A home loan tenure refers to the repayment period during which the monthly instalments of the loan are paid. Borrowers can get a home loan repayment tenure for up to 20 years. Now, the repayment tenure of a loan is one of the most important aspects to focus on, as it will decide the EMIs payouts.
You can either opt for a short or long-term repayment tenure. Most go for the latter since the monthly instalments are in smaller amounts. However, choosing a short-term repayment tenure will help in saving money since the total number of EMIs are cut short, thereby cutting down the interest as well.
A few factors should be focused on before deciding on a home loan repayment tenure:
- Interest rate of the loan
It is very important to get a good interest rate, as this will have a major impact on the home loan EMIs. In order to get a good interest rate, you need to have a good credit score (above 750). Always try to negotiate for a better home loan interest rate with the lender and consider multiple loan plans to understand whether you are being offered a good deal. This will be vital in cutting down on the total cost of the housing loan.
- Disposable income
If your income does not leave room for much savings, it would be advisable to opt for a long-term repayment tenure. This is because such a tenure would mean smaller EMIs, which would be helpful in managing finances. However, if the income is a sizable amount, you can choose to opt for a short-term tenure if paying bigger EMIs is not a problem. This will also help in saving on the interest. To be sure, make use of a home loan EMI calculator to get an accurate estimate of the loan’s monthly instalments.
- Existing debts
If there are other existing loans to pay off, it might be better to try and first close off the smaller loans before you apply for home loan. This is because multiple EMI obligations might hardly leave any room for savings and could affect repayment capacity. This might leave the lender with no choice but to approve a loan amount that you are not satisfied with. A basic understanding is that the EMIs should not exceed more than 40% of your monthly income.
- Objective of taking the loan
It is also important to consider the purpose of the home loan. Is it to buy a property for yourself or to use it as an investment? If it is the latter, it is advisable to opt for a short-term repayment tenure so that it is possible to avoid the exit charges if the loan is prematurely terminated.
Also, make sure to check with the lender regarding the home loan eligibility criteria. This also involves knowing about the loan amount that the lender will approve. This will help in calculating the monthly instalments of the loan.