How To Choose The Best Home Loan Tenure?

Lenders offer long tenures to borrowers so that they can realise their dreams of becoming homeowners while repaying their home loans with relative ease. Repayment tenures on home loans can extend up to 30 years.

A longer duration substantially lowers the equated monthly installments (EMIs). Unfortunately, this also increases the overall interest payout and cost of the loan.

Sadly, there is no workaround to this. Borrowers who opt for a shorter tenure with lower rates of interest have to pay high EMIs.

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These kinds of challenges could lead to defaults and late payments, which in turn, negatively affects the credit profile of the applicants. This results in losing the home at worst or a bad credit score at best, which can hamper any future borrowing power.

Thus, choosing the right home loan tenure is crucial. Thankfully, keeping in mind just a few pointers can help you make an informed decision that is tailor-made to your needs.

1. Monthly income

If you are going to apply for a home loan, your EMI will account for a generous percentage of your monthly income. Therefore, it is a major factor in deciding your repayment tenure.

Subject to your income per month, a shorter term will mean a higher percentage of your salary being utilised as the EMI. A longer payment term would ease your repayment burden but will also incur a high interest payout. Use our home loan calculator to determine the best possible tenure so that the EMI doesn’t strain your budget and at the same time, the loan can be repaid within the shortest possible time as per your needs.

2. The property

Every home loan borrower harbours aspirations of buying a dream home. Unfortunately, sometimes the cost of the house can exceed our budget, causing a strain on our finances. This burden results in higher EMI in the short term or higher interest rates in the long run.

To keep a check on your EMIs and interest rates, you have to choose the property wisely. Ideally, a place of residence that is well within your budget with contingencies for unforeseen future expenditures is recommended. It is also advantageous to select a property whose value is bound to appreciate in the coming years, so that your property remains a smart investment.

Choosing the right property to buy is doubly advantageous. It helps you to have firm control over your EMIs. It also ensures that the rate of interest does not get out of hand.

3. Age of the borrower

The age of the borrower is a home loan eligibility factor, one that any lender will give serious consideration to. A young borrower can work for a longer time, earn more money with potentially better career prospects.

As a result, a young borrower has a lot of bargaining power when asking for longer repayment tenure. By contrast, a borrower in his or her middle ages will be expected to repay the loan within a shorter duration which will lead to higher EMIs.

4. The down payment

Lenders never offer the complete cost of the property you wish to buy. Typically, they will finance between 80-90% of the market value. The remainder will have to be paid by the borrower to the seller as a down payment. The borrower may also have to pay the additional costs such as registration and legal fees, which is usually upto 6% of the property value.

Lenders have policies to determine how much of the property value they may be willing to finance by the lender. This is known as the loan to value ratio.

Imagine a scenario in which the price of the property you intend to buy is Rs.50 lacs and the lender is willing to finance up to 80%, which comes up to Rs. 40 lacs. This means that you, the borrower, will have to make a down payment of Rs. 10 lacs.

However, if you have the capacity to pay more, say Rs. 15 lacs, it is advised that you do so. Making a higher down payment reduces your EMI amount. It can also reduce your repayment tenure which, in turn, will reduce the interest rate.

amount you may be able to get based on the LTV as well as your repayment capacity.

5. The interest rate

Another important factor when trying to decide upon the loan tenure is the interest rate. The interest rate is applied on an annual basis. This means that, for a longer tenure of repayment, the borrower will end up paying a higher amount of total interest.

Using our free online home loan EMI calculator , you can calculate how long your repayment tenure will be against interest rates and EMIs that you are comfortable with.

6. Retirement

If you are planning to avail a home loan, you should consider your retirement age. After retirement, you will no longer enjoy a regular source of income.

To ensure that you are not burdened by your home loan well into your retirement, your repayment tenure should ideally end between 5-7 years before you decide to finally call it a day. Thus, if you plan to retire at the age of 60, you should aim to pay off your home loan by the time you are 53.

Both short-term and long-term home loans have their advantages and disadvantages. Choose a repayment tenure that is ideally suited to your needs and will enable you to make regular payments hassle-free.

Are you looking for a home loan to purchase a property? Visit our SMFG Grihashakti website today to learn about our easy home loan process and the required list of documents for home loan.

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