These days’ home loans are considered as one of the best and easiest way to buy a dream home. Almost all the salaried class home buyers choose this option and hence they find out a bank which offers lowest interest rates so that they can manage their EMIs easily. So in order to manage regular EMIs, one important variable which plays a major role is home loan tenure.
Home loan tenure means the length of time that will be taken by the borrower to repay the loan along with the interest. While the tenure varies from 5–20 years, some banks also allow the time up to 25 or 30 years. However, the home loan tenure and home loan amount are directly proportional to each other. So, higher the home loan tenure, higher is the home loan eligibility, subject to the minimum margin requirement relative to the value of the property.
On the other hand, shorter the tenure, higher will be the EMI and the loan gets repaid faster. A borrower has to pay less in terms of absolute interest cost too. Hence it’s completely up to you to decide on the loan tenure but there are other important factors that influence the time length.
So let’s take a look at these factors in detail:
Age of the borrower
The first and most important factor is the borrower’s age at the time of taking the loan. If you are in your 20s or 30s then you may opt for a loan of 20 or 25 years. But if your age is around 50s and then you must opt for a short-term home loan. It is safe and wise to pay off all your EMIs before you get retired from the job.
Income of the borrower
Second most important criteria that determine home loan tenure is the monthly gross income of the borrower. This criterion also helps in determining the EMI amount. For example, if you take a home loan for a short period then your EMI will be high; and if your home loan tenure is long then your EMI will be low.
Some people think that if they opt for a short-term loan, then they will get rid of their loan amount early. But this eagerness sometimes creates a tough situation for them. Higher EMI takes a big chunk of the monthly salary of a borrower. Moreover, if the interest rate increases then it will further raise EMI amount and consequently the person may land in financial crisis.
Age of the Property
The age of the building also plays a very important part, in determining home loan tenure. Now banks take various factors like construction material, location of the property into consideration while checking out the age of the property. For example, if the property is situated near the sea, the residual life may be lower than those properties which are situated on plains.
So, in such cases, banks will not provide home loan for a tenure that is longer than the residual life of the property. And if in case a longer tenure is granted than the residual life of the property, the lender carries the risk of losing their security, in case the property is destroyed or collapses. Because of this banks take full precautions while financing old and decrepit properties.
Type of the property
This factor also plays a major factor in deciding the home loan tenure. For example in case of leasehold property, the home loan tenure cannot be higher than the balance period of the lease, even though the property may be in good condition. Banks plays safe in cases where the lease period is about to end.
So if you want to enjoy a happier life in your dream home, go with the EMI that you are comfortable with and that your finances permit. The loan tenure will be calculated automatically.