How to choose the best home loan tenure for you?

March 15, 2022 . Home buyer's education series . 10 min read
home loan tenure

Buying a house means making one of the biggest investments in your entire life. Fortunately, it no longer takes a lifetime of savings to own a house. It has become much easier due to various provisions like home loans to achieve your dream of purchasing a home. There are different places that offer home loans such as several financial firms or banks. You can also figure out what your needs are and select the home loan that suits you best. The most important aspect is choosing a home loan tenure, which means the duration given to you by the lender to return the money you have borrowed. It is usually in the form of EMIs.

What are the things you should keep in mind while selecting your home loan tenure?

Following are the important factors that should be kept in mind while selecting a home loan tenure:

1. Current income and expense

Your income dictates the amount of money you can afford to repay every month. Hence, it is the most important factor in selecting the home loan tenure. If you can afford to pay a higher amount after all of your personal expenses, you can go for a shorter tenure. On the other hand, if you cannot afford a higher EMI, a long-term home loan tenure will prove beneficial for you. While your interest rate will be more, you don’t have to strain your budget every month to pay your EMI.

2. Selecting the longest home loan tenure

If you are on a limited budget and worried about paying a huge amount of EMIs, a long-term tenure is a perfect choice for you. The maximum home loan tenure is 30 years. So, you have several years to pay off your loan. However, you should keep in mind that you need to pay interest for that extended duration as well. So, the more years you choose for your tenure, the more interest you will be paying.

You need to have a clear understanding of how you intend on raising your loan. If you cannot afford to pay a higher amount and would rather pay the interest long-term, choosing the maximum home loan tenure is the way to go. This results in extremely low EMIs, which means you don’t have to worry about going over budget every month.

3. Age of the borrower

Age is one of the most crucial elements that lenders take into consideration while offering you a loan and deciding on the home loan tenure. The more years you have left with a steady income, the longer you will be able to pay your loan back. If you are young, with many potential years of work left before you, you can choose a longer home loan tenure up to 30 years and vice versa.

4. The property factors in your home loan tenure

It is everybody’s aim in life to afford to buy a house of their own. However, if it burdens your current budget and puts a strain on your daily life, it is not ideal. If your loan tenure is short, you might feel the strain every month. However, with long-term tenure, you will feel the burden after realizing the huge asking of interest you have paid over the years. Hence you should buy a house that you can afford to pay comfortably with the EMIs while not severely affecting your monthly budget. Pick a property that fulfills your needs but does not burn a hole in your savings. It will help you pay off your loan with a shorter home loan tenure, thus decreasing your interest.

5. Retirement

You need to consider retirement while selecting a loan and its consequent home loan tenure. Since you won’t have a steady income once you retire, your loan should be paid well before that. In fact, you should ensure that your tenure ends several years before you retire so that you get plenty of time to earn and save for your retirement.

Conclusion

If you are still wondering what the best home loan tenure is, the answer is that it depends on the individual. So the perfect tenure for one person, might not necessarily be the best one for someone else. You need to figure out your needs and choose the tenure that accommodates them. You should ensure that your EMIs should not have a detrimental effect on your daily life. So the rule of thumb is that if you can afford higher EMIs, go for a shorter tenure. If you want to pay lower EMIs, go for a longer tenure.

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