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Long or Short Home loan Tenure - Which One is Better?

Updated: June 21, 2022
Long or Short Home loan Tenure - Which One is Better?

Home loans are one of the most popular financing options in India for buying homes, due to the benefits and flexibility it offers to users. It helps to distribute the cost of owning a house over a long period in equal monthly installments, thereby reducing the strain on your finances.

However, many struggle to choose the right home loan tenure and may be confused about the right repayment tenure to choose. In this blog, we will understand how short and long-term loan tenure affects your EMI and whether your home loan tenure should be long or short.

In a home loan, you can either choose a short-term loan tenure or a long-term loan tenure. Each has its own set of advantages and disadvantages.

Short-term loan refers to those loans, which have a repayment tenure of less than or equal to five years. Whereas, the repayment tenure of a long-term loan for home purchase usually goes up to a maximum of 30 years.

Short term vs Long term loan

The following are the major differences between short-term and long-term loan tenure.

Rate of Interest: The rate of interest in short-term loan tenure for a home loan is usually higher to compensate for the loss of interest income due to shorter loan tenure.

In a long-term loan, lenders charge a lower rate of interest, and the interest payout is spread out over the entire repayment tenure along with principal repayment.

EMI Amount: In a short-term loan period, the EMI amount is higher and as the loan tenure is shorter, the total interest component on the loan amount is lower.

Given the longer tenure of your home loan, the EMI amount is on the lower side, but the interest component is higher in the EMI amount. In the amortized system, the interest is calculated on the outstanding loan amount after payment of each EMI. You can use our home loan EMI calculator to get a better idea.

Mortgage period: In shorter loan tenure, the papers of the house property are transferred to your name quickly by the lender, as soon as the entire loan amount is repaid.

In longer loan tenure, the house will be mortgaged for a larger period, the property documents will not be transferred to your name until the loan has been completely repaid.

Loan Approval: The home loan with shorter loan tenure is approved quickly by the lenders as the risks are lower for the lender.

However, in longer-term loans, lenders have to evaluate multiple aspects like the age and creditworthiness of the borrower, long-term repayment capability, employment stability, etc before the loan can be disbursed. In short-term loans, lenders prefer borrowers with high credit scores and may consider aspects such as income level, nature of employment, existing debts, and so on.

Long-term loan vs Short-term loan: Which one to choose?

The choice of shorter or longer home loan tenure is based on your affordability and convenience. For instance, if you are choosing a short repayment tenure on your home loan, you will stand to miss out on the tax deductions that are offered on principal repayments and the interest components.

While, in a long tenure, the total cost of owning the house, due to the interest payments, can be really high. Furthermore, more than your choice of loan tenure, your age also impacts the loan eligibility.

Therefore, you need to choose the repayment tenure wisely, after considering all the factors. It is better to use the home loan calculator to determine the right EMI amount and loan tenure by exploring different repayment schedules that suit your needs.

Disclaimer: *Please note that this article is for your knowledge only. Loans are disbursed at the sole discretion of SMFG Grihashakti. Final approval, loan terms, disbursal process, foreclosure charges and foreclosure process will be subject to SMFG Grihashakti’s policy at the time of loan application. If you wish to know more about our products and services, please contact us.

SMFG India Home Finance Co. Ltd. (Formerly Fullerton India Home Finance Co. Ltd.)
CIN number: U65922TN2010PLC076972

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