A Home loan is a big commitment. We say this as the tenure of this loan is longer than all the other loans. While deciding on what EMI and rate of interest is better for your loan, there is one major factor that you need to be sure of i.e. the tenure of the loan. The tenure of a loan is the amount of time you will need to repay the loan. Generally a new home loan is given for a minimum of 20* years. Some Banks/NBFC’s even push it to 30 years*.
How do you derive your home loan tenure? You can derive the tenure based on 3 main factors;
Age of the applicant:
The age of the applicant is the first factor to be considered. If you are in your early 30’s, then getting a longer tenure and lower rate of interest sounds possible. But if you are in your late 40’s and nearing retirement, then you cannot get a loan with high tenure. It is wise to repay the loan earlier than retirement as if you still have to pay the EMI’s post retirement, then it is a risk which is not good for you.
Income of the applicant:
After your age, the second factor to be considered is your income and expenses. Yes, you will get a loan based on your income. Banks/NBFC’s usually do not let you pay more than 40% of your income towards loan repayment. It is wise to take a balanced tenure for you to repay without any hassle. If you take a shorter tenure, it would mean higher EMI’s. This limits your expenses until the loan is repaid and might also be a burden if you need cash urgently to pay off expenses towards medical, education etc.
Purpose of taking the loan:
The last factor to consider while deciding the tenure is your purpose. You need to know that your EMI will include both; the Interest and your principal loan amount. Hence, longer the tenure, higher will be the loan amount to repay AND shorter the tenure, smaller will be the loan amount to be repaid. If your purpose is to invest in a house, then you can be advised to take a longer home tenure. But if your purpose is to sell the house for a profit, then it is wise to take a short tenure so you repay a smaller amount and sell it for profit.
It is wise to plan well in advance as to how you will repay the loan. Yes, taking it for a longer tenure along with an option of pre payment will help you not only manage the loan but also the expenses and unexpected emergencies. Overall, you need to plan and research before deciding a shorter/longer tenure of the loan. Now that you are clear with the factors needed to derive your loan tenure, find out about how to apply for a home loan.
