Those who have taken a home loan surely understand how much of a tough decision it is to make. More than the decision it is tougher to realize that you will be repaying this debt for more than 15 years at least. Hence we are always told to think wisely and plan accordingly before signing the loan application.
By thinking wise, we mean to say how you choose the lender, the tenure, the interest rate and the monthly EMI amount will decide your financial future. Yes, a slight change in either of these factors can result in you repaying your loan with higher EMI’s or lower EMI’s. We shall explain through the below pointers what is the impact of taking a home loan with a longer tenure.
Longer tenure means higher loan amount – When you apply for a home loan with a shorter tenure, your EMI amount will be high. Hence Banks will calculate as per your income if you would be able to manage the loan EMI or end up defaulting on the loan. But when you take a longer tenure, your loan EMI would be very low. Hence the Banks can provide you with higher loan amount.
Longer tenure means lower EMI – When you have a longer tenure home loan, Loan EMI would be low. Let us explain to you how this impact lasts on your EMI per lakh of the loan amount;
Loan amount – 25,00,000 Interest Rate – 9.00%
Tenure of 15 years = 25,357 per month i.e. EMI per lakh is 1014 rupees.
Tenure of 20 years = 22,493 per month i.e. EMI per lakh is 900 rupees.
Tenure of 25 years = 20,980 per month i.e. EMI per lakh is 839 rupees.
Tenure of 30 years = 20,116 per month i.e. EMI per lakh is 805 rupees.
Here you can see that as the tenure kept on increasing, your monthly EMI amount kept going down. Not only that, the EMI amount per lakh also reduces whenever you increase the tenure.
Longer tenure means higher interest burden – When you take a home loan with a longer tenure, you would end up paying a higher rate of interest. This situation reverses when you take smaller loan tenure as you pay lesser interest amount.
Loan amount – 25,00,000 Interest Rate – 9.00%
Interest amount paid in 15 years – 20,64,200
Interest amount paid in 20 years – 28,98,356
Interest amount paid in 25 years – 37,93,973
Here you can see that above the loan amount of 25 lakhs, you will pay 20.64 lakhs if you take the home loan for 15 years. The interest amount doubles to 37,93,973 when you take the home loan for 25 years.
With these important factors you can decide what kind of a home loan would suit your lifestyle and expenses. If paying a higher EMI doesn’t affect your financial decisions then you can go ahead with it and save a lot of interest money. If you have a lot of expenses to be taken care of, then you can opt for lower EMI.
