How to Choose the Best Tenure for your Home Loan
There is no dearth of apartments in Pune and you would be spoilt for choice when buying one. However, from picking the right project in the right location to arranging finance, the process is lengthy and tiresome. Availing a home facility while buying a house is a reliable option but the factors associated with a home loan can be quite daunting too; for instance the tenure of the loan, or the number of years for which you have to pay the EMIs.
Lenders provide a long duration to borrowers to repay their respective home loans and help many buy their dream home by doing so. The loan duration can maximum be up to 30 years. Now the question arises how you may choose the best tenure for maximum gains.
Let us go through a series of pointers that help you analyze which critical factors you must assess before signing on the dotted line.
Tips to Choose the Best Home Loan Tenure
Monthly Income & Expenses
The decision of choosing the tenure mainly rests on what you earn and spend today. The EMIs (Equated Monthly Instalments) of your home loan will eat into a sizable chunk of your monthly income. In a nutshell, a short term loan means that you will have to pay higher EMIs, and your monthly income has to bear the load of the EMI as well as other expenses. On the other hand, a longer tenure will decrease the EMI amount, which shall be less of a burden on your income. However, you end up paying huge interest year after year.
A loan is taken for a shorter tenure assuming a solid rise in an income year after year reduces interest obligations even as the EMI remains higher. But if you don’t get the rise as expected you will find it hard to service the EMI obligations on time. And that’s why the cases of late payments and defaults rise and go on to dent the credit profile of such applicants.
In general, a lot of us keep around 40% of income for total EMIs to be paid. This will most likely increase your loan tenure and raise the interest obligations. But if your finances allow you to afford EMI of up to 50% of your salary, do choose that to reduce your interest obligations.
Age plays a vital role when banks fix tenure for your home loan. The basis being, the younger you are, the more years you can work and earn a salary, thus allowing you a longer tenure. However, if you’re more in the middle ages of 50 or so years, banks do not give you a longer tenure since you would approach retirement sooner.
Yet another major factor that directly affects the tenure is the rate of interest of your home loan. The rate of interest applied is on a per annum basis, which means that the longer your tenure is, the higher will be the total interest that you pay by the end of your loan tenure. You can easily calculate your interest and tenure by using a home loan repayment calculator available online.
Both short and long tenure loans have their advantages; the best tenure for you would be your decision!