rate, loan amount, and repayment capacity. Longer tenures reduce EMI but increase the total interest paid, while shorter tenures increase EMI but reduce overall interest. Ideally, opt for a tenure that ensures manageable monthly payments with minimal interest outgo.
How to reduce home loan tenure?
To reduce home loan tenure, consider making higher EMI payments, partial prepayments whenever possible, or increasing EMI amount when your income rises. This will help you repay the loan faster, even before the tenure ends.
Which tenure is best for a home loan?
The best home loan tenure depends on individual financial circumstances, the loan amount, and the EMI amount. A shorter tenure is preferable if you can afford higher EMIs, as it reduces the overall interest paid. However, if you want to pick lower EMIs to manage monthly expenses, a longer tenure might be more suitable.
12 July 2024
7 mins read
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